News Column

VISHAY INTERTECHNOLOGY INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

July 29, 2014

Overview

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



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

Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions. Through this strategy, we have grown to become one of the world's largest manufacturers of discrete semiconductors and passive components. We expect to continue our strategy of acquisitions while also maintaining a prudent capital structure. We are focused on enhancing stockholder value and improving earnings per share. In addition to our growth plan, we also have opportunistically repurchased our stock. We have repurchased 44.3 million shares of our common stock since the fourth fiscal quarter of 2010, representing 24% of our shares outstanding before we began this initiative. The exchange of $56.4 million principal amount of our exchangeable unsecured notes by a holder of the notes in the third fiscal quarter of 2013 increased the number of our common shares outstanding by 3.7 million, but did not affect the number of weighted average shares outstanding used for computing diluted earnings per share because our earnings per share computation assumes that the exchangeable unsecured notes would be converted. On February 3, 2014, our Board of Directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of Vishay. The permitted capacity to repurchase shares of stock or pay dividends under our credit facility increases each quarter by an amount equal to 20% of net income. At June 28, 2014, our total permitted capacity to repurchase shares of stock or pay dividends under our credit facility is $199.2 million. Although we have no current plans, we will continue to evaluate attractive stock repurchase opportunities. Our business and operating results have been and will continue to be impacted by worldwide economic conditions. Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets. For several years, we implemented aggressive cost reduction programs. We continue to monitor the current economic environment and its potential effects on our customers and the end markets that we serve. Additionally, we continue to closely monitor our costs, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs. In response to the current economic environment, we began implementing a targeted cost reduction program in the fourth fiscal quarter of 2013 to support our profitability without jeopardizing our growth plan. See additional information regarding our competitive strengths and key challenges as disclosed in Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (the "SEC") on February 19, 2014. On July 11, 2014, we entered into an agreement to acquire Capella Microsystems (Taiwan) Inc. for approximately NT$6,051 million or $205 million. Capella is a fabless IC design company specializing in optoelectronic sensors. We intend to acquire Capella first through a tender offer of up to 100 percent of Capella's outstanding shares at a price of NT$139 per share. The tender offer is conditioned upon at least a majority of the outstanding shares being tendered. The period to tender outstanding shares ends on September 1, 2014, but could be extended pursuant to local regulations. If a majority of the outstanding shares are tendered, the tender offer is expected to close in September 2014 followed by our acquisition of 100 percent of Capella in a merger by the end of January 2015. If completed, the acquisition is expected to strengthen our position in optoelectronic sensors, a promising growth market. (See further discussion in "Acquisition Activity.") We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business. (See further discussion in "Financial Metrics" and "Financial Condition, Liquidity, and Capital Resources.") Revenues increased in the second fiscal quarter of 2014 and were higher than the previous quarter and the range experienced in 2013. Operating results have been close to our expectations at this relatively low revenue level. An increase in orders in the first six fiscal months of 2014 resulted in an increase in key financial metrics compared to the second half of 2013. 31 -------------------------------------------------------------------------------- Net revenues for the fiscal quarter ended June 28, 2014 were $641.9 million, compared to $597.7 million for the fiscal quarter ended June 29, 2013. The net earnings attributable to Vishay stockholders for the fiscal quarter ended June 28, 2014 were $35.6 million, or $0.23 per diluted share, compared to $31.3 million, or $0.21 per diluted share for the fiscal quarter ended June 29, 2013. Net revenues for the six fiscal months ended June 28, 2014 were $1,244.3 million, compared to $1,151.9 million for the six fiscal months ended June 29, 2013. The net earnings attributable to Vishay stockholders for the six fiscal months ended June 28, 2014 were $61.5 million, or $0.40 per diluted share, compared to $60.2 million, or $0.40 per diluted share for the six fiscal months ended June 29, 2013. Net earnings attributable to Vishay stockholders for the fiscal quarters and six fiscal months ended June 28, 2014 and June 29, 2013 include items affecting comparability. The reconciliation below includes certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings and adjusted net earnings per share. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted net earnings and adjusted net earnings per share do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that these measures are meaningful because they provide insight with respect to our intrinsic operating results. Reconciling items to arrive at adjusted net earnings represent significant charges or credits that are important to understanding our intrinsic operations. The items affecting comparability are (in thousands, except per share amounts): Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 GAAP net earnings attributable to Vishay stockholders $ 35,642 $



31,309 $ 61,452$ 60,240

Reconciling items affecting operating margin: Restructuring and severance costs $ 9,014 $ - $ 15,418 $ - Executive compensation credit - (1,778 ) - (1,778 ) Reconciling items affecting tax expense: Tax effects of items above and other one-time tax expense (benefit) $ (2,747 ) $ 633 $ (4,844 ) $ (697 ) Adjusted net earnings $ 41,909$ 30,164$ 72,026$ 57,765 Adjusted weighted average diluted shares outstanding 154,322 151,880 153,438 151,256



Adjusted earnings per diluted share * $ 0.27 $ 0.20 $ 0.47 $ 0.38

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

Our results for the fiscal quarter and six fiscal months ended June 28, 2014 represent the effects of an improved business environment in nearly all of our customer end markets and increased order activity versus the prior fiscal quarter and prior year periods, as well as the effects of our cost reduction programs and our organic growth initiatives. Our results for the fiscal quarter and six fiscal months ended June 29, 2013 represent the effects of better economic conditions following a period of business environment deterioration in the last six fiscal months of 2012 as well as temporary fixed cost savings measures. These effects were partially offset by temporary issues in the second fiscal quarter of 2013 that included start-up inefficiencies at a major foundry, inventory valuation effects, increased palladium prices, unfavorable changes in other metals prices, and unfavorable product mix shifts. 32



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Financial Metrics

We utilize several financial metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, operating margin, segment operating income, end-of-period backlog, and the book-to-bill ratio. We also monitor changes in inventory turnover and average selling prices ("ASP"). Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs. Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used. Gross profit margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs. Operating margin is computed as gross profit less operating expenses as a percentage of net revenues. We evaluate business segment performance on segment operating margin. Only dedicated, direct selling, general, and administrative expenses of the segments are included in the calculation of segment operating income. Segment operating margin is computed as operating income less items such as restructuring and severance costs, asset write-downs, goodwill and indefinite-lived intangible asset impairments, inventory write-downs, gains or losses on purchase commitments, global operations, sales and marketing, information systems, finance and administrative groups, and other items, expressed as a percentage of net revenues. We believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment. Operating margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs. End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that we expect to ship in the next twelve months. If demand falls below customers' forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods. An important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues. We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital. Pricing in our industry can be volatile. We analyze trends and changes in average selling prices to evaluate likely future pricing. The erosion of average selling prices of established products is typical for semiconductor products. We attempt to offset this deterioration with ongoing cost reduction activities and new product introductions. Our specialty passive components are more resistant to average selling price erosion. 33 -------------------------------------------------------------------------------- The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the second fiscal quarter of 2013 through the second fiscal quarter of 2014 (dollars in thousands): 2nd 3rd 4th 1st 2nd Quarter Quarter Quarter Quarter Quarter 2013 2013 2013 2014 2014 Net revenues $ 597,665$ 602,890$ 616,170$ 602,378$ 641,929

Gross profit margin 23.9 % 23.8 % 23.4 % 24.1 % 25.6 % Operating margin (1) 8.7 % 8.8 % 7.6 % 7.1 % 9.0 %



End-of-period backlog (2) $ 646,700$ 613,800$ 611,400

$ 664,200$ 663,800 Book-to-bill ratio 1.08 0.93 0.99 1.09 1.00 Inventory turnover 4.21 4.08 4.23 4.12 4.19



Change in ASP vs. prior quarter -1.1 % -0.6 % -0.7 % -1.0 % -0.6 %

(1) Operating margin for the second fiscal quarter of 2013 includes a $1.8 million stock compensation credit related to performance-based stock compensation for certain former executives, following a determination that achievement of the three-year performance targets was no longer probable (see Note 8 to our consolidated condensed financial statements). Operating margin for the fourth fiscal quarter of 2013 and the first and second fiscal quarters of 2014 includes $2.8 million, $6.4 million, and $9.0 million, respectively, of restructuring and severance expenses (see Note 3 to our consolidated condensed financial statements). (2) End of period backlog for the second fiscal quarter of 2014 reflects a total of $1.3 million related to the backlog of Holy Stone Polytech Co., Ltd. as of the date of acquisition.



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

Revenues increased sequentially versus the first fiscal quarter of 2014, as expected. The order level remains at a higher level than experienced in the latter half of 2013, but decreased slightly versus the first fiscal quarter of 2014. Average selling prices continue to decline primarily due to our commodity semiconductor products and the effects of growing our Resistors & Inductors business in Asia. Gross margins increased due to higher volumes, but were negatively impacted by additional depreciation associated with our cost reduction programs beginning with the fourth fiscal quarter of 2013 and will continue to be negatively impacted until the complete implementation of our cost reduction programs. The book-to-bill ratio in the second fiscal quarter of 2014 decreased to 1.00 from 1.09 in the first fiscal quarter of 2014. The book-to-bill ratios for distributors and original equipment manufacturers ("OEM") were 1.03 and 0.97, respectively, versus ratios of 1.10 and 1.08, respectively, during the first fiscal quarter of 2014. For the third fiscal quarter of 2014, we anticipate revenues between $630 million and $670 million (excluding any revenues of Capella if the tender offer closes before the end of the third fiscal quarter) at gross margins in line with this volume. 34



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Financial Metrics by Segment

The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the second fiscal quarter of 2013 through the second fiscal quarter of 2014 (dollars in thousands): 2nd 3rd 4th 1st 2nd Quarter Quarter Quarter Quarter Quarter 2013 2013 2013 2014 2014 MOSFETs Net revenues $ 115,563$ 115,168$ 117,858$ 113,141$ 124,042 Book-to-bill ratio 1.11 0.94 0.96 1.13 1.05 Gross profit margin 14.2 % 13.7 % 12.1 % 11.2 % 15.2 % Segment operating margin 4.9 % 4.6 % 4.5 % 2.2 % 7.7 % Diodes Net revenues $ 140,623$ 140,790$ 140,739$ 136,929$ 149,571 Book-to-bill ratio 1.17 0.88 0.98 1.09 1.07 Gross profit margin 22.3 % 23.0 % 21.4 % 21.7 % 23.2 % Segment operating margin 18.0 % 18.6 % 16.8



% 16.8 % 18.8 %

Optoelectronic Components Net revenues $ 58,397$ 56,847$ 56,775$ 57,498$ 63,258 Book-to-bill ratio 1.00 0.87 1.05 1.16 1.04 Gross profit margin 32.8 % 35.5 % 31.1 % 36.9 % 36.0 % Segment operating margin 26.6 % 29.0 % 24.7



% 30.3 % 29.9 %

Resistors & Inductors Net revenues $ 171,333$ 178,175$ 190,874$ 189,299$ 193,314 Book-to-bill ratio 1.04 1.04 0.95 1.04 0.98 Gross profit margin 31.7 % 30.4 % 31.9 % 31.8 % 31.8 % Segment operating margin 26.6 % 25.3 % 27.1 % 26.6 % 26.9 % Capacitors Net revenues $ 111,749$ 111,910$ 109,924$ 105,511$ 111,744 Book-to-bill ratio 1.05 0.84 1.07 1.09 0.88 Gross profit margin 19.2 % 18.6 % 19.6 % 20.4 % 23.6 % Segment operating margin 13.9 % 13.3 % 14.2 % 14.5 % 18.0 % 35



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Acquisition Activity

As part of our growth strategy, we seek 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 we have substantial marketing and technical expertise. This includes exploring opportunities to acquire targets to gain market share, penetrate different geographic markets, enhance new product development, round out our existing product lines, or grow our high margin niche market businesses. Acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies. To limit our financial exposure, we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest, taxes, depreciation, and amortization ("EBITDA"). For these purposes, we calculate pro forma EBITDA as the adjusted EBITDA of Vishay and the target for Vishay's four preceding fiscal quarters, with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by Vishay at the beginning of the four fiscal quarter period. Our growth plan targets adding, through acquisitions, an average of approximately $100 million of revenues per year. Depending on the opportunities available, we might make several smaller acquisitions or a few larger acquisitions. We intend to make such acquisitions using mainly cash, rather than debt or equity, although we do have capacity on our revolving credit facility if necessary. We are not currently targeting acquisitions with a purchase price larger than $500 million. On June 11, 2014, we acquired Holy Stone Polytech Co., Ltd. ("Holy Stone Polytech"), a Japanese manufacturer of tantalum capacitors and formerly a subsidiary of Holy Stone Enterprise Co. Ltd., for $20.8 million, net of cash acquired. The acquisition is expected to strengthen our position in tantalum capacitors, especially in Asia. For financial reporting purposes, the results and operations of Holy Stone Polytech have been included in the Capacitors segment since June 11, 2014. On July 11, 2014, we entered into an agreement to acquire Capella for approximately NT$6,051 million or $205 million. Capella is a fabless IC design company specializing in optoelectronic sensors that is publicly traded in Taiwan. If completed, the acquisition is expected to strengthen our position in optoelectronic sensors, a promising growth market. The acquisition is expected to require two steps. We have initiated a tender offer to acquire up to 100 percent of Capella's outstanding shares at a price of NT$139 per share. The tender offer is conditioned upon at least a majority of the outstanding shares being tendered. The period to tender outstanding shares ends on September 1, 2014, but could be extended pursuant to local regulations. If a majority of the outstanding shares are tendered, the tender offer is expected to close in September 2014 followed by our acquisition of 100 percent of Capella in a merger by the end of January 2015. Upon the successful close of the tender offer, we will control Capella and will begin consolidating it in our financial statements. The interest of the shares not tendered will be presented as non-controlling interest in our financial statements. Due to the expected timing of the close of the tender offer, we do not anticipate that Capella's results will be material to our third fiscal quarter earnings per share. The majority of the purchase price will be funded with cash on-hand, but we anticipate borrowing between $50 million and $60 million on our revolving credit facility to achieve optimal future flexibility of the legal entity structure. Due to the nature of Capella's business, we expect that a significant portion of the purchase price will be allocated to definite-lived intangible assets and that yearly amortization expense of the intangible assets will be in excess of $10 million. There is no assurance that we will be able to identify and acquire additional suitable acquisition candidates at price levels and on terms and conditions we consider acceptable. 36



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Cost Management

We place a strong emphasis on controlling our costs.

The erosion of average selling prices of our established products, particularly our semiconductor products, that is typical of our industry and inflation drive us to continually seek ways to reduce our variable costs. Our variable cost reduction efforts include expending capital to increase automation and maximize the efficiency in our production facilities, consolidating materials purchasing across regions and divisions to achieve economies of scale, materials substitution, maintaining an appropriate mix of in-house production and subcontractor production, increasing wafer size and shrinking dies to maximize efficiency in our semiconductor production processes, and other yield improvement activities. Our cost management strategy also includes a focus on controlling fixed costs. We seek to maintain selling, general, and administrative expenses at current quarterly levels, excluding foreign currency exchange effects and substantially independent of sales volume changes. Our fixed cost control efforts include automating administrative processes through the expansion of IT systems, gradually migrating to common IT systems across our organization, streamlining our legal entity structure, and reducing our external resource needs by utilizing more cost-effective in-house personnel, while utilizing external resources when day-to-day expertise is not required in-house. Historically, our primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost countries, such as the United States and Western Europe, to lower-labor-cost countries, such as the Czech Republic, Hungary, Israel, India, Malaysia, Mexico, the People's Republic of China, and the Philippines. Between 2001 and 2009, we recorded, in the consolidated condensed statements of operations, restructuring and severance costs totaling $320 million and related asset write-downs totaling $89 million in order to reduce our cost structure going forward. We also incurred significant costs to restructure and integrate acquired businesses, which was included in the cost of the acquisitions under then-applicable GAAP. We did not initiate any new restructuring projects in 2010, 2011, or 2012 and thus did not record any restructuring and severance expenses during such periods. Occasionally, our ongoing cost containment activities are not adequate and we must take actions to maintain our cost competitiveness. On October 28, 2013, we announced various cost reduction programs as part of our continuous efforts to improve efficiency and operating performance. We recorded $9.0 million of restructuring and severance expenses in the second fiscal quarter of 2014 for expenses that were recognizable under GAAP during the period and $18.2 million of restructuring and severance expenses since the cost reduction programs were implemented. The remaining expenses associated with the programs will be recorded as they become recognizable under GAAP. The programs primarily focus on a plan to enhance the competitiveness of our MOSFETs segment and a voluntary separation / early retirement offer to certain employees Company-wide. We also plan to implement two other smaller cost reduction programs concerning the manufacturing of products within our Diodes segment. The programs in total are expected to lower costs by approximately $36 million per year when fully implemented at expected cash costs of approximately $32 million. The project for the MOSFETs segment will extend over a period of approximately two years. The manufacture of wafers for a substantial share of products will be transferred into a more cost-efficient fab. As a consequence, certain other wafer manufacturing currently occurring in-house will be transferred to third-party foundries. The total cash costs associated with the MOSFETs initiatives, principally severance, are expected to be approximately $16 million. Once fully implemented, we anticipate that the MOSFETs programs will result in an annual reduction in variable and fixed manufacturing costs of approximately $23 million at current volumes. 37 -------------------------------------------------------------------------------- The voluntary separation / early retirement offer was made to employees worldwide who were eligible because they met job classification, age, and/or years-of-service criteria as of October 31, 2013. The program benefits vary by country and job classification, but generally offer a cash loyalty bonus. All eligible employees have been identified. The voluntary separation / early retirement program will not impact manufacturing operations or our growth plan. Our named executive officers (as defined in our proxy statement) and certain other key employees, generally research, development, and engineering personnel, were not eligible for the voluntary separation / early retirement program. The effective separation / retirement date for most eligible employees who accepted the offer was June 30, 2014 or earlier, with a few exceptions to allow for a transition period.



The total costs associated with the voluntary separation / early retirement program are approximately $12.7 million. Of this amount, $7.5 million was recorded in the second fiscal quarter of 2014. Once fully implemented, the Company anticipates that the program will result in an annual reduction in fixed costs of approximately $10 million, split approximately 35 percent in manufacturing and 65 percent in selling, general, and administrative expenses.

Two other smaller cost reduction programs relate to the transfer of production of certain products within our Diodes segment, which will be implemented in the course of 2014. Both programs are connected to production moves, in order to take advantage of lower labor costs in one program and from the consolidation of manufacturing locations in the other. The total cash costs associated with these production transfers are expected to be approximately $3 million, and will result in annual cost savings of approximately $3 million when fully implemented. We believe that our manufacturing footprint is suitable to serve our customers and end markets, while maintaining lower manufacturing costs. Except for the distinct and targeted programs noted above, we do not anticipate any other material restructuring activities during the remainder of 2014. As we have demonstrated the past two years, we believe that we can substantially maintain our trained workforce, even at lower manufacturing activity levels, by reducing hours and limiting the use of subcontractors and foundries. However, a continued sluggish business environment for the electronics industry or the recurrence of a significant economic downturn may require us to implement additional restructuring initiatives. Our long-term strategy includes growth through the integration of acquired businesses, and GAAP requires plant closure and employee termination costs that we incur in connection with our acquisition activities to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred. We have not incurred any material plant closure or employee termination costs related to our acquisitions of Huntington Electric, HiRel Systems, LLC, MCB Industrie, or Holy Stone Polytech, but we expect to have some level of future restructuring expenses due to acquisitions.



Even as we seek to manage our costs, we continue to pursue our growth plans through investing in capacities for strategic product lines, and through increasing our resources for R&D, technical marketing, and field application engineering; supplemented by opportunistic acquisitions of specialty businesses.

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Foreign Currency Translation

We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. While we have in the past used forward exchange contracts to hedge a portion of our projected cash flows from these exposures, we generally have not done so in recent periods.

GAAP requires that we identify the "functional currency" of each of our subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary's functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company's operations generally would have the parent company's currency as its functional currency. We have both situations among our subsidiaries.



Foreign Subsidiaries which use the Local Currency as the Functional Currency

We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders' equity. For those subsidiaries where the local currency is the functional currency, revenues and expenses incurred in the local currency are translated at the average exchange rate for the year. While the translation of revenues and expenses incurred in the local currency into U.S. dollars does not directly impact the statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies. The dollar generally was weaker during the second fiscal quarter and first six fiscal months of 2014 compared to the prior year periods, with the translation of foreign currency revenues and expenses into U.S. dollars generally increasing reported revenues and expenses versus the prior year periods.



Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency

Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. The cost of products sold and selling, general, and administrative expense for the second fiscal quarter and first six fiscal months of 2014 have been slightly unfavorably impacted (compared to the prior year periods) by local currency transactions of subsidiaries which use the U.S. dollar as their functional currency. 39 --------------------------------------------------------------------------------



Results of Operations

Statements of operations' captions as a percentage of net revenues and the effective tax rates were as follows:

Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Cost of products sold 74.4 % 76.1 % 75.1 % 75.7 % Gross profit 25.6 % 23.9 % 24.9 % 24.3 % Selling, general & administrative expenses 15.1 % 15.5 % 15.5 % 16.0 % Operating income 9.0 % 8.7 % 8.1 % 8.5 % Income before taxes and noncontrolling interest 8.1 % 7.8 % 7.3 % 7.6 % Net earnings attributable to Vishay stockholders 5.6 % 5.2 % 4.9 % 5.2 % ________ Effective tax rate 31.5 % 32.8 % 31.5 % 30.4 % Net Revenues



Net revenues were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 641,929$ 597,665$ 1,244,307$ 1,151,919 Change versus comparable prior year period $ 44,264$ 92,388 Percentage change versus comparable prior year period 7.4 % 8.0 %



Changes in net revenues were attributable to the following:

vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Increase in volume 7.1 % 8.2 % Decrease in average selling prices -2.1 % -2.4 % Foreign currency effects 1.6 % 1.3 % Acquisitions 1.1 % 1.3 % Other -0.3 % -0.4 % Net change 7.4 % 8.0 % Our revenue results for the fiscal quarter and six fiscal months ended ended June 28, 2014 were positively affected by increased demand for our products and overall higher demand compared to the prior year periods. 40 -------------------------------------------------------------------------------- We deduct, from the sales that we record to distributors, allowances for future credits that we expect to provide for returns, scrapped product, and price adjustments under various programs made available to the distributors. We make deductions corresponding to particular sales in the period in which the sales are made, although the corresponding credits may not be issued until future periods. We estimate the deductions based on sales levels to distributors, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. We recorded deductions from gross revenues under our distributor incentive programs of $43.7 million and $40.2 million for the six fiscal months ended June 28, 2014 and June 29, 2013, respectively, or 3.4% and 3.4% of gross revenues, respectively. Actual credits issued under the programs during the six fiscal months ended June 28, 2014 and June 29, 2013 were $41.9 million and $40.8 million, respectively. Increases and decreases in these incentives are largely attributable to the then-current business climate.



Royalty revenues, included in net revenues on the consolidated condensed statements of operations, were approximately $2.2 million and $3.6 million for the six fiscal months ended June 28, 2014 and June 29, 2013, respectively.

Gross Profit and Margins

Gross profit margins for the fiscal quarter and six fiscal months ended June 28, 2014 were 25.6% and 24.9%, respectively, versus 23.9% and 24.3%, respectively, for the comparable prior year periods. The increase in gross profit margins for the fiscal quarter and six fiscal months ended June 28, 2014 versus the prior year periods is primarily due to the increase in sales volume. Gross profit margins for the fiscal quarter and six fiscal months ended June 28, 2014 were negatively impacted by additional depreciation associated with our cost reductions programs. 41



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Segments

Analysis of revenues and gross profit margins for our segments is provided below.

MOSFETs

Net revenues of the MOSFETs segment were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 124,042$ 115,563$ 237,183$ 216,451 Change versus comparable prior year period $ 8,479$ 20,732 Percentage change versus comparable prior year period 7.3 % 9.6 %



Changes in MOSFETs segment net revenues were attributable to the following:

vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Increase in volume 13.6 % 16.5 % Decrease in average selling prices -5.4 % -5.6 % Foreign currency effects 0.6 % 0.5 % Other -1.5 % -1.8 % Net change 7.3 % 9.6 % Gross profit as a percentage of net revenues for the MOSFETs segment was as follows: Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Gross profit margin 15.2 % 14.2 % 13.3 % 13.6 % In the first six fiscal months of 2014, the MOSFETs segment continued to regain volume that was lost in 2012. The rate of increase in the second fiscal quarter of 2014 was lower than the increase experienced in the first fiscal quarter of 2014. The increase in volume was primarily due to increased demand from distributors in Asia and general increases in Europe. Gross profit margin remains below expectations. The gross profit margin for the second fiscal quarter of 2014 improved slightly as the increase in volume and lower materials prices were able to offset the decrease in average selling prices, general cost inflation, and the negative effect of additional depreciation associated with our cost reduction program. The gross profit margin for the six fiscal months ended June 28, 2014 decreased slighty versus the prior year period as the increase in volume and lower materials prices were fully offset by the decrease in average selling prices, general cost inflation, and the negative effect of additional depreciation associated with our cost reduction program. Typical pricing pressure for our established MOSFETs products continues. We have experienced significant declines in average selling prices versus the prior year periods. The decline is partially due to lower materials prices.



On October 28, 2013, we announced a cost reduction program to enhance the competitiveness of our MOSFETs segment. The program is long-term in nature and will not provide significant improvement until the program is close to full implementation. See "Cost Management" above.

We continue to be optimistic about the long-term prospects of the MOSFETs segment and continue to make capital and R&D investments in this business.

42



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Diodes

Net revenues of the Diodes segment were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 149,571$ 140,623$ 286,500$ 265,735 Change versus comparable prior year period $ 8,948$ 20,765 Percentage change versus comparable prior year period 6.4 % 7.8 %



Changes in Diodes segment net revenues were attributable to the following:

vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Increase in volume 7.9 % 10.0 % Decrease in average selling prices -2.3 % -2.6 % Foreign currency effects 1.1 % 0.9 % Other -0.3 % -0.5 % Net change 6.4 % 7.8 % Gross profit as a percentage of net revenues for the Diodes segment was as follows: Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Gross profit margin 23.2 % 22.3 % 22.5 % 22.1 % The Diodes segment was positively affected by the increased demand from distributors in Asia in the first six fiscal months of 2014 and positive business development in Europe in the second fiscal quarter of 2014. The gross profit margin increased slightly versus the prior year periods as the increase in sales volume, the effects of our cost reduction programs, and lower material prices were able to offset the decreased average selling prices and effects of general cost inflation.



Typical pricing pressure for our established Diodes products continues. We have experienced a slight price decline versus the prior year periods and prior fiscal quarter.

The cost reduction programs announced on October 28, 2013 include two smaller projects to improve the results of the Diodes segment. These projects demonstrate our ongoing effort to improve the results of this segment. See "Cost Management" above. 43



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Optoelectronic Components

Net revenues of the Optoelectronic Components segment were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 63,258$ 58,397$ 120,756$ 114,623 Change versus comparable prior year period $ 4,861$ 6,133 Percentage change versus comparable prior year period 8.3 % 5.4 % Changes in Optoelectronic Components segment net revenues were attributable to the following: vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Increase in volume 6.8 % 5.4 % Decrease in average selling prices -0.5 % -1.6 % Foreign currency effects 2.1 % 1.7 % Other -0.1 % -0.1 % Net change 8.3 % 5.4 %



Gross profit as a percentage of net revenues for the Optoelectronic Components segment was as follows:

Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Gross profit margin 36.0 % 32.8 % 36.5 % 34.0 % The Optoelectronic Components segment achieved significant growth in the first six fiscal months of 2014, particularly in the second fiscal quarter due to growth in distributor sales, particularly in Asia. Distributor sales to the Americas increased in the first fiscal quarter of 2014, but declined in the second fiscal quarter of 2014. The increase in gross profit margin versus the prior year periods is due to increases in volume, lower materials prices, and positive exchange rate effects, partialy offset by slightly lower average selling prices and cost inflation. Typical pricing pressure for our established Optoelectronic Components products continues. We have experienced slight declines in average selling prices versus the prior year periods and the prior fiscal quarter. On July 11, 2014, we entered into an agreement to acquire Capella. Capella is a fabless IC design company specializing in optoelectronic products. The acquisition will take place in steps and is expected to be completed by the end of January 2015. If completed, the acquisition is expected to strengthen our position in optoelectronic sensors, a promising growth market. 44



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Resistors & Inductors

Net revenues of the Resistors & Inductors segment were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 193,314$ 171,333$ 382,613$ 337,199 Change versus comparable prior year period $ 21,981$ 45,414 Percentage change versus comparable prior year period 12.8 % 13.5 % Changes in Resistors & Inductors segment net revenues were attributable to the following: vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Increase in volume 9.7 % 9.8 % Decrease in average selling prices -2.5 % -2.2 % Foreign currency effects 2.3 % 1.8 % Acquisition 3.4 % 4.3 % Other -0.1 % -0.2 % Net change 12.8 % 13.5 %



Gross profit as a percentage of net revenues for the Resistors & Inductors segment was as follows:

Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Gross profit margin 31.8 % 31.7 % 31.8 % 31.7 % The Resistors & Inductors segment continues to produce strong results. Net revenues for the fiscal quarter and six fiscal months ended June 28, 2014 have increased by double digits over the prior year periods. Every region and end market, particularly the automotive and industrial end markets and European region, have contributed to the growth. The successful acquisition of MCB Industrie in the second fiscal quarter of 2013 supports continued revenue growth, particularly in the industrial end market. The segment gross profit margin remained high and increased slightly from the prior year periods due to operational cost savings greater than the negative impact of a slight reduction in average selling prices and inflation. Average selling prices declined slightly versus both the prior fiscal quarter and prior year periods. Average selling prices have been negatively affected by our growth initiatives in Asia. 45



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Capacitors

Net revenues of the Capacitors segment were as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net revenues $ 111,744$ 111,749$ 217,255$ 217,911 Change versus comparable prior year period $ (5 )$ (656 ) Percentage change versus comparable prior year period 0.0 % -0.3 % Changes in Capacitors segment net revenues were attributable to the following: vs. Prior vs. Prior Year Quarter Year-to-Date Change attributable to: Decrease in volume -4.3 % -2.8 % Increase in average selling prices 1.8 % 0.7 % Foreign currency effects 2.0 % 1.6 % Acquisition 0.7 % 0.3 % Other -0.2 % -0.1 % Net change 0.0 % -0.3 % Gross profit as a percentage of net revenues for the Capacitors segment was as follows: Fiscal quarters ended Six fiscal months ended June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Gross profit margin 23.6 % 19.2 % 22.0 % 21.0 % Net revenues for the fiscal quarter and six fiscal months ended June 28, 2014 were relatively stable versus the prior year periods, but increased considerably versus the first fiscal quarter of 2014. All regions contributed to the revenue growth, while the industrial end market and distributor sales were main contributors. The increase in gross profit margin versus the prior year periods is primarily due to the increase in average selling prices, increased efficiencies, and lower metals prices.



Average selling prices increased slightly versus both the prior fiscal quarter and the prior year periods.

On June 11, 2014, we acquired Holy Stone Polytech, a Japanese manufacturer of tantalum capacitors and formerly a subsidiary of Holy Stone Enterprise Co. Ltd., for $20.8 million, net of cash acquired. The acquisition is expected to strengthen our position in tantalum capacitors, especially in Asia. 46



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Selling, General, and Administrative Expenses

Selling, general, and administrative ("SG&A") expenses are summarized as follows (dollars in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Total SG&A expenses $ 97,156$ 92,745$ 193,463$ 183,874 as a percentage of revenues 15.1 % 15.5 % 15.5 % 16.0 % The overall increase in SG&A expenses is primarily attributable to the non-repetition of temporary cost containment measures implemented in the first fiscal quarter of 2013 and additional compensation costs in general. We incurred additional SG&A expenses in the second fiscal quarter of 2014 to close the Holy Stone Polytech acquisition and to investigate and negotiate the pending Capella acquisition.



Several items included in SG&A expenses impact the comparability of these amounts, as summarized below (in thousands):

Fiscal quarters ended



Six fiscal months ended

June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Amortization of intangible assets $ 3,826$ 3,737$ 7,626$ 7,447 Net loss (gain) on sales of assets 83 (51 ) 23 86



On October 28, 2013, we announced a voluntary separation / early retirement program targeting SG&A expenses. See "Cost Management" above.

Other Income (Expense)

Interest expense for the fiscal quarter ended June 28, 2014 was approximately the same as interest expense for the fiscal quarter ended June 29, 2013. Interest expense for the six fiscal months ended June 28, 2014 increased by $0.5 million versus the fiscal months ended June 29, 2013. The increase is primarily due to higher outstanding balances on our revolving credit facility, increased amortization of the debt discounts associated with our convertible senior debentures, and changes in the values of the embedded derivative components of our convertible senior debentures.



The following tables analyze the components of the line "Other" on the consolidated condensed statements of operations (in thousands):

Fiscal quarters ended June 28, 2014 June 29, 2013 Change Foreign exchange gain (loss) $ (1,001 ) $ (398 ) $ (603 ) Interest income 1,261 1,073 188 Other (52 ) 109 (161 ) $ 208 $ 784 $ (576 ) Six fiscal months ended June 28, 2014 June 29, 2013 Change Foreign exchange gain (loss) $ (1,113 ) $ 802 $ (1,915 ) Interest income 2,484 2,307 177 Other 149 (2,210 ) 2,359 $ 1,520 $ 899 $ 621 47



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Income Taxes

For the fiscal quarter and six fiscal months ended June 28, 2014, our effective tax rate was 31.5%, as compared to 32.8% and 30.4%, respectively, for the fiscal quarter and six fiscal months ended June 29, 2013. The effective tax rate is generally less than the U.S. statutory rate primarily because of earnings in foreign jurisdictions. Our effective tax rate for the six fiscal months ended June 29, 2013 includes one-time tax benefits due to the retroactive enactment of the American Taxpayer Relief Act of 2012, signed into law on January 2, 2013, of approximately $1.3 million. We operate in a global environment with significant operations in various jurisdictions outside the United States. Accordingly, our consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various jurisdictions where we operate. Part of our strategy is to achieve cost savings by operating in countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives. Accordingly, our effective tax rate is generally less than the U.S. statutory tax rate. Changes in our effective tax rate are largely attributable to changes in the mix of pretax income among our various taxing jurisdictions.



During the six fiscal months ended June 28, 2014, the liabilities for unrecognized tax benefits decreased by $1.4 million on a net basis, principally due to payments offset by increases for interest.

48



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Financial Condition, Liquidity, and Capital Resources

We focus on our ability to generate cash flows from operations. The cash generated from operations is used to fund our capital expenditure plans, and cash in excess of our capital expenditure needs is available to fund our acquisition strategy, to reduce debt levels, and to pay dividends and repurchase stock. We have generated cash flows from operations in excess of $200 million in each of the past 12 years, and cash flows from operations in excess of $100 million in each of the past 19 years. We refer to the amount of cash generated from operations in excess of our capital expenditure needs and net of proceeds from the sale of assets as "free cash," a measure which management uses to evaluate our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. Vishay has generated positive "free cash" in each of the past 17 years, and "free cash" in excess of $80 million in each of the past 12 years. In this volatile economic environment, we continue to focus on the generation of free cash, including an emphasis on cost controls. We continued to generate positive cash flows from operations and free cash during the fiscal quarter ended June 28, 2014. Despite a slow start in terms of free cash generation, we continue to expect cash generation in 2014 in line with our history. There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash at the same levels, or at all, going forward if the economic environment worsens. Beginning in the fourth fiscal quarter of 2010, we have reacted to favorable market conditions to significantly reshape the company's capital structure. We have completed three issuances of low-coupon convertible debentures since the fourth fiscal quarter of 2010, each of which matures thirty years from the date of issuance. We utilized the proceeds of those debenture offerings to repurchase 44.3 million shares of our common stock, representing approximately 24% of our outstanding stock prior to implementing these initiatives. In the third fiscal quarter of 2013, a holder of our exchangeable unsecured notes exercised its option to exchange $56.4 million principal amount of the notes for 3.7 million shares of our common stock. The exchange increases the number of our common shares outstanding, but has no effect on the calculation of the weighted average shares outstanding used for computing diluted earnings per share because our earnings per share computation assumes that the exchangeable unsecured notes would be converted, while also reducing our outstanding debt and improving our ratio of total debt to Vishay stockholders' equity. We also entered into a new, larger, revolving credit facility in 2010, which was amended and restated on August 8, 2013. The amended and restated credit facility extends the term of our available credit, secures lower interest rates than we were previously paying for the next five years, and provides us with additional financial flexibility to pursue our growth plan. The total revolving commitment of our credit facility increased to $640 million and we have the ability to request up to an additional $50 million of incremental commitments, subject to the satisfaction of certain conditions. At June 28, 2014 and December 31, 2013, $134 million and $114 million, respectively, were outstanding under our credit facility. The credit facility provides a revolving commitment through August 8, 2018. Borrowings under the credit facility bear interest at LIBOR plus an interest margin. The applicable interest margin is based on our leverage ratio. Based on our current leverage ratio, borrowings bear interest at LIBOR plus 1.75%. The interest rate on our borrowings will increase to LIBOR plus 2.00% if our leverage ratio equals or exceeds 2.50 to 1 and will decrease to LIBOR plus 1.50% if our leverage ratio decreases below 1.50 to 1. We are also required to pay facility fees on the entire commitment amount based on our leverage ratio. Based on our current leverage ratio, the facility fee is 0.35% per annum. Such facility fee will increase to 0.50% per annum if our leverage ratio equals or exceeds 2.50 to 1 and will decrease to 0.30% per annum if our leverage ratio decreases below 1.50 to 1. The amendment and restatement of the credit facility also removed certain restrictions related to the incurrence and repayment of certain intercompany indebtedness, mergers, liquidations, and transfers of ownership of wholly owned subsidiaries that were present in the original credit agreement. These changes will enable us to streamline our complex subsidiary structure and provide greater operating flexibility. 49 -------------------------------------------------------------------------------- The borrowings under the credit facility are secured by a lien on substantially all assets, including accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate, intellectual property registered or licensed for use in, or arising under the laws of, any country other than the United States, assets located outside of the United States and deposit and securities accounts), of Vishay and certain significant subsidiaries located in the United States, and pledges of stock in certain significant domestic and foreign subsidiaries; and are guaranteed by certain significant subsidiaries. Certain of our subsidiaries are permitted to borrow under the credit facility, subject to the satisfaction of specified conditions. Any borrowings by these subsidiaries under the credit facility will be guaranteed by Vishay and certain subsidiaries.



The credit facility also limits or restricts us, from, among other things, incurring indebtedness, incurring liens on assets, making investments and acquisitions, making asset sales, and making other restricted payments, and requires us to comply with other covenants, including the maintenance of specific financial ratios.

The financial maintenance covenants include (a) an interest expense coverage ratio of not less than 2.00 to 1; and (b) a leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 2.75 to 1 on the date of incurrence of additional debt, repurchase of stock, or payment of dividends). The computation of these ratios is prescribed in Article VI of the Credit Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., which has been filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed August 8, 2013. We were in compliance with all financial covenants under the credit facility at June 28, 2014. Our interest expense coverage ratio and leverage ratio were 13.15 to 1 and 1.81 to 1, respectively. We expect to continue to be in compliance with these covenants based on current projections. If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable. Additionally, our exchangeable unsecured notes due 2102 and our convertible senior debentures due 2040, due 2041, and due 2042 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated. Our permitted capacity to repurchase shares of our outstanding common stock or pay cash dividends under the credit facility increases each quarter by an amount equal to 20% of net income. At June 28, 2014, our credit facility allowed us to repurchase our common stock or pay cash dividends up to $199.2 million. On February 3, 2014, our Board of Directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of Vishay. Cash dividends of $0.06 per share of common stock and Class B common stock were paid on March 27, 2014 and June 26, 2014 to stockholders of record at the close of business on March 3, 2014 and June 12, 2014, respectively. The amount and timing of any future stock repurchases or cash dividend payments remains subject to authorization of our Board of Directors. The balance of our revolving credit facility was $114 million at December 31, 2013. We borrowed $66 million and repaid $46 million on our credit facility during the six fiscal months ended June 28, 2014. The average outstanding balance on our credit facility calculated at fiscal month-ends was $121.5 million and the highest amount outstanding on our credit facility at a month end was $134 million during the six fiscal months ended June 28, 2014. If the Capella tender offer is completed, we anticipate borrowing between $50 million and $60 million on our revolving credit facility to achieve optimal future flexibility of the legal entity structure. Management expects to periodically pay down the balance of our revolving credit facility with available cash or use the credit facility to meet short-term financing needs. We expect that cash on-hand and cash flows from operations will be sufficient to meet our other longer-term financing needs related to normal operating requirements, regular dividend payments, and our research and development and capital expenditure plans. Additional acquisition activity or share repurchases may require additional borrowing under our credit facility or may otherwise require us to incur additional debt. No principal payments on our outstanding debt are due before the maturity of our revolving credit facility in August 2018. Substantially all of our June 28, 2014 cash and cash equivalents and short-term investments balances were held by our non-U.S. subsidiaries. At the present time, we expect the remaining cash and profits generated by foreign subsidiaries will continue to be reinvested outside of the U.S. indefinitely. If additional cash is needed to be repatriated to the U.S., we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, incremental foreign income taxes, and withholding taxes payable to various foreign countries. Our substantially undrawn credit facility provides us with significant liquidity in the U.S. 50 -------------------------------------------------------------------------------- We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated condensed balance sheets. As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt). The interest rates on our short-term investments average 0.5% and are approximately 26 basis points higher than interest rates on our cash accounts. Transactions related to these investments are classified as investing activities on our consolidated condensed statements of cash flows.



The following table summarizes the components of net cash and short-term investments (debt) at June 28, 2014 and December 31, 2013 (in thousands):

June 28, 2014 December 31, 2013 Credit facility $ 134,000 $ 114,000 Exchangeable unsecured notes, due 2102 38,642



38,642

Convertible senior debentures, due 2040* 102,776



101,846

Convertible senior debentures, due 2041* 52,744



52,264

Convertible senior debentures, due 2042* 58,644 58,159 Total debt 386,806 364,911 Cash and cash equivalents 659,593 640,348 Short-term investments 514,397 511,231



Net cash and short-term investments (debt) $ 787,184 $ 786,668

________

*Represents the carrying amount of the convertible debentures, which is comprised of the principal amount of the debentures, net of the unamortized discount and the associated embedded derivative liability.

Measurements such as "free cash" and "net cash and short-term investments (debt)" do not have uniform definitions and are not recognized in accordance with GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that "free cash" is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends, and that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies. Our financial condition as of June 28, 2014 continued to be strong, with a current ratio (current assets to current liabilities) of 4.5 to 1, as compared to 4.4 to 1 as of December 31, 2013. The slight increase is primarily due to an increase in net accounts receivable and total inventories in the first six fiscal months of 2014. Our ratio of total debt to Vishay stockholders' equity as of June 28, 2014 was 0.20 to 1, as compared to 0.19 to 1 as of December 31, 2013. The slight increase is primarily due to the increase in the outstanding credit facility balance in the first six fiscal months of 2014.



Cash flows provided by operating activities were $99.1 million for the six fiscal months ended June 28, 2014, as compared to cash flows provided by operations of $94.1 million for the six fiscal months ended June 29, 2013.

Cash paid for property and equipment for the six fiscal months ended June 28, 2014 was $53.3 million, as compared to $47.2 million for the six fiscal months ended June 29, 2013. We expect capital spending of approximately $170 million in 2014. Cash paid for dividends to our common and Class B common stockholders totalled $17.7 million for the six fiscal months ended June 28, 2014. We expect dividend payments in 2014 to total approximately $35.6 million. However, any future dividend declaration and payment remains subject to authorization by our Board of Directors. 51



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Contractual Commitments and Off-Balance Sheet Arrangements

Our Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 19, 2014, includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K. We do not participate in nor have we created any off-balance sheet variable interest entities or other off-balance sheet financing, other than the operating leases described in our Annual Report on Form 10-K for the year ended December 31, 2013. Dividends On February 3, 2014, our Board of Directors approved the initiation of a quarterly cash dividend program. Cash dividends of $0.06 per share of common stock and Class B common stock were paid on March 27, 2014 and June 26, 2014 to stockholders of record at the close of business on March 3, 2014 and June 12, 2014, respectively. We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors.



The following table summarizes the quarterly cash dividends declared (in thousands):

Fiscal Period Amount Month of Payment



Three fiscal months ended March 29, 2014$ 8,847 March Three fiscal months ended June 28, 2014 8,847 June

Safe Harbor Statement

From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should," or other similar words or expressions often identify forward-looking statements. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements may vary materially from those anticipated, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; difficulties in identifying suitable acquisition candidates, consummating a transaction on terms which we consider acceptable, and integration and performance of acquired businesses, including with respect to the pending Capella acquisition; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; an inability to attract and retain highly qualified personnel, particularly in respect of our acquired businesses; uncertainty related to the effects of changes in foreign currency exchange rates; difficulties in implementing our cost management strategies; and other factors affecting our operations, markets, products, services, and prices that are set forth in our filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Our 2013 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from projected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading "Risk Factors." You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. 52



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