Business context and reporting period
Vishay Intertechnology, Inc. filed this Form 10-K for the fiscal year ended December 31, 2012. It manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, consumer, telecommunications, power supply, military/aerospace, and medical markets. Its five reporting segments are MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Net revenue | $2,230.1 million | $2,594.0 million |
| Gross profit / margin | $526.7 million / 23.6% | $720.0 million / 27.8% |
| Operating income / margin | $189.2 million / 8.5% | $346.6 million / 13.4% |
| Net earnings attributable to Vishay stockholders | $122.7 million; diluted EPS $0.79 | $238.8 million; diluted EPS $1.42 |
| Cash from operating activities | $287.5 million | $376.0 million |
| Capital expenditures | $150.3 million | $168.6 million |
| Cash and short-term investments | $992.5 million | $998.2 million |
| Debt carrying value | $392.9 million | $399.1 million |
At year-end, cash and short-term investments exceeded debt by $599.6 million. The current ratio was 4.3, and $431.3 million was available under the $528 million revolving credit facility, which matures December 1, 2015. The reported debt carrying value reflects discounts on convertible debentures; contractual debt obligations are higher. The company was in compliance with credit-facility covenants, with a 1.90 leverage ratio and 10.38 interest-coverage ratio.
Fourth-quarter revenue was $530.6 million, operating income $21.5 million, and net earnings attributable to Vishay stockholders $21.0 million, or diluted EPS of $0.14. Gross margin was 20.5%; book-to-bill was 0.95 and backlog was $506.0 million.
Material changes versus comparable periods
- Full-year revenue fell 14.0% from 2011. Management attributed the decline principally to lower volume (11.5 percentage points), lower average selling prices (3.7 points), and foreign currency effects (2.1 points), partly offset by acquisitions.
- Net earnings attributable to stockholders declined about 49% year over year. Lower sales volume and pricing reduced gross margin, while SG&A declined in dollars but rose as a share of revenue.
- All segments except Resistors & Inductors reported lower annual revenue. Capacitors fell 22.4%, MOSFETs 19.4%, Diodes 18.2%, and Optoelectronic Components 9.0%; Resistors & Inductors was approximately flat, aided by acquisitions.
- Operating cash flow decreased $88.5 million from 2011, principally reflecting lower earnings, partly offset by working-capital changes. Cash and short-term investments were broadly stable, and carrying-value debt declined modestly.
- In January 2012, Vishay acquired HiRel Systems for approximately $85.5 million. In May, it issued $150 million of 2.25% convertible debentures due 2042 and used the proceeds, with cash on hand, to repurchase 13.9 million shares for $150 million.
Outlook, commentary, risks, and unusual items
- Management described deteriorating conditions in most markets beginning in the third quarter of 2012, with weak distributor demand, macroeconomic uncertainty, and pricing pressure. It reported low distributor inventories and some improvement in distributor ordering in the fourth quarter, but the total book-to-bill remained below 1.0.
- The filing gives no specific revenue or earnings forecast. Management expected 2013 capital spending of approximately $165 million, did not anticipate material restructuring costs in 2013, and expected cash on hand and operating cash flow to cover normal operating, R&D, and capital needs. It cautioned that worsening economic conditions could impair cash generation.
- Management cited a $12.2 million pretax gain on the sale of a vacated Belgian property and a $4.0 million Israeli deferred-tax valuation-allowance release in 2012. Together, net of related tax effects, these items increased continuing-operations EPS by approximately $0.08. Adjusted net earnings, a non-GAAP measure, were $110.7 million, or $0.71 per diluted share, versus $246.0 million and $1.46 in 2011.
- Key risks include the cyclical downturn, order cancellations and rescheduling, commodity pricing and supply constraints, customer pricing pressure, and foreign-currency exposure. About 98% of cash and short-term investments were held by non-U.S. subsidiaries; repatriation could trigger additional taxes. Environmental remediation liabilities totaled $24.6 million, and uncertain tax positions totaled $60.3 million.
- Other exposures include pension and postretirement obligations, variable-rate debt, environmental remediation and litigation, and dependence on foundry capacity and limited-source materials such as tantalum. No material adverse outcome was anticipated for routine litigation; the filing notes ongoing environmental remediation. The Proctor litigation dismissal was affirmed after year-end, on February 19, 2013.
Most important facts for investors to verify
- Whether orders, backlog, distributor demand, and pricing improved after year-end; backlog is cancellable and book-to-bill was 0.95 in Q4.
- Whether margins and cash generation can stabilize at lower sales volumes, particularly in MOSFETs and Capacitors.
- The distinction between $392.9 million of debt carrying value and higher contractual principal obligations, plus potential dilution or settlement consequences of convertible and exchangeable securities.
- How much foreign-held liquidity is practically available for U.S. needs and the tax cost of any further repatriation; cash was concentrated among a small number of banks and countries.
- Developments in the $60.3 million of uncertain tax positions, $24.6 million of environmental accruals, pension funding, and material supply commitments.
- Credit-facility covenant headroom and any future share repurchases; cash dividends were not being paid and were restricted by the facility.