Vishay Intertechnology, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010; fourth-quarter figures are included where relevant. Vishay manufactures discrete semiconductors and passive electronic components for industrial, computing, automotive, consumer, telecommunications, power-supply, aerospace, and medical markets. On July 6, 2010, it spun off its measurements and foil-resistor businesses as Vishay Precision Group (VPG); 2010 consolidated results include VPG through the spin-off date, limiting direct comparability with prior periods.
Key financial results
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net revenue | $2.725 billion | $2.042 billion |
| Gross profit / margin | $807.5 million / 29.6% | $388.2 million / 19.0% |
| Operating income (loss) / margin | $417.9 million / 15.3% | $(39.2) million / (1.9)% |
| Net earnings (loss) attributable to Vishay stockholders | $359.1 million | $(57.2) million |
| Diluted EPS | $1.89 | $(0.31) |
| Cash from continuing operations | $545.3 million | $290.4 million |
| Capital expenditures | $145.4 million | $50.3 million |
FY2010 included a $59.5 million one-time tax benefit, principally from reversing deferred-tax valuation allowances in the U.S. and Israel. Management’s non-GAAP adjusted net earnings were $299.6 million, or $1.58 per diluted share; these measures are not GAAP and may not be comparable across companies. Revenue rose 33.4% year over year, driven mainly by higher volume, with pricing also contributing. Results also benefited from higher manufacturing utilization and cost reductions.
Fourth-quarter snapshot
Revenue was $688.6 million, gross margin was 30.7%, and operating income was $120.6 million. Net earnings attributable to Vishay stockholders were $147.2 million, or $0.81 diluted EPS; the quarter included the $59.5 million one-time tax benefit. Revenue was slightly below the third quarter’s $694.4 million. The company-wide book-to-bill ratio fell to 0.83 from 1.04, as management described demand and distributor inventories as normalizing; quarter-end backlog was $880.7 million.
Balance sheet, debt, and liquidity
- At December 31, 2010, cash and cash equivalents were $897.3 million and carrying-value debt was $431.7 million, producing reported net cash of $465.7 million. Working capital was $1.267 billion; the current ratio was 3.4.
- The new revolving credit facility provides commitments of up to $450 million through December 2015; $240 million was drawn and $210 million was available at year-end. Vishay reported compliance with its covenants.
- Approximately 96% of year-end cash was held by non-U.S. subsidiaries and is expected to remain reinvested abroad. Repatriation could result in additional taxes.
- In November, Vishay issued $275 million principal amount of 2.25% convertible senior debentures due 2040 and repurchased 21.7 million shares for $275 million at $12.66 per share. The debentures’ year-end carrying amount was $96.6 million because of accounting discounts; contractual principal is $275 million.
Changes, outlook, and risks
- All five continuing product segments reported higher FY2010 revenue than in 2009. Segment revenue growth ranged from 29.8% in Capacitors to 46.7% in MOSFETs. Management attributed the broad recovery to stronger demand and prior cost actions.
- Management said it expected current revenue trends to continue, supported by high backlogs and recent order improvement, despite the lower fourth-quarter book-to-bill. It expected MOSFET revenue to be seasonally weaker in Q1 2011. No quantified consolidated revenue or earnings guidance was provided.
- Management planned approximately $150 million of capital spending in 2011, versus $145.4 million in 2010, and did not anticipate material restructuring expense in 2011. It expected 2011 pension cost to approximate 2010 levels.
- Capacity constraints, equipment procurement delays, and shortages of skilled personnel prevented Vishay from filling all customer orders in Q2 and Q3 2010. Failure to expand capacity could cost market share; conversely, demand normalization could leave added capacity underused.
- Key exposures include the electronics industry’s cyclicality, pricing and customer bargaining power, raw-material supply and price volatility, foreign exchange and variable interest rates, and political or operational disruption in overseas locations. A hypothetical 10% adverse currency movement was estimated to affect net earnings by about $19.9 million; a 50-basis-point interest-rate move was estimated to change annualized net earnings by about $2.1 million.
- Recorded environmental liabilities totaled $24.4 million. Unrecognized tax-benefit liabilities were $54.3 million. The company stated that routine litigation was not expected to have a material adverse effect, but noted that unfavorable intellectual-property outcomes could be material. The VPG spin-off also carries a risk of tax liability if its tax-free treatment is challenged.
Important facts for investors to verify
- How much of FY2010 earnings and EPS reflects recurring operations versus the $59.5 million tax benefit; assess the separate adjusted, non-GAAP figures accordingly.
- Whether the lower Q4 book-to-bill ratio and backlog normalization translated into subsequent revenue, pricing, and utilization trends.
- Whether capacity and skilled-labor constraints eased, and whether management’s 2011 capital-spending plan supported demand without creating excess capacity.
- The practical availability and tax cost of offshore cash, and the impact of debt obligations, variable-rate borrowings, and potential convertible dilution.
- Developments in environmental remediation, uncertain tax positions, intellectual-property matters, and the tax-free status of the VPG spin-off.