Vishay Intertechnology, Inc. — Q2 2013 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended June 29, 2013; comparisons are to the periods ended June 30, 2012. Dollar amounts below are in millions unless noted.
Business context and performance
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management said improving economic conditions and distributor restocking supported revenue and orders compared with the second half of 2012. Results remained below the company’s normal run rate.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $597.7 | $588.2 | $1,151.9 | $1,126.7 |
| Gross profit / margin | $142.9 / 23.9% | $147.6 / 25.1% | $279.6 / 24.3% | $284.3 / 25.2% |
| Operating income / margin | $51.9 / 8.7% | $72.9 / 12.4% | $97.5 / 8.5% | $123.2 / 10.9% |
| Net earnings attributable to Vishay stockholders | $31.3 | $45.7 | $60.2 | $79.5 |
| Diluted EPS | $0.21 | $0.29 | $0.40 | $0.49 |
| Cash from operating activities | — | — | $94.1 | $94.4 |
| Capital expenditures | — | — | $47.2 | $47.3 |
At June 29, 2013, cash and cash equivalents were $561.2 and short-term investments were $466.5, versus total debt of $405.4, yielding reported net cash and short-term investments of $622.3. Current assets were $1,886.9 and current liabilities $434.5; management reported a current ratio of 4.3 to 1. Total debt to Vishay stockholders’ equity was 0.24 to 1. Inventory was $445.1, up from $407.6 at year-end 2012.
Backlog was $646.7 at quarter-end, and the book-to-bill ratio was 1.08. Q2 revenue increased 1.6% year over year, with volume up 4.3% but average selling prices down 3.1%. For the six-month period, revenue rose 2.2%, while average selling prices declined 3.1%.
Material changes and unusual items
- Profitability declined despite modest revenue growth. Management cited higher manufacturing fixed costs and Q2-specific pressures: start-up inefficiencies at a major foundry, inventory valuation effects, higher palladium prices, unfavorable movements in other metals prices, and unfavorable product mix.
- Q2 2012 operating results included a $12.2 gain from selling a vacated Belgian property; there was no comparable gain in 2013. Q2 2013 included a $1.8 executive-compensation credit after performance-based RSU vesting was deemed no longer probable. On management’s non-GAAP adjusted basis, Q2 net earnings were $30.2 versus $37.6 and adjusted diluted EPS was $0.20 versus $0.24.
- The Capacitors segment remained a relative weakness: Q2 revenue fell 4.0% year over year and gross margin was 19.2%, down from 22.8%. Diodes and Resistors & Inductors grew revenue, while their margins and those of other segments varied.
- On June 13, Vishay acquired French specialty resistor and sensor maker MCB Industrie for $23.0 net of cash acquired. It was included in Resistors & Inductors from the acquisition date and did not materially affect reported results. The preliminary purchase allocation included $8.7 of goodwill.
Liquidity, debt, and outlook
The $528 revolving credit facility had $100 outstanding at quarter-end and matures December 1, 2015. Vishay reported compliance with its covenants: interest coverage of 9.43 to 1 and leverage of 2.01 to 1, against minimum coverage of 2.00 to 1 and maximum leverage of 3.25 to 1. The company expects to remain compliant based on current projections. Substantially all cash and short-term investments were held by non-U.S. subsidiaries; repatriation to the U.S. could trigger additional taxes.
Management forecast Q3 2013 revenue of $605–$645 million, with gross and operating margins expected to improve from Q2. It expected 2013 capital spending of approximately $170 million and cash generation in line with the company’s historical experience, while cautioning that a weaker economy could impair cash generation. No full-year revenue or earnings guidance was provided. Management did not anticipate material restructuring expense in 2013, although acquisition-related costs may arise.
Risks, contingencies, and other disclosures
Key stated risks include changes in global economic conditions and end-market demand, ongoing selling-price erosion, product mix and manufacturing execution, foreign exchange, acquisition availability and integration, competition and technology changes, and cost-management execution. Backlog orders may be canceled or rescheduled, often without penalty. The company reported no material change to previously disclosed risk factors or market risks, no material change in contractual commitments, and no off-balance-sheet financing other than operating leases described in its 2012 Form 10-K. In the Proctor litigation, the California Supreme Court denied plaintiffs’ review petition on June 12, 2013.
Important facts for investors to verify
- Whether the Q3 revenue range and anticipated margin improvement were achieved, and whether the 1.08 book-to-bill and rising backlog translated into shipments.
- Whether the foundry start-up, inventory valuation, metals-price, and product-mix pressures eased, particularly in Capacitors.
- How persistent pricing declines and the company’s exposure to distributor credits affect future revenue and margins.
- Cash generation, the planned $170 million of 2013 capital spending, and the amount of cash held overseas and potential repatriation tax costs.
- Progress integrating MCB Industrie and the final purchase-price allocation; also monitor covenant headroom and the facility’s scheduled 2015 maturity.