Vishay Intertechnology, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Vishay manufactures discrete semiconductors and passive electronic components across six product segments. The 10-K includes audited consolidated financial statements; Ernst & Young issued an unqualified opinion on the statements and internal controls.
Financial results and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net revenue | $2.502 billion | $2.668 billion | -6.2% |
| Gross profit / margin | $581.9 million / 23.3% | $671.2 million / 25.2% | Margin down 1.9 percentage points |
| Operating income / margin | $209.7 million / 8.4% | $262.4 million / 9.8% | Income down 20.1% |
| Net earnings attributable to Vishay stockholders | $122.9 million | $163.9 million | -25.0% |
| Diluted earnings per share | $0.85 | $1.13 | Down $0.28 |
| Operating cash flow | $314.9 million | $296.4 million | Up $18.5 million |
| Free cash (non-GAAP) | $191.7 million | $140.4 million | Up $51.4 million |
Free cash is defined by Vishay as operating cash flow less capital expenditures plus proceeds from asset sales; it is a non-GAAP measure. Capital expenditures were $123.6 million, compared with $156.6 million in 2019.
- At year-end, cash and cash equivalents were $619.9 million and short-term investments were $158.5 million. Debt carrying value was $394.9 million; net cash and short-term investments were $383.5 million, a non-GAAP measure.
- The $750 million revolving credit facility had no borrowings outstanding at year-end; approximately $730 million was usable under the facility’s covenant-based capacity. Vishay reported a 3.0:1 current ratio and was in compliance with covenants, with interest coverage of 16.14:1 and leverage of 1.26:1.
- Cash dividends paid were $55.0 million; declared dividends totaled $0.38 per share. The Board-authorized $150 million common-stock repurchase program had not repurchased shares by year-end.
Material changes and quarterly trend
- Annual revenue fell mainly on lower volume (-4.4%) and average selling prices (-2.8%); foreign currency effects partly offset the decline. COVID-19 disrupted production, customers, and shipping, with demand weakest in the first half and a broad recovery in the second half.
- Fourth-quarter revenue was $667.2 million, up from $640.2 million in Q3 2020 and $609.6 million in Q4 2019. Q4 gross margin was 22.8%; operating margin was 9.0%. Book-to-bill rose to 1.44 and backlog to $1.240 billion. Management attributed the acceleration in orders primarily to distributors and perceived future supply shortages; distributor inventory continued to decline.
- For the year, Optoelectronic Components revenue rose 6.1%; MOSFETs declined 1.5%, Inductors 1.7%, Resistors 7.8%, Diodes 9.8%, and Capacitors 14.6%. Capacitors had the steepest decline, reflecting lower volume across regions and delayed government-sponsored projects.
- Gross margin pressure reflected lower volume, higher freight and metals costs, and—in some segments—pricing and mix. SG&A declined to $371.5 million, but rose as a share of revenue to 14.8% from 14.4%.
Outlook, management commentary, risks and unusual items
- Management described the pandemic’s economic impact as expected to be temporary, while emphasizing continued monitoring of costs, capital spending, inventory, and liquidity. No formal revenue or earnings guidance was provided in the filing.
- Management expected approximately $175 million of 2021 capital spending to support increased demand and approximately $55 million of 2021 dividends, subject to Board approval. The completed restructuring program is expected to reduce annual costs by about $15 million beginning in 2021; management did not anticipate material restructuring activity in 2021, but noted a downturn could prompt further action.
- FY2020 included $4.6 million of COVID-related costs in cost of products sold and a $1.5 million SG&A benefit, net of subsidies. Restructuring and severance expense was $0.7 million in 2020 versus $24.1 million in 2019. Loss on early extinguishment of debt was $8.1 million in 2020.
- Vishay repurchased $134.7 million principal amount of 2025 convertible notes and $16.9 million of 2041 debentures during 2020. The remaining 2040 debentures were redeemed in February 2021. The 2025 notes remain outstanding, mature in 2025, and their principal is intended to be settled in cash on conversion; additional amounts may be settled in shares.
- Key risks include electronics-industry cyclicality, continued COVID-19 disruption, order cancellations, pricing pressure and customer bargaining power, raw-material availability and price volatility, tariffs and trade restrictions, foreign exchange and geopolitical exposures, and environmental and intellectual-property matters. Approximately 75% of 2020 revenue came from customers outside the U.S.; substantially all cash and short-term investments were held outside the U.S.
- Environmental remediation liabilities accrued at year-end were $11.7 million. A subsidiary is contesting CERCLA cost-recovery claims concerning a predecessor’s former Hicksville, New York operations; management said the ultimate cleanup cost is difficult to predict. The filing does not quantify a clear potential loss for the litigation.
- One customer represented slightly less than 10% of 2020 revenue; the top 30 customers accounted for about 70%. One customer represented 17.2% of year-end receivables. Class B shareholders held approximately 47.7% of voting power, with voting control highly concentrated.
Important facts for investors to verify
- Whether the Q4 order and backlog recovery translated into shipments, sustainable demand, and improved margins, particularly given distributor ordering and cancellation risk.
- Whether forecast 2021 capital spending and the approximately $15 million annual restructuring savings are realized, and whether additional costs or restructuring arise.
- The effect of the 2025 convertible notes, including cash needed for principal settlement and potential dilution from any additional conversion amounts.
- Cash availability and transferability given the concentration of liquidity outside the U.S., and the schedule of transition-tax, pension, and other contractual payments.
- Developments in the Hicksville environmental litigation, other remediation exposures, and the assumptions behind the $11.7 million environmental accrual.
- Distributor inventory, the $39.6 million sales-returns-and-allowances accrual, customer concentration, and changes in raw-material, freight, and foreign-exchange costs.