Vishay Intertechnology, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; the filing also reports fourth-quarter results. Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors.
Financial performance
| Metric | 2016 | 2015 |
|---|---|---|
| Net revenue | $2.323 billion | $2.300 billion |
| Gross profit / margin | $569.8 million / 24.5% | $542.2 million / 23.6% |
| Operating income | $101.7 million | $97.8 million |
| Net earnings (loss) attributable to Vishay stockholders | $48.8 million | $(108.5) million |
| Diluted earnings (loss) per share | $0.32 | $(0.73) |
| Cash from operating activities | $296.0 million | $245.3 million |
| Free cash (non-GAAP) | $167.0 million | $100.2 million |
Revenue rose 1.0% year over year, reflecting 4.3% volume growth offset mainly by a 3.1% decline in average selling prices. Gross margin improved on higher volume, restructuring savings, and lower metals and materials costs. Management described 2016 demand and order levels as strong.
Fourth-quarter revenue was $570.8 million, down from $592.0 million in Q3 2016 but up from $555.9 million in Q4 2015. Q4 gross margin was 23.2%. Reported Q4 operating loss was $45.5 million and net loss attributable to stockholders was $48.7 million, or $0.33 per diluted share, largely reflecting a $79.3 million non-cash U.S. pension settlement charge. Quarterly operating margin was negative 8.0% including this charge and restructuring costs.
Management’s non-GAAP adjusted net earnings were $128.2 million, or $0.85 per diluted share, versus $109.0 million, or $0.72, in 2015. The company cautions that these non-GAAP measures are not substitutes for GAAP results and may not be comparable with similarly titled measures at other companies.
Segments and material changes
- Resistors & Inductors: Revenue increased 6.6% to $753.8 million, principally from higher volume, particularly in Asia. Segment gross margin was 29.6%.
- Diodes: Revenue increased 3.7% to $553.9 million, with volume recovery from the prior-year Tianjin facility shutdown; gross margin rose to 24.4%.
- MOSFETs: Revenue declined 4.8% to $406.3 million as price declines outweighed modest volume growth. Gross margin was 14.3%; further manufacturing transfers and cost reductions were announced.
- Capacitors: Revenue fell 4.4% to $337.2 million, mainly from lower volume; gross margin improved to 19.8%. Management cited continued weakness in oil and gas and reduced renewable-energy subsidies.
- Optoelectronic Components: Revenue declined 2.7% to $272.1 million as price pressure offset volume growth; gross margin was 32.0%.
Annual results included $19.2 million of restructuring costs and $1.6 million of intangible-asset impairment. In December, Vishay completed termination and settlement of its qualified U.S. pension plan, recording a $79.3 million non-cash charge and $34.9 million of related tax expense. A $8.8 million insurance-related gain from the 2015 Tianjin explosion and a $4.6 million gain on extinguishment of exchangeable notes partly offset other expenses. The 2015 comparison was affected by a $164.0 million tax charge on planned foreign-earnings repatriation, $57.6 million of Capella intangible impairment, and a $5.4 million goodwill impairment.
Cash, debt, and liquidity
- At year-end, cash and cash equivalents were $471.8 million and short-term investments were $626.6 million; total debt carrying value was $357.0 million. Management reported net cash and short-term investments of $741.4 million.
- Working capital was $1.408 billion and the current ratio was 4.1 to 1. The revolving credit facility provides $640 million of commitments through December 2020; $490.1 million was available at year-end.
- Credit-facility borrowings were $143 million. The company reported compliance with its covenants, with a 1.97-to-1 leverage ratio and 12.17-to-1 interest coverage ratio.
- Capital expenditures were $134.6 million in 2016; management expected approximately $150 million in 2017. It expected 2017 dividends of approximately $36.5 million, subject to Board authorization.
- Vishay repurchased 1.75 million shares for $23.2 million under a plan authorizing up to $100 million of repurchases. It also bought back all remaining exchangeable notes due 2102 for $34.0 million.
Outlook, risks, and contingencies
No specific 2017 revenue or earnings guidance is provided. Management planned to complete announced restructuring programs before the end of 2017, including transferring remaining Santa Clara MOSFET manufacturing. It expected $8–9 million in annualized savings from the extended MOSFET program, with $4–8 million of additional cash charges; the broader 2015 programs were expected to generate about $35 million in annual savings at current volumes.
- Management cited strong orders: Q4 2016 book-to-bill was 1.11 and backlog was $653.4 million. It cautioned that backlog orders may be canceled or rescheduled without penalty. Average selling prices continued to decline.
- Key business risks include cyclical demand, intense global competition, pricing pressure, ability to meet demand and execute restructuring, reliance on innovation and acquisitions, and availability and cost of materials such as silicon, tantalum, palladium, and other metals.
- Foreign-exchange, interest-rate, and geopolitical exposures are material considerations. Approximately 76% of 2016 revenue came from outside the U.S.; about $1.084 billion of cash and short-term investments was held by non-U.S. subsidiaries. Repatriation beyond the existing plan could trigger additional taxes.
- The $300 million foreign-earnings repatriation plan was expected to occur over several years; $46 million was repatriated in 2016. About $2.484 billion of other foreign earnings was treated as indefinitely reinvested, with no U.S. tax provision recorded for those earnings.
- Convertible debentures due 2042 became convertible after year-end based on the share-price test and were expected to remain convertible until April 1, 2017, subject to reevaluation. The company intended to pay principal in cash and settle any excess in shares, using its credit facility to fund principal.
- Legal matters include capacitor antitrust class actions in the U.S. and Canada, with Holy Stone indemnification for specified losses, and a Canadian resistor antitrust complaint. Environmental remediation liabilities totaled $15.5 million; a Taiwan subsidiary was fined approximately $641,000 over wastewater management and reported that it had remediated the issue, subject to monitoring.
Important facts for investors to verify
- Whether order strength and backlog convert into sales while average selling prices continue to decline.
- Progress, costs, timing, and realized savings from MOSFET and company-wide restructuring programs.
- Cash generation and liquidity after planned capital spending, dividends, repurchases, and any convertible-debenture conversions.
- Tax costs and timing of foreign cash repatriation, and the implications of the large indefinitely reinvested foreign earnings balance.
- Developments in antitrust litigation, environmental remediation, and the ongoing Taiwan environmental monitoring.
- Capella’s operating performance and any further impairment risk; the filing says the acquired business had not performed as expected.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2016.