Vishay Intertechnology, Inc. — Q3 2013 Form 10-Q
Reporting period: Fiscal quarter and nine fiscal months ended September 28, 2013. The company manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Financial amounts below are in U.S. dollars; “$ million” figures are rounded.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $602.9m | $572.8m | $1,754.8m | $1,699.5m |
| Gross profit / margin | $143.2m / 23.8% | $133.6m / 23.3% | $422.8m / 24.1% | $417.9m / 24.6% |
| Operating income / margin | $53.2m / 8.8% | $44.5m / 7.8% | $150.6m / 8.6% | $167.7m / 9.9% |
| Net earnings attributable to Vishay stockholders | $32.7m | $22.3m | $93.0m | $101.8m |
| Diluted EPS | $0.22 | $0.15 | $0.61 | $0.65 |
Q3 revenue rose 5.3% year over year, primarily reflecting higher volume, partly offset by lower average selling prices. Nine-month revenue increased 3.3%, while operating income and stockholder earnings declined. Q3 earnings benefited from a $2.9m one-time tax benefit; nine-month results also included a $1.3m one-time tax benefit and a $1.8m executive-compensation credit. Prior-year nine-month results included a $12.2m gain on sale of vacated property. Management’s adjusted earnings measures are non-GAAP.
- Cash flow: Nine-month operating cash flow was $179.6m, versus $185.5m. Capital expenditures were $91.6m, versus $86.8m. Cash and cash equivalents decreased to $645.0m from $697.6m at year-end 2012.
- Liquidity: Short-term investments were $445.6m, bringing cash plus short-term investments to about $1.09bn. Current assets were $1.95bn and current liabilities $442.8m; the reported current ratio was 4.4x.
- Debt: Debt carrying value was $359.9m, down from $392.9m at December 31, 2012. The company reported $730.7m of net cash and short-term investments after debt. Contractual debt obligations were $723.6m, reflecting the principal amount of convertible instruments before unamortized discounts; do not equate this with balance-sheet carrying value.
- Credit facility: Amended in August 2013, the $640m revolving facility matures August 8, 2018; $110m was drawn. The company reported covenant compliance, with leverage ratio 2.00x and interest coverage 10.62x.
Material changes and operating trends
- Management reported an abrupt, unexpected decline in distributor orders in Q3 after improving conditions during the first half of 2013. Revenue was broadly level sequentially and slightly below expectations; anticipated seasonal demand from computing and consumer markets did not materialize.
- Company book-to-bill fell to 0.93 from 1.08 in Q2, and backlog declined to $613.8m from $646.7m. Average selling prices continued to fall, particularly for commodity semiconductors.
- Q3 segment revenue was higher year over year in Diodes (+13.4%), Optoelectronic Components (+13.2%), and Resistors & Inductors (+8.8%); MOSFETs declined 6.6%, while Capacitors were nearly flat. Capacitors’ nine-month revenue fell 3.5% and its Q3 gross margin was 18.6%, down from 21.7% a year earlier.
- Q3 consolidated gross margin improved year over year, chiefly from volume-related efficiencies, but nine-month gross margin declined. Management cited higher manufacturing fixed costs, foundry start-up inefficiencies, inventory valuation effects, metals prices, and unfavorable product mix among the year-to-date pressures.
- On June 13, 2013, Vishay acquired French specialty resistor and sensor manufacturer MCB Industrie for $23.0m net of cash acquired. It was included in Resistors & Inductors from the acquisition date and did not materially affect consolidated results.
- On August 26, a noteholder exchanged $56.4m principal amount of exchangeable notes for 3.7m common shares, reducing debt and increasing shares outstanding.
Outlook, commentary, and risks
- Q4 2013 revenue guidance: $570m–$610m. Management said it expected 2013 cash generation to be in line with its history, while noting that worsening economic conditions could impair future cash generation. 2013 capital spending was expected to be approximately $160m.
- Cost programs announced October 28, 2013: Expected annual savings of about $36m when fully implemented, with approximately $26m in cash costs. Programs target MOSFET competitiveness, voluntary separation/early retirement, and two smaller Diodes manufacturing initiatives; implementation is expected to be completed before the end of Q1 2016.
- Key disclosed risks include global economic and end-market demand, distributor order volatility and cancellations, pricing pressure, foreign-exchange movements, acquisition execution and integration, product development, competition and technology changes, and the effectiveness of cost programs. Substantially all cash and short-term investments were held by non-U.S. subsidiaries and were expected to remain invested abroad; repatriation could create additional taxes.
- The filing reported no material changes to previously disclosed risk factors or market risks. Management concluded disclosure controls were effective. The Proctor litigation review petition was denied by the California Supreme Court in June 2013.
Most important facts for investors to verify
- Whether distributor orders, book-to-bill, backlog, and the Q4 revenue outlook improved or deteriorated after the reported quarter.
- Whether the announced cost programs deliver the projected $36m annual savings and remain within the estimated $26m cash cost.
- How much of the year-to-date earnings comparison reflects recurring operations versus tax benefits, the executive-compensation credit, and the prior-year property gain.
- The distinction between $359.9m of reported debt carrying value and $723.6m of contractual principal obligations, along with covenant headroom and credit-facility availability.
- Whether foreign-held liquidity remains accessible for U.S. needs without significant repatriation tax costs, and whether capital spending and cash generation track management’s expectations.