Vishay Intertechnology, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. This unaudited quarterly report covers the 13-week fiscal quarter ended September 29, 2012, and the nine fiscal months ended on that date. Dollar amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $572.8 | $637.6 | $1,699.5 | $2,042.6 |
| Gross profit / margin | $133.6 / 23.3% | $167.5 / 26.3% | $417.9 / 24.6% | $594.3 / 29.1% |
| Operating income / margin | $44.5 / 7.8% | $75.3 / 11.8% | $167.7 / 9.9% | $313.0 / 15.3% |
| Net earnings attributable to Vishay stockholders | $22.3 | $50.5 | $101.8 | $207.9 |
| Diluted earnings per share | $0.15 | $0.31 | $0.65 | $1.22 |
| Cash from operating activities | Not separately stated for the quarter | $185.5 | $287.8 |
Q3 revenue decreased 10.2% year over year; nine-month revenue fell 16.8%. Stockholder earnings declined about 56% in the quarter and 51% year to date. Management attributed lower revenue primarily to weaker volume, lower average selling prices, and foreign-exchange effects; acquisitions partly offset the decline. Q3 SG&A was $89.1 million, or 15.6% of revenue, versus $90.3 million, or 14.2%, a year earlier.
Liquidity, debt, and cash flow
- At September 29, cash and cash equivalents were $637.3 million and short-term investments were $303.9 million, totaling $941.1 million. The filing’s non-GAAP net cash and short-term investments measure was $552.1 million, compared with $599.2 million at year-end 2011.
- Reported long-term debt carrying value was $389.0 million, including $86.0 million drawn on the revolving credit facility. The facility commitment was increased to $528 million and expires December 1, 2015. Management reported compliance with covenants; interest coverage was 10.72x and leverage was 1.82x.
- The current ratio was 4.2x. Operating cash flow for the nine months was $185.5 million, down from $287.8 million, principally reflecting lower earnings and working-capital changes. Capital expenditures were $86.8 million; management expected full-year 2012 capital spending of approximately $150–$160 million.
- Contractual long-term debt obligations were listed at $756.0 million, excluding unamortized convertible-debt discounts. This contractual amount differs from the balance-sheet carrying value.
Material changes and unusual items
- Demand weakened substantially in Q3 after improvement in the first half of 2012. Backlog fell to $525.9 million from $593.3 million in Q2, and the overall book-to-bill ratio declined to 0.87 from 1.01. Average selling prices fell 0.7% sequentially.
- All five segments reported lower Q3 gross margins than in Q2. Capacitors revenue was down 21.3% year over year; Diodes was down 17.8%. Resistors & Inductors revenue increased 4.3% year over year, supported by acquisitions, although demand there also slowed.
- In May 2012, Vishay issued $150 million principal amount of 2.25% convertible debentures due 2042 and used the proceeds, together with cash, to repurchase 13.95 million shares for $150 million. The debt’s reported carrying value was $57.1 million after accounting for the discount and embedded derivative. The company had repurchased 44.3 million shares since late 2010.
- A Belgian property sale produced a $12.2 million gain in the first nine months; remaining sale proceeds are to be received over three years. HiRel Systems was acquired for $85.5 million in January; its reported contribution was not material to consolidated results for the periods presented.
- The Q3 effective tax rate was 45.4%, versus 29.4% a year earlier, reflecting a changed mix of earnings among tax jurisdictions. The nine-month 2011 comparison included a one-time Israeli tax expense of approximately $10.0 million.
Outlook, risks, and contingencies
Management forecast Q4 2012 revenue of $500–$540 million, with margins lower than in Q3. It expected all segments to be negatively affected by the economic environment, particularly MOSFETs, Diodes, and Capacitors, and said visibility was limited. Management cited macroeconomic anxiety, weaker end-market and distributor demand, pricing pressure, and foreign-exchange effects. It expected 2012 cash generation to remain consistent with its historical experience, while cautioning that a further deterioration could impair cash generation.
Key exposures include economic and end-market downturns, semiconductor price erosion, customer order cancellations or rescheduling, currency movements, acquisition execution and integration, and the ability to maintain cost controls. The filing reported no material changes to previously disclosed risk factors or legal proceedings, no material market-risk changes, and no material changes in internal control over financial reporting. The company said it was in compliance with credit-facility covenants and expected continued compliance based on current projections; covenant breach could permit acceleration of debt, with cross-default provisions in other debt instruments.
Important facts for investors to verify
- Whether orders, backlog, and book-to-bill stabilize after Q3’s decline, and whether Q4 revenue lands within the $500–$540 million outlook.
- Whether lower volumes and ongoing price pressure continue to weigh on gross margins and segment profitability.
- Cash generation, working-capital needs, capital spending, and the extent to which foreign-held cash is available for U.S. uses without additional taxes.
- The economics and potential dilution of the convertible-debt and share-repurchase program, including the cash obligations and conversion terms of the 2042 debentures.
- Tax-rate variability, acquisition integration and returns, and continued compliance with debt covenants.