Vishay Intertechnology, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; 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 and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $3,034.7 million | $2,599.4 million |
| Gross profit / margin | $888.5 million / 29.3% | $703.1 million / 27.0% |
| Operating income / margin | $485.1 million / 16.0% | $324.0 million / 12.5% |
| Net earnings (loss) attributable to Vishay stockholders | $345.8 million; diluted EPS $2.24 | $(20.3) million; diluted EPS $(0.14) |
| Cash from operating activities | $258.5 million | $368.8 million |
| Capital expenditures | $229.9 million | $170.4 million |
| Free cash (company-defined, non-GAAP) | $84.2 million | $200.0 million |
Revenue rose 16.7%, mainly on higher volume, with modest contributions from foreign exchange, pricing, and acquisitions. Gross margin improvement primarily reflected increased volume and cost actions. FY 2018 operating results also benefited from a stronger business environment; the prior-year net loss was heavily affected by the $234.9 million TCJA tax charge.
Fourth-quarter revenue was $775.9 million, down slightly from $781.0 million in Q3 2018 and up from $673.5 million in Q4 2017. Gross margin fell to 28.3% from 30.3% sequentially, and operating margin to 15.4% from 17.7%. Q4 book-to-bill was 0.94 and year-end backlog was $1.497 billion. Management attributed the sequential slowdown to supply catching up with demand and distributor inventory normalization.
All five segments grew year over year in 2018. Resistors & Inductors revenue increased 20.7% to $1,018.3 million; Capacitors rose 21.4% to $466.1 million; MOSFETs rose 17.1% to $547.6 million; Diodes rose 15.0% to $712.9 million; and Optoelectronic Components rose 1.9% to $289.7 million.
At year-end, cash and cash equivalents were $686.0 million and short-term investments were $78.3 million. Debt carrying value was $494.5 million, leaving company-defined net cash and short-term investments of $269.8 million, versus $924.7 million a year earlier. The current ratio declined to 2.8 from 3.9. The $640 million revolving credit facility was undrawn and available through December 2020; the company reported compliance with its covenants.
FY 2018 operating cash flow declined partly because of $156.8 million of repatriation-related cash taxes and a $14.8 million TCJA transition-tax installment. Free cash also reflected higher capital spending and included $55.6 million of property-sale proceeds; the Santa Clara transaction was not treated as a completed sale under GAAP at year-end.
Material changes, outlook, and unusual items
- In June 2018, Vishay issued $600 million of 2.25% convertible notes due 2025. It used proceeds and repatriated cash to repurchase convertible debentures; total 2018 repurchases had $960.995 million aggregate purchase price and resulted in a $26.6 million early-extinguishment loss. The new notes increased debt despite repayment of older instruments.
- Vishay repatriated approximately $724 million during 2018 and paid approximately $156.8 million in related withholding and foreign taxes. Approximately $300 million of additional foreign earnings had been designated for repatriation, with timing to be measured over several years. The company expects total transition-tax payments of approximately $184.5 million, net of estimated credits and other offsets.
- Management expects 2019 capital spending of approximately $190 million and dividend payments of approximately $49 million, subject to Board approval. It estimated future interest expense at approximately $8.5 million per quarter under its then-current debt structure. No material restructuring activity was anticipated for 2019. The filing provides no specific revenue or EPS guidance.
- Management planned to continue investing in R&D and critical manufacturing capacity while controlling fixed costs. It reported that many product lines were operating at or near capacity, but demand and order indicators weakened late in 2018. U.S. tariffs on China-origin goods, higher material prices, and repair and maintenance costs pressured Q4 margins.
- Other risks include the cyclical electronics market, pricing pressure and customer bargaining power, constrained or volatile supplies of silicon wafers, tantalum and other materials, foreign-exchange exposure, geopolitical and trade-policy risks, and reliance on overseas operations and cash. TTI, Inc. represented 10.4% of 2018 revenue; approximately 75% of revenue was from customers outside the United States.
- Contingencies include U.S. and Canadian antitrust class-action claims involving a subsidiary acquired from Holy Stone, which agreed to indemnify Vishay and the subsidiary; a Korean antitrust fine of approximately $32,000 relating to pre-acquisition conduct; patent disputes; and environmental remediation. Environmental liabilities accrued were $12.2 million. Management did not believe the matters would have a material adverse effect, but outcomes remain uncertain.
Important facts for investors to verify
- Whether the sub-1.0 company-wide book-to-bill and declining Q4 backlog signal continued demand normalization, particularly in semiconductor distribution.
- Whether margins and capacity utilization hold up amid tariffs, input-cost inflation, and possible economic downturns.
- The cash-flow outlook after unusually high repatriation taxes and elevated 2018 capital expenditures; note that reported free cash is a non-GAAP measure and includes asset-sale proceeds.
- The terms, potential dilution, cash settlement requirements, and refinancing implications of the convertible notes and remaining convertible debentures.
- Actual timing and cash cost of remaining transition-tax and foreign withholding obligations, and the availability of U.S. liquidity for dividends, debt service, and repurchases.
- Developments in the antitrust, intellectual-property, and environmental matters, including the scope and collectability of the Holy Stone indemnity.