Vishay Intertechnology, Inc. — Q3 2016 Form 10-Q
Business context and period: Global manufacturer of discrete semiconductors and passive electronic components, operating across MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. The fiscal quarter ended October 1, 2016; comparisons are with the quarter ended October 3, 2015. Nine-month figures cover the respective nine-fiscal-month periods.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $592.0m | $560.7m | $1,752.6m | $1,744.6m |
| Gross profit / margin | $153.9m / 26.0% | $130.1m / 23.2% | $437.3m / 25.0% | $416.7m / 23.9% |
| Operating income (loss) / margin | $57.2m / 9.7% | $(24.2)m / (4.3)% | $147.2m / 8.4% | $67.6m / 3.9% |
| Net earnings (loss) attributable to Vishay stockholders | $36.4m | $(27.7)m | $97.5m | $29.3m |
| Diluted EPS | $0.24 | $(0.19) | $0.65 | $0.19 |
| Operating cash flow | $117.7m | $61.2m | $212.6m | $153.6m |
| Free cash (company-defined, non-GAAP) | $88.4m | $24.3m | $132.5m | $68.8m |
Q3 SG&A was $93.9m, or 15.9% of revenue, versus $89.0m and 15.9% a year earlier. The nine-month effective tax rate was 27.7%. Nine-month capital expenditures were $81.3m.
At October 1, 2016, cash and cash equivalents were $511.6m and short-term investments were $608.3m. Current assets were $1.918bn and current liabilities $462.4m (current ratio 4.1). Reported debt carrying value was $361.5m; credit-facility borrowings were $149m. Company-defined net cash and short-term investments, after debt, were $758.4m. The company said substantially all cash and short-term investments were held outside the U.S.
Material changes and management commentary
- Quarterly revenue increased 5.6% year over year, chiefly from higher volume (+8.9%), partly offset by lower average selling prices (−3.1%). Nine-month revenue was up 0.5%.
- Gross margin improved to 26.0% in Q3. Management attributed the improvement mainly to volume, cost reductions, manufacturing efficiencies, and lower metals and materials costs; pricing pressure remained a headwind.
- Q3 book-to-bill was 1.04 and backlog was $608.1m, up from $579.8m in Q2. Management cautioned that orders in backlog may be cancelled or rescheduled. Average selling prices declined 0.9% sequentially.
- Segment trends were mixed: Q3 revenue rose 13.9% in Diodes, 10.5% in Resistors & Inductors, and 4.0% in Optoelectronic Components, but fell 7.1% in MOSFETs; Capacitors was up 0.9%. MOSFET pricing and outlook prompted further restructuring.
- Q3 2015 results included $63.0m of noncash intangible/goodwill impairment and a $5.35m Tianjin explosion loss; Q3 2016 included a $1.56m noncash Siliconix tradename impairment. Nine-month 2016 results also included a $4.60m gain on early extinguishment of debt.
Outlook, risks and contingencies
- For Q4 2016, management forecast revenue of $560m–$600m and gross margin of 24%–25%. It expected 2016 capital spending of about $135m and dividends of about $36.8m; dividends remain subject to Board approval.
- On November 7, 2016, Vishay announced an extension of its MOSFETs cost program, including transferring remaining Santa Clara manufacturing operations by the end of 2017. Expected cash charges are $4m–$8m and annual savings $7m–$10m. A separate 2015 global program targets approximately $35m annual savings at approximately $30m cash cost.
- The U.S. qualified pension plan termination was expected in December 2016. The company anticipated a noncash actuarial charge and estimated additional termination-basis funding of $0–$20m; the final amounts were not yet known. It also contributed $17.0m to Taiwanese pension plans during 2016.
- Vishay reported compliance with credit-facility covenants at quarter-end; interest coverage was 12.02-to-1 and leverage was 2.01-to-1. It expects compliance under current projections, but breach could permit acceleration of debt and trigger cross-defaults. Convertible debentures are not currently convertible; conversion could require borrowing to repay principal.
- Tianjin property-damage insurance claims remained open; a $1.5m receivable was recorded, while potential business-interruption recoveries were unquantified. A Taiwan subsidiary received an environmental notice and approximately $641,000 fine in October; the company said it believed the issue was remediated, subject to ongoing monitoring.
- Other key risks cited include global demand and economic conditions, semiconductor price erosion, foreign exchange, execution of cost programs, acquisitions and integration, competition, and product development. Management said no material changes had occurred to previously disclosed risk factors.
Investor verification priorities
- Track whether Q4 revenue and gross-margin guidance was achieved, and whether book-to-bill and backlog translated into shipments.
- Assess the sustainability of margin and cash-flow improvement, including continuing price declines and the impact of restructuring and inventory costs.
- Verify delivery of MOSFET and 2015 cost-program savings against expected charges, timelines, and operational effects.
- Monitor pension termination funding and noncash charges, and final outcomes of Tianjin insurance claims and Taiwan environmental monitoring.
- Review the location and accessibility of overseas liquidity, debt and covenant headroom, planned repurchases, and dividends.