Vishay Intertechnology, Inc. — Q2 2012 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended June 30, 2012; comparisons are with the periods ended July 2, 2011. Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless noted.
Business context
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management said results were recovering from the 2011 demand downturn and distributor inventory reduction, but remained below the unusually favorable prior-year comparison.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $588.2m | $709.8m | $1,126.7m | $1,405.0m |
| Gross profit | $147.6m | $212.2m | $284.3m | $426.9m |
| Gross margin | 25.1% | 29.9% | 25.2% | 30.4% |
| Operating income | $72.9m | $115.5m | $123.2m | $237.7m |
| Net earnings attributable to Vishay stockholders | $45.7m | $82.1m | $79.5m | $157.4m |
| Diluted EPS | $0.29 | $0.48 | $0.49 | $0.91 |
Q2 operating income included a $12.2m gain on sale of a vacated Belgian property; Q2 2011 included a $3.9m executive compensation charge. The company’s non-GAAP adjusted diluted EPS was $0.24 for Q2 2012 versus $0.50 a year earlier, and $0.44 versus $0.98 for the six-month periods. Management cautioned that these non-GAAP measures are not standardized.
Revenue declined 17.1% in Q2 and 19.8% for the six-month period. Management attributed the decreases principally to lower volumes, with additional pressure from lower average selling prices and foreign exchange; acquisitions partly offset the decline. Q2 revenue rose from $538.5m in Q1 2012. Company-wide Q2 book-to-bill was 1.01, backlog was $593.3m, and average selling prices declined 1.4% sequentially.
Segment performance was uneven. Q2 MOSFET revenue fell 27.3% year over year, while Capacitors fell 24.6%; Resistors & Inductors declined 1.5%, with acquisitions contributing to that segment’s sales. Management cited volume as the principal pressure on margins, and noted increased competitive pricing, particularly in MOSFETs.
Cash flow, debt and liquidity
- Six-month operating cash flow was $94.4m, down from $173.9m. Capital expenditures were $47.3m, compared with $45.4m a year earlier. The filing does not provide a single reported free-cash figure for the period.
- Cash and cash equivalents were $708.8m and short-term investments $239.5m at June 30, 2012, for total cash and investments of $948.3m. Cash declined $40.3m from year-end 2011.
- Reported debt carrying value was $462.2m, versus $399.1m at December 31, 2011. Management’s non-GAAP net cash and short-term investments measure was $486.1m, compared with $599.2m at year-end.
- Current assets were $1,822.2m and current liabilities $409.1m; the reported current ratio was 4.5. The company was in compliance with credit-facility covenants; interest coverage was 12.58x and leverage was 1.85x.
- The revolving credit commitment was increased from $450m to $528m, with $160m outstanding at quarter-end and expiration on December 1, 2015. The company planned to repatriate $72.1m in the second half of 2012 and primarily use it to reduce revolving-credit borrowings.
Material changes, outlook and risks
In January, Vishay acquired HiRel Systems for $85.5m, adding high-reliability magnetics and power-conversion products to Resistors & Inductors. The acquisition did not materially affect reported consolidated results for the quarter or six-month period. In May, the company issued $150m principal amount of 2.25% convertible debentures due 2042 and used the proceeds together with cash to repurchase 13.9m shares for $150m, or $10.75 per share. The repurchase was part of a broader program under which 44.3m shares had been repurchased since late 2010.
For Q3 2012, management forecast revenue of $570m–$610m at margins similar to Q2. It expected MOSFETs to continue recovering, Diodes to show no further recovery, and relatively stable results in Optoelectronic Components, Resistors & Inductors, and Capacitors. Management also expected strong cash generation for 2012, while warning that a worsening economy could impair cash generation. It expected approximately $160m of 2012 capital spending.
Key risks include global economic and end-market weakness, demand and customer inventory changes, pricing pressure, foreign-exchange volatility, acquisition execution and integration, and the effectiveness of cost-management initiatives. Management reported no material changes to previously disclosed risk factors or market risks. The filing also disclosed minimum foundry purchase commitments and an amended Asian foundry agreement after quarter-end; the agreement extends through 2016. No legal proceedings were reported as applicable in this filing.
Important facts for investors to verify
- Whether revenue, orders and backlog support the Q3 forecast, given company book-to-bill of 1.01 and segment ratios below 1.0 in several businesses.
- How much of reported Q2 operating income and margin reflects the $12.2m property-sale gain, and how underlying margins respond to volume recovery and price declines.
- Cash generation, capital spending, and the timing and use of the planned $72.1m repatriation.
- The effect of the 2042 convertible debentures and share repurchase on future interest expense, dilution, and leverage; reported carrying value differs substantially from principal due to the debt discount.
- Progress integrating HiRel and meeting the company’s foundry purchase commitments, particularly under the post-quarter amended agreement.