Vishay Intertechnology, Inc. — Q3 2010 Form 10-Q
Reporting period: Fiscal quarter ended October 2, 2010; comparisons are with the quarter ended September 26, 2009. Nine-month comparisons cover the periods ended on those same dates. Amounts below are U.S. dollars unless stated otherwise.
Business context and material changes
Vishay manufactures discrete semiconductors and passive electronic components. On July 6, 2010, it completed the tax-free spin-off of Vishay Precision Group (VPG). VPG results remain in Vishay’s reported results for periods before the spin-off; accordingly, year-over-year comparisons are affected by VPG’s removal. Vishay reported five continuing product segments after the spin-off.
Management attributed the recovery to stronger demand, improved pricing, higher manufacturing volumes and benefits from prior cost reductions. The filing says demand remained particularly strong in automotive, industrial, military/aerospace and telecom-network markets, while computer and some consumer-market demand had slowed.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $694.4 million | $525.3 million | $2,036.5 million | $1,435.1 million |
| Gross profit / margin | $218.4 million / 31.5% | $104.4 million / 19.9% | $596.0 million / 29.3% | $251.2 million / 17.5% |
| Operating income (loss) | $130.9 million | $11.2 million | $297.4 million | $(73.8) million |
| Net earnings (loss) attributable to Vishay stockholders | $89.8 million | $2.3 million | $211.9 million | $(85.7) million |
| Diluted EPS attributable to Vishay stockholders | $0.47 | $0.01 | $1.10 | $(0.46) |
Quarter revenue rose 32.2% year over year, mainly from higher volume, with increased average selling prices also contributing. Nine-month revenue rose 41.9%. Q3 gross margin reached its highest level in ten years, according to management; nine-month margin excluding VPG was 28.9%. No restructuring expense was recorded in 2010’s quarter or nine-month period. The 2009 nine-month comparison included $34.5 million of restructuring costs, a $28.2 million settlement gain and a $57.8 million executive employment-agreement charge.
Cash flow, debt and liquidity
- Cash from continuing operating activities was $339.1 million for the first nine months, versus $178.6 million a year earlier. Capital expenditures were $80.1 million, versus $26.3 million.
- At October 2, 2010, cash was $745.4 million and total debt was $298.5 million, leaving net cash of $446.8 million. Cash increased from $579.2 million at December 31, 2009; total debt declined from $336.1 million.
- Current assets were $1.647 billion and current liabilities $560.4 million; the current ratio was 2.9, down from 3.5 at year-end 2009. Management attributed the decline primarily to debt classification and repayment timing.
- Vishay reported compliance with credit-facility covenants at quarter-end. Its leverage ratio was 0.57, fixed-charge coverage ratio 12.23, and senior-debt-to-EBITDA ratio 0.39, against stated limits of 3.50 maximum, 2.50 minimum and 2.00 maximum, respectively.
- Most cash was held by non-U.S. subsidiaries and was expected to remain invested abroad; repatriation could incur additional taxes. The company estimated 2010 capital expenditures of approximately $150 million.
Outlook, unusual items and risks
Management forecast Q4 2010 revenue of $650 million to $690 million, with performance levels close to Q3. It cited backlog and fewer working days, while cautioning that a stalled recovery could impair operating cash flow and free cash generation. Q3 backlog was $1.010 billion and book-to-bill was 1.04, down from 1.15 in Q2; distributor book-to-bill was 0.95 and OEM book-to-bill 1.16. Backlog orders may be cancelled or rescheduled, sometimes without penalty.
After quarter-end, Vishay announced and closed a $275 million offering of 2.25% convertible senior debentures due 2040 and repurchased 21.7 million common shares for $275 million. The company used offering proceeds, revolving-credit borrowings and cash; the credit facility required $75 million of proceeds to prepay the term loan. The debentures’ stated coupon is 2.25%, but Vishay expects to recognize an 8.00% effective annual interest rate on the debt component. Management intended cash repayment of principal upon conversion, but stated the credit facility did not then permit cash settlement and that an amendment was not assured.
Other risks include economic and end-market demand changes, pricing pressure, foreign-exchange exposure, execution of cost-reduction plans, and covenant or refinancing risks. Q3 included a $5.6 million foreign-exchange loss in “Other” expense. The filing reports no material change in previously disclosed market risks or risk factors, and no material change in contractual commitments during the nine months.
Important facts for investors to verify
- Whether Q4 revenue guidance and strong backlog converted into shipments, particularly given the lower book-to-bill readings in several segments.
- The effect of the VPG spin-off on comparable growth, margins, cash flow and segment trends.
- Post-quarter debt, liquidity and diluted share count after the debenture issuance and 21.7 million-share repurchase, including the planned credit-facility amendment for conversion settlement.
- Cash availability and tax implications, given that most cash was held outside the United States.
- Whether improved margins and cash generation persisted as pricing, supply conditions and the economic recovery changed.