Vishay Intertechnology, Inc. — Q2 2011 Form 10-Q
Business context and reporting period
Global manufacturer of discrete semiconductors and passive electronic components. The quarter was the 13-week fiscal period ended July 2, 2011; year-to-date figures cover the six fiscal months then ended. Comparative 2010 results include Vishay Precision Group (VPG), spun off July 6, 2010, while 2011 results do not.
Financial performance and liquidity
Amounts are in millions of dollars except per-share data and ratios.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $709.8 | $701.7 | $1,405.0 | $1,342.1 |
| Gross profit / margin | $212.2 / 29.9% | $210.6 / 30.0% | $426.9 / 30.4% | $377.6 / 28.1% |
| Operating income / margin | $115.5 / 16.3% | $101.3 / 14.4% | $237.7 / 16.9% | $166.5 / 12.4% |
| Net earnings attributable to Vishay stockholders | $82.1 | $76.7 | $157.4 | $122.1 |
| Diluted EPS | $0.48 | $0.40 | $0.91 | $0.63 |
| Cash from continuing operations | Not separately reported | Not separately reported | $173.9 | $177.6 |
Reported quarterly revenue increased 1.2% year over year and six-month revenue rose 4.7%; comparisons are affected by VPG’s inclusion in 2010. Excluding VPG, management reported Q2 2010 revenue of $648.7 million, making the current-quarter increase approximately 9.4% on that basis. Six-month revenue growth was driven by volume, selling prices, and currency effects, partly offset by the absence of VPG.
At July 2, cash and cash equivalents were $692.6 million and short-term investments were $314.4 million, against total debt of $422.4 million. Management’s non-GAAP net cash and short-term investments measure was $584.6 million. Current assets were $2,001.8 million and current liabilities $534.4 million; the current ratio was 3.7. Long-term debt was $422.4 million, including $180.0 million outstanding under the revolving credit facility. The company reported compliance with debt covenants and leverage and interest-coverage ratios of 0.92:1 and 37.99:1, respectively.
Six-month operating cash flow was $173.9 million, versus $177.6 million in 2010. Capital expenditures were $45.4 million. Investing cash outflow of $352.1 million included net purchases of short-term investments; financing outflow of $56.2 million included a $150 million share repurchase, partly offset by $150 million of proceeds from new convertible debentures and repayment of $60 million of revolving-credit borrowings. Cash declined by $204.7 million to $692.6 million, while short-term investments increased to $314.4 million.
Material changes, outlook, and risks
- Q2 selling, general, and administrative expense declined to $92.8 million from $109.3 million; 2010 included VPG and spin-off costs. Gross margin was slightly lower year over year, reflecting metals costs and product mix, while operating margin improved with lower SG&A and sustained cost controls.
- Management cited high, normalizing backlog: $881.8 million at quarter-end, with a 0.95 book-to-bill ratio versus 1.01 in Q1. Average selling prices declined 0.4% sequentially. Distributor inventory growth and a weaker seasonal upturn in Asia led management to expect a modest revenue decline.
- Q3 2011 revenue guidance was $675 million to $715 million, with a mainly volume-driven reduction in gross margin. Segment expectations varied: similar revenue for MOSFETs, diodes, and optoelectronics; strong resistor and inductor revenue; and seasonally weaker capacitor revenue.
- Management expected approximately $175 million of 2011 capital spending, focused on capacity expansion. It did not anticipate material restructuring expense in 2011 absent a significant downturn.
- Unusual items: Q2 included a $3.9 million pretax executive-compensation charge following founder and Executive Chairman Felix Zandman’s death. Six-month results included a $10.0 million one-time Israeli deferred-tax-asset write-down. Management reported adjusted six-month earnings of $169.9 million and adjusted diluted EPS of $0.98, non-GAAP measures.
- Marc Zandman became Executive Chairman and Chief Business Development Officer; Gerald Paul remained President and CEO. Risks include economic and end-market weakness, pricing pressure, rising metal costs, foreign-exchange exposure, acquisition execution, and customer cancellation or rescheduling of backlog. About 96% of cash and short-term investments were held outside the U.S.; repatriation could incur additional taxes. Class B holders have effective voting influence.
Important facts for investors to verify
- Reconcile reported growth with the prior-year inclusion of VPG and assess underlying segment demand, especially book-to-bill and inventory trends.
- Track Q3 results against the $675–$715 million revenue outlook and management’s expected margin pressure.
- Review cash generation, working-capital needs, planned capital spending, and the composition and accessibility of foreign-held cash and short-term investments.
- Assess the cost and dilution implications of the 2041 convertible debentures and the $150 million repurchase; confirm ongoing covenant compliance.
- Monitor the effects of the one-time tax charge, executive compensation obligations, succession, and concentrated Class B voting control.