Vishay Intertechnology, Inc. — Q2 2010 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended July 3, 2010. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Vishay manufactures discrete semiconductors and passive electronic components used across industrial, automotive, computer, consumer, telecommunications, medical, and other markets. The quarter reflected a sharp recovery in demand after the 2008–09 downturn. Vishay Precision Group (VPG) remained included in results through July 3; it was spun off to shareholders on July 6, 2010, after the reporting period. Accordingly, historical results in this filing include VPG and are not presented as discontinued operations.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Net revenues | $701.7 | $460.3 | $1,342.1 | $909.8 |
| Gross profit / margin | $210.6 / 30.0% | $78.8 / 17.1% | $377.6 / 28.1% | $146.8 / 16.1% |
| Operating income (loss) | $101.3 | $(46.7) | $166.5 | $(85.1) |
| Net earnings (loss) attributable to Vishay stockholders | $76.7 | $(58.9) | $122.1 | $(88.0) |
| Diluted earnings (loss) per share | $0.40 | $(0.32) | $0.63 | $(0.47) |
- Q2 revenue increased 52.4% year over year; six-month revenue increased 47.5%. Management attributed the Q2 increase primarily to higher volume, partly offset by unfavorable currency translation.
- Q2 operating margin was 14.4%, compared with a 10.1% operating loss margin in Q2 2009. SG&A rose to $109.3 million from $83.8 million, but declined to 15.6% of revenue from 18.2%.
- Demand and margins strengthened across product segments. Q2 gross margins were 30.6% for MOSFETs, 23.7% for Diodes, 35.2% for Optoelectronic Components, 36.0% for Resistors and Inductors, 24.4% for Capacitors, and 37.8% for VPG.
Cash flow, debt, and liquidity
- Six-month cash from continuing operating activities was $177.6 million, versus $68.9 million a year earlier. Capital expenditures were $49.2 million, versus $18.3 million. Cash and cash equivalents increased to $674.6 million at July 3 from $579.2 million at year-end.
- At July 3, total debt was $322.0 million and reported net cash was $352.6 million. Following the VPG spin-off, the company reported cash of $604.0 million, debt of $310.4 million, and net cash of $293.6 million as of July 6.
- The current ratio was 2.9 to 1, down from 3.5 to 1 at December 31, 2009, primarily due to working-capital changes. Vishay said substantially all July 3 cash was held by non-U.S. subsidiaries; repatriation could create additional taxes.
- Vishay was in compliance with credit-facility covenants at July 3. The facility included a $250 million revolving commitment through April 20, 2012; $125 million was drawn, and the term-loan balance was $75 million. Management expected cash on hand and operating cash flow to cover normal requirements, scheduled debt payments, R&D, and planned capital spending.
Changes, outlook, and notable items
- The recovery accelerated: Q2 backlog was $987.9 million, up from $907.7 million in Q1 2010; the book-to-bill ratio was 1.15, down from 1.46. Inventory turnover reached 4.35. Management cited strong to overheated demand across markets, but also manufacturing capacity constraints.
- Management forecast Q3 2010 revenue of $650–$690 million, excluding VPG, with “slightly improved results.” It expected the revenue trend to continue but cautioned that a stalled recovery could impair future operating cash flow and free cash generation.
- No restructuring and severance expense was recorded in the first half of 2010. The 2009 comparison included $31.0 million of six-month restructuring costs, a $28.2 million settlement gain, and a $57.8 million executive employment agreement charge, making year-over-year profit comparisons less directly comparable.
- Q2 2010 included approximately $6.0 million of VPG spin-off costs in SG&A and approximately $2.1 million of executive bonuses related to the spin-off. The company also reported $8.1 million of spin-off costs in first-half SG&A.
- The credit facility was amended in June 2010 to accommodate the spin-off, including a revised tangible-net-worth covenant and a 47.5-basis-point increase in pricing on revolving borrowings. The filing states that other significant terms were unchanged.
- Key risks include a slowdown or reversal in the economic recovery, capacity constraints, price erosion, foreign-exchange movements, execution of cost reductions and acquisitions, and potential tax consequences if the VPG spin-off is found not to qualify as tax-free. The filing also notes that VPG’s indemnity for transaction taxes applies only in specified circumstances.
Important facts for investors to verify
- Whether demand, backlog, book-to-bill, and production capacity support the stated Q3 revenue outlook, particularly after excluding VPG.
- How the July 6 spin-off changes Vishay’s ongoing revenue, margins, cash generation, debt, and liquidity; the reported Q2 and first-half figures still include VPG.
- Whether working-capital needs and foreign-currency effects affect operating cash flow, and what costs or taxes may arise from repatriating overseas cash.
- Ongoing compliance with credit-facility covenants and the consequences of any breach, including potential acceleration of debt with cross-default provisions.
- Whether the spin-off retains tax-free treatment and whether subsequent transactions or ownership changes could affect that status.