Vishay Intertechnology, Inc. — Q1 2014 Form 10-Q
Reporting period: Fiscal quarter ended March 29, 2014 (13 weeks); comparisons are to the quarter ended March 30, 2013 unless otherwise noted. Vishay manufactures discrete semiconductors and passive electronic components across five segments.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net revenue | $602.4 | $554.3 |
| Gross profit / margin | $145.3 / 24.1% | $136.7 / 24.7% |
| Operating income / margin | $42.6 / 7.1% | $45.6 / 8.2% |
| Net earnings attributable to Vishay stockholders | $25.8 | $28.9 |
| Diluted EPS | $0.17 | $0.19 |
| Cash from operating activities | $30.0 | $23.4 |
| Capital expenditures | $19.3 | $20.2 |
- Revenue increased 8.7%, driven principally by higher volume (+9.3%); lower average selling prices (-2.8%) partly offset growth. Currency contributed 1.0% and acquisitions 1.6%.
- Management’s non-GAAP adjusted net earnings were $30.1 million, or $0.20 per diluted share, versus $27.6 million and $0.18. These measures exclude specified comparability items and are not GAAP substitutes.
- Operating cash flow less capital expenditures was approximately $10.6 million; including $1.2 million of asset-sale proceeds, the company’s defined “free cash” was approximately $11.8 million.
Liquidity, debt and capital
- At March 29, cash and cash equivalents were $661.5 million and short-term investments were $488.7 million. Total debt was $361.9 million, leaving reported net cash and short-term investments of $788.2 million.
- Current assets were $2,024.2 million versus current liabilities of $449.7 million; the reported current ratio was 4.5 to 1. Total debt to Vishay stockholders’ equity was 0.19.
- Credit-facility borrowings were $110 million; the $640 million revolving facility expires August 2018. The company reported compliance with covenants, with interest coverage of 12.57 to 1 and leverage of 1.82 to 1.
- The board initiated the company’s first quarterly dividend: $0.06 per share, paid March 27; Q1 dividends totaled $8.9 million. Management expected 2014 dividends of approximately $35.6 million, subject to board approval.
Material changes and business trends
- Revenue rose year over year but was slightly below Q4 2013. Backlog increased to $664.2 million and book-to-bill rose to 1.09 from 0.99 in Q4, reflecting stronger order activity. Management cautioned that backlog orders may be canceled or rescheduled.
- Gross margin declined year over year, partly due to additional depreciation associated with cost-reduction programs. Sequentially, gross margin improved to 24.1% from 23.4%; operating margin fell to 7.1% from 7.6%, including $6.4 million of restructuring costs.
- Resistors & Inductors revenue grew 14.1% year over year, including acquisition contribution; MOSFETs grew 12.1% and Diodes 9.4%. Capacitors revenue declined 0.6%, with weaker renewable-energy and industrial demand cited. Average selling prices fell 1.0% sequentially.
- Cash and short-term investments increased modestly from year-end, while debt declined from $364.9 million. Substantially all cash and short-term investments were held by non-U.S. subsidiaries; repatriation could result in additional taxes.
Outlook, management commentary and risks
- For Q2 2014, management forecast revenue of $620 million to $660 million with improved gross margins. It expected 2014 capital spending of approximately $170 million and said cash generation should be in line with its history, while warning that weaker economic conditions could affect cash generation.
- Cost-reduction programs announced in October 2013 are expected to incur approximately $32 million of cash costs and deliver about $36 million in annual savings when fully implemented. The MOSFETs program accounts for expected costs of $16 million and annual savings of $23 million; the voluntary separation program is estimated at $13 million of costs and $10 million of annual savings. Implementation is ongoing.
- Key risks include global economic and end-market demand, ongoing semiconductor price erosion, foreign-exchange movements, execution of cost reductions and acquisitions, and credit-facility covenant compliance. Covenant noncompliance could permit acceleration of debt, with cross-default provisions in other debt instruments.
- No material changes to previously disclosed risk factors or market risks were reported. No material developments in previously disclosed legal proceedings were noted. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether improving orders, backlog and Q2 revenue guidance translate into sustained shipments and margins, especially given cancellable or reschedulable backlog.
- Progress, timing, total cash costs and realized savings from the restructuring programs, including the effect of additional depreciation on margins.
- Continuing average selling-price declines, particularly in semiconductor products, and the relative performance of the Capacitors segment.
- Availability and tax consequences of offshore cash, future dividend approvals, and covenant headroom under the revolving credit facility.
- The difference between reported debt carrying value and estimated fair value: the filing reports long-term debt fair value of approximately $797.1 million versus carrying value, excluding derivative liabilities, of approximately $360.8 million.