Vishay Intertechnology, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This annual filing also reports fourth-quarter results. Vishay manufactures discrete semiconductors and passive electronic components for industrial, computing, automotive, consumer, telecommunications, power-supply, military/aerospace, and medical markets. The comparisons are affected by the July 2010 spin-off of Vishay Precision Group (VPG); 2010 revenue includes VPG through July 6, 2010, while 2011 does not.
Key financial results
| Metric | 2011 | 2010 |
|---|---|---|
| Net revenue | $2.594 billion | $2.725 billion |
| Gross profit / margin | $720.0 million / 27.8% | $807.5 million / 29.6% |
| Operating income / margin | $346.6 million / 13.4% | $417.9 million / 15.3% |
| Net earnings attributable to Vishay stockholders | $238.8 million | $359.1 million |
| Diluted earnings per share | $1.42 | $1.89 |
| Cash from continuing operating activities | $376.0 million | $545.3 million |
| Capital expenditures | $168.6 million | $145.4 million |
Management’s non-GAAP “free cash” measure is approximately $209.6 million for 2011, calculated from operating cash flow less capital expenditures plus proceeds from asset sales. The comparable calculation for 2010 is approximately $401.1 million. These non-GAAP figures are derived from the filing’s definition and cash-flow disclosures.
Fourth-quarter trend
Q4 2011 revenue was $551.4 million, down from $637.6 million in Q3 2011 and $688.6 million in Q4 2010. Q4 gross margin was 22.8%, versus 26.3% in Q3; operating margin was 6.1%, versus 11.8%. Q4 net earnings attributable to Vishay stockholders were $31.0 million and diluted EPS was $0.19, compared with $147.2 million and $0.81 in Q4 2010. Q4 2011 included a $6.5 million one-time tax benefit, primarily from releasing valuation allowances.
Balance sheet and liquidity
At December 31, 2011, cash and cash equivalents were $749.1 million and short-term investments were $249.1 million. Total debt was $399.1 million, leaving reported net cash and short-term investments of $599.2 million. Working capital was $1.391 billion; the current ratio was 4.2, compared with 3.4 a year earlier. The $450 million revolving facility had $287.0 million available, subject to its terms. Vishay reported compliance with its financial covenants, with a 21.18-to-1 interest coverage ratio and 1.10-to-1 leverage ratio.
Debt included $155 million under the revolving facility, $95.0 million of exchangeable notes due 2102, and convertible senior debentures due 2040 and 2041. The company’s debt disclosures distinguish carrying values from principal obligations, particularly for the convertible debentures. Approximately 88% of cash and short-term investments were held by non-U.S. subsidiaries and were expected to remain invested abroad; repatriation could trigger additional taxes.
Material changes versus comparable periods
- Annual revenue fell 4.8% from 2010. The filing attributes the decrease primarily to lower volume and the absence of VPG, partly offset by foreign exchange and pricing.
- Net earnings attributable to Vishay stockholders declined to $238.8 million from $359.1 million; diluted EPS fell to $1.42 from $1.89. Lower second-half demand, reduced volume, lower margins, higher interest expense, and a higher effective tax rate contributed.
- Gross margin declined 1.8 percentage points year over year. Management cited lower volume and slightly higher materials prices.
- Operating cash flow decreased by $169.2 million year over year, principally due to lower net earnings. Capital expenditures increased by $23.2 million.
- Performance weakened materially in the second half: quarterly revenue, gross margin, operating margin, backlog, and inventory turnover all declined from earlier 2011 levels. Full-year revenue by segment was mixed: MOSFETs fell 14.2%, while Diodes rose 1.9%, Optoelectronic Components 1.5%, Resistors & Inductors 2.0%, and Capacitors 5.8%.
- Common-share repurchases totaled $150 million in 2011, funded with proceeds from $150 million of 2.25% convertible debentures due 2041 and cash. The repurchase reduced the weighted-average basic share count.
Outlook, commentary, risks, and unusual items
- Management described favorable conditions in the first half of 2011 followed by macroeconomic concerns and lower demand in the final six months. Distributor inventory reduction spread from Asia to the U.S. and Europe in Q4, despite comparatively firm industrial and automotive demand. Q4 book-to-bill improved to 0.80 from 0.67 in Q3 but remained below 1.0; backlog fell to $530.2 million from $655.2 million.
- The filing provides no specific revenue or earnings forecast. Management expected 2012 capital spending of approximately $150 million and did not anticipate material restructuring expense in 2012, while noting a renewed downturn could require additional restructuring.
- The 2011 growth plan targeted adding approximately $100 million of annual revenue through acquisitions over five years, while limiting acquisition leverage under management’s stated policy. Huntington Electric was acquired in September 2011 for approximately $19.3 million. HiRel Systems was acquired on January 13, 2012, for approximately $85 million including debt repayment; it is a subsequent event, not part of 2011 results.
- 2011 included $5.8 million of executive compensation charges associated with the death of founder Felix Zandman and the former CFO’s resignation. Tax items included a $10.0 million expense from an Israeli tax-rate change and the $6.5 million Q4 benefit noted above. Together, these items had a net negative $0.04 effect on continuing-operations diluted EPS, according to the filing.
- Principal risks include the cyclical electronics market, customer and distributor inventory swings and cancellable backlog, semiconductor price erosion, competition, raw-material availability and volatility (including silicon, tantalum, palladium, and metals), foreign exchange and interest-rate exposure, and dependence on international operations. Environmental remediation liabilities totaled approximately $25.2 million; management did not expect the matters to have a material adverse effect beyond recorded provisions. Patent disputes and a Siliconix stockholder appeal were also disclosed; the filing describes routine litigation as not expected to be materially adverse.
- Management noted pension and postretirement obligations of $319.1 million on the balance sheet and expected higher net periodic pension cost in 2012. Other notable exposures include $53.8 million of uncertain tax-position liabilities and potential additional tax if foreign earnings are repatriated.
Important facts for investors to verify
- Whether demand, book-to-bill, backlog, and margins stabilized after the sharp Q4 2011 deterioration.
- How much of the reported annual decline reflects the VPG spin-off versus underlying volume and pricing, and how the company presents comparable continuing-business results.
- Cash-flow conversion and capital spending, including the sustainability of management’s non-GAAP free-cash measure.
- Debt principal, conversion and settlement terms, covenant headroom, and the effect of share repurchases on leverage and dilution.
- The location and accessibility of overseas cash, potential repatriation taxes, and concentration of cash among financial institutions.
- Integration and returns from Huntington Electric and HiRel Systems, and progress against the acquisition-growth plan.
- Changes in environmental, tax, pension, and intellectual-property exposures, including the outcome of the disclosed appeal and pending tax examinations.