Vishay Intertechnology, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; the filing also reports fourth-quarter results. Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, telecommunications, consumer, and other markets.
Financial performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net revenue | $2.604 billion | $2.323 billion |
| Gross profit / margin | $699.6 million / 26.9% | $569.8 million / 24.5% |
| Operating income / margin | $311.6 million / 12.0% | $101.7 million / 4.4% |
| Net earnings (loss) attributable to Vishay stockholders | $(20.3) million; $(0.14) per diluted share | $48.8 million; $0.32 per diluted share |
| Adjusted net earnings / adjusted diluted EPS (non-GAAP) | $224.3 million / $1.43 | $128.2 million / $0.85 |
| Cash from operating activities | $368.8 million | $296.5 million |
| Capital expenditures / free cash (non-GAAP) | $170.4 million / $200.0 million | $134.6 million / $167.6 million |
Revenue grew 12.1% year over year, primarily on 14.8% higher volume; lower average selling prices reduced growth by 2.6%. Gross-margin expansion reflected increased volume and cost reductions. FY 2017 reported net loss was principally attributable to a provisional $234.9 million tax expense related to the Tax Cuts and Jobs Act (TCJA), rather than weaker operating performance.
Fourth-quarter operating indicators
- Revenue was $674.5 million, slightly below Q3 2017’s $677.9 million and above Q4 2016’s $570.8 million.
- Gross margin was 26.2%; company-reported operating margin was 10.8%.
- Backlog reached $1.320 billion; book-to-bill was 1.28, and sequential average selling prices declined 0.2%.
- Quarterly net loss attributable to Vishay stockholders was $177.7 million, including the $234.9 million provisional TCJA tax expense.
Liquidity, debt, and capital allocation
- At year-end, cash and cash equivalents were $748.0 million and short-term investments were $547.1 million. Total debt carrying value was $370.5 million, leaving net cash and short-term investments of $924.7 million.
- Working capital was $1.628 billion and the current ratio was 3.9, down from 4.1 a year earlier. The $640 million revolving facility had $486.2 million available; the company reported compliance with its covenants.
- Operating cash flow increased to $368.8 million. Capital expenditures rose to $170.4 million. Management expects approximately $210 million of capital spending in 2018.
- FY 2017 dividends paid were $37.0 million. Management expected approximately $38.9 million of 2018 dividends, subject to Board approval. The company repurchased 2.25 million shares for $39.9 million under its 2017 plan.
- Approximately 99% of cash and short-term investments were held outside the U.S. Management provisionally expected $180 million of net TCJA transition-tax payments, payable over eight years.
Changes, outlook, and notable items
- Revenue increased across all five segments in 2017. Resistors & Inductors was the largest segment by revenue at $844.1 million; MOSFETs had the strongest gross-margin improvement, from 14.3% to 23.4%.
- High demand continued through Q4, with many product lines at or near capacity. Management reported longer delivery lead times and some supply shortages, and said capacity expansion was underway.
- Cost-reduction programs were substantially completed by year-end. Management said it did not anticipate material restructuring activity in 2018. It expected annual savings of approximately $35 million from 2015 programs and $8–9 million from the extended MOSFETs program, largely achieved by late 2017.
- No specific revenue or earnings guidance was provided. The company’s stated growth strategy emphasizes R&D, added capacity, Asian market development, and acquisitions, targeting an average of approximately $100 million of acquired revenue annually.
- The TCJA tax provision is provisional and may be adjusted as the company completes its analysis. Management expects incremental U.S. tax on GILTI income beginning in 2018 and was still evaluating the effects of GILTI, BEAT, and interest-deduction limits.
- Other notable items: a $6.1 million loss on disposal of an equity-method investment; $11.3 million of restructuring and severance expense; and a $13.3 million accrued environmental liability. A February 2018 acquisition of UltraSource for approximately $13.4 million was a subsequent event.
Risks and contingencies
- The business is cyclical and exposed to demand downturns, pricing pressure, customer order cancellations, and concentration among distributors and large customers. Backlog is not a guarantee of future shipments.
- Capacity constraints could limit the company’s ability to meet demand; excess capacity could result if demand weakens. Raw-material availability and price volatility, especially for silicon, tantalum, palladium, and other metals, may affect supply and margins.
- Foreign exchange, interest rates, and international political or operating conditions may affect results. A modeled 10% adverse currency movement was estimated to reduce net earnings by approximately $9 million; a 50-basis-point interest-rate change was estimated to affect annualized net earnings by approximately $4 million.
- Cash is concentrated outside the U.S.; the company’s ability to fund U.S. obligations depends partly on accessing or repatriating foreign cash. Convertible debentures due 2040 and 2042 were convertible at year-end; the company intends to pay principal in cash and settle additional conversion value in shares.
- Vishay is involved in capacitor antitrust class-action matters in the U.S. and Canada; Holy Stone has agreed to indemnify Vishay and its subsidiary for related losses and expenses. The company also faces patent disputes and ongoing environmental remediation matters. Management did not expect these matters to have a material adverse effect, but outcomes remain uncertain.
Most important facts for investors to verify
- How the provisional $234.9 million TCJA expense and expected $180 million transition-tax payments are ultimately revised and funded.
- Whether elevated backlog converts to shipments and revenue, given capacity constraints, lead times, and cancellable customer orders.
- Whether margin gains and planned capacity investments persist as volume, pricing, raw-material costs, and exchange rates change.
- Cash availability for U.S. obligations, revolver capacity and covenant compliance, and potential dilution or borrowing associated with convertible debentures.
- Developments in antitrust, intellectual-property, environmental, and tax matters, including any material change in estimated exposure.