Vishay Intertechnology, Inc. — Q3 2015 Form 10-Q
Reporting period: Fiscal quarter ended October 3, 2015; comparisons are with the fiscal quarter ended September 27, 2014. Nine-month comparisons are through October 3, 2015 versus September 27, 2014. Amounts are U.S. dollars.
Business context and results
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management said demand weakened unexpectedly in Q2 2015 and did not recover in Q3. Revenue was also affected by foreign currency movements and a temporary shutdown at its Tianjin, China diodes facility.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $560.7m | $638.2m | $1,744.6m | $1,882.5m |
| Gross profit | $130.1m | $158.4m | $416.7m | $467.8m |
| Gross margin | 23.2% | 24.8% | 23.9% | 24.8% |
| Operating income (loss) | $(24.2)m | $45.5m | $67.6m | $146.0m |
| Net earnings (loss) attributable to Vishay stockholders | $(27.7)m | $27.0m | $29.3m | $88.4m |
| Diluted earnings (loss) per share | $(0.19) | $0.17 | $0.19 | $0.57 |
Q3 revenue fell 12.2% year over year; nine-month revenue declined 7.3%. Management attributed the nine-month revenue decline primarily to foreign currency effects and lower average selling prices, partly offset by acquisitions. Q3 gross margin fell 1.6 percentage points year over year, mainly on lower volume. Q3 reported operating results included $63.0m of impairment charges and $2.3m of restructuring costs; the prior-year quarter included $15.6m of U.S. pension settlement charges.
Management’s non-GAAP adjusted net earnings were $26.2m, or $0.17 per diluted share, for Q3, compared with $40.1m, or $0.26, a year earlier. Nine-month adjusted net earnings were $87.7m, or $0.58 per diluted share, versus $112.1m, or $0.73. These company-defined measures exclude specified items and are not GAAP measures.
Segments and operating indicators
- Q3 segment revenue was lower year over year in MOSFETs (10.0%), Diodes (18.2%), Resistors & Inductors (8.8%), and Capacitors (22.0%); Optoelectronic Components grew 3.6%, including acquisition contribution.
- Capacitors and Diodes faced particularly weak revenue and margin trends. Optoelectronic revenue growth did not prevent lower gross margin, partly because Capella carried a lower margin than the existing business.
- Company backlog was $535.5m, down from $556.1m in Q2 2015; book-to-bill was 0.96. Inventory turnover was 3.82, down from 4.11 in Q2. Average selling prices declined 1.2% sequentially.
Cash, liquidity, and debt
- At October 3, 2015, cash and equivalents were $390.3m and short-term investments were $689.0m. Total debt carrying value was $431.8m, including $173.0m outstanding on the revolving credit facility. Management’s non-GAAP net cash and short-term investments measure was $647.5m.
- Current assets were $1,933.8m and current liabilities $451.1m; the reported current ratio was 4.3 to 1. Long-term debt was $431.8m; no principal payments were due before the revolving facility’s August 2018 maturity.
- Nine-month operating cash flow was $153.6m, compared with $197.0m a year earlier. Capital expenditures were $86.8m. Cash dividends paid were $26.6m.
- The $640m revolving credit facility had $173m drawn. Vishay reported compliance with its financial covenants; interest coverage was 11.06 to 1 and leverage was 2.0 to 1, against covenant limits of at least 2.0 to 1 and no more than 3.25 to 1, respectively.
Outlook, unusual items, and risks
- For Q4 2015, management expected revenue of $540m–$580m and gross margin of 21%–23%. It forecast approximately $145m of 2015 capital spending and approximately $35.4m of 2015 dividends, subject to Board approval.
- Management said Q3 results were consistent with expectations at the lower revenue level, while acknowledging weaker demand, foreign-exchange headwinds, and persistent pricing pressure. It expected ongoing cost-reduction efforts; 2015 programs were projected to produce about $35m of annual savings at about $30m cash cost when fully implemented, with completion by the end of 2017.
- Vishay recorded $57.6m of noncash impairment on Capella long-lived assets and $5.4m of goodwill impairment in Capacitors. Management said the charges did not affect liquidity, operating cash flow, or debt covenants. Siliconix tradenames were not impaired, but their fair value exceeded carrying value by a narrow margin.
- The Tianjin explosion caused facility damage and a temporary shutdown; full production resumed September 8. Vishay estimated $9.6m of damage and related costs, recorded a $4.3m insurance receivable, and recognized a net $5.35m loss. Potential business-interruption insurance recoveries were not quantified or recognized.
- The company was pursuing termination of its U.S. qualified pension plan, subject to IRS and PBGC requirements. The additional funding required was uncertain and estimated at $0–$35m.
- New purported antitrust class actions alleged restraints of trade in resistors and sought injunctive relief and unspecified treble damages. Vishay said it intended to defend the claims vigorously.
- Other principal risks described include continued economic weakness, currency and pricing pressure, execution of restructuring and acquisitions, and Capella’s performance and dependence on third-party foundries, key technical personnel, and a concentrated customer base.
Important facts for investors to verify
- Whether revenue, backlog, book-to-bill, and margins stabilize after Q3’s declines, particularly in Capacitors and Diodes.
- Whether Q4 revenue and gross-margin guidance is achieved and whether cost-reduction savings offset lower volumes and price erosion.
- Capella’s operating performance, impairment assumptions, and any further impairment exposure; also monitor the narrow valuation cushion for Siliconix tradenames.
- Insurance recovery, remaining costs, and any lasting business effects related to the Tianjin explosion.
- Funding required and timing for the U.S. pension-plan termination, alongside covenant headroom and liquidity.
- Developments in the resistor antitrust litigation and potential financial exposure; the filing does not provide a quantified loss estimate.