Vishay Intertechnology, Inc. — Q1 2011 Form 10-Q
Reporting period: Fiscal quarter ended April 2, 2011; comparisons are with the fiscal quarter ended April 3, 2010 unless otherwise noted. Amounts are in U.S. dollars. Vishay manufactures discrete semiconductors and passive electronic components. Its July 2010 spin-off of Vishay Precision Group (VPG) means the prior-year quarter includes VPG, while Q1 2011 does not.
Financial results and liquidity
| Metric | Q1 2011 | Q1 2010 | Change / context |
|---|---|---|---|
| Net revenue | $695.2 million | $640.5 million | Up 8.5%; 2010 included VPG |
| Gross profit / margin | $214.7 million / 30.9% | $167.0 million / 26.1% | Margin up 4.8 percentage points |
| Operating income / margin | $122.2 million / 17.6% | $65.1 million / 10.2% | Margin up 7.4 percentage points |
| Net earnings attributable to Vishay stockholders | $75.3 million | $45.4 million | Includes $10.0 million one-time tax expense in 2011 |
| Diluted EPS | $0.43 | $0.24 | 2011 adjusted EPS, excluding the one-time tax expense, was $0.49 (non-GAAP) |
| Cash from continuing operations | $97.8 million | $68.0 million | Higher earnings partly offset by less favorable working-capital changes |
| Capital expenditures | $18.6 million | $18.1 million | Management expects about $175 million for full-year 2011 |
At April 2, 2011, cash and cash equivalents were $668.6 million and short-term investments were $339.4 million, for combined cash and investments of about $1.008 billion. Total debt was $432.0 million; management’s non-GAAP net cash and short-term investments measure was $576.0 million. Cash alone fell from $897.3 million at year-end, principally as $339.4 million was placed in short-term investments. Current assets were $1.956 billion versus current liabilities of $537.8 million; the current ratio was 3.6. Total debt to Vishay stockholders’ equity was 0.27.
The company had $240 million outstanding under its $450 million revolving credit facility, due December 2015. It reported compliance with its covenants, with a 42.32-to-1 interest coverage ratio and 0.80-to-1 leverage ratio. About 92% of cash and short-term investments were held by non-U.S. subsidiaries and expected to remain invested abroad; repatriation could trigger additional taxes.
Material changes and business trends
- Revenue growth reflected higher volume and selling prices, partly offset by the absence of VPG and foreign-exchange effects. Management’s bridge attributes the year-over-year change to volume (+11.0%), average selling prices (+5.1%), VPG spin-off (-7.5%), currency (-0.4%), and other (+0.3%).
- Segment revenue growth was strongest in Capacitors (+37.9%), Resistors & Inductors (+16.5%), Diodes (+13.7%), and MOSFETs (+12.0%); Optoelectronic Components declined 1.2%. Capacitors’ gross margin rose to 34.0% from 20.2%, while MOSFETs, Diodes, Optoelectronic Components, and Resistors & Inductors reported margins of 27.6%, 24.6%, 34.5%, and 35.3%, respectively.
- Management said sales had normalized to pre-recession levels and prior cost reductions supported substantially higher earnings at comparable sales volumes. Consolidated SG&A declined to $92.5 million from $101.9 million, and as a share of revenue to 13.3% from 15.9%.
- The effective tax rate increased to 35.7% from 27.3%, principally due to the one-time $10.0 million Israeli deferred-tax-asset write-down following a tax-law change. Unrecognized tax-benefit liabilities increased $2.2 million net.
- Operating cash flow exceeded the prior-year quarter. The $339.4 million purchase of short-term investments drove net investing cash use to $356.9 million and the reported cash decrease of $228.8 million.
Outlook, risks, and unusual items
For Q2 2011, management forecast revenue of $695 million to $735 million, with performance levels close to Q1. It cited a 1.01 overall book-to-bill ratio, high backlog, and strong demand; it cautioned that backlog orders can be cancelled or rescheduled, often without penalty. Management also expected continued pricing pressure on established semiconductor products, while noting strong demand and supply constraints in some capacitor products.
Management raised expected 2011 capital spending to approximately $175 million, focused on capacity for MOSFETs, Trench diodes, power film capacitors, and power inductors. It did not expect material restructuring expenses in 2011 absent another significant downturn. The company completed a $275 million repurchase of 21.7 million shares in Q4 2010; further buybacks would be considered if circumstances were advantageous.
Key risks include a stalled economic recovery and weaker end-market demand, semiconductor price erosion, foreign-exchange movements, acquisition and integration risks, product-development and technology competition, and execution of cost-reduction plans. Credit-facility covenant noncompliance could lead to acceleration of debt, with cross-default provisions in other debt. No material changes to previously disclosed risk factors or contractual commitments were reported; legal proceedings were listed as not applicable. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported revenue and earnings growth reflects underlying continuing businesses, given VPG’s inclusion in the comparison period and the different segment perimeter?
- Whether Q2 revenue guidance, backlog conversion, and book-to-bill trends were achieved; backlog is not a firm guarantee of future shipments.
- The sustainability of margins amid renewed semiconductor pricing pressure, changing product mix, and capacity expansion.
- The recurring earnings and cash-tax effects of the Israeli tax-law change, and the potential tax cost of repatriating overseas cash.
- Debt fair value, covenant headroom, and the terms and consequences of any credit-facility default or cross-default.
- Whether planned 2011 capital spending and any future shareholder returns are supported by operating cash generation.