Business context and reporting period
Vishay Intertechnology, Inc. filed this Form 10-K for the fiscal year ended December 31, 2013. The company manufactures discrete semiconductors and passive electronic components, reported in five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Quarterly figures below refer to the fourth quarter of 2013.
Key financial metrics
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $2.371 billion | $2.230 billion |
| Gross profit / margin | $567.3 million / 23.9% | $526.7 million / 23.6% |
| Operating income / margin | $197.7 million / 8.3% | $189.2 million / 8.5% |
| Net earnings attributable to Vishay stockholders | $123.0 million | $122.7 million |
| Diluted EPS | $0.81 | $0.79 |
| Cash from operating activities | $292.1 million | $287.5 million |
| Capital expenditures | $153.1 million | $150.3 million |
Fourth-quarter 2013 revenue was $616.2 million, gross profit was $144.4 million (23.4% margin), operating income was $47.0 million, and net earnings attributable to Vishay stockholders were $30.0 million. In fourth-quarter 2012, the comparable figures were $530.6 million, $108.8 million (20.5% margin), $21.5 million, and $21.0 million, respectively.
At December 31, 2013, cash and cash equivalents were $640.3 million and short-term investments were $511.2 million. Debt was $364.9 million, resulting in reported net cash and short-term investments of $786.7 million. Working capital was $1.532 billion; the current ratio was 4.4:1. The $640 million revolving facility had $114 million drawn and $518.3 million available. The company reported a 1.86:1 leverage ratio and compliance with its credit-facility covenants.
Material changes versus comparable periods
- FY 2013 revenue rose 6.3% year over year, mainly from an 8.3% volume increase; lower average selling prices reduced growth by 3.1%. The dollar’s relative strength also increased reported revenue, and acquisitions contributed 0.8%.
- Net earnings were nearly unchanged from 2012, while diluted EPS increased from $0.79 to $0.81. Gross margin improved slightly, but operating margin declined from 8.5% to 8.3%.
- Revenue increased in four segments in 2013: Resistors & Inductors rose 10.0%, Diodes 10.2%, Optoelectronic Components 9.1%, and MOSFETs 3.6%. Capacitors revenue declined 1.9%; its gross margin fell to 20.0% from 22.0%.
- Fourth-quarter revenue increased sequentially and year over year. However, quarterly book-to-bill was 0.99, and average selling prices continued to decline, including a 0.7% sequential decline in Q4.
- Operating cash flow increased modestly year over year. Cash and cash equivalents declined, while short-term investments increased; combined cash and short-term investments exceeded debt by $786.7 million, up from $599.6 million.
Outlook, management commentary, risks and unusual items
- Management said 2013 was slightly stronger than 2012, but both years were below its expected run-rate. The second half improved overall, though it did not meet management’s expectations; Q3 distributor orders weakened suddenly and improved in Q4.
- No specific revenue or EPS guidance is provided in the supplied filing text. Management expected approximately $160 million of capital expenditures in 2014 and said available cash and operating cash flow should support normal operations, dividends, R&D, and capital plans.
- Cost-reduction programs announced in October 2013 were expected to produce approximately $36 million of annual savings at approximately $32 million of cash costs, with full implementation expected before the end of Q1 2016. The programs include MOSFET manufacturing changes, voluntary separation/early retirement, and smaller Diodes production transfers. The company recorded $2.8 million of restructuring costs in 2013.
- The Board declared Vishay’s first quarterly dividend in February 2014: $0.06 per share, payable March 27, 2014. Future dividends remain subject to Board approval and debt-agreement restrictions.
- Key risks include the cyclical electronics market, ongoing pricing pressure, customer order cancellations and distributor incentives, limited-source and volatile-cost raw materials, foreign exchange and interest-rate exposure, and geopolitical or operating risks in international locations. Approximately 75% of 2013 revenue came from customers outside the U.S.; approximately 98% of cash and short-term investments were held by non-U.S. subsidiaries, and repatriation could trigger additional taxes.
- Environmental remediation liabilities totaled approximately $22.0 million; management did not expect the matters to have a material adverse effect beyond amounts provided. The company also disclosed ongoing tax examinations and $45.9 million of unrecognized tax benefits, plus accrued interest and penalties.
- Reported results included a $1.8 million executive-compensation credit, $2.8 million of restructuring costs, and discrete tax benefits totaling approximately $4.2 million. Management’s non-GAAP adjusted net earnings were $119.5 million and adjusted diluted EPS was $0.79, versus GAAP net earnings of $123.0 million and diluted EPS of $0.81.
Important facts for investors to verify
- Whether the expected restructuring savings are realized on schedule and without impairing MOSFET capacity or customer service.
- Whether the near-1.0 Q4 book-to-bill ratio and improving revenue trend persist, given cancellable backlog and continued ASP declines.
- The cash-flow and earnings impact of planned 2014 capital spending, pension funding, and the new dividend.
- The availability and practical accessibility of offshore cash, and potential tax costs if funds are repatriated.
- The potential dilution or settlement effects of convertible and exchangeable debt, and continued compliance with credit-facility covenants.
- Updates on tax examinations, environmental remediation, and exposure to concentrated suppliers, financial institutions, and international operations.