Vishay Intertechnology, Inc. — Q2 2014 Form 10-Q
Reporting period: Fiscal quarter ended June 28, 2014; comparative quarter ended June 29, 2013. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are generally shown in millions unless stated otherwise.
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 improved in nearly all customer end markets and order activity increased compared with the prior-year periods. Results also reflected cost-reduction programs and organic growth initiatives.
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $641.9m | $597.7m | $1,244.3m | $1,151.9m |
| Gross profit / margin | $164.1m / 25.6% | $142.9m / 23.9% | $309.4m / 24.9% | $279.6m / 24.3% |
| Operating income / margin | $57.9m / 9.0% | $51.9m / 8.7% | $100.5m / 8.1% | $97.5m / 8.5% |
| Net earnings attributable to Vishay stockholders | $35.6m | $31.3m | $61.5m | $60.2m |
| Diluted EPS | $0.23 | $0.21 | $0.40 | $0.40 |
| Operating cash flow | Not provided separately | Not provided separately | $99.1m | $94.1m |
Material changes and operating trends
- Quarterly revenue increased 7.4% year over year; first-half revenue increased 8.0%. Management attributed growth principally to higher volume, with foreign currency and acquisitions also contributing; lower average selling prices partially offset growth.
- Quarterly gross margin improved to 25.6% from 23.9%, primarily on increased volume. Management noted that additional depreciation tied to restructuring programs continued to weigh on margins.
- Q2 revenue rose sequentially from $602.4m in Q1 2014. The book-to-bill ratio was 1.00, down from 1.09 in Q1; backlog was $663.8m versus $664.2m at the prior quarter-end. Average selling prices fell 0.6% sequentially.
- Resistors & Inductors posted the strongest reported segment revenue growth: 12.8% in Q2 year over year. Capacitors revenue was approximately flat year over year, while its gross margin improved to 23.6% from 19.2%.
- First-half GAAP net earnings attributable to Vishay stockholders increased modestly, but diluted EPS was unchanged at $0.40. The company’s non-GAAP adjusted diluted EPS was $0.47 versus $0.38; management cautions that its non-GAAP measures are not standardized.
Cash, debt and liquidity
- At June 28, 2014, cash and cash equivalents were $659.6m and short-term investments were $514.4m. Total debt carrying value was $386.8m, up from $364.9m at December 31, 2013. Vishay reported $787.2m of net cash and short-term investments, a company-defined non-GAAP measure.
- Current assets were $2.07bn and current liabilities were $457.7m; the reported current ratio was 4.5:1. Total assets were $3.31bn and total equity was $1.92bn.
- First-half investing cash outflow was $78.8m, including $53.3m of capital expenditures and $20.8m for the Holy Stone acquisition. Cash dividends paid totaled $17.7m. Cash and equivalents increased $19.2m during the half-year.
- The revolving credit facility commitment was $640m, with $134m drawn at quarter-end. The facility matures in August 2018. Vishay reported compliance with its financial covenants; interest coverage was 13.15:1 and leverage was 1.81:1.
- Most cash and short-term investments were held by non-U.S. subsidiaries and were expected to remain reinvested abroad; repatriation could trigger additional taxes.
Outlook, unusual items and risks
- For Q3 2014, management expected revenue of $630m–$670m and gross margins in line with that volume. The range excluded any Capella revenue if its tender offer closed before quarter-end.
- Vishay forecast approximately $170m of 2014 capital spending and approximately $35.6m of 2014 dividend payments, subject to Board approval. It expected ongoing restructuring programs to generate approximately $36m in annual savings when fully implemented, at expected cash costs of approximately $32m; implementation was expected to be completed before the end of Q1 2016.
- Holy Stone Polytech, a Japanese tantalum capacitor manufacturer, was acquired June 11 for $20.8m net of cash acquired. The purchase-price allocation was preliminary; the acquisition was not material to reported consolidated results for the periods.
- After quarter-end, Vishay agreed to acquire Capella Microsystems for approximately $205m, subject to tender-offer conditions and approvals. Management anticipated using cash on hand and borrowing $50m–$60m; expected annual amortization of acquired intangible assets was more than $10m. Completion was not assured.
- Key risks include cyclical global demand, pricing pressure, currency movements, execution of cost reductions, acquisition integration and financing, and covenant compliance. Two purported antitrust class-action complaints filed in July 2014 alleged restraint of trade involving aluminum and tantalum electrolytic capacitors and sought injunctive relief and unspecified treble damages; Vishay said it intended to defend itself.
- The filing reported no material changes in previously disclosed risk factors or market risks. Management said disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the Q3 revenue outlook and margin expectations were achieved, particularly given the Q2 book-to-bill ratio of 1.00 and continued selling-price declines.
- Actual cost savings, cash restructuring costs, and timing of implementation against management’s estimates.
- Completion, funding, integration, and purchase accounting for the proposed Capella acquisition, including the expected intangible-asset amortization and added borrowing.
- Cash generation, capital spending, dividend payments, and covenant headroom, including the location and potential tax cost of overseas cash.
- Developments and potential financial exposure related to the antitrust complaints, for which the filing did not provide a damages estimate.