Vishay Intertechnology, Inc. — Q1 2013 Form 10-Q
Reporting period: Fiscal quarter ended March 30, 2013 (13 weeks). Unless otherwise stated, amounts are in millions of 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 reported improving demand and economic conditions versus the second half of 2012, particularly from distributors and in Asia, while describing conditions as still challenging and results below normal run rates.
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $554.3 | $538.5 | +2.9% |
| Gross profit | $136.7 | $136.7 | Essentially flat |
| Gross margin | 24.7% | 25.4% | -0.7 percentage points |
| Operating income | $45.6 | $50.3 | -9.4% |
| Operating margin | 8.2% | 9.3% | -1.1 percentage points |
| Net earnings attributable to Vishay stockholders | $28.9 | $33.8 | -14.4% |
| Diluted EPS | $0.19 | $0.21 | Down $0.02 |
| Operating cash flow | $23.4 | $22.6 | +$0.8 |
Revenue growth reflected 6.2% higher volume, partly offset by a 3.1% decline in average selling prices. SG&A rose to $91.1 million from $86.4 million, or 16.4% of revenue versus 16.0%; management attributed the increase mainly to less severe temporary cost reductions. Interest expense also increased by $0.8 million, primarily due to the 2042 debentures issued in 2012.
Segment performance and material changes
- MOSFETs: Revenue $100.9 million, up 6.4% year over year; gross margin 12.8% versus 11.2%.
- Diodes: Revenue $125.1 million, up 4.1%; gross margin 21.8% versus 20.9%.
- Optoelectronic Components: Revenue $56.2 million, up 11.0%; gross margin 35.2% versus 34.2%.
- Resistors & Inductors: Revenue $165.9 million, up 4.3%; gross margin 31.7% versus 34.1%.
- Capacitors: Revenue $106.2 million, down 6.8%; gross margin 22.8% versus 25.9%. Management cited European weakness and reduced renewable-energy demand.
Compared with Q4 2012, total revenue rose from $530.6 million, gross margin improved from 20.5% to 24.7%, and operating margin improved from 4.1% to 8.2%. Backlog increased to $578.1 million from $506.0 million, and the overall book-to-bill ratio improved to 1.14 from 0.95. Average selling prices nevertheless continued to decline, though the quarterly decline slowed to 0.8%.
Cash flow, debt, and liquidity
- Operating cash flow was $23.4 million. Capital expenditures were $20.2 million, compared with $16.8 million a year earlier. Using the company’s stated definition, free cash was approximately $4.0 million after capital expenditures and property-sale proceeds.
- Cash and cash equivalents were $632.8 million, down from $697.6 million at year-end; short-term investments were $352.2 million, up from $294.9 million. Cash and investments totaled $985.0 million.
- Total debt was $394.5 million, versus $392.9 million at December 31, 2012. The company reported net cash and short-term investments of $590.5 million, a non-GAAP measure.
- Current assets were $1.803 billion and current liabilities $396.6 million; the current ratio was 4.5x. Total debt to Vishay stockholders’ equity was 0.24x.
- The $528 million revolving facility had $90 million outstanding. Vishay was compliant with its covenants; leverage was 1.93x against a maximum of 3.25x, and interest coverage was 9.75x against a minimum of 2.00x.
- Substantially all cash and short-term investments were held by non-U.S. subsidiaries and expected to remain invested abroad indefinitely. Repatriation could incur additional taxes.
Cash declined by $64.8 million during the quarter, including a $10.0 million adverse effect from exchange-rate changes. Working-capital changes used $54.7 million of cash in operating activities.
Outlook, commentary, and risks
- For Q2 2013, management expected revenue of $570 million to $610 million, gross margins similar to Q1, and slightly improved operating margins.
- Management expected 2013 capital spending of approximately $165 million and said it continued to expect cash generation in line with its history, while cautioning that a worsening economy could impair cash generation.
- Management anticipated no material restructuring expenses in 2013, but noted that a significant downturn could require new restructuring actions. Acquisition-related restructuring costs may also arise.
- In Q2, Vishay signed a definitive agreement to acquire French specialty resistor and sensor manufacturer MCB Industrie S.A.; closing was expected in Q2. The company said the acquisition would expand its European industrial-market presence.
- Key risks include changes in global demand, continued price erosion, foreign-exchange movements, execution of cost programs, product-development and competitive challenges, acquisition availability and integration, and possible customer order cancellations or rescheduling. Backlog is not necessarily a reliable indicator of future revenue.
- The quarter included a $1.33 million one-time tax benefit from retroactive U.S. tax legislation. Reported diluted EPS was $0.19; adjusted diluted EPS excluding that benefit was $0.18, compared with $0.21 in Q1 2012.
- Foreign-currency translation reduced other comprehensive income by $25.1 million. The filing reported no material changes in market risks or risk factors. In the Proctor litigation, plaintiffs sought California Supreme Court review; Vishay opposed the request.
Most important facts for investors to verify
- Whether Q2 revenue reaches the $570–$610 million outlook and margins meet management’s expectations.
- Whether improving bookings and backlog translate into sustained shipments, particularly given continuing price declines and the weakness in Capacitors.
- Whether operating cash flow converts into meaningful free cash after the planned $165 million of 2013 capital spending.
- The availability and tax implications of cash held overseas, covenant headroom, and the impact of any additional borrowing or share repurchases.
- Completion and integration of the MCB Industrie acquisition, including its financial contribution and any related costs.
- The ongoing effect of foreign exchange, pension obligations, distributor incentives, and the litigation on reported results and liquidity.