VISHAY INTERTECHNOLOGY, INC.
This Management's Discussion and Analysis ("MD&A") is intended to provide an
understanding of Vishay's financial condition, results of operations and cash
flows by focusing on changes in certain key measures from period to period. The
MD&A should be read in conjunction with our Consolidated Condensed Financial
Statements and accompanying Notes included in Item 1. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed in our
Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors," filed with
the Securities and Exchange Commission on February 23, 2022 .
Overview
We operate in six segments based on product functionality: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.
We are focused on enhancing stockholder value by growing our business and improving earnings per share. Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions. We plan to continue to grow our business through intensified internal growth supplemented by opportunistic acquisitions, while at the same time maintaining a prudent capital structure. To foster intensified internal growth, we have increased our worldwide R&D and engineering technical staff; we are increasing our technical field sales force inAsia to increase our market access to the industrial segment and increase the design-in of our products in local markets; and we are directing increased funding and focus on developing products to capitalize on the connectivity, mobility, and sustainability growth drivers of our business. We are also investing in additional capital expenditures to expand key product lines. Over the next few years, we expect to experience higher growth rates than over the last decade. This expectation is based upon accelerated electrification, such as factory automation, electrical vehicles, and 5G infrastructure. In addition to enhancing stockholder value through growing our business, onFebruary 7, 2022 , our Board of Directors adopted a Stockholder Return Policy, which calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. See further discussion in "Stockholder Return Policy" below. Our business and operating results have been and will continue to be impacted by worldwide economic conditions. Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets. The worldwide economy and, specifically, our business were and continue to be impacted by the COVID-19 pandemic. While the wide-spread economic impact of the COVID-19 pandemic on Vishay was temporary as evidenced by our revenues since the beginning of 2021, similar disruptions have continued to occur on a more limited scale. Our operations inthe People's Republic of China , particularly inShanghai , were impacted by COVID-19 government mandated shut-downs in the second fiscal quarter of 2022. These manufacturing facilities were temporarily closed and some were operating at levels less than full capacity. We incurred incremental costs separable from normal operations that are directly related to the government mandated shut-downs, primarily wages paid to manufacturing employees during the shut-downs, additional wages and hardship allowances for working during lockdown periods, and temporary housing for employees due to travel restrictions, which were partially offset by government subsidies. The net impact of the costs and subsidies are reported as cost of products sold ($6.7 million ) and selling, general, and administrative expenses ($0.5 million ) based on employee function on the consolidated condensed statements of operations for the fiscal quarter and six fiscal months endedJuly 2, 2022 . We exclude from the amounts reported above any expenses incurred outside ofthe People's Republic of China and all indirect financial changes from the COVID-19 pandemic such as general macroeconomic effects and higher shipping costs due to reduced shipping capacity. In this volatile economic environment, we continue to closely monitor our fixed costs, capital expenditure plans, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs. We will react quickly and professionally to changes in demand to minimize manufacturing inefficiencies and excess inventory build in periods of decline and maximize opportunities in periods of growth. We have significant liquidity to withstand temporary disruptions in the economic environment. We utilize several financial metrics, including net revenues, gross profit margin, operating margin, segment operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business. See further discussion in "Financial Metrics" and "Financial Condition, Liquidity, and Capital Resources" below. Despite ongoing pandemic-related issues and further accelerating inflation, nearly all key financial metrics have increased versus the prior fiscal quarter and the prior year quarter. We continue to maximize manufacturing output at all facilities, increase critical manufacturing capacities, and implement broad price increases due to inflationary pressures. Order levels continue to be high and backlogs continue to increase. 24 -------------------------------------------------------------------------------- Net revenues for the fiscal quarter endedJuly 2, 2022 were$863.5 million , compared to$853.8 million and$819.1 million for the fiscal quarters endedApril 2, 2022 andJuly 3, 2021 , respectively. The net earnings attributable to Vishay stockholders for the fiscal quarter endedJuly 2, 2022 were$112.4 million , or$0.78 per diluted share, compared to$103.6 million , or$0.71 per diluted share for the fiscal quarter endedApril 2, 2022 , and$93.2 million , or$0.64 per diluted share for the fiscal quarter endedJuly 3, 2021 . Net revenues for the six fiscal months endedJuly 2, 2022 were$1,717.3 million , compared to$1,583.8 million for the six fiscal months endedJuly 3, 2021 . The net earnings attributable to Vishay stockholders for the six fiscal months endedJuly 2, 2022 were$216.0 million , or$1.49 per diluted share, compared to$164.6 million , or$1.13 per diluted share for the six fiscal months endedJuly 3, 2021 . We define adjusted net earnings as net earnings determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business. We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment. The reconciliations below include certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings, adjusted earnings per share, and free cash. These non-GAAP measures should not be viewed as alternatives to GAAP measures of performance or liquidity. Non-GAAP measures such as adjusted net earnings, adjusted earnings per share, and free cash do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results. Management believes that free cash is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. We utilize the free cash metric in defining our Stockholder Return Policy. The items affecting comparability are (in thousands, except per share amounts): Fiscal quarters ended Six fiscal months endedJuly 2, 2022
GAAP net earnings attributable to Vishay stockholders
Reconciling items affecting gross income: Impact of COVID-19 pandemic$ 6,661 $ - $ -$ 6,661 $ -
Other reconciling items affecting operating income: Impact of COVID-19 pandemic
$ 546 $ - $ - $ 546 $ -
Reconciling items affecting tax expense:
Changes in tax laws and regulations $ - $ - $ (3,881 ) $ - $ (8,276 )
Tax effects of pre-tax items above (1,802 ) - - (1,802 ) -
Adjusted net earnings $ 117,793 $ 103,573 $ 89,311 $ 221,366 $ 156,351
Adjusted weighted average diluted shares outstanding 144,397 145,553 145,445 144,978 145,453
Adjusted earnings per diluted share $ 0.82
$ 0.71 $ 0.61
The following table reconciles gross profit by segment to consolidated gross
profit. Direct cots of the COVID-19 pandemic are not allocated to the segments
as the chief operating decision maker's evaluation of segment performance does
not include these costs.
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
MOSFETs $ 55,438 $ 58,746 $ 47,434 $ 114,184 $ 84,542
Diodes 53,369 45,787 41,757 99,156 76,173
Optoelectronic Components 26,430 32,431 24,522 58,861 50,148
Resistors 70,532 65,022 57,929 135,554 111,902
Inductors 29,690 24,849 28,680 54,539 56,431
Capacitors 32,425 32,273 28,950 64,698 53,025
Unallocated gross profit (loss) (6,661 ) - - (6,661 ) -
Gross profit $ 261,223 $ 259,108 $ 229,272 $ 520,331 $ 432,221
25
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Although the term "free cash" is not defined in GAAP, each of the elements used
to calculate free cash for the year-to-date period is presented as a line item
on the face of our consolidated condensed statement of cash flows prepared in
accordance with GAAP and the quarterly amounts are derived from the year-to-date
GAAP statements as of the beginning and end of the respective quarter.
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 $ 74,727 $ 33,585 $
117,461
305 72 34 377 234
Less: Capital expenditures (59,791 ) (35,909 ) (32,183 ) (95,700 ) (60,710 )
Free cash $ 15,241 $ (2,252 ) $ 85,312 $ 12,989 $ 114,307
Our results for the fiscal quarters ended July 2, 2022 , July 3, 2021 , and July
3, 2021 represent the continuation of the favorable business conditions that we
have been experiencing. Our percentage of euro-based sales approximates our
percentage of euro-based expenses so the foreign currency impact on revenues was
substantially offset by the impact on expenses. Our pre-tax results were
consistent with expectations based on our business model.
Our free cash results were significantly impacted by a temporary inventory build
in 2022, the installment payments of the U.S. transition tax of $14.8 million in
the second fiscal quarters of 2022 and 2021, and $25.2 million of payments of
foreign, withholding, and claw-back cash taxes on foreign earnings in Israel for
the net $81.2 million that was repatriated to the U.S. in the second fiscal
quarter of 2022.
26
--------------------------------------------------------------------------------Stockholder Return Policy
OnFebruary 7, 2022 , our Board of Directors adopted a Stockholder Return Policy, which calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. We intend to return such amounts to stockholders directly, in the form of dividends, or indirectly, in the form of stock repurchases. The following table summarizes activity pursuant to this policy (in thousands): Fiscal quarter ended Six fiscal months ended July 2, 2022 July 2, 2022 Dividends paid to stockholders $ 14,339 $ 28,808 Stock repurchases 26,288 36,161 Total $ 40,627 $ 64,969
Despite the slow start in free cash in the first six fiscal months of 2022, for
the full year of 2022, we expect to return at least
As a direct result of a change in tax law inIsrael , we made the determination during the fourth quarter of 2021 that substantially all unremitted foreign earnings inIsrael are no longer permanently reinvested. We intend to primarily utilize these earnings, distributed fromIsrael tothe United States , to initially fund our Stockholder Return Program. We repatriated net$81.2 million tothe United States fromIsrael during the second fiscal quarter of 2022. The repatriated cash is being used to fund our Stockholder Return Policy. Over the long-term, we expect to fund the Stockholder Return Policy from our historically strong cash flows from operations. However, because most of our operating cash flow is typically generated by our non-U.S. subsidiaries, we may in the future need to change our permanent reinvestment assertion on current earnings of certain subsidiaries, which would have the effect of increasing the effective tax rate. Substantially all of these additional taxes would be withholding and foreign taxes on cash remitted to theU.S. , as such dividends are generally not subject toU.S. federal income tax.
The structure of our newly adopted Stockholder Return Policy enables us to allocate capital responsibly among our business, our lenders, and our stockholders. We will continue to invest in growth initiatives including key product line expansions, targeted R&D, and synergistic acquisitions.
We have paid dividends each quarter since the first quarter of 2014, and the
Stockholder Return Policy will remain in effect until such time as the Board
votes to amend or rescind the policy. Implementation of the Stockholder Return
Policy is subject to future declarations of dividends by the Board of Directors,
market and business conditions, legal requirements, and other factors. The
policy sets forth our intention, but does not obligate us to acquire any shares
of common stock or declare any dividends, and the policy may be terminated or
suspended at any time at our discretion, in accordance with applicable laws and
regulations.
27
--------------------------------------------------------------------------------Financial Metrics
We utilize several financial metrics to evaluate the performance and assess the
future direction of our business. These key financial measures and metrics
include net revenues, gross profit margin, operating margin, segment operating
income, segment operating margin, end-of-period backlog, and the book-to-bill
ratio. We also monitor changes in inventory turnover and our or publicly
available average selling prices ("ASP").
Gross profit margin is computed as gross profit as a percentage of net
revenues. Gross profit is generally net revenues less costs of products sold,
but also deducts certain other period costs, particularly losses on purchase
commitments and inventory write-downs. Losses on purchase commitments and
inventory write-downs have the impact of reducing gross profit margin in the
period of the charge, but result in improved gross profit margins in subsequent
periods by reducing costs of products sold as inventory is used. We also
regularly evaluate gross profit by segment to assist in the analysis of
consolidated gross profit. Gross profit margin and gross profit margin by
segment are clearly a function of net revenues, but also reflect our cost
management programs and our ability to contain fixed costs.
Operating margin is computed as gross profit less operating expenses, expressed
as a percentage of net revenues. Operating margin is clearly a function of net
revenues, but also reflects our cost management programs and our ability to
contain fixed costs.
Our chief operating decision maker makes decisions, allocates resources, and
evaluates business segment performance based on segment operating income. Only
dedicated, direct selling, general, and administrative ("SG&A") expenses of the
segments are included in the calculation of segment operating income. We do not
allocate certain SG&A expenses that are managed at the regional or corporate
global level to our segments. Accordingly, segment operating income excludes
these SG&A expenses that are not directly traceable to the segments. Segment
operating income would also exclude costs not routinely used in the management
of the segments in periods when those items are present, such as restructuring
and severance costs, the direct impact of the COVID-19 pandemic, and other items
affecting comparability. Segment operating income is clearly a function of net
revenues, but also reflects our cost management programs and our ability to
contain fixed costs. Segment operating margin is segment operating income
expressed as a percentage of net revenues.
End-of-period backlog is one indicator of future revenues. We include in our
backlog only open orders that we expect to ship in the next twelve months. If
demand falls below customers' forecasts, or if customers do not control their
inventory effectively, they may cancel or reschedule the shipments that are
included in our backlog, in many instances without the payment of any penalty.
Therefore, the backlog is not necessarily indicative of the results to be
expected for future periods.
An important indicator of demand in our industry is the book-to-bill ratio,
which is the ratio of the amount of product ordered during a period as compared
with the product that we ship during that period. A book-to-bill ratio that is
greater than one indicates that our backlog is building and that we are likely
to see increasing revenues in future periods. Conversely, a book-to-bill ratio
that is less than one is an indicator of declining demand and may foretell
declining revenues.
We focus on our inventory turnover as a measure of how well we are managing our
inventory. We define inventory turnover for a financial reporting period as our
costs of products sold for the four fiscal quarters ending on the last day of
the reporting period divided by our average inventory (computed using each
fiscal quarter-end balance) for this same period. A higher level of inventory
turnover reflects more efficient use of our capital.
Pricing in our industry can be volatile. Using our and publicly available data,
we analyze trends and changes in average selling prices to evaluate likely
future pricing. The erosion of average selling prices of established products
is typical for semiconductor products. We attempt to offset this deterioration
with ongoing cost reduction activities and new product introductions. Our
specialty passive components are more resistant to average selling price
erosion. All pricing is subject to governing market conditions and is
independently set by us.
28
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The quarter-to-quarter trends in these financial metrics can also be an
important indicator of the likely direction of our business. The following table
shows net revenues, gross profit margin, operating margin, end-of-period
backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our
business as a whole during the five fiscal quarters beginning with the second
fiscal quarter of 2021 through the second fiscal quarter of 2022 (dollars in
thousands):
2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter
2021 2021 2021 2022 2022
Net revenues $ 819,120 $ 813,663 $ 843,072 $ 853,793 $ 863,512
Gross profit margin(1) 28.0 % 27.7 % 27.3 % 30.3 % 30.3 %
Operating margin(2) 15.3 % 15.2 % 14.4 % 17.1 % 17.5 %
End-of-period backlog $ 2,050,200 $ 2,243,900 $ 2,306,500 $ 2,416,700 $ 2,425,200
Book-to-bill ratio 1.38 1.26 1.09 1.14 1.07
Inventory turnover 4.8 4.5 4.5 4.2 3.8
Change in ASP vs. prior quarter 1.0 % 1.3 % 1.3 % 2.4 % 2.9 %
_________________________________________
(1) Gross margin for the second fiscal quarter of 2022 includes$6.7 million of expenses directly related to the COVID-19 pandemic (see Note 2 to our consolidated condensed financial statements). (2) Operating margin for the second fiscal quarter of 2022 includes$7.2 million of expenses directly related to the COVID-19 pandemic (see Note 2 to our consolidated condensed financial statements).
See "Financial Metrics by Segment" below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment.
Revenues increased significantly versus the second fiscal quarter of 2021 primarily due to higher volume and higher average selling prices. Revenues increased slightly versus the prior fiscal quarter primarily due to higher average selling prices. We continue to experience robust demand for our products, with the backlog continuing to grow. We continue to increase manufacturing capacity, but sales continue to be limited by our capacity. Pressure on average selling prices continues to be very low and we are implementing broad price increases across the product portfolio to offset increased materials and transportation costs and accelerating general inflation.
Sequentially, gross profit margin was flat, with higher average selling prices offset by directly related COVID-19 pandemic costs. Gross profit margin increased versus the second fiscal quarter of 2021 primarily due to higher average selling prices and higher volume.
The book-to-bill ratio in the second fiscal quarter of 2022 remained strong at
1.07 versus 1.14 in the first fiscal quarter of 2022. The book-to-bill ratios
in the second fiscal quarter of 2022 for distributors and original equipment
manufacturers ("OEM") were 1.05 and 1.11, respectively, versus ratios of 1.16
and 1.13, respectively, during the first fiscal quarter of 2022.
For the third fiscal quarter of 2022, we anticipate revenues between
29
--------------------------------------------------------------------------------Financial Metrics by Segment
The following table shows net revenues, book-to-bill ratio, gross profit margin,
and segment operating margin broken out by segment for the five fiscal quarters
beginning with the second fiscal quarter of 2021 through the second fiscal
quarter of 2022 (dollars in thousands):
2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Quarter
2021 2021 2021 2022 2022
MOSFETs
Net revenues $ 167,937 $ 175,499 $ 171,339 $ 172,674 $ 158,395
Book-to-bill ratio 1.26 1.19 1.01 1.28 1.14
Gross profit margin 28.2 % 30.7 % 30.1 % 34.0 % 35.0 %
Segment operating margin 22.3 % 24.9 % 23.5 % 28.1 % 28.2 %
Diodes
Net revenues $ 174,815 $ 185,306 $ 192,117 $ 182,334 $ 192,083
Book-to-bill ratio 1.45 1.31 1.10 1.16 1.10
Gross profit margin 23.9 % 25.2 % 23.7 % 25.1 % 27.8 %
Segment operating margin 20.7 % 22.3 % 20.6 % 22.2 % 25.3 %
Optoelectronic Components Net revenues$ 75,795 $ 70,750 $ 78,398 $ 81,016 $ 77,936 Book-to-bill ratio 1.69 1.36 1.22 0.78 0.86 Gross profit margin 32.4 % 33.7 % 34.2 % 40.0 % 33.9 % Segment operating margin 26.6 % 27.9 % 27.2 % 34.8 % 28.7 % Resistors Net revenues$ 194,722 $ 181,189 $ 190,041 $ 207,032 $ 213,176 Book-to-bill ratio 1.39 1.26 1.14 1.24 1.05 Gross profit margin 29.7 % 27.4 % 28.5 % 31.4 % 33.1 % Segment operating margin 26.4 % 24.0 % 25.6 % 28.1 % 29.9 % Inductors Net revenues$ 85,539 $ 84,816 $ 81,825 $ 82,777 $ 89,608 Book-to-bill ratio 1.21 1.11 1.13 1.14 0.97 Gross profit margin 33.5 % 31.7 % 29.4 % 30.0 % 33.1 % Segment operating margin 30.7 % 28.7 % 26.4 % 26.8 % 30.0 % Capacitors Net revenues$ 120,312 $ 116,103 $ 129,352 $ 127,960 $ 132,314 Book-to-bill ratio 1.37 1.37 1.04 1.02 1.17 Gross profit margin 24.1 % 21.3 % 21.6 % 25.2 % 24.5 % Segment operating margin 19.7 % 17.2 % 17.7 % 21.4 % 20.9 % 30
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Results of Operations
Statements of operations' captions as a percentage of net revenues and the effective tax rates were as follows:
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Cost of products sold 69.7 % 69.7 % 72.0 % 69.7 % 72.7 %
Gross profit 30.3 % 30.3 % 28.0 % 30.3 % 27.3 %
Selling, general &
administrative expenses 12.8 % 13.2 % 12.7 % 13.0 % 13.2 %
Operating income 17.5 % 17.1 % 15.3 % 17.3 % 14.1 %
Income before taxes and
noncontrolling interest 17.1 % 16.0 % 14.3 % 16.5 % 12.9 %
Net earnings attributable to
Vishay stockholders 13.0 % 12.1 % 11.4 % 12.6 % 10.4 %
________
Effective tax rate 23.8 % 23.7 % 20.3 % 23.7 % 19.2 %
Net Revenues
Net revenues were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 863,512 $ 853,793 $ 819,120 $ 1,717,305 $ 1,583,752 The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in net Change in net
revenues % change revenues % change
April 2, 2022 $ 9,719 1.1 %
July 3, 2021 $ 44,392 5.4 % $ 133,553 8.4 %
Changes in net revenues were attributable to the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Change in volume -0.1 % 1.2 % 4.1 %
Increase in average selling prices 2.9 % 8.1 % 7.0 %
Foreign currency effects -1.7 % -4.1 % -3.4 %
Acquisition 0.0 % 0.4 % 0.4 %
Other 0.0 % -0.2 % 0.3 %
Net change 1.1 % 5.4 % 8.4 %
We continue to experience an excellent economic environment with strong customer
demand while we continue to increase manufacturing capacities. Due to the high
demand, we were able to implement broad price increases across the product
portfolio. Net revenues increased significantly versus the fiscal quarter and
six fiscal months ended July 3, 2021 and slightly versus the prior fiscal
quarter primarily due to increases in average selling prices. Increased volume
also contributed to the increase versus the fiscal quarter and six fiscal months
ended July 3, 2021 . Volume in the second fiscal quarter of 2022 was impacted by
a two-month government mandated shut-down of two facilities in Shanghai ,
People's Republic of China , in response to the COVID-19 pandemic.
Gross Profit Margins
Gross profit margins for the fiscal quarter endedJuly 2, 2022 were 30.3%, versus 30.3% and 28.0%, for the comparable prior quarter and prior year period, respectively. Gross profit margins for the six fiscal months endedJuly 2, 2022 were 30.3%, versus 27.3% for the comparable prior year period. The increases versus the prior year periods are primarily due to higher average selling prices and increased volume, partially offset by inflationary impacts, particularly increased metals and transportation costs. The gross profit margin was flat versus the prior fiscal quarter as higher average selling prices were offset by inflationary impacts, particularly increased metals and transportation costs and direct costs of the COVID-19 pandemic. 31 --------------------------------------------------------------------------------
Segments
Analysis of revenues and margins for our segments is provided below. Direct costs of the COVID-19 pandemic are not allocated to the segments.
MOSFETs
Net revenues, gross profit margins, and segment operating margins of the MOSFETs segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 158,395 $ 172,674 $
167,937
35.0 % 34.0 % 28.2 % 34.5 % 26.3 %
Segment operating margin 28.2 % 28.1 % 22.3 % 28.1 % 20.2 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ -14,279 -8.3 % n/a n/a
July 3, 2021 $ -9,542 -5.7 % $ 9,909 3.1 %
Changes in MOSFETs segment net revenues were attributable to the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Decrease in volume -11.9 % -14.9 % -5.5 %
Increase in average selling prices 5.3 % 15.3 % 11.5 %
Foreign currency effects -0.8 % -1.9 % -1.7 %
Other -0.9 % -4.2 % -1.2 %
Net change -8.3 % -5.7 % 3.1 %
The MOSFET segment net revenues decreased significantly versus the prior fiscal
quarter and prior year quarter, but increased moderately versus the prior
year-to-date period. Our results for the second fiscal quarter were
significantly impacted by the two-month government mandated COVID-19 shut-down
in Shanghai , People's Republic of China that required an almost complete closure
of our main manufacturing facility. Increased sales of our products that are
not assembled in Shanghai , particularly our IC products, partially offset the
impact of the shut-down. The increase versus the prior year-to-date period was
primarily due to our IC products.
Gross profit margin increased versus the prior fiscal quarter and especially
versus the prior year periods. The increases were primarily due to increased
average selling prices, the positive impact of an inventory increase, and our
cost reduction measures, partially offset by significant cost inflation and a
decrease in volume. The increases versus the prior year periods were also
supported by a positive change in the sales mix toward more profitable products
such as ICs.
The segment operating margin increased versus the prior fiscal quarter and prior
year periods. The increases are primarily due to increased gross profit.
Increased segment SG&A expenses primarily due to increased R&D activity limited
the increases.
We continue to implement strategic price increases. Average selling prices increased versus the prior fiscal quarter and the prior year periods.
We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines. We have begun building a 12-inch wafer fab inItzehoe, Germany adjacent to our existing 8-inch wafer fab, which we expect will increase our in-house wafer capacity by approximately 70% within 3-4 years and allow us to balance our in-house and foundry wafer supply. 32 --------------------------------------------------------------------------------
Diodes
Net revenues, gross profit margins, and segment operating margins of the Diodes segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 192,083 $ 182,334 $
174,815
27.8 % 25.1 % 23.9 % 26.5 % 22.9 %
Segment operating margin 25.3 % 22.2 % 20.7 % 23.8 % 19.6 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ 9,749 5.3 % n/a n/a
July 3, 2021 $ 17,268 9.9 % $ 42,424 12.8 %
Changes in Diodes segment net revenues were attributable to the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Increase in volume 1.7 % 0.9 % 4.0 %
Increase in average selling prices 5.2 % 13.0 % 11.2 %
Foreign currency effects -1.6 % -3.7 % -3.0 %
Other 0.0 % -0.3 % 0.6 %
Net change 5.3 % 9.9 % 12.8 %
Net revenues of the Diodes segment increased moderately versus the prior fiscal
quarter and significantly versus the prior year periods. All end markets and
all customer channels, particularly distributor customers, contributed to the
increases. The increases were limited by extended government mandated COVID-19
shut-downs of our manufacturing facilities in the People's Republic of China ,
particularly Shanghai .
Gross profit margin increased versus the prior fiscal quarter and the prior year
periods. The increases are primarily due to increased average selling prices,
our cost reduction measures, and increases in sales volume, partially offset by
significant cost inflation. Foreign currency exchange impacts, particularly the
weaker euro, negatively impacted the gross profit margin versus the prior fiscal
quarter and the prior year-to-date period.
The segment operating margin increased versus the prior fiscal quarter and the
prior year periods. The increases are primarily due to increased gross profit.
Decreased segment SG&A expenses versus the prior year periods contributed to the
increases.
We continue to implement strategic price increases across the product portfolio. Average selling prices increased versus the prior fiscal quarter and prior year periods.
33
--------------------------------------------------------------------------------Optoelectronic Components
Net revenues, gross profit margins, and segment operating margins of the Optoelectronic Components segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 Net revenues $$ 77,936 $$ 81,016 $
33.9 % 40.0 % 32.4 % 37.0 % 32.7 %
Segment operating margin 28.7 % 34.8 % 26.6 % 31.8 % 26.9 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ -3,080 -3.8 % n/a n/a
July 3, 2021 $ 2,141 2.8 % 5,386 3.5 %
Changes in Optoelectronic Components segment net revenues were attributable to
the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Change in volume -3.9 % 0.3 % -0.7 %
Increase in average selling prices 2.5 % 8.0 % 8.4 %
Foreign currency effects -2.1 % -5.4 % -4.0 %
Other -0.3 % -0.1 % -0.2 %
Net change -3.8 % 2.8 % 3.5 %
Net revenues of our Optoelectronic Components segment decreased moderately
versus the prior fiscal quarter but increased slightly versus the prior year
quarter and moderately versus the prior year-to-date period. All end markets
and all customer channels contributed to the decrease versus the prior fiscal
quarter, particularly customers in the Asia region. The increases versus the
prior year periods were due to a significant increase in sales to customers in
the Americas region and a moderate increase in sales to customers in the Europe
region, partially offset by significant decrease in sales to customers in the
Asia region. The increases versus the prior year periods were primarily due to
increased average selling prices, partially offset by negative foreign currency
impacts.
Gross profit margin decreased versus the prior fiscal quarter but increased versus the prior year periods. The decrease versus the prior fiscal quarter is primarily due to cost inflation and the negative impact of an inventory decrease, partially offset by higher average selling prices. The increases versus the prior year periods are primarily due to higher average selling prices, a more profitable product mix, and our cost reduction measures, partially offset by cost inflation.
The segment operating margin decreased versus the prior fiscal quarter, but increased versus the prior year periods. The fluctuations are primarily due to fluctuations in gross profit margin. Decreased segment SG&A expenses, primarily due to the weaker euro, positively impacted the segment operating margin. The strategic price increases that were implemented throughout the prior year across the product portfolio are significant when comparing to the prior year quarter. Average selling prices increased slightly versus the prior fiscal quarter and significantly versus the prior year periods
We are now using our recently modernized and expanded wafer fab in
34
--------------------------------------------------------------------------------Resistors
Net revenues, gross profit margins, and segment operating margins of the Resistors segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 213,176 $ 207,032 $
194,722
33.1 % 31.4 % 29.7 % 32.3 % 29.3 %
Segment operating margin 29.9 % 28.1 % 26.4 % 29.0 % 25.9 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ 6,144 3.0 % n/a n/a
July 3, 2021 $ 18,454 9.5 % $ 38,884 10.2 %
Changes in Resistors segment net revenues were attributable to the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Increase in volume 3.9 % 10.7 % 9.9 %
Increase in average selling prices 1.3 % 3.2 % 3.3 %
Foreign currency effects -2.3 % -5.8 % -4.8 %
Acquisition 0.0 % 1.7 % 1.8 %
Other 0.1 % -0.3 % 0.0 %
Net change 3.0 % 9.5 % 10.2 %
Net revenues of the Resistors segment increased slightly versus the prior fiscal
quarter and significantly versus the prior year periods. The increase versus
the prior fiscal quarter is primarily due to increased sales to Americas and
Asia region customers and distributor customers, which was partially offset by
decreased sales to Europe region customers and automotive and industrial end
market customers. The increase versus the prior year periods is primarily due
to increased sales to customers in all regions, particularly the Americas
region, distributor customers, and industrial end market customers. The
acquisition of Barry Industries also contributed to the increase in net revenues
versus the prior year periods.
The gross profit margin increased versus the prior fiscal quarter and prior year
periods. The increase versus the prior fiscal quarter is primarily due to
increased average selling prices, higher sales volume, improved efficiencies,
and fixed costs control measures, partially offset by significant metal price
increases, increased material procurement costs, and negative foreign currency
exchange rate impacts. The increases versus the prior year periods are
primarily due to increased sales volume, higher average selling prices, and
greater efficiencies, partially offset by metal price increases, increased
material procurement costs, increased labor costs, and negative foreign currency
exchange rate impacts.
The segment operating margin increased versus the prior fiscal quarter and prior year periods. The increases are primarily due to increased gross profit.
Average selling prices increased versus the prior fiscal quarter and prior year periods.
We are increasing critical manufacturing capacities for certain product lines.
We continue to broaden our business with targeted acquisitions of specialty
resistors businesses, such as
35
--------------------------------------------------------------------------------Inductors
Net revenues, gross profit margins, and segment operating margins of the Inductors segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 89,608 $ 82,777 $
85,539
33.1 % 30.0 % 33.5 % 31.6 % 33.4 %
Segment operating margin 30.0 % 26.8 % 30.7 % 28.5 % 30.5 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ 6,831 8.3 % n/a n/a
July 3, 2021 $ 4,069 4.8 % $ 3,388 2.0 %
Changes in net revenues were attributable to the following:
vs. Prior vs. Prior vs. Prior
Quarter Year Quarter Year-to-Date
Change attributable to:
Increase in volume 8.0 % 4.7 % 2.0 %
Increase in average selling prices 1.0 % 1.9 % 1.5 %
Foreign currency effects -0.8 % -1.9 % -1.5 %
Other 0.1 % 0.1 % 0.0 %
Net change 8.3 % 4.8 % 2.0 %
Net revenues of the Inductors segment increased significantly versus the prior
fiscal quarter, moderately versus the prior year quarter, and slightly versus
the prior year-to-date period. The increase versus the prior fiscal quarter is
primarily due to increased sales to customers in all regions, particularly the
Americas region, and increased sales to distribution and EMS customers, and
automotive end market customers. The increase versus the prior year periods is
primarily due to increased sales to customers in the Europe and Americas
regions, partially offset by decreased sales to customers in the Asia region.
The increase versus the prior year quarter is also due to increased sales to EMS
customers and military and aerospace and automotive end market customers. The
increase versus the prior year-to-date period is also due to increased sales to
distribution and EMS customers and military and aerospace end market customers.
The gross profit margin increased versus the prior fiscal quarter, but decreased
versus the prior year periods. The increase versus the prior fiscal quarter is
primarily due to higher sales volume, increased average selling prices, improved
efficiencies, and lower logistics costs, partially offset by increased materials
costs. The decreases versus the prior year periods are primarily due to the
impact from higher logistics, labor, and material costs as well as negative
foreign currency exchange rate impacts, partially offset by higher volume,
increased average selling prices, and other cost reduction measures.
The segment operating margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The fluctuations are primarily due to gross profit fluctuations.
Average selling prices increased versus the prior fiscal quarter and the prior year periods.
We expect long-term growth in this segment, and are continuously expanding manufacturing capacity for certain product lines and evaluating acquisition opportunities, particularly of specialty businesses.
36
--------------------------------------------------------------------------------Capacitors
Net revenues, gross profit margins, and segment operating margins of the Capacitors segment were as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net revenues $ 132,314 $ 127,960 $
120,312
24.5 % 25.2 % 24.1 % 24.9 % 23.4 %
Segment operating margin 20.9 % 21.4 % 19.7 % 21.1 % 18.8 %
The change in net revenues versus the comparable prior periods was as follows
(dollars in thousands):
Fiscal quarter ended Six fiscal months ended
July 2, 2022 July 2, 2022
Change in Change in
net revenues % change net revenues % change
April 2, 2022 $ 4,354 3.4 % n/a n/a
July 3, 2021 $ 12,002 10.0 % $ 33,562 14.8 %
Changes in Capacitors segment net revenues were attributable to the following:
vs. Prior vs. Prior Year vs. Prior
Quarter Quarter Year-to-Date
Change attributable to:
Increase in volume 4.8 % 10.0 % 14.4 %
Increase in average selling prices 0.9 % 5.8 % 5.1 %
Foreign currency effects -2.2 % -5.7 % -4.9 %
Other -0.1 % -0.1 % 0.2 %
Net change 3.4 % 10.0 % 14.8 %
Net revenues of the Capacitors segment increased moderately versus the prior
fiscal quarter and significantly versus the prior year periods. The increase
versus the prior fiscal quarter is primarily due to increased sales to customers
in the Europe and Americas regions and industrial end market customers. The
increase versus the prior year quarter is primarily due to increased sales to
customers in the Americas and Asia regions, EMS customers, and industrial end
market customers. The increase versus the prior year-to-date period is
primarily due to increased sales to customers in all regions, particularly the
Americas region, distributor and EMS customers, and industrial end market
customers.
The gross profit margin decreased versus the prior fiscal quarter, but increased
versus the prior year periods. The decrease versus the prior fiscal quarter is
primarily due to increased metals prices and negative impact from decreased
inventory, partially offset by increased volume, increased average selling
prices, and favorable product mix. The increases versus the prior year periods
are primarily due to higher sales volume, increased average selling prices, and
favorable product mix, partially offset by increased materials and labor costs
and manufacturing inefficiencies.
The segment operating margin decreased versus the prior fiscal quarter, but increased versus the prior year periods. The fluctuations are primarily due to gross profit fluctuations.
Average selling prices increased versus the prior fiscal quarter and the prior year periods.
37
--------------------------------------------------------------------------------Selling, General, and Administrative Expenses
Selling, general, and administrative ("SG&A") expenses are summarized as follows (dollars in thousands):
Fiscal quarters ended Six fiscal months ended
July 2, 2022 April 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Total SG&A expenses $ 110,400 $ 112,855 $ 103,900 $ 223,255 $ 209,585
as a percentage of revenues 12.8 % 13.2 % 12.7 % 13.0 % 13.2 %
The sequential decrease in SG&A expenses is primarily attributable to uneven
attribution of stock compensation expense in the first fiscal quarter of the
year and foreign currency exchange impacts. SG&A expenses increased versus the
prior year quarter due to cost inflation. SG&A expenses for the fiscal quarter
and six fiscal months ended July 2, 2022 include $0.5 million of incremental
costs separable from normal operations directly attributable to COVID-19
government mandated shut-downs incurred in our People's Republic of China
facilities.
Other Income (Expense)
Interest expense for the fiscal quarter endedJuly 2, 2022 increased$0.1 million versus the fiscal quarter endedApril 2, 2022 and decreased$0.1 million versus the fiscal quarter endedJuly 3, 2021 . Interest expense for the six fiscal months endedJuly 2, 2022 decreased by$0.3 million versus the six fiscal months endedJuly 3, 2021 .
The following tables analyze the components of the line "Other" on the consolidated condensed statements of operations (in thousands):
Fiscal quarters ended
July 2, 2022 July 3, 2021 Change
Foreign exchange gain (loss) $ 6,514 $ (1,824 ) $ 8,338
Interest income 789 325 464
Other components of net periodic pension expense (2,803 ) (3,305 ) 502
Investment income (2,858 ) 1,055 (3,913 )
Other (262 ) - (262 )
$ 1,380 $ (3,749 ) $ 5,129
Fiscal quarters ended
July 2, 2022 April 2, 2022 Change
Foreign exchange gain (loss) $ 6,514 $ (281 ) $ 6,795
Interest income 789 561 228
Other components of net periodic pension expense (2,803 ) (2,910 ) 107
Investment income (expense) (2,858 ) (3,116 ) 258
Other (262 ) (5 ) (257 )
$ 1,380 $ (5,751 ) $ 7,131
Six fiscal months ended
July 2, 2022 July 3, 2021 Change
Foreign exchange gain (loss) $ 6,233 $ (2,435 ) $ 8,668
Interest income 1,350 612 738
Other components of net periodic pension expense (5,713 ) (6,607 ) 894
Investment income (expense) (5,974 ) (1,066 ) (4,908 )
Other (267 ) 16 (283 )
$ (4,371 ) $ (9,480 ) $ 5,109
38--------------------------------------------------------------------------------
Income Taxes
For the fiscal quarter endedJuly 2, 2022 , our effective tax rate was 23.8%, as compared to 23.7% and 20.3% for the fiscal quarters endedApril 2, 2022 andJuly 3, 2021 , respectively. For the six fiscal months endedJuly 2, 2022 , our effective tax rate was 23.7%, as compared to 19.2% for the six fiscal months endedJuly 3, 2021 . With the reduction in theU.S. statutory rate to 21% beginningJanuary 1, 2018 , we expect that our effective tax rate will be higher than theU.S. statutory rate, excluding unusual transactions. Discrete tax items impacted our effective tax rate for the 2021 periods presented. These items were$(3.9) million and$(8.3) million (tax benefits) in the fiscal quarter and six fiscal months endedJuly 3, 2021 . We repatriated$81.2 million tothe United States in the second fiscal quarter of 2022 pursuant to the repatriation program initiated in response to a change in Israeli tax law. We paid withholding taxes, foreign taxes, and Israeli clawback taxes of$25.2 million due to the repatriation. Tax expense for the repatriation was recorded in 2021 when the tax law was enacted.
During the six fiscal months ended
We operate in a global environment with significant operations in various locations outsidethe United States . Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives.
Additional information about income taxes is included in Note 4 to our consolidated condensed financial statements.
39
--------------------------------------------------------------------------------Financial Condition, Liquidity, and Capital Resources
Our financial condition as ofJuly 2, 2022 continued to be strong. Cash and short-term investments exceed our long-term debt balances, and we have historically been a strong generator of operating cash flows. The cash generated from operations is used to fund our capital expenditure plans, and cash in excess of our capital expenditure needs is available to fund our acquisition strategy, to reduce debt levels, and to pay dividends and repurchase stock. We have generated cash flows from operations in excess of$200 million in each of the last 20 years, and cash flows from operations in excess of$100 million in each of the last 27 years. Management uses a non-GAAP measure, "free cash," to evaluate our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. See "Overview" above for "free cash" definition and reconciliation to GAAP. Vishay has generated positive "free cash" in each of the past 25 years, and "free cash" in excess of$80 million in each of the last 20 years. In this volatile economic environment, we continue to focus on the generation of free cash, including an emphasis on cost controls.
Cash flows provided by operating activities were
Cash paid for property and equipment for the six fiscal months endedJuly 2, 2022 was$95.7 million , as compared to$60.7 million for the six fiscal months endedJuly 3, 2021 . To be well positioned to service our customers and to fully participate in growing markets, we intend to increase our capital expenditures for expansion in the mid-term. For the year 2022, we expect to invest approximately$325 million in capital expenditures. Free cash flow was lower than historical levels in the six fiscal months endedJuly 2, 2022 due to working capital changes, higher than usual capital expenditures, and cash taxes paid for repatriation. We expect our business to continue to be a reliable generator of free cash. There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash at our historical levels, or at all, going forward if the economic environment worsens. The COVID-19 pandemic and the mitigation efforts by governments to control its spread have not had a significant impact on our financial condition, liquidity, or capital resources.
On
The following table summarizes the components of net cash and short-term
investments (debt) at
July 2, 2022 December 31, 2021
Credit facility $ 6,000 $ -
Convertible senior notes, due 2025 465,344 465,344
Deferred financing costs (8,042 ) (9,678 )
Total debt 463,302 455,666
Cash and cash equivalents 765,593 774,108
Short-term investments 81,112 146,743
Net cash and short-term investments (debt)
"Net cash and short-term investments (debt)" does not have a uniform definition and is not recognized in accordance with GAAP. This measure should not be viewed as an alternative to GAAP measures of performance or liquidity. However, management believes that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. The measure, as calculated by us, may not be comparable to similarly titled measures used by other companies. We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated balance sheets. As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt).
The interest rates on our short-term investments vary by location. Transactions related to these investments are classified as investing activities on our consolidated condensed statements of cash flows.
40
--------------------------------------------------------------------------------
As of July 2, 2022 , substantially all of our cash and cash equivalents and
short-term investment were held in countries outside of the United States . Cash
dividends to stockholders, share repurchases, and principal and interest
payments on our debt instruments need to be paid by the U.S. parent company,
Vishay Intertechnology, Inc. Our U.S. subsidiaries also have cash operating
needs. The distribution of earnings from Israel to the United States will
initially be used to fund our Stockholder Return Policy. We expect that cash
on-hand and cash flows from operations will be sufficient to meet our
longer-term financing needs related to normal operating requirements, regular
dividend payments, share repurchases pursuant to our Stockholder Return Policy,
and our research and development and capital expenditure plans. Our
substantially undrawn credit facility provides us with significant operating
liquidity in the United States .
Our revolving credit facility provides an aggregate commitment of $750 million
of revolving loans available until June 5, 2024 . The maximum amount available
on the revolving credit facility is restricted by the financial covenants
described below. The credit facility also provides us the ability to request up
to $300 million of incremental facilities, subject to the satisfaction of
certain conditions, which could take the form of additional revolving
commitments, incremental "term loan A" or "term loan B" facilities, or
incremental equivalent debt.
At December 31, 2021 , we had no amounts outstanding on our revolving credit
facility. We had $6 million outstanding at July 2, 2022 . We borrowed $504
million and repaid $498 million on the revolving credit facility during the six
fiscal months ended July 2, 2022 . The average outstanding balance on our
revolving credit facility calculated at fiscal month-ends was $62.5 million and
the highest amount outstanding on our revolving credit facility at a fiscal
month end was $124 million during the six fiscal months ended July 2, 2022 .
The revolving credit facility limits or restricts us from, among other things,
incurring indebtedness, incurring liens on its respective assets, making
investments and acquisitions (assuming our pro forma leverage ratio is greater
than 2.75 to 1.00), making asset sales, and paying cash dividends and making
other restricted payments (assuming our pro forma leverage ratio is greater than
2.50 to 1.00), and requires us to comply with other covenants, including the
maintenance of specific financial ratios.
The financial maintenance covenants include (a) an interest coverage ratio of
not less than 2.00 to 1; and (b) a leverage ratio of not more than 3.25 to 1
(and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional
debt). The computation of these ratios is prescribed in Article VI of the Credit
Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A .,
which has been filed with the SEC as Exhibit 10.1 to our current report on Form
8-K filed June 5, 2019 .
We were in compliance with all financial covenants under the credit facility at
July 2, 2022 . Our interest coverage ratio and leverage ratio were 32.03 to 1
and 0.67 to 1, respectively. We expect to continue to be in compliance with
these covenants based on current projections.
If we are not in compliance with all of the required financial covenants, the
credit facility could be terminated by the lenders, and any amounts then
outstanding pursuant to the credit facility could become immediately payable.
Additionally, our convertible senior notes due 2025 have cross-default
provisions that could accelerate repayment in the event the indebtedness under
the credit facility is accelerated.
Borrowings under the credit facility bear interest at LIBOR plus an interest
margin. The applicable interest margin is based on our leverage ratio. We also
pay a commitment fee, also based on our leverage ratio, on undrawn amounts.
Based on our current leverage ratio, any new borrowings will bear interest at
LIBOR plus 1.50%, and the undrawn commitment fee is 0.25% per annum.
The borrowings under the credit facility are secured by a lien on substantially
all assets, including accounts receivable, inventory, machinery and equipment,
and general intangibles (but excluding real estate, intellectual property
registered or licensed solely for use in, or arising solely under the laws of,
any country other than the United States , assets located solely outside of the
United States and deposit and securities accounts), of Vishay and certain
significant subsidiaries located in the United States , and pledges of stock in
certain significant domestic and foreign subsidiaries; and are guaranteed by
certain significant subsidiaries.
We expect, at least initially, to fund certain future obligations required to be
paid by the U.S. parent company by borrowing under our revolving credit
facility. We also expect to continue to use the credit facility from
time-to-time to meet certain short-term financing needs. Additional acquisition
activity, convertible debt repurchases, or conversion of our convertible debt
instruments may require additional borrowing under our credit facility or may
otherwise require us to incur additional debt. No principal payments on our
debt are due before our revolving credit facility expires in June 2024 .
The convertible senior notes due 2025 are not currently convertible. Pursuant
to the indenture governing the convertible senior notes due 2025 and the
amendments thereto incorporated in the Supplemental Indenture dated December 23,
2020 , we will cash-settle the principal amount of $1,000 per note and settle any
additional amounts in shares of our common stock. We intend to finance the
principal amount of any converted notes using borrowings under our credit
facility. No conversions have occurred to date.
41
--------------------------------------------------------------------------------Safe Harbor Statement
From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should," or other similar words or expressions often identify forward-looking statements. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements may vary materially from those anticipated, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; delays or difficulties in implementing our cost reduction strategies; delays or difficulties in expanding our manufacturing capacities; manufacturing or supply chain interruptions or changes in customer demand because of COVID-19 or otherwise; an inability to attract and retain highly qualified personnel; changes in foreign currency exchange rates; uncertainty related to the effects of changes in foreign currency exchange rates; competition and technological changes in our industries; difficulties in new product development; difficulties in identifying suitable acquisition candidates, consummating a transaction on terms which we consider acceptable, and integration and performance of acquired businesses; changes in applicable domestic and foreign tax regulations and uncertainty regarding the same; changes inU.S. and foreign trade regulations and tariffs and uncertainty regarding the same; changes in applicable accounting standards and other factors affecting our operations, markets, capacity to meet demand, products, services, and prices that are set forth in our filings with theSEC , including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Our 2021 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from projected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading "Risk Factors." You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
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