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 theSecurities and Exchange Commission onFebruary 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. 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 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. Order levels continue to be high and backlogs have increased. 21 -------------------------------------------------------------------------------- Net revenues for the fiscal quarter endedApril 2, 2022 were$853.8 million , compared to$843.1 million and$764.6 million for the fiscal quarters endedDecember 31, 2021 andApril 3, 2021 , respectively. The net earnings attributable to Vishay stockholders for the fiscal quarter endedApril 2, 2022 were$103.6 million , or$0.71 per diluted share, compared to$36.5 million , or$0.25 per diluted share for the fiscal quarter endedDecember 31, 2021 , and$71.4 million , or$0.49 per diluted share for the fiscal quarter endedApril 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. Net earnings attributable to Vishay stockholders for the fiscal quarters endedDecember 31, 2021 andApril 3, 2021 include items affecting comparability. The items affecting comparability are (in thousands, except per share amounts): Fiscal quarters ended December April 2, 2022 31, 2021 April 3, 2021
GAAP net earnings attributable to Vishay stockholders
Reconciling items affecting tax expense: Changes in tax laws and regulations $ -$ 53,316 $ (4,395) Adjusted net earnings$ 103,573 $ 89,839 $ 67,040 Adjusted weighted average diluted shares outstanding 145,553 145,617 145,463 Adjusted earnings per diluted share $ 0.71
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 December April 2, 2022 31, 2021 April 3, 2021 Net cash provided by continuing operating activities$ 33,585 $ 146,652 $ 57,322 Proceeds from sale of property and equipment 72 60 200 Less: Capital expenditures (35,909 ) (100,216 ) (28,527 ) Free cash$ (2,252 ) $ 46,496 $ 28,995
Despite a slow start to free cash generation in the first fiscal quarter, we expect to generate free cash in line with our history.
Our results for the fiscal quarters endedApril 2, 2022 ,December 31, 2021 , andApril 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. 22 --------------------------------------------------------------------------------
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 April 2, 2022 Dividends paid to stockholders $ 14,469 Stock repurchases 9,873 Total $ 24,342 Despite negative free cash in the first fiscal quarter, for the full year of 2022, we expect to return at least$100 million to stockholders, consisting of approximately$58 million through our quarterly dividends, and at least$42 million through stock repurchases. 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. However, no amounts were distributed fromIsrael tothe United States during the first quarter of 2022. Dividends and stock repurchases during the first quarter of 2022 were funded from cash on-hand. 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. 23 --------------------------------------------------------------------------------
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. 24 -------------------------------------------------------------------------------- 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 first fiscal quarter of 2021 through the first fiscal quarter of 2022 (dollars in thousands): 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2021 2021 2021 2021 2022 Net revenues$ 764,632 $ 819,120 $ 813,663 $ 843,072 $ 853,793 Gross profit margin 26.5 % 28.0 % 27.7 % 27.3 % 30.3 % Operating margin 12.7 % 15.3 % 15.2 % 14.4 % 17.1 % End-of-period backlog$ 1,731,200 $ 2,050,200 $ 2,243,900 $ 2,306,500 $ 2,416,700 Book-to-bill ratio 1.67 1.38 1.26 1.09 1.14 Inventory turnover 4.8 4.8 4.5 4.5 4.2 Change in ASP vs. prior quarter (0.5 )% 1.0 % 1.3 % 1.3 % 2.4 %
_________________________________________
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 first 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 general inflation.
Gross profit margin increased versus the first fiscal quarter of 2021 and the prior fiscal quarter primarily due to higher average selling prices. Increased volume also contributed to the increase versus the first fiscal quarter of 2021. The book-to-bill ratio in the first fiscal quarter of 2022 increased to 1.14 versus 1.09 in the fourth fiscal quarter of 2021. The book-to-bill ratios in the first fiscal quarter of 2022 for distributors and original equipment manufacturers ("OEM") were 1.16 and 1.13, respectively, versus ratios of 1.06 and 1.15, respectively, during the fourth fiscal quarter of 2021. For the second fiscal quarter of 2022, considering pandemic-related disturbances inChina , we anticipate revenues between$830 million and$870 million at a gross margin of 28.1% plus/minus 50 basis points at the exchange rates of Q1 2022. 25 --------------------------------------------------------------------------------
Financial Metrics by Segment
The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the first fiscal quarter of 2021 through the first fiscal quarter of 2022 (dollars in thousands): 1st 2nd 3rd 4th 1st Quarter Quarter Quarter Quarter Quarter 2021 2021 2021 2021 2022 MOSFETs Net revenues$ 153,223 $ 167,937 $ 175,499 $ 171,339 $ 172,674 Book-to-bill ratio 1.97 1.26 1.19 1.01 1.28 Gross profit margin 24.2 % 28.2 % 30.7 % 30.1 % 34.0 % Segment operating margin 17.8 % 22.3 % 24.9 % 23.5 % 28.1 % Diodes Net revenues$ 157,178 $ 174,815 $ 185,306 $ 192,117 $ 182,334 Book-to-bill ratio 1.85 1.45 1.31 1.10 1.16 Gross profit margin 21.9 % 23.9 % 25.2 % 23.7 % 25.1 % Segment operating margin 18.3 % 20.7 % 22.3
% 20.6 % 22.2 %
Optoelectronic Components Net revenues$ 77,771 $ 75,795 $ 70,750 $ 78,398 $ 81,016 Book-to-bill ratio 1.66 1.69 1.36 1.22 0.78 Gross profit margin 33.0 % 32.4 % 33.7 % 34.2 % 40.0 % Segment operating margin 27.3 % 26.6 % 27.9 % 27.2 % 34.8 % Resistors Net revenues$ 186,602 $ 194,722 $ 181,189 $ 190,041 $ 207,032 Book-to-bill ratio 1.50 1.39 1.26 1.14 1.24 Gross profit margin 28.9 % 29.7 % 27.4 % 28.5 % 31.4 % Segment operating margin 25.4 % 26.4 % 24.0 % 25.6 % 28.1 % Inductors Net revenues$ 83,458 $ 85,539 $ 84,816 $ 81,825 $ 82,777 Book-to-bill ratio 1.13 1.21 1.11 1.13 1.14 Gross profit margin 33.3 % 33.5 % 31.7 % 29.4 % 30.0 % Segment operating margin 30.3 % 30.7 % 28.7 % 26.4 % 26.8 % Capacitors Net revenues$ 106,400 $ 120,312 $ 116,103 $ 129,352 $ 127,960 Book-to-bill ratio 1.73 1.37 1.37 1.04 1.02 Gross profit margin 22.6 % 24.1 % 21.3 % 21.6 % 25.2 % Segment operating margin 17.7 % 19.7 % 17.2 % 17.7 % 21.4 % 26
--------------------------------------------------------------------------------
Results of Operations
Statements of operations' captions as a percentage of net revenues and the effective tax rates were as follows:
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Cost of products sold 69.7 % 72.7 % 73.5 % Gross profit 30.3 % 27.3 % 26.5 % Selling, general & administrative expenses 13.2 % 12.8 % 13.8 % Operating income 17.1 % 14.4 % 12.7 % Income before taxes and noncontrolling interest 16.0 % 13.5 % 11.4 % Net earnings attributable to Vishay stockholders 12.1 % 4.3 % 9.3 % ________ Effective tax rate 23.7 % 67.7 % 17.8 % Net Revenues
Net revenues were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021
Net revenues
The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 10,721 1.3% April 3, 2021 89,161 11.7%
Changes in net revenues were attributable to the following:
vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Change in volume -0.9 % 7.1 % Increase in average selling prices 2.4 % 6.0 % Foreign currency effects -0.6 % -2.6 % Acquisition 0.4 % 0.5 % Other 0.0 % 0.7 % Net change 1.3 % 11.7 % 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 first fiscal quarter of 2021 and slightly versus the prior fiscal quarter due to increases in average selling prices. Increased volume also contributed to the increase versus the first fiscal quarter of 2021. Gross Profit Margins Gross profit margins for the fiscal quarter endedApril 2, 2022 were 30.3%, versus 27.3% and 26.5% for the comparable prior fiscal quarter and prior year period, respectively. The increases versus the first fiscal quarter of 2021 and prior fiscal quarter are primarily due to increases in average selling prices. Increased volume also contributed to the increase versus the first fiscal quarter of 2021. 27 --------------------------------------------------------------------------------
Segments
Analysis of revenues and margins for our segments is provided below.
MOSFETs
Net revenues, gross profit margins, and segment operating margins of the MOSFETs segment were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 172,674 $ 171,339$ 153,223 Gross profit margin 34.0 % 30.1 % 24.2 % Segment operating margin 28.1 % 23.5 % 17.8 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022
Change in net revenues % change
December 31, 2021 $ 1,335 0.8 % April 3, 2021 $ 19,451 12.7 %
Changes in MOSFETs segment net revenues were attributable to the following:
vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Change in volume -3.2 % 5.1 % Increase in average selling prices 4.5 % 8.3 % Foreign currency effects -0.4 % -1.3 % Other -0.1 % 0.6 % Net change 0.8 % 12.7 % The MOSFET segment net revenues increased slightly versus the prior fiscal quarter and significantly versus the prior year quarter. Our results for the first fiscal quarter were negatively impacted by the temporary closure of our main manufacturing facility inShanghai due to a COVID-19 lockdown. The increase versus the prior fiscal quarter was primarily due to significant growth from our IC products, which was offset by decreases from our remaining products, which were impacted by the lockdown. All end market customers and all customer channels contributed to the growth versus the prior year quarter. Gross profit margin increased versus the prior fiscal quarter and the prior year quarter. The increases were primarily due to increased average selling prices, a positive change in the sales mix toward more profitable products such as ICs, and the positive impact of an inventory increase, partially offset by significant cost inflation. Increased sales volume also contributed to the increase versus the prior year quarter. The segment operating margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased gross profit. Decreased segment SG&A expenses as a percentage of sales also contributed to the increase versus the prior fiscal quarter.
We continue to implement strategic price increases. Average selling prices increased versus the prior fiscal quarter and the prior year quarter.
We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines. We are 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. 28 --------------------------------------------------------------------------------
Diodes
Net revenues, gross profit margins, and segment operating margins of the Diodes segment were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 182,334 $ 192,117$ 157,178 Gross profit margin 25.1 % 23.7 % 21.9 % Segment operating margin 22.2 % 20.6 % 18.3 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 $ (9,783) -5.1 % April 3, 2021 $ 25,156 16.0 %
Changes in Diodes segment net revenues were attributable to the following:
vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Change in volume -7.4 % 7.6 % Increase in average selling prices 3.2 % 9.3 % Foreign currency effects -0.5 % -2.2 % Other -0.4 % 1.3 % Net change -5.1 % 16.0 % Net revenues of the Diodes segment increased significantly versus the prior year quarter, but decreased significantly versus the prior fiscal quarter. All end markets and all customer channels, particularly distributor customers, contributed to the increase versus the prior year quarter. The decrease versus the prior quarter is primarily due to temporary closures of our manufacturing facilities inChina due to COVID-19 lockdowns. Gross profit margin increased versus the prior fiscal quarter and the prior year quarter. The increase versus the prior fiscal quarter is primarily due to increased average selling prices and the positive impact of an inventory increase, partially offset by cost inflation and a decrease in sales volume. The increase versus the prior year quarter is primarily due to increased average selling prices, increased sales volume, and our cost reduction measures, partially offset by cost inflation and negative foreign currency impacts primarily from the weaker euro.
The segment operating margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased gross profit. Decreased segment SG&A expenses also contributed to the increase versus the prior fiscal quarter.
We continue to implement strategic price increases across the product portfolio. Average selling prices increased versus the prior fiscal quarter and prior year quarter.
29 --------------------------------------------------------------------------------
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 April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 81,016 $ 78,398$ 77,771 Gross profit margin 40.0 % 34.2 % 33.0 % Segment operating margin 34.8 % 27.2 % 27.3 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 $ 2,618 3.3 % April 3, 2021 $ 3,245 4.2 % Changes in Optoelectronic Components segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Increase in volume 1.8 % -1.6 % Increase in average selling prices 1.8 % 8.9 % Foreign currency effects -0.8 % -2.8 % Other 0.5 % -0.3 % Net change 3.3 % 4.2 % Net revenues of our Optoelectronic Components segment increased moderately versus the prior fiscal quarter and prior year quarter. All end markets and all customer channels, particularly OEM customers, contributed to the increase versus the prior fiscal quarter. The end of the COVID-19-related restrictions on our manufacturing facility inMalaysia that impacted the prior fiscal quarter business also contributed to the increase. The increase versus the prior year quarter was primarily due to increased average selling prices, partially offset by decreased volume and negative foreign currency impacts. A significant increase of sales to American distributors was offset by a significant decrease of sales to Asian distributors. Gross profit margin increased versus the prior fiscal quarter and the prior year quarter. The increase versus the prior fiscal quarter is primarily due to higher average selling prices, higher sales volume, cost reduction measures, and the positive impact of an inventory increase. The increases versus the prior year quarter are primarily due to higher average selling prices, a more profitable product mix, and the positive impact of an inventory increase, partially offset by cost inflation and a lower sales volume.
The segment operating margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased gross profit. Decreased segment SG&A expenses also contributed to the increase versus the prior fiscal quarter.
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 quarter.
We have modernized and expanded our
30 --------------------------------------------------------------------------------
Resistors
Net revenues, gross profit margins, and segment operating margins of the Resistors segment were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 207,032 $ 190,041$ 186,602 Gross profit margin 31.4 % 28.5 % 28.9 % Segment operating margin 28.1 % 25.6 % 25.4 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 $ 16,991 8.9 % April 3, 2021 $ 20,430 10.9 % Changes in Resistors segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Increase in volume 6.0 % 9.1 % Increase in average selling prices 1.9 % 3.4 % Foreign currency effects -0.9 % -3.7 % Acquisition 1.8 % 1.9 % Other 0.1 % 0.2 % Net change 8.9 % 10.9 % Net revenues of the Resistors segment increased significantly versus the prior fiscal quarter and prior year quarter. The increase versus the prior fiscal quarter is primarily due to increased sales toEurope andAmericas region customers and industrial end market customers. The increase versus the prior year quarter is primarily due to increased sales to customers in all regions, distributor customers, and industrial end market customers. The gross profit margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased sales volume, higher average selling prices, and greater efficiencies, partially offset by higher metals and labor costs and negative exchange rate impacts.
The segment operating margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased gross profit.
Average selling prices increased versus the prior fiscal quarter and prior year quarter.
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
31 --------------------------------------------------------------------------------
Inductors
Net revenues, gross profit margins, and segment operating margins of the Inductors segment were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 82,777 $ 81,825$ 83,458 Segment operating margin 30.0 % 29.4 % 33.3 % Gross profit margin 26.8 % 26.4 % 30.3 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 $ 952 1.2 % April 3, 2021 $ (681 ) -0.8 % Changes in Inductors segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Change in volume 1.5 % -0.8 % Change in average selling prices 0.0 % 1.0 % Foreign currency effects -0.2 % -1.1 % Other -0.1 % 0.1 % Net change 1.2 % -0.8 % Net revenues of the Inductors segment increased slightly versus the prior fiscal quarter, but decreased slightly versus the prior year quarter. The increase versus the prior fiscal quarter is primarily due to increased sales to automotive and military & aerospace end market customers and customers in theEurope region. The decrease versus the prior year quarter is primarily due to decreased sales to automotive and medical end market customers and customers in theEurope andAsia regions. The gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year quarter. The increase versus the prior fiscal quarter is primarily due to higher sales volume and the positive impact of increased inventory. The decrease versus the prior year quarter is primarily due to lower sales volume, increased labor and logistics costs, and negative foreign currency impacts, partially offset by increased average selling prices.
The segment operating margin increased versus the prior fiscal quarter, but decreased versus the prior year quarter. The fluctuations are primarily due to gross profit fluctuations.
Average selling prices were unchanged versus the prior fiscal quarter and increased slightly versus the prior year quarter.
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.
32 --------------------------------------------------------------------------------
Capacitors
Net revenues, gross profit margins, and segment operating margins of the Capacitors segment were as follows (dollars in thousands):
Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Net revenues$ 127,960 $ 129,352$ 106,400 Segment operating margin 25.2 % 21.6 % 22.6 % Gross profit margin 21.4 % 17.7 % 17.7 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands): Fiscal quarter ended April 2, 2022 Change in net revenues % change December 31, 2021 $ (1,392) -1.1 % April 3, 2021 $ 21,560 20.3 % Changes in Capacitors segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter Change attributable to: Change in volume -1.3 % 19.4 % Increase in average selling prices 1.5 % 4.4 % Foreign currency effects -0.9 % -4.0 % Other -0.4 % 0.5 % Net change -1.1 % 20.3 % Net revenues of the Capacitors segment decreased slightly versus the prior fiscal quarter, but increased significantly versus the prior year quarter. The decrease versus the prior fiscal quarter is primarily due to decreased sales to industrial end market customers and customers in theAsia region. The increase versus the prior year quarter is primarily due to increased sales to distributor andEMS customers, industrial end market customers, and customers in all regions. The gross profit margin increased versus the prior fiscal quarter and the prior year quarter. The increase versus the prior fiscal quarter is primarily due to increased average selling prices, favorable product mix, and positive impact from increased inventory. The increase versus the prior year quarter is primarily due to higher sales volume and increased average selling prices, partially offset by increased materials and labor costs.
The segment operating margin increased versus the prior fiscal quarter and prior year quarter. The increases are primarily due to increased gross profit.
Average selling prices increased versus the prior fiscal quarter and the prior year quarter.
33 --------------------------------------------------------------------------------
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses are summarized as follows (dollars in thousands): Fiscal quarters ended April 2, 2022 December 31, 2021 April 3, 2021 Total SG&A expenses$ 112,855 $ 108,311$ 105,685 as a percentage of revenues 13.2 % 12.8 % 13.8 % The sequential increase in SG&A expenses is primarily attributable to uneven attribution of stock compensation expense and cost inflation. SG&A expenses increased versus the prior year quarter due to cost inflation.
Other Income (Expense)
Interest expense for the fiscal quarter ended
The following tables analyze the components of the line "Other" on the consolidated condensed statements of operations (in thousands):
Fiscal quarters ended December April 2, 2022 31, 2021 Change Foreign exchange gain (loss) $ (281 )$ (582 ) $ 301 Interest income 561 362 199 Other components of other periodic pension cost (2,910 ) (3,342 ) 432 Investment income (expense) (3,116 ) 71 (3,187 ) Other (5 ) (4 ) (1 )$ (5,751 ) $ (3,495 ) $ (2,256 ) Fiscal quarters ended April 2, 2022 April 3, 2021 Change Foreign exchange gain (loss) $ (281 ) $ (611 )$ 330 Interest income 561 287 274 Other components of other periodic pension cost (2,910 ) (3,302 ) 392 Investment income (expense) (3,116 ) (2,121 ) (995 ) Other (5 ) 16 (21 )$ (5,751 ) $ (5,731 ) $ (20 ) 34
--------------------------------------------------------------------------------
Income Taxes
For the fiscal quarter endedApril 2, 2022 , our effective tax rate was 23.7%, as compared to 67.7% and 17.8% for the fiscal quarters endedDecember 31, 2021 andApril 3, 2021 , respectively. 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 prior quarters presented. These items were$53.3 million in the fiscal quarter endedDecember 31, 2021 and$(4.4) million (tax benefit) in the fiscal quarter endedApril 3, 2021 .
During the three 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 3 to our consolidated condensed financial statements.
35 --------------------------------------------------------------------------------
Financial Condition, Liquidity, and Capital Resources
Our financial condition as ofApril 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 three fiscal months endedApril 2, 2022 was$35.9 million , as compared to$28.5 million for the three fiscal months endedApril 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 negative for the three fiscal months endedApril 2, 2022 due to working capital changes and higher than usual capital expenditures. 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
April 2, 2022 December 31, 2021 Credit facility $ - $ - Convertible senior notes, due 2025 465,344 465,344 Deferred financing costs (8,860 ) (9,678 ) Total debt 456,484 455,666 Cash and cash equivalents 789,248 774,108 Short-term investments 96,561 146,743
Net cash and short-term investments (debt)
465,185
"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.
36 -------------------------------------------------------------------------------- As ofApril 2, 2022 , substantially all of our cash and cash equivalents and short-term investment were held in countries outside ofthe United States . Cash dividends to stockholders, share repurchases, and principal and interest payments on our debt instruments need to be paid by theU.S. parent company,Vishay Intertechnology, Inc. OurU.S. subsidiaries also have cash operating needs. The distribution of earnings fromIsrael tothe 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 inthe United States . Our revolving credit facility provides an aggregate commitment of$750 million of revolving loans available untilJune 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. AtDecember 31, 2021 , we had no amounts outstanding on our revolving credit facility. We had no amounts outstanding atApril 2, 2022 . We borrowed$282 million and repaid$282 million on the revolving credit facility during the three fiscal months endedApril 2, 2022 . The average outstanding balance on our revolving credit facility calculated at fiscal month-ends was$58.7 million and the highest amount outstanding on our revolving credit facility at a fiscal month end was$124 million during the three fiscal months endedApril 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 betweenVishay Intertechnology, Inc. andJPMorgan Chase Bank, N.A ., which has been filed with theSEC as Exhibit 10.1 to our current report on Form 8-K filedJune 5, 2019 . We were in compliance with all financial covenants under the credit facility atApril 2, 2022 . Our interest coverage ratio and leverage ratio were 31.61 to 1 and 0.69 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 thanthe United States , assets located solely outside ofthe United States and deposit and securities accounts), of Vishay and certain significant subsidiaries located inthe 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 theU.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 2025 and our revolving credit facility expires inJune 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 datedDecember 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. 37 --------------------------------------------------------------------------------
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.
© Edgar Online, source