Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes filed herewith, commencing on page F-1 of this report. 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
elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. “Risk Factors.”
Overview
Vishay Intertechnology, Inc. ("Vishay," "we," "us," or "our") manufactures one of the world’s largest portfolios of discrete semiconductors and passive electronic
components that are essential to innovative designs in the automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical markets.
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 maintaining a prudent capital
structure. To drive growth and optimize stockholder value, we plan to capitalize on the mega trends of e-mobility, sustainability, and connectivity through initiatives. We are developing go-to-market strategies and investing in and expanding the
key product lines for growth that we have identified. In addition, we are strategically expanding our outsourced production of commodity products to subcontractors. At the same time, we are enhancing our channel management while investing in
internal resources by adding customer-facing engineers and filling gaps in technology and market coverage. Taken together, each of these initiatives supports our Think Customer First organizational structure. To increase our internal capacity, we
had planned to invest approximately $435 million in 2024. The industry recovery has been slower than expected. Accordingly, we adjusted our timetable for investments for our new 12-inch wafer fab in Itzehoe, Germany beyond 2024 and invested $320
for capital expenditures in 2024. We remain committed to our long-term plan of increasing Vishay's capacity, to assure our customers of reliable volume as they scale. We have and will continue to modulate the amount and timing of our capital
expenditures in response to order flow and the timing of customer demand and qualifications. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending.
On March 5, 2024, we completed the acquisition of Nexperia’s wafer fabrication facility and operations located in Newport, South Wales, U.K. for approximately $177.5 million in cash,
net of cash acquired. The wafer fabrication facility is located on 28 acres and is an automotive-certified, 200mm semiconductor wafer fab with capacity to produce more than 30,000 wafers per month. We plan to position the facility as a
manufacturing excellence center and use it as the home for MaxPower to further develop and scale our SiC MOSFETs and diodes capabilities. The facility has generated a net loss and we expect the facility to continue to generate a net loss while
we invest in new equipment and qualify new products.
In addition to enhancing stockholder value through growing our business, in 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. 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 believe we can 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
implemented restructuring actions in the third fiscal quarter of 2024 designed to optimize our manufacturing footprint and streamline business decision making. We believe we have significant liquidity to withstand temporary disruptions in the economic environment. See additional information regarding our competitive strengths and key challenges as disclosed in Part I.
We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, 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. The key financial metrics decreased in the fourth fiscal quarter of 2024
primarily due to the negative impacts of an on-going distributor inventory correction that resulted in lower orders. Net revenues and margins decreased versus the prior year period primarily due to lower volume and decreased average
selling prices.
Net revenues for the year ended December 31, 2024
were $2.938 billion, compared to net revenues of $3.402 billion and $3.497 billion for the years ended December 31, 2023 and 2022,
respectively. The net loss attributable to Vishay stockholders for the year ended December 31, 2024 was $(31.2) million, or $(0.23)
per share, compared to net earnings of $323.8 million, or $2.31 per diluted share, and $428.8 million, or $2.98 per diluted share, for the years ended December 31, 2023 and 2022, respectively.
We define adjusted net earnings as net earnings (loss) 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.
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Net earnings attributable to Vishay stockholders for the years ended December 31, 2024, 2023, and 2022 include items affecting comparability. The items affecting comparability are (in thousands, except per
share amounts):
Years ended December 31,
Reconciling items affecting gross profit:
Impact of COVID-19 pandemic $ - $ - $ 6,661
Other reconciling items affecting operating income:
Impairment of goodwill $ 66,487 $ - $ -
Restructuring and severance costs 40,614 - -
Impact of COVID-19 pandemic - - 546
Reconciling items affecting other income (expense):
Loss on early extinguishment of debt $ - $ 18,874 $ -
Reconciling items affecting tax expense (benefit):
Effects of changes in uncertain tax positions $ - $ - $ (5,941 )
Effects of changes in valuation allowances - - (33,669 )
Effect of change in indefinite reversal assertion - - 59,642
Adjusted earnings per diluted share $ 0.48 $ 2.44 $ 3.16
The following table reconciles gross profit by segment to consolidated gross profit. Direct costs 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 (in thousands):
Years ended December 31,
Unallocated gross profit (loss) - - (6,661 )
Although the term "free cash" is not defined in GAAP, each of the elements used to calculate free cash is presented as a line item on the face of our consolidated
statements of cash flows prepared in accordance with GAAP. Our free cash results are as follows (in thousands):
Years ended December 31,
Proceeds from sale of property and equipment 3,015 1,156 1,198
Orders are lower due to a distributor inventory correction that took longer than expected and continued through 2024. The long-term outlook for our business remains
strong, although our results are weaker than prior year results.
Our free cash results were significantly impacted by the installment payments of the U.S. transition tax of $37.6 million in 2024,
$27.7 million in 2023, and $14.8 million in 2022, respectively, and payments of foreign, withholding, and claw-back cash taxes of $15.0 million in 2024, $63.6 million in 2023, and $25.2
million in 2022 on foreign earnings of $105.0 million, $276.8 million, and $81.2 million (net of taxes) that were repatriated to the U.S. in 2024, 2023, and 2022, respectively.
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Growth and Company Transformation Initiatives
Effective January 1, 2023, a new executive leadership team, promoted from within, embarked on a new era at Vishay ("Vishay 3.0"). The new executive
management team laid out a three-year plan to expand capacity to support our highest growth and highest return product lines and to position Vishay to be ready for the next phase of megatrends in e-mobility, sustainability, and connectivity. The
year 2023 was generally seen as the staging year for this plan, and all elements of the plan have progressed throughout the organization. In 2024, many of these initiatives advanced and increased manufacturing capacity was available. Beginning in
early 2025, we expect to be in a better position to capture the next step in the growing demand for electrification in our key end-markets.
To focus this growth, we have identified product lines for growth across each reportable segment. Most of these product lines serve multiple end-market
segments, applications, and business channels. We have developed go-to market strategies for each one of these product lines, concentrating our resources on improving the technical performance of certified and custom products, to better position
Vishay to support the mega trends toward electrification and data communications.
See the eight strategic levers being used to achieve our goals in "Key Business Strategies" in Item 1.
All of this is being done as we implement organizational and structural change at Vishay, focused on a “Think Customer First” philosophy, and becoming a
more responsive company. We are fostering collaboration internally and externally, particularly in the functions connected to customer programs. To facilitate that change internally, we re-designed our short- and long-term incentive plans to
align the performance of about 1,000 key employees with Company growth and profitability objectives and stockholder interests. The equity-based plan was approved by our stockholders at our 2023 annual meeting.
These Vishay 3.0 initiatives are the foundation for our ambitions to unleash the potential at Vishay, realizing the full value of our broad product
portfolio and becoming a customer-first company, and for our goals of driving top line growth, expanding margins and optimizing returns.
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Stockholder Return Policy
In 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):
Years ended
We have determined that substantially all unremitted foreign earnings in Germany and Israel are no longer indefinitely reinvested. These
indefinite reinvestment assertions provide greater access to our worldwide cash balances to fund our growth plan and our Stockholder Return Policy, but also negatively impact our effective tax rate.
The structure of our 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.
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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 our 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 gross profit and 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, goodwill impairment charges, 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.
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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 fourth fiscal quarter of 2023 through the fourth fiscal quarter of 2024
(dollars in thousands):
Change in ASP vs. prior quarter (0.7 )% (2.5 )% (0.7 )% (1.0 )% (0.6 )%
_______________
(1) Operating margin for the third fiscal quarter of 2024 includes $40.6 million of restructuring and severance expenses (see Note 3 to our consolidated financial statements). Operating margin for the fourth fiscal quarter of 2024 includes $66.5
million of goodwill impairment charges (see Note 19 to our consolidated financial statements).
See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin by segment.
Revenues decreased versus the fourth fiscal quarter of 2023 and versus the prior fiscal quarter primarily due to lower sales volume and lower average selling prices.
The book-to-bill ratio increased versus the prior fiscal quarter, but orders backlog were negatively impacted by the distributor inventory correction that began in 2022 and continued through 2024. We continue to increase manufacturing capacity for
critical product lines. Average selling prices decreased versus the fourth fiscal quarter of 2023 and prior fiscal quarter.
Gross profit margin decreased versus the prior fiscal quarter and prior year quarter primarily due to lower volume and decreased average selling prices.
The book-to-bill ratio in the fourth fiscal quarter of 2024 increased to 1.01 versus 0.88 in the third fiscal quarter of 2024.
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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 fourth fiscal quarter of 2023 through the fourth fiscal quarter of 2024 (dollars in thousands):
MOSFETs
Segment operating margin 16.8 % 5.3 % 1.2 % (2.9 )% 0.8 %
Diodes
Optoelectronic Components
Resistors
Inductors
Capacitors
_________
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Acquisition Activity
As
part of its growth strategy, the Company seeks to expand through targeted acquisitions of other manufacturers of electronic components. These acquisition targets include businesses that have established positions in major markets, reputations for
product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise. It also includes certain businesses that possess technologies which the Company expects to further develop and
commercialize, such as MaxPower Semiconductor, Inc., acquired in 2022; businesses with well-developed technologies that the Company expects to grow using its manufacturing capabilities, capacity, and economies of scale to expand production and sell
to its global customer base, such as Ametherm, Inc., acquired in 2024; and key niche suppliers to vertically integrate our supply chain, such as Birkelbach Kondensatortechnik GmbH ("Birkelbach"), acquired in 2024, and Centerline Technologies, LLC,
acquired in 2023. To limit our financial exposure, we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
For these purposes, we calculate pro forma EBITDA as the adjusted EBITDA of Vishay and the target for the trailing four fiscal quarters, with a pro forma adjustment for savings which management estimates would have been achieved had the target been
acquired by Vishay at the beginning of the trailing four fiscal quarters.
On March 5, 2024, we completed the acquisition of Nexperia’s wafer fabrication facility and operations located in Newport, South Wales, U.K. for approximately $177.5
million in cash, net of cash acquired. The wafer fabrication facility is located on 28 acres and is an automotive-certified, 200mm semiconductor wafer fab with capacity to produce more than 30,000 wafers per month. We plan to position the
facility as a manufacturing excellence center and use it as the home for MaxPower to further develop and scale our SiC MOSFETs and diodes capabilities. The facility is currently generating a net loss and we expect the facility to continue to
generate a net loss while we invest in new equipment and qualify new products.
There is no assurance that we will be able to identify and acquire suitable acquisition candidates at price levels and on terms and conditions we consider acceptable.
See Note 2 to our consolidated financial statements.
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Cost Management
We place a strong emphasis on controlling our costs, and use various measures and metrics to evaluate our cost structure.
We define variable costs as expenses that vary with respect to quantity produced. Fixed costs do not vary with respect to quantity produced over the relevant time
period. Contributive margin is calculated as net revenue less variable costs. It may be expressed in dollars or as a percentage of net revenue. Management uses this measure to determine the amount of profit to be expected for any change in
revenues. While these measures are typical cost accounting measures, none of these measures are recognized in accordance with GAAP. The classification of expenses as either variable or fixed is judgmental and other companies might classify such
expenses differently. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies.
We closely monitor variable costs and seek to achieve the contributive margin in our business model. Over a period of many years, we have generally maintained a
contributive margin of between 45% and 47% of revenues. The erosion of average selling prices, particularly of our semiconductor products, that is typical of our industry, and inflation negatively impact contributive margin and drive us to
continually seek ways to reduce our variable costs. Our variable cost reduction efforts include increasing the efficiency in our production facilities by expending capital for automation, reducing materials costs, materials substitution, increasing
wafer size and shrinking dies to maximize efficiency in our semiconductor production processes, and other yield improvement activities.
Our cost management strategy also includes a focus on controlling fixed costs recorded as costs of products sold or selling, general, and administrative expenses and
maintaining our break-even point (adjusted for acquisitions). We generally seek to limit increases in selling, general, and administrative expenses to the rate of inflation, excluding foreign currency exchange effects and substantially independent
of sales volume changes. At constant fixed costs, we would expect each $1 million increase in revenues to increase our operating income by approximately $450,000 to $470,000. Sudden changes in the business conditions, however, may not allow us to
quickly adapt our manufacturing capacity and cost structure.
As the Company transforms, we are incurring certain costs which are reducing current profitability while positioning the Company for
future long-term profitable growth.
The acquisition of Nexperia's Newport fab in 2024 will enhance the manufacturing capacity and capabilities of our MOSFETs segment. The facility added significant
depreciation and other costs to our MOSFETs segment. The facility is generating a loss and we expect it to continue to generate a loss while we invest in new equipment and qualify new products. Also beginning in 2023, we began making significant
investments in capital expenditures primarily for capital expansion projects primarily outside of China, which will also increase depreciation expense. At the same time, we are focusing on increasing our technical resources, adding additional
customer-facing engineers, and intensifying our activities in R&D.
We have seen and expect to continue to see an increase in operating expenses over the next couple of years as we add engineering talents, fill gaps in our technology,
and become a preferred supplier to more customers and more broadly sell our product portfolio.
During 2023, we implemented the Vishay Intertechnology, Inc. 2023 Long-Term Incentive Plan (the "2023 Plan") to enable us to recruit and
retain highly qualified employees, directors, consultants and other service providers, provide them with an incentive for productivity, and create an opportunity for them to share in the growth and value of the Company. The 2023 Plan is the first
broad-based stock compensation program at Vishay in over 20 years. This program increased operating expenses by $5.1 million in 2024 versus 2023 and is expected to increase operating expenses by between $4 million and $7 million in 2025 versus
2024. Management believes such additional non-cash costs will enhance the long-term performance of the Company by providing selected participants with an incentive to improve the growth and profitability of the Company.
In 2024, we revised our short-term incentive compensation structure to better align with our growth objectives. The revised structure incentivizes daily behaviors and actions of our
organizational leaders to create immediate growth in line with our cross-functional business objectives. Under the new structure, organizational leaders will be rewarded annually for meeting determined targets in revenue, operating margin, gross
margin, and variable margin. Managers will be able to earn up to 130% of their former STI bonus targets for results which exceed expectations. The better alignment of the STI program with business results creates higher volatility in costs. The
industry downturn that led to results that were below expectations in 2024 led to relatively low bonus accruals and thus lower reported SG&A expenses. Such costs are expected to be significantly higher if business results meet or exceed
expectations.
In September 2024, we announced restructuring actions designed, in part, to optimize our manufacturing footprint and streamline business decision making. We recognized restructuring expense
pursuant to on-going benefit arrangements of $40.6 million in 2024. The actions are expected to generate annualized cost savings of approximately $23 million (annualized), including $12 million of selling, general and administration expenses, when
the actions are fully implemented by the end of 2026.
We continue to monitor the economic environment and its potential effects on our customers and the end markets that we serve.
In uncertain times, we focus on managing our production capacities in accordance with customer requirements, and maintain discipline in terms of our fixed costs and capital expenditures. Even as we
seek to manage our costs, we remain cognizant of the future requirements of our demanding markets. We continue to pursue our growth plans through investing in capacities for strategic product lines, and through increasing our resources for R&D,
technical marketing, and field application engineering; supplemented by opportunistic acquisitions of specialty businesses.
Our long-term strategy includes growth through the integration of acquired businesses, and GAAP requires plant closure and employee termination costs that we incur in
connection with our acquisition activities to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred. We have not incurred any material plant closure or employee termination costs related to any of the
businesses acquired since 2011, but we expect to have some level of future restructuring expenses due to acquisitions.
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Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the date of acquisition. Goodwill is
not amortized but rather is tested for impairment at least annually. These tests are performed more frequently whenever events or changes in circumstances indicate that the assets might be impaired. We perform our annual goodwill impairment test
as of the first day of the fourth fiscal quarter. When performing a quantitative assessment of our reporting units, we use an equal weighting of income (discounted cash flow) and market approaches to determine fair value. There are certain
execution risks to our strategic plan. These execution risks, as well as the current market price of our common stock, result in the use of a relatively high discount rate in our discounted cash flow analysis.
The acquisitions of MaxPower Semiconductor, Inc. and the Newport wafer fab, as well as the planned capacity expansions at Itzehoe and Newport, are
long-term investments which were not expected to generate significant income or cash flows in the near-term, but should greatly enhance the long-term position of our MOSFETs business. Such investments have significantly increased the net asset
base of our MOSFETs business without a corresponding increase in current income or cash flows. We continue to be committed to these long-term projects.
During the third fiscal quarter of 2024, we identified the decrease in our share price in combination with the increase in the book value of our assets
as a result of our acquisition and capital spending activities as potential indicators of impairment requiring an interim goodwill impairment test. The interim goodwill impairment test was performed as of September 28, 2024. We performed a
quantitative assessment of each of our reporting units and determined that the estimated fair value of each reporting unit exceeded its carrying value, although the MOSFETs reporting unit’s fair value exceeded its carrying value by less than 10%.
No goodwill impairment charges were recognized in the third fiscal quarter of 2024 as a result of the goodwill impairment test.
During the fourth fiscal quarter of 2024, we identified the further decrease in our share price in combination with the further increase in the book
value of our assets as a result of our capital spending activities as well as certain internal and external factors as potential indicators of impairment requiring an interim test of our MOSFETs reporting unit. The interim goodwill impairment test
was performed as of December 31, 2024. As a result of the assessment, we determined that the estimated fair value of the MOSFETs reporting unit was less than its carrying value. As a result, we recorded a goodwill impairment charge of $66.5
million. The goodwill impairment charge is noncash in nature and does not affect our liquidity, cash flows from operating activities, or debt covenants, and will not have a material impact on future operations.
If we are not able to achieve our anticipated results and/or if our discount rate were to increase, the fair value of our other reporting units would be
adversely affected, which may result in future impairment. There is $179.0 million of goodwill remaining on the balance sheet as of December 31, 2024. We will continue to monitor our reporting units and related goodwill for any possible future
noncash impairment charges.
See Notes 1 and 19 to the consolidated financial statements for additional information.
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Foreign Currency Translation
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. We
occasionally use forward exchange contracts to economically hedge a portion of our projected cash flows from these exposures.
GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional
currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be
the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have both situations
among our subsidiaries.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional
currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not
impact the results of operations and are reported as a separate component of stockholders’ equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the year. While the
translation of revenues and expenses into U.S. dollars does not directly impact the consolidated statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in
those foreign currencies. The net change of the dollar was not material when comparing 2024 versus 2023, but the dollar was weaker during 2023
versus 2022, with the translation of foreign currency revenues and expenses into U.S. dollars increasing reported revenues and expenses
in 2023 versus 2022.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel, the United Kingdom, and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize
the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from
remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related,
which are incurred in the local currency. The cost of products sold and selling, general, and administrative expense have been favorably impacted for the year ended December 31, 2024 compared to 2023 and for the year ended December 31, 2023 compared to 2022 by local currency transactions of subsidiaries which use the U.S. dollar as their functional
currency.
See Item 7A for additional discussion of foreign currency exchange risk.
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Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number of policies that entail significant
judgments or estimates.
Revenue Recognition
Revenue is measured based on the consideration specified in contracts with customers, and excludes any sales incentives and amounts collected on behalf of third
parties. We recognize revenue when we satisfy our performance obligations.
We have a broad line of products that we sell to OEMs, electronic manufacturing services ("EMS") companies, which manufacture for OEMs on an outsourcing basis, and
independent distributors that maintain large inventories of electronic components for resale to OEMs and EMS companies.
We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow
distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously
purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. In addition, we have contractual arrangements whereby we provide distributors with protection against price reductions initiated
by us after product is sold by us to the distributor and prior to resale by the distributor.
We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based
upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our
customers during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. We utilize a number of different methodologies and consider several factors when estimating the
accruals. Some of the factors that we consider are sales levels to customers during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant
programs, changes in program policies, and open requests for credits. These procedures require the exercise of significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.
See Notes 1 and 9 to our consolidated financial statements for further information.
Inventories
We value our inventories at the lower of cost or net realizable value, with cost determined under the first-in, first-out method. The valuation of our inventories
requires our management to make market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the
prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based on age of the inventory and upon estimates of future demand, technology developments, and
market conditions.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the date of acquisition. We do not
amortize goodwill, but test it at least annually for impairment at the reporting unit level. Impairment tests must be performed more frequently if there are indicators of impairment. A reporting unit is an operating segment, or one level below an
operating segment, if it constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Our business segments represent our reporting units for goodwill impairment testing purposes. See
Note 15 to our consolidated financial statements for a description of our business segments.
When performing a quantitative goodwill impairment test, we determine fair values generally based on a weighting of income and market approaches. For
purposes of the income approach, fair values are determined based upon the present value of the reporting unit’s estimated future cash flows, discounted at appropriate risk-adjusted rates. We use our internal forecasts to estimate future cash
flows, which may include estimates of long-term future growth rates based upon our most recent reviews of the long-term outlook for each reporting unit. Cash flow estimates used to establish fair values under our income approach involve management
judgments based on a broad range of information and historical results. In addition, external economic and competitive conditions can influence future performance. For purposes of the market approach, we use valuation multiples for companies
comparable to our reporting units.
The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions
primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which we compete; the discount rate; terminal growth rates; and forecasts of revenue,
operating income, depreciation and amortization (components of earnings before interest, taxes, depreciation, and amortization, "EBITDA"); and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. In addition, changes in
assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting unit and the amount of the goodwill impairment charge.
See Notes 1 and 19 to our consolidated financial statements for a description of our goodwill impairment tests.
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Pension and Other Postretirement Benefits
Our defined benefit plans are concentrated in the United States, Germany, and the Republic of China (Taiwan). At December 31, 2024, our U.S. plans include various non-qualified plans. The table below summarizes information about our pension and other postretirement benefit plans. This information
should be read in conjunction with Note 11 to our consolidated financial statements (amounts in thousands):
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could
effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the
anticipated rate of future increases in compensation levels, estimated mortality, and for certain postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent
actuaries and investment advisers to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate.
In the U.S., we utilize published long-term high quality bonds to determine the discount rate at the measurement date. In Germany and the Republic of China (Taiwan), we
utilize published long-term government bond rates to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates that reflect the timing of expected future benefit payments. We believe the discount rates
selected are the rates at which these obligations could effectively be settled.
Non-qualified plans in the U.S. are considered by law to be unfunded. However, the Company maintains assets in a rabbi trust to fund benefit payments under certain of
these plans. Such assets would be subject to creditor claims under certain conditions. (See also Notes 11 and 18 to our consolidated financial statements.)
Many of our non-U.S. plans are unfunded based on local laws and customs. For those non-U.S. plans that do
maintain investments, their asset holdings are primarily cash and fixed income securities, based on local laws and customs. Some non-U.S. plans also informally fund their plans by holding certain available-for-sale investments. Such assets would
be subject to creditor claims under certain conditions. (See also Note 18 to our consolidated financial statements.)
We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In
establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected
return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses (gains) affects the calculated value
of plan assets and, ultimately, future pension expense (income).
We continue to seek to de-risk our global pension exposures. Such actions could result in increased net periodic pension cost due to lower expected rates of return on
plan assets and/or possible additional charges to recognize unamortized actuarial items if all or a portion of the obligations were to be settled.
We believe that the current assumptions used to estimate plan obligations and annual expenses are appropriate. However, if economic conditions change or if our
investment strategy changes, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheet.
45
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our
provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of
whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these
reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
These accruals for tax-related uncertainties are based on our best estimate of potential tax exposures. When particular matters arise, a number of years may elapse
before such matters are audited by tax authorities and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue
could increase the effective tax rate and may require the use of cash in the year of resolution.
During 2024,
certain tax examinations were concluded and certain statutes of limitations lapsed. Our tax provision for those years includes adjustments related to the resolution of these matters. During 2023, we settled an examination of our U.S. federal
income tax returns for the periods ended December 31, 2017 through 2019. Our federal income tax returns for the years 2021 through 2023 remain subject to examination. The tax returns of significant non-U.S. subsidiaries currently under
examination are located in the following jurisdictions: Israel (2021), Germany (2017 through 2021), India (2004 through 2021), and Philippines (2017 through 2023). The Company and its subsidiaries also file income tax returns in other taxing
jurisdictions in the U.S. and around the world, many of which are still open to examination.
See Notes 1 and 5 to consolidated financial statements for additional information.
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Results of Operations
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
Years ended December 31,
Selling, general, and administrative expenses 17.5 % 14.4 % 12.7 %
Income (loss) before taxes and noncontrolling interest (0.1 )% 13.7 % 17.0 %
Net earnings (loss) attributable to Vishay stockholders (1.1 )% 9.5 % 12.3 %
________
Net Revenues
Net revenues were as follows (dollars in thousands):
Percentage change versus prior year (13.7 )% (2.7 )%
Changes in net revenues were attributable to the following:
Change attributable to:
Decrease in volume (10.9 )% (5.2 )%
Change in average selling prices (4.2 )% 1.7 %
Foreign currency effects 0.0 % 0.7 %
Acquisitions 1.0 % 0.2 %
Net change (13.7 )% (2.7 )%
Despite the inventory correction that we are experiencing, the long-term prospects for our business remain favorable, and we
continue to increase manufacturing capacities for critical product lines. The decrease in net revenues in 2024 is primarily due to lower sales volume and decreased average selling prices. The decrease in net revenues in 2023 was primarily sales
volume-driven, partially offset by increased average selling prices.
Gross Profit and Margins
Gross profit margins for the year ended December 31, 2024
were 21.3%, as compared to 28.6%
for the year ended December 31, 2023. The decrease in gross profit margin is primarily due to lower sales volume, decreased average
selling prices, and the impact of the Newport acquisition. Higher labor costs and depreciation expense also negatively impacted the gross profit margin.
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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 of the MOSFETs segment were as follows (dollars in thousands):
Years ended December 31,
Change versus comparable prior year period $ (176,775 ) $ 16,494
Percentage change versus comparable prior year period (22.7 )% 2.2 %
Changes in MOSFETs segment net revenues were attributable to the following:
Change attributable to:
Decrease in volume (17.4 )% (1.8 )%
Change in average selling prices (11.0 )% 2.3 %
Foreign currency effects 0.0 % 0.5 %
Acquisition 3.9 % 1.0 %
Gross profit margins and segment operating margins for the MOSFETs segment were as follows:
Years ended December 31,
Segment operating margin 1.1 % 25.1 % 30.0 %
Net revenues of the MOSFETs segment decreased significantly in 2024 versus the prior year. The decrease is primarily due to decreased sales to distribution customers
and customers in the industrial, power supply, and automotive end markets.
The gross profit margin in 2024 decreased versus the
prior year primarily due to lower sales volume and decreased average selling prices. Costs associated with the Newport wafer fab also contributed to decreases versus the prior year.
The segment operating margin decreased versus the prior year. The decreases are primarily due to gross profit margin decreases and
increased segment SG&A expenses associated with the Newport wafer fab.
Average selling prices decreased versus the prior year.
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 in Itzehoe, Germany adjacent to our existing 8-inch wafer fab, which we expect will increase our in-house wafer capacity by approximately 70% by 2028 and allow us to balance our in-house and foundry wafer
supply.
We acquired leading edge silicon and silicon carbide MOSFETs products with our
acquisition of MaxPower in the fourth fiscal quarter of 2022. We plan to use the Newport wafer fabrication facility acquired in the first fiscal quarter of 2024 as the home for MaxPower to further develop and scale our SiC MOSFETs and diodes
capabilities. The acquisitions of MaxPower Semiconductor, Inc. and the Newport wafer fab, as well as the planned capacity expansions at Itzehoe and Newport, are long-term investments which were not expected to generate significant income
or cash flows in the near-term, but should greatly enhance the long-term position of our MOSFETs business. Despite the goodwill impairment charge recorded in 2024, we remain committed to these long-term projects.
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Diodes
Net revenues of the Diodes segment were as follows (dollars in thousands):
Years ended December 31,
Change versus comparable prior year period $ (108,565 ) $ (74,680 )
Percentage change versus comparable prior year period (15.7 )% (9.8 )%
Changes in Diodes segment net revenues were attributable to the following:
Change attributable to:
Decrease in volume (13.1 )% (11.0 )%
Change in average selling prices (3.0 )% 1.0 %
Foreign currency effects (0.1 )% 0.4 %
Net change (15.7 )% (9.8 )%
Gross profit margins and segment operating margins for the Diodes segment were as follows:
Years ended December 31,
Net revenues of the Diodes segment decreased significantly in 2024.
The decrease versus the prior year is due to decreased sales in all regions to distribution and EMS customers and industrial, automotive, and power supply end market customers.
Gross profit margin decreased significantly versus the prior year primarily due to lower sales volume, decreased average selling prices, and higher materials, labor,
and fixed costs.
Segment operating margin decreased significantly versus the prior year primarily due to decreased gross profit and increased SG&A costs.
Average selling prices decreased versus the prior year.
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Optoelectronic Components
Net revenues of the Optoelectronic Components segment were as follows (dollars in
thousands):
Years ended December 31,
Change versus comparable prior year period $ (30,778 ) $ (53,238 )
Percentage change versus comparable prior year period (12.7 )% (18.0 )%
Changes in Optoelectronic Components segment net revenues were attributable to the following:
Change attributable to:
Decrease in volume (10.5 )% (19.2 )%
Change in average selling prices (2.5 )% 0.5 %
Foreign currency effects 0.1 % 0.9 %
Gross profit margins and segment operating margins for the Optoelectronic Components segment were as follows:
Years ended December 31,
Segment operating margin 7.9 % 17.7 % 28.8 %
Net revenues of the Optoelectronic Components segment decreased versus the prior year. The decrease was primarily due to decreased sales to distribution customers and
customers in the industrial and automotive end markets. Sales significantly decreased in the Europe and Americas regions, partially offset by an increase in sales in the Asia region.
The gross profit margin decreased versus the prior year. The decrease is primarily due to lower sales volume, higher materials prices, and inventory obsolescence.
The segment operating margin decreased primarily due to the decrease in gross profit.
Average selling prices decreased versus the prior year.
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Resistors
Net revenues of the Resistors segment were as follows (dollars in thousands):
Years ended December 31,
Change versus comparable prior year period $ (117,858 ) $ 10,666
Percentage change versus comparable prior year period (14.0 )% 1.3 %
Changes in Resistors segment net revenues were attributable to the following:
Change attributable to:
Decrease in volume (12.0 )% (1.4 )%
Change in average selling prices (3.0 )% 1.8 %
Foreign currency effects 0.0 % 1.0 %
Acquisitions 0.5 % 0.0 %
Gross profit margins and segment operating margins for the Resistors segment were as follows:
Years ended December 31,
Net revenues of the Resistors segment decreased significantly versus the prior year. The decrease was primarily due to decreased sales to distribution customers and
customers in the industrial and automotive end markets. Sales decreased in the Europe and Americas regions, partially offset by an increase in sales in the Asia region.
The gross profit margin decreased versus the prior year. The decrease is due to lower sales volume, decreased average selling prices, and higher labor and materials
costs, partially offset by a favorable product mix and decreased utilities costs.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit.
Average selling prices decreased versus the prior year.
We are increasing critical manufacturing capacities for certain product lines. We continue to broaden our
business with targeted acquisitions of specialty resistors businesses.
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Inductors
Net revenues of the Inductors segment were as follows (dollars in thousands):
Years ended December 31,
Change versus comparable prior year period $ 8,963 $ 16,306
Percentage change versus comparable prior year period 2.6 % 4.9 %
Changes in Inductors segment net revenues were attributable to the following:
Change attributable to:
Increase in volume 4.8 % 2.4 %
Change in average selling prices (2.2 )% 1.9 %
Foreign currency effects 0.0 % 0.5 %
Net change 2.6 % 4.9 %
Gross profit margins and segment operating margins for the Inductorssegment were
as follows:
Years ended December 31,
Net revenues of the Inductors segment increased slightly versus the prior year. The increase is primarily due to increased sales to EMS customers, medical, and military
and aerospace end market customers, and customers in the Americas and Asia regions, partially offset by decreased sales to industrial and automotive end market customers and customers in the Europe region.
The gross profit margin decreased versus the prior year. The decrease is primarily due to lower average selling prices and higher logistics and labor costs.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit.
Average selling prices decreased versus the prior year.
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.
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Capacitors
Net revenues of the Capacitors segment were as follows (dollars in thousands):
Years ended December 31,
Change versus comparable prior year period $ (39,445 ) $ (10,904)
Percentage change versus comparable prior year period (7.9 )% (2.1 )%
Changes in Capacitors segment net revenues were attributable to the following:
Change attributable to:
Decrease in volume (7.2 )% (5.1 )%
Change in average selling prices (0.5 )% 2.2 %
Foreign currency effects 0.0 % 0.9 %
Other (0.2 )% (0.1 )%
Net change (7.9 )% (2.1 )%
Gross profit margins and segment operating margins for the Capacitors segment were as follows:
Years ended December 31,
Net revenues of the Capacitors segment decreased versus the prior year. The decrease is primarily due to decreased sales to distribution customers, customers in the
industrial and automotive end markets, and customers in the Americas and Europe regions, partially offset by increased sales to customers in the Asia region.
The gross profit margin decreased slightly versus the prior year. The decrease is due to lower sales volume, decreased average selling prices, higher labor and tantalum
costs, partially offset by a favorable product mix, and decreased utilities costs.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit.
Average selling prices have decreased slightly versus the prior year.
A large portion of expected growth of our Capacitors segment is in high voltage high power film capacitors used for smart grid infrastructure projects. Accordingly, we
acquired Birkelbach, which is being vertically integrated, to ensure we have adequate metalized film material required to fulfill this growing demand.
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Selling, General, and Administrative Expenses
Selling, general, and administrative expenses are summarized as follows (dollars in
thousands):
Years ended December 31,
SG&A expenses for the year ended December 31, 2024
increased versus the year ended December 31, 2023 due to higher stock-based compensation and general cost inflation, partially offset by
lower bonus compensation.
In September 2024, we announced restructuring actions designed, in part, to streamline business decision making. The actions are expected to generate annualized cost savings of approximately $12
million of selling, general and administration expenses, when the actions are fully implemented by the end of 2026. However, we are also incurring additional SG&A costs associated with our strategic initiatives. See "Cost Management" above.
Other Income (Expense)
2024 Compared to 2023
Interest expense for the year ended December 31, 2024 increased by $2.3 million versus the year ended December
31, 2023. The increase is primarily due to the issuance of the
convertible senior notes due 2030 in the third fiscal quarter of 2023.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Years ended December 31,
Foreign exchange gain (loss) $ 774 $ 677 $ 97
Other components of net periodic pension expense (7,899 ) (8,730 ) 831
2023 Compared to 2022
Interest expense for the year ended December 31, 2023 increased by $8.0 million versus the year ended December 31, 2022. The increase is primarily due to higher interest
rates and higher average balances outstanding on the revolving credit facility in 2023 prior to September 2023 when it was paid down to $0.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Years ended December 31,
Other components of net periodic pension expense (8,730 ) (11,090 ) 2,360
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Income Taxes
For the years ended December 31, 2024, 2023, and 2022, the effective tax
rates were (1,145.5)%, 30.4%,
and 27.5%, respectively. We expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual
transactions. Our GAAP effective tax rate for the year ended December 31, 2024 is not meaningful at the low levels of pre-tax loss.
There were no unusual tax transactions that impacted the effective tax rate for the years ended December 31, 2024 and December 31, 2023.
The effective tax rate for the year ended December 31, 2022 was impacted by $5.9 million of tax benefits recognized for changes in uncertain tax positions following the resolution of a tax audit, $59.6 million of tax
expense recognized upon the change in indefinite reversal assertion on earnings in Germany, and $33.7 million of tax benefits recognized upon the release of a valuation allowance.
We made the determination during the fourth fiscal quarter of 2022 that substantially all unremitted earnings in Germany were no longer indefinitely reinvested. We
recorded additional tax expense during the fourth fiscal quarter of 2022 to accrue the $59.6 million of withholding taxes necessary to distribute these approximately $360.0 million of accumulated earnings to the United States.
We operate in a global environment with significant operations in various locations outside the 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 5 to our consolidated financial statements.
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Financial Condition, Liquidity, and Capital Resources
Our financial condition as of December 31, 2024 continued to be strong. 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, fund our stockholder
return policy, and to reduce debt levels.
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.
Cash flows provided by operating activities were $173.7 million for the year ended December 31, 2024, as compared to
cash flows provided by operations of $365.7 million for the year ended December 31, 2023.
In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle. The following table presents the components of our cash conversion cycle during
the five fiscal quarters beginning with the fourth fiscal quarter of 2023 through the fourth fiscal quarter of 2024:
Days payable outstanding ("DPO") (c) (31 ) (31 ) (31 ) (32 ) (34 )
a) DSO measures the average collection period of our receivables. DSO is calculated by dividing the average accounts receivable by the average net revenue per day for the respective fiscal quarter.
b) DIO measures the average number of days from procurement to sale of our product. DIO is calculated by dividing the average inventory by average cost of goods sold per day for the respective
fiscal quarter.
c) DPO measures the average number of days our payables remain outstanding before payment. DPO is calculated by dividing the average accounts payable by the average cost of goods sold per day for
the respective fiscal quarter.
Cash paid for property and equipment for the year ended December 31, 2024 was $320.1 million, as compared to $329.4 million for the year ended December 31, 2023. To be well positioned to service our customers and to fully participate in growing markets, we have
increased and expect to maintain a relatively high level of capital expenditures for expansion in the mid-term. We remain committed to our long-term plan of increasing
Vishay's capacity, to assure our customers of reliable volume as they scale. While we plan to advance our capacity expansion projects, we have and will continue to modulate the spending in response to order flow and the timing of customer demand
and qualifications. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending. For 2025, we plan to spend between $300 million to $350 million, at least 70% of
which will be invested in capacity expansion projects for high growth product lines, including our wafer fab expansions.
Free cash flow for the year ended December 31, 2024 decreased versus the year ended December 31, 2023 primarily due to decreased net earnings. We expect that free cash flow will be negatively impacted by the expected high level of
capital expenditures for expansion in 2023 - 2025 after which we expect to generate increasingly higher levels 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.
In 2022, our Board of Directors adopted a Stockholder Return Policy that will remain in effect until such time as the Board votes to amend or rescind the policy. See “Stockholder Return Policy” above for additional
information.
The following table summarizes the components of net cash and short-term investments (debt) (in thousands):
Net cash and short-term investments (debt) $ (298,603 ) $ 190,339
"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.
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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
statements of cash flows.
Our business is geographically diverse and our cash is generated by our subsidiaries around the world. 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. We continue to allocate capital responsibly between our business, our lenders,
and our stockholders. The capital allocated to our business is further allocated between our subsidiaries to meet local operating cash needs, to fund capital expenditures as part of our growth plan, and to meet corporate funding needs while also
aiming to minimize our tax expense.
During the second fiscal quarter of 2024, we repatriated $120 million of accumulated earnings to the United States and paid
withholding taxes in Israel of $15 million. As of December 31, 2024, $17 million of our cash and cash equivalents and short-term investments were held by our U.S. subsidiaries. As of December 31, 2024, we are in a net borrowing position in the
U.S. and we expect to continue to be at least through the first half of 2025 based on expected cash payments pursuant to our Stockholder Return Policy and funding of the Newport expansion. As of December 31, 2024, we have approximately $515
million of German and Israeli earnings that are deemed not indefinitely reinvested. Based on the expected timing of future repatriations, we estimate that the tax liability to repatriate these unremitted earnings will be approximately $77 million,
which has been accrued, but will only be paid upon repatriation of the unremitted earnings. Repatriating these unremitted earnings earlier than currently planned may not be possible and may incur additional tax expense. We also have amounts of
unremitted foreign earnings held by subsidiaries in countries other than Israel and Germany, which continue to be reinvested indefinitely, that we have not accrued for the incremental foreign income taxes and withholding taxes payable to foreign
jurisdictions that would be incurred to repatriate these amounts. Certain of these subsidiaries are located in countries with restrictive regulations and high tax rates for repatriating cash. Due to the uncertainties associated with the ability,
timing, and method to repatriate these unremitted earnings and other complexities associated with its hypothetical calculation, determination of the amount of tax expense that would be incurred to repatriate the unremitted earnings is not
practicable, but could be significant. Our undrawn credit facility provides us with adequate operating liquidity in the United States.
Upon successful completion of our growth plan, we expect to generate increasingly higher levels of free cash that will be
sufficient to meet our long-term financing needs related to normal operating requirements, regular dividend payments, share repurchases pursuant to our Stockholder Return Policy, while allowing us to manage our repatriation and financing activities
to minimize tax and interest expense. During the current period of intensified capital expenditures to achieve our growth plans, we are considering a combination of additional and alternative sources of financing and our cash on hand to fund a
portion of the capital expenditures that would conserve cash for future acquisitions while enabling us to minimize tax expense.
We maintain a $750 million revolving credit agreement with a consortium of banks led by JPMorgan Chase Bank, N.A., that matures
on May 8, 2028. 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.