VISHAY INTERTECHNOLOGY INC 10-Q

Item 2. 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 period to period. The MD&A should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes included in Item 1. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in our Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors," filed with the Securities and Exchange Commission on February 22, 2023. 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 electrification, data storage, and wireless communications by developing go-to-market strategies and investing in and expanding the thirty key product lines for growth that we have identified, increasing our capacity internally by investing approximately $350 million in 2023 and approximately $1.2 billion over the next three years primarily for capital expansion projects outside of China and externally by outsourcing production of commodity products to subcontractors, enhancing channel management, investing in internal resources by adding customer-facing engineers and filling gaps in technology and market coverage, promoting the full breadth of our portfolio through solution selling, and instituting a Think Customer First organizational culture. On November 8, 2023, we and Nexperia BV announced that we have entered into an agreement whereby we will acquire Nexperia’s wafer fabrication facility and operations located in Newport, South Wales, U.K. for approximately $177 million in cash, subject to customary post-closing adjustments. The closing of the transaction is subject to U.K. government review, the purchase rights of a third party, and customary closing conditions, and is expected to occur in the first quarter of 2024. 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 Value” below. On September 12, 2023, we issued $750 million convertible senior notes due 2030. We used the net proceeds from the issuance of these notes to repurchase $370.2 million principal amount of convertible senior notes due 2025, $94.2 million to enter into capped call transactions intended to mitigate the dilution risk of convertible senior notes due 2030 by synthetically increasing the conversion price of the notes to approximately $43.98 per share, to repay amounts outstanding on our amended and restated credit facility, and for other general corporate purposes. We recognized a loss of $18.9 million due to the early extinguishment of the repurchased convertible senior notes due 2025. On May 8, 2023, we amended and restated our $750 million revolving credit agreement, which replaced our credit agreement that was scheduled to mature in June 2024. The amendment and restatement extended the maturity date of the revolving credit agreement until May 8, 2028, replaced the previous total leverage ratio used for financial covenant compliance measurement with a net leverage ratio, and replaced the LIBOR-based interest rate and related LIBOR-based mechanics applicable to U.S. dollar borrowings under the revolving credit agreement with an interest rate based on the Secured Overnight Financing Rate ("SOFR") (including a customary spread adjustment) and related SOFR-based mechanics. The maturity date of the amended and restated facility will accelerate if within ninety-one days prior to the maturity of our convertible senior notes due 2025, the outstanding principal amount of such notes exceeds a defined liquidity measure as set forth in the Amended and Restated Credit Facility. Other terms and conditions are substantially unchanged. 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 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. The key financial metrics decreased in the third fiscal quarter of 2023 primarily due to the negative impacts of an on-going distributor inventory correction that resulted in lower orders. Gross profit was negatively impacted by lower volume. 27 Net revenues for the fiscal quarter ended September 30, 2023 were $853.7 million, compared to $892.1 million and $924.8 million for the fiscal quarters ended July 1, 2023 and October 1, 2022, respectively. The net earnings attributable to Vishay stockholders for the fiscal quarter ended September 30, 2023 were $65.5 million, or $0.47 per diluted share, compared to $95.0 million, or $0.68 per diluted share for the fiscal quarter ended July 1, 2023, and $140.1 million, or $0.98 per diluted share for the fiscal quarter ended October 1, 2022. Net revenues for the nine fiscal months ended September 30, 2023 were $2,616.8 million, compared to $2,642.1 million for the nine fiscal months ended October 1, 2022. The net earnings attributable to Vishay stockholders for the nine fiscal months ended September 30, 2023 were $272.3 million, or $1.94 per diluted share, compared to $356.0 million, or $2.46 per diluted share for the nine fiscal months ended October 1, 2022. We define adjusted net earnings as net earnings determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business. We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment. The reconciliations below include certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings, adjusted earnings per share, and free cash. These non-GAAP measures should not be viewed as alternatives to GAAP measures of performance or liquidity. Non-GAAP measures such as adjusted net earnings, adjusted earnings per share, and free cash do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results. Management believes that free cash is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. We utilize the free cash metric in defining our Stockholder Return Policy. The items affecting comparability are ( in thousands, except per share amounts ): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 GAAP net earnings attributable to Vishay stockholders $ 65,529 $ 95,038 $ 140,061 $ 272,348 $ 356,022 Reconciling items affecting gross income: Impact of COVID-19 pandemic $ - $ - $ - $ - $ 6,661 Other reconciling items affecting operating income: Impact of COVID-19 pandemic $ - $ - $ - $ - $ 546 Reconciling items affecting other income (expense): Loss on early extinguishment of debt $ 18,874 $ - $ - $ 18,874 $ - Reconciling items affecting tax expense: Effects of changes in uncertain tax positions $ - $ - $ (5,941 ) $ - $ (5,941 ) Tax effects of pre-tax items above (498 ) - - (498 ) (1,802 ) Adjusted net earnings $ 83,905 $ 95,038 $ 134,120 $ 290,724 $ 355,486 Adjusted weighted average diluted shares outstanding 140,001 140,478 143,447 140,577 144,470 Adjusted earnings per diluted share $ 0.60 $ 0.68 $ 0.93 $ 2.07 $ 2.46 The following table reconciles gross profit by segment to consolidated gross profit ( in thousands ) . 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. Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 MOSFETs $ 68,665 $ 71,954 $ 83,121 $ 213,477 $ 197,305 Diodes 47,194 40,877 56,339 136,200 155,495 Optoelectronic Components 18,140 15,609 25,959 55,689 84,820 Resistors 49,156 64,634 68,461 187,826 204,015 Inductors 28,493 30,808 25,692 83,024 80,231 Capacitors 25,995 33,591 29,966 97,613 94,664 Unallocated gross profit (loss) - - - - (6,661 ) Gross profit $ 237,643 $ 257,473 $ 289,538 $ 773,829 $ 809,869 28 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. Free cash results are as follows ( in thousands ) : Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net cash provided by continuing operating activities $ 122,303 $ 107,239 $ 209,480 $ 359,435 $ 317,792 Proceeds from sale of property and equipment 21 687 95 1,034 472 Less: Capital expenditures (66,829 ) (71,676 ) (76,475 ) (184,079 ) (172,175 ) Free cash $ 55,495 $ 36,250 $ 133,100 $ 176,390 $ 146,089 Orders are lower due to a distributor inventory correction that began in the fourth fiscal quarter of 2022 and continues in 2023. Our results for the fiscal quarters ended September 30, 2023 and July 1, 2023 remain strong, although weaker than our October 1, 2022 results. Our free cash results were significantly impacted by the installment payments of the U.S. transition tax of $27.7 million and $14.8 million in the second fiscal quarters of 2023 and 2022, respectively, and $25.2 million of payments of foreign, withholding, and claw-back cash taxes on foreign earnings in Israel for the net $81.2 million that was repatriated to the U.S. in the second fiscal quarter of 2022 . 29 Stockholder Value We are focused on enhancing stockholder value by growing our business and improving earnings per share. Over the next few years, we expect to experience higher internal growth rates than over the last decade. This expectation is based upon accelerated electrification, such as factory automation, electrical vehicles, and 5G infrastructures. To meet this expected increase in demand and to fully participate in growing markets, we intend to increase our capital expenditures for expansion outside of China in the mid-term. The increased capital expenditures will be primarily used to increase manufacturing capacity for the thirty key product lines for growth that we identified. The most significant expansion projects include building a 12-inch wafer fab in Itzehoe, Germany adjacent to our existing 8-inch fab, expanding our Inductors manufacturing, and expanding our GaAs fab in Heilbronn, Germany. 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): Fiscal quarters ended Nine fiscal months ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Dividends paid to stockholders $ 13,879 $ 14,254 $ 41,836 $ 43,062 Stock repurchases 17,262 18,510 57,661 54,671 Total $ 31,141 $ 32,764 $ 99,497 $ 97,733 During the fourth quarters of 2022 and 2021, we determined that substantially all unremitted foreign earnings in Israel and Germany, respectively, are no longer indefinitely reinvested. The changes in these indefinite reinvestment assertions will provide greater access to our worldwide cash balances to fund our growth plan and our Stockholder Return Policy, but also increased 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 t he 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. 30 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. 31 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 third fiscal quarter of 2022 through the third fiscal quarter of 2023 (dollars in thousands) : 3rd Quarter 2022 4th Quarter 2022 1st Quarter 2023 2nd Quarter 2023 3rd Quarter 2023 Net revenues $ 924,798 $ 855,298 $ 871,046 $ 892,110 $ 853,653 Gross profit margin 31.3 % 29.1 % 32.0 % 28.9 % 27.8 % Operating margin 19.8 % 15.8 % 18.2 % 15.1 % 13.5 % End-of-period backlog $ 2,261,400 $ 2,292,700 $ 2,169,400 $ 1,895,100 $ 1,552,400 Book-to-bill ratio 0.88 0.94 0.84 0.69 0.63 Inventory turnover 4.1 3.9 3.7 3.9 3.7 Change in ASP vs. prior quarter 0.0 % 0.6 % 1.2 % (0.7 )% (0.8 )% _________________________________________ See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment. Revenues decreased versus the prior fiscal quarter and the third fiscal quarter of 2022 primarily due to lower sales volume. The book-to-bill ratio and backlog were negatively impacted by the distributor inventory correction that continued in the third fiscal quarter of 2023. We continue to increase manufacturing capacity for critical product lines. Average selling prices decreased versus the prior fiscal quarter. Gross profit margin decreased versus the prior fiscal quarter and the third fiscal quarter of 2022. The decrease versus the prior fiscal quarter is primarily due to lower sales volume and decreased average selling prices. The decrease versus the third fiscal quarter of 2022 is primarily due to lower sales volume, cost inflation, and manufacturing inefficiencies, partially offset by higher average selling prices and positive foreign currency impacts. The book-to-bill ratio in the third fiscal quarter of 2023 decreased to 0.63 versus 0.69 in the second fiscal quarter of 2023. The book-to-bill ratio continues to be negatively impacted by the distributor inventory correction that continued in the third fiscal quarter of 2023. 32 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 third fiscal quarter of 2022 through the third fiscal quarter of 2023 (dollars in thousands) : 3rd Quarter 2022 4th Quarter 2022 1st Quarter 2023 2nd Quarter 2023 3rd Quarter 2023 MOSFETs Net revenues $ 225,186 $ 206,005 $ 198,181 $ 207,388 $ 205,027 Book-to-bill ratio 0.78 1.15 0.95 0.68 0.50 Gross profit margin 36.9 % 37.5 % 36.8 % 34.7 % 33.5 % Segment operating margin 31.9 % 30.9 % 29.3 % 27.4 % 25.7 % Diodes Net revenues $ 209,012 $ 181,791 $ 175,693 $ 174,735 $ 176,788 Book-to-bill ratio 0.79 0.88 0.71 0.54 0.58 Gross profit margin 27.0 % 23.4 % 27.4 % 23.4 % 26.7 % Segment operating margin 24.6 % 19.9 % 24.3 % 20.1 % 23.5 % Optoelectronic Components Net revenues $ 73,447 $ 63,985 $ 60,403 $ 64,449 $ 64,441 Book-to-bill ratio 0.57 0.78 0.72 0.70 0.57 Gross profit margin 35.3 % 28.1 % 36.3 % 24.2 % 28.1 % Segment operating margin 30.0 % 20.1 % 28.6 % 16.7 % 20.3 % Resistors Net revenues $ 207,437 $ 205,161 $ 223,140 $ 222,433 $ 199,877 Book-to-bill ratio 1.08 0.85 0.88 0.74 0.65 Gross profit margin 33.0 % 28.3 % 33.2 % 29.1 % 24.6 % Segment operating margin 29.7 % 25.3 % 29.9 % 25.8 % 20.9 % Inductors Net revenues $ 83,503 $ 75,198 $ 80,338 $ 89,239 $ 89,947 Book-to-bill ratio 1.02 0.83 1.04 0.84 0.85 Gross profit margin 30.8 % 32.1 % 29.5 % 34.5 % 31.7 % Segment operating margin 27.0 % 28.9 % 26.1 % 30.9 % 27.9 % Capacitors Net revenues $ 126,213 $ 123,158 $ 133,291 $ 133,866 $ 117,573 Book-to-bill ratio 0.95 0.99 0.70 0.70 0.75 Gross profit margin 23.7 % 23.7 % 28.5 % 25.1 % 22.1 % Segment operating margin 20.1 % 19.9 % 24.8 % 21.0 % 17.5 % 33 Results of Operations Statements of operations’ captions as a percentage of net revenues and the effective tax rates were as follows: Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Cost of products sold 72.2 % 71.1 % 68.7 % 70.4 % 69.3 % Gross profit 27.8 % 28.9 % 31.3 % 29.6 % 30.7 % Selling, general & administrative expenses 14.4 % 13.8 % 11.5 % 14.0 % 12.5 % Operating income 13.5 % 15.1 % 19.8 % 15.6 % 18.2 % Income before taxes and noncontrolling interest 11.3 % 15.0 % 19.6 % 14.8 % 17.6 % Net earnings attributable to Vishay stockholders 7.7 % 10.7 % 15.1 % 10.4 % 13.5 % ________ Effective tax rate 31.7 % 28.5 % 22.4 % 29.3 % 23.2 % Net Revenues Net revenues were as follows (dollars in thousands) : Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 853,653 $ 892,110 $ 924,798 $ 2,616,809 $ 2,642,103 The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ (38,457 ) (4.3 )% n/a n/a October 1, 2022 $ (71,145 ) (7.7 )% $ (25,294 ) (1.0 )% Changes in net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Decrease in volume (3.2 )% (10.7 )% (3.8 )% Change in average selling prices (0.8 )% 0.9 % 2.3 % Foreign currency effects 0.0 % 2.1 % 0.4 % Acquisition 0.0 % 0.5 % 0.3 % Other (0.3 )% (0.5 )% (0.2 )% Net change (4.3 )% (7.7 )% (1.0 )% Despite the distributor 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 decreases in net revenues are primarily sales volume-driven with increased average selling prices and positive foreign currency impacts partially offsetting the sales volume decrease in the prior year periods. Gross Profit Margins Gross profit margins for the fiscal quarter ended September 30, 2023 were 27.8%, versus 28.9% and 31.3%, for the comparable prior quarter and prior year period, respectively. Gross profit margins for the nine fiscal months ended September 30, 2023 were 29.6%, versus 30.7% for the comparable prior year period. The decreases are primarily sales volume-driven with increased average selling prices and positive foreign currency impacts partially offsetting the sales volume decrease and cost inflation in the prior year periods. 34 Segments Analysis of revenues and margins for our segments is provided below. Direct costs of the COVID-19 pandemic are not allocated to the segments. MOSFETs Net revenues, gross profit margins, and segment operating margins of the MOSFETs segment were as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 205,027 $ 207,388 $ 225,186 $ 610,596 $ 556,255 Gross profit margin 33.5 % 34.7 % 36.9 % 35.0 % 35.5 % Segment operating margin 25.7 % 27.4 % 31.9 % 27.4 % 29.7 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ (2,361 ) (1.1 )% n/a n/a October 1, 2022 $ (20,159 ) (9.0 )% $ 54,341 9.8 % Changes in MOSFETs segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Change in volume 1.1 % (12.1 )% 4.0 % Change in average selling prices (2.0 )% (0.3 )% 3.6 % Foreign currency effects 0.0 % 1.2 % 0.3 % Acquisition 0.0 % 1.9 % 1.2 % Other (0.2 )% 0.3 % 0.7 % Net change (1.1 )% (9.0 )% 9.8 % The net revenues of the MOSFETs segment decreased slightly versus the prior fiscal quarter and decreased significantly versus the prior year quarter, but increased significantly versus the prior year-to-date period. The decrease versus the prior fiscal quarter is primarily due to decreased sales to distribution customers and customers in the Europe and Americas regions. The decrease versus the prior year quarter is primarily due to decreased sales to distribution and EMS customers, computing end market customers, and customers in all regions, particularly the Americas region. The increase versus the prior year-to-date period is primarily due to increased sales to automotive, power supply, and industrial end market customers and customers in the Europe and Americas regions, partially offset by decreased sales to computing and telecommunications end market customers. Gross profit margin decreased versus the prior fiscal quarter and the prior year periods. The decrease versus the prior fiscal quarter is primarily due to decreased average selling prices and unfavorable product mix. The decrease versus the prior year quarter is primarily due to lower sales volume, unfavorable product mix, higher utilities and material prices, increased depreciation, and higher personnel costs. Gross profit increased versus the prior year-to-date period due to higher volume, but gross profit margin decreased slightly due to increased costs. The segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The fluctuations are primarily due to gross profit fluctuations. Increased segment SG&A expenses as a percentage of sales also impacted all comparison periods. Average selling prices decreased versus the prior fiscal quarter and the prior year quarter, but increased versus the prior year-to-date period. 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% within 3-4 years 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. 35 Diodes Net revenues, gross profit margins, and segment operating margins of the Diodes segment were as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 176,788 $ 174,735 $ 209,012 $ 527,216 $ 583,429 Gross profit margin 26.7 % 23.4 % 27.0 % 25.8 % 26.7 % Segment operating margin 23.5 % 20.1 % 24.6 % 22.6 % 24.0 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ 2,053 1.2 % n/a n/a October 1, 2022 $ (32,224 ) (15.4 )% $ (56,213 ) (9.6 )% Changes in Diodes segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Change in volume 1.3 % (16.7 )% (11.3 )% Increase in average selling prices 0.1 % 0.2 % 1.8 % Foreign currency effects (0.1 )% 1.4 % 0.2 % Other (0.1 )% (0.3 )% (0.3 )% Net change 1.2 % (15.4 )% (9.6 )% Net revenues of the Diodes segment increased versus the prior fiscal quarter, but decreased versus the prior year periods. The increase versus the prior fiscal quarter is primarily due to increased sales to automotive end market customers and customers in the Americas and Asia regions. The decrease versus the prior year quarter is primarily due to decreased sales to customers in all regions, particularly the Americas region, and all end market customers except for automotive end market customers. The decrease versus the prior year quarter is partially attributable to the prior year quarter including increased volume as operations and sales resumed following extended government-mandated shut-downs of our manufacturing facilities in the People's Republic of China. The decrease versus the prior year-to-date period is primarily due to decreased sales to distribution and EMS customers, power supply end market customers, and customers in the Americas and Asia regions. Gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The increase versus the prior fiscal quarter is primarily due to higher sales volume, decreased material costs, and manufacturing efficiencies. The decrease versus the prior year quarter is primarily due to lower sales volume, partially offset by decreased metal prices. The decrease versus the prior year-to-date period is primarily due to lower sales volume, manufacturing inefficiencies, and higher material and labor costs, partially offset by increased average selling prices. The segment operating margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The fluctuations are primarily due to gross profit fluctuations. Average selling prices increased versus the prior fiscal quarter and the prior year periods. 36 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 Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ $ 64,441 $ $ 64,449 $ $ 73,447 $ 189,293 $ 232,399 Gross profit margin 28.1 % 24.2 % 35.3 % 29.4 % 36.5 % Segment operating margin 20.3 % 16.7 % 30.0 % 21.7 % 31.2 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ (8 ) 0.0 % n/a n/a October 1, 2022 $ (9,006 ) (12.3 )% (43,106 ) (18.5 )% Changes in Optoelectronic Components segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Change in volume 0.5 % (15.0 )% (19.7 )% Change in average selling prices (0.3 )% (0.2 )% 0.7 % Foreign currency effects 0.0 % 2.9 % 0.6 % Other (0.2 )% 0.0 % (0.1 )% Net change 0.0 % (12.3 )% (18.5 )% Net revenues of the Optoelectronic Components segment were flat versus the prior fiscal quarter, but decreased significantly versus the prior year periods. Sales to EMS customers, automotive and industrial end market customers, and customers in the Europe and Americas regions increased versus the prior fiscal quarter, but were offset by decreased sales to distribution customers and customers in the Asia region. The decrease versus the prior year quarter is due to decreased sales to distribution customers, customers in all regions, particularly the Americas region, and all end market customers other than automotive and telecommunications end market customers. The decrease versus the prior year-to-date period is primarily due to decreased sales to distribution customers and customers in all regions, partially offset by increased sales to automotive end market customers. Gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The increase versus the prior fiscal quarter is primarily due to favorable product mix, manufacturing efficiencies, and lower utility costs due to government subsidies . The decrease versus the prior year quarter is primarily due to lower sales volume, manufacturing inefficiencies, and higher material, subcontractor service, and utility costs. The decrease versus the prior year-to-date period is primarily due to lower sales volume, manufacturing inefficiencies, and higher material and labor costs, partially offset by increased average selling prices. The segment operating margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The fluctuations are primarily due to gross profit fluctuations. Average selling prices decreased versus the prior fiscal quarter and prior year quarter, but increased versus the prior year-to-date period. We are now using our recently modernized and expanded wafer fab in Heilbronn, Germany. 37 Resistors Net revenues, gross profit margins, and segment operating margins of the Resistors segment were as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 199,877 $ 222,433 $ 207,437 $ 645,450 $ 627,645 Gross profit margin 24.6 % 29.1 % 33.0 % 29.1 % 32.5 % Segment operating margin 20.9 % 25.8 % 29.7 % 25.7 % 29.2 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ (22,556 ) (10.1 )% n/a n/a October 1, 2022 $ (7,560 ) (3.6 )% $ 17,805 2.8 % Changes in Resistors segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Change in volume (8.2 )% (6.7 )% 0.5 % Change in average selling prices (1.1 )% 1.2 % 2.0 % Foreign currency effects 0.0 % 3.0 % 0.6 % Other (0.8 )% (1.1 )% (0.3 )% Net change (10.1 )% (3.6 )% 2.8 % Net revenues of the Resistors segment decreased versus the prior fiscal quarter and prior year quarter, but increased versus the prior year-to-date period. The decrease versus the prior fiscal quarter is primarily due to decreased sales to distribution and EMS customers, industrial end market customers, and customers in all regions, particularly the Americas region, partially offset by increased sales to automotive end market customers. The decrease versus the prior year quarter is primarily due to decreased sales to distribution customers and customers in the Americas and Asia regions, partially offset by increased sales to military and aerospace, automotive, and industrial end market customers, and customers in the Europe region. The increase versus the prior year-to-date period is primarily due to increased sales to military and aerospace, automotive, and industrial end market customers and customers in the Europe region. The gross profit margin decreased versus the prior fiscal quarter and the prior year periods. The decrease versus the prior fiscal quarter is primarily due to lower volume, decreased average selling prices, manufacturing inefficiencies, and higher labor costs. The decrease versus the prior year quarter is primarily due to decreased volume, higher labor and utility costs, and manufacturing inefficiencies, partially offset by increased average selling prices. The decrease versus the prior year-to-date period is primarily due to higher labor and material costs and manufacturing inefficiencies, partially offset by higher sales volume and increased average selling prices. The segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The decreases are primarily due to decreased gross profit. Average selling prices decreased versus the prior fiscal quarter, but increased versus the prior year periods. We are increasing critical manufacturing capacities for certain product lines. We continue to broaden our business with targeted acquisitions of specialty resistors businesses. 38 Inductors Net revenues, gross profit margins, and segment operating margins of the Inductors segment were as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 89,947 $ 89,239 $ 83,503 $ 259,524 $ 255,888 Gross profit margin 31.7 % 34.5 % 30.8 % 32.0 % 31.4 % Segment operating margin 27.9 % 30.9 % 27.0 % 28.4 % 28.0 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ 708 0.8 % n/a n/a October 1, 2022 $ 6,444 7.7 % $ 3,636 1.4 % Changes in net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Change in volume 0.8 % 4.0 % (0.9 )% Change in average selling prices 0.0 % 2.2 % 2.0 % Foreign currency effects 0.0 % 1.2 % 0.3 % Other 0.0 % 0.3 % 0.0 % Net change 0.8 % 7.7 % 1.4 % Net revenues of the Inductors segment increased slightly versus the prior fiscal quarter and prior year-to-date period and increased significantly versus the prior year quarter. The increase versus the prior fiscal quarter is primarily due to increased sales to automotive and power supply end market customers and customers in the Asia region. The increase versus the prior year quarter is primarily due to increased sales to EMS customers, medical, automotive, and aerospace and military end market customers, and customers in the Americas region, partially offset by decreased sales to distribution customers and industrial and telecommunications end market customers. The increase versus the prior year-to-date period is primarily due to increased sales to EMS customers, medical, automotive, and aerospace and military end market customers, and customers in the Americas region, partially offset by decreased sales to distribution customers and industrial and telecommunications end market customers, and customers in the Asia region. The gross profit margin decreased versus the prior fiscal quarter, but increased versus the prior year periods. The decrease versus the prior fiscal quarter is primarily due to higher labor costs and manufacturing inefficiencies. The increase versus the prior year quarter is primarily due to higher volume and increased average selling prices, partially offset by higher labor costs and manufacturing inefficiencies. The increase versus the prior year-to-date period is primarily due to increased average selling prices, lower metals prices, and positive foreign currency impacts, partially offset by lower sales volume, higher labor and materials costs, manufacturing inefficiencies, and start-up costs of a new manufacturing facility. The segment operating margin decreased versus the prior fiscal quarter, but increased versus the prior year periods. The fluctuations are primarily due to gross profit fluctuations. Average selling prices were flat versus the prior fiscal quarter, but increased versus the prior year periods. We expect long-term growth in this segment, and are continuously expanding manufacturing capacity for certain product lines and evaluating acquisition opportunities, particularly of specialty businesses. We have greatly increased our manufacturing capacity for power inductors in the past year. 39 Capacitors Net revenues, gross profit margins, and segment operating margins of the Capacitors segment were as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenues $ 117,573 $ 133,866 $ 126,213 $ 384,730 $ 386,487 Gross profit margin 22.1 % 25.1 % 23.7 % 25.4 % 24.5 % Segment operating margin 17.5 % 21.0 % 20.1 % 21.2 % 20.8 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended September 30, 2023 Nine fiscal months ended September 30, 2023 Change in net revenues % change Change in net revenues % change July 1, 2023 $ (16,293 ) (12.2 )% n/a n/a October 1, 2022 $ (8,640 ) (6.8 )% $ (1,757 ) (0.5 )% Changes in Capacitors segment net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Decrease in volume (12.2 )% (12.1 )% (3.2 )% Change in average selling prices (0.6 )% 3.3 % 2.4 % Foreign currency effects 0.0 % 3.1 % 0.4 % Other 0.6 % (1.1 )% (0.1 )% Net change (12.2 )% (6.8 )% (0.5 )% Net revenues of the Capacitors segment decreased significantly versus the prior fiscal quarter and the prior year quarter and decreased slightly versus the prior year-to-date period. The decrease versus the prior fiscal quarter is primarily due to decreased sales to distribution customers and customers in the Americas and Asia regions. The decrease versus the prior year quarter is primarily due to decreased sales to distribution customers and customers in the Americas and Asia regions, partially offset by increased sales to industrial end market customers. The decrease versus the prior year-to-date period is primarily due to decreased sales to distribution and EMS customers and customers in the Asia and Europe regions, mostly offset by increased sales to industrial end market customers and customers in the Europe region. The gross profit margin decreased versus the prior fiscal quarter and the prior year quarter, but increased versus the prior year-to-date period. The decrease versus the prior fiscal quarter is primarily due to lower sales volume and manufacturing inefficiencies, partially offset by favorable product mix and lower metals prices. The decrease versus the prior year quarter is primarily due to lower sales volume, manufacturing inefficiencies, higher labor and metals costs, partially offset by increased average selling prices. The increase versus the prior year-to-date period is primarily due to increased average selling prices, favorable product mix, and positive foreign currency impact, partially offset by lower sales volume, manufacturing inefficiencies, higher labor and material costs, and negative impact from decreased inventory. The segment operating margin decreased versus the prior fiscal quarter and the prior year quarter, but increased versus the prior year-to-date period. The fluctuations are primarily due to gross profit fluctuations. Average selling prices decreased versus the prior fiscal quarter, but increased versus the prior year periods. 40 Selling, General, and Administrative Expenses Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands): Fiscal quarters ended Nine fiscal months ended September 30, 2023 July 1, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Total SG&A expenses $ 122,513 $ 122,857 $ 106,436 $ 365,515 $ 329,691 as a percentage of revenues 14.4 % 13.8 % 11.5 % 14.0 % 12.5 % SG&A expenses increased versus the prior year periods as expected. The increases are due to general inflation and higher compensation costs, including the implementation of the 2023 Long-Term Incentive Plan in the second fiscal quarter of 2023. Other Income (Expense) Interest expense for the fiscal quarter ended September 30, 2023 increased $0.7 million versus the fiscal quarter ended July 1, 2023 and increased $3.0 million versus the fiscal quarter ended October 1, 2022. Interest expense for the nine fiscal months ended September 30, 2023 increased by $6.0 million versus the nine fiscal months ended October 1, 2022. The increases are due to higher interest rates and higher average balances outstanding on the revolving credit facility prior to September 2023 when it was paid down to $0. The following tables analyze the components of the line “Other” on the consolidated condensed statements of operations (in thousands): Fiscal quarters ended September 30, 2023 October 1, 2022 Change Foreign exchange gain (loss) $ 1,407 $ 4,462 $ (3,055 ) Interest income 9,183 1,836 7,347 Other components of net periodic pension expense (2,389 ) (2,704 ) 315 Investment income (expense) (1,419 ) (1,462 ) 43 Other 627 5 622 $ 7,409 $ 2,137 $ 5,272 Fiscal quarters ended September 30, 2023 July 1, 2023 Change Foreign exchange gain (loss) $ 1,407 $ 1,203 $ 204 Interest income 9,183 6,292 2,891 Other components of net periodic pension expense (2,389 ) (1,906 ) (483 ) Investment income (expense) (1,419 ) (193 ) (1,226 ) Other 627 (139 ) 766 $ 7,409 $ 5,257 $ 2,152 Nine fiscal months ended September 30, 2023 October 1, 2022 Change Foreign exchange gain (loss) $ 1,120 $ 10,695 $ (9,575 ) Interest income 21,419 3,186 18,233 Other components of net periodic pension expense (6,183 ) (8,417 ) 2,234 Investment income (expense) (868 ) (7,436 ) 6,568 Other 507 (262 ) 769 $ 15,995 $ (2,234 ) $ 18,229 41 Income Taxes For the fiscal quarter ended September 30, 2023, our effective tax rate was 31.7%, as compared to 28.5% and 22.4% for the fiscal quarters ended July 1, 2023 and October 1, 2022, respectively. For the nine fiscal months ended September 30, 2023, our effective tax rate was 29.3%, as compared to 23.2% for the nine fiscal months ended October 1, 2022. We expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions. During the nine fiscal months ended September 30, 2023, the liabilities for unrecognized tax benefits decreased by $4.5 million on a net basis, primarily due to decreases for settlements, partially offset by increases for current accruals and interest. 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 4 to our consolidated condensed financial statements. 42 Financial Condition, Liquidity, and Capital Resources Our financial condition as of September 30, 2023 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. 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 $359.4 million for the nine fiscal months ended September 30, 2023, as compared to cash flows provided by operations of $317.8 million for the nine fiscal months ended October 1, 2022. 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: Fiscal quarters ended September 30, 2023 July 1, 2023 October 1, 2022 Days sales outstanding ("DSO") (a) 48 46 42 Days inventory outstanding ("DIO") (b) 96 94 90 Days payable outstanding ("DPO") (c) (33 ) (32 ) (33 ) Cash conversion cycle 111 108 99 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 nine fiscal months ended September 30, 2023 was $184.1 million, as compared to $172.2 million for the nine fiscal months ended October 1, 2022. 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. We expect to invest approximately $350 million in 2023 and approximately $1.2 billion over the next three years primarily for capital expansion projects outside of China. Free cash flow for the nine fiscal months ended September 30, 2023 increased versus the nine fiscal months ended October 1, 2022 primarily due to a smaller increase in working capital. 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. 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 Value” above for additional information. The following table summarizes the components of net cash and short-term investments (debt) at September 30, 2023 and December 31, 2022 (in thousands) : September 30, 2023 December 31, 2022 Credit facility $ - $ 42,000 Convertible senior notes, due 2025 95,102 465,344 Convertible senior notes, due 2030 750,000 - Deferred financing costs (27,845 ) (6,407 ) Total debt 817,257 500,937 Cash and cash equivalents 1,095,119 610,825 Short-term investments 78,994 305,272 Net cash and short-term investments (debt) $ 356,856 $ 415,160 "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). 43 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. We aligned the maturity dates of our cash equivalents and short-terms investments in preparation of a planned cash repatriation that resulted in a decrease in our short-term investment balance. As of September 30, 2023, 94% of our cash and cash equivalents and short-term investments were held in countries outside of the United States. Cash dividends to stockholders, share repurchases, and principal and interest payments on our debt instruments need to be paid by the U.S. parent company, Vishay Intertechnology, Inc. Our U.S. subsidiaries also have cash operating needs. The distribution of earnings from Israel and Germany to the United States will be used, in part, to fund our Stockholder Return Policy. We expect that cash on-hand and cash flows from operations will be sufficient to meet our longer-term financing needs related to normal operating requirements, regular dividend payments, share repurchases pursuant to our Stockholder Return Policy, and our research and development and capital expenditure plans. Our substantially undrawn credit facility provides us with significant operating liquidity in the United States. On May 8, 2023, we amended and restated our $750 million revolving credit agreement, which replaced our credit agreement that was scheduled to mature in June 2024. The amendment and restatement extended the maturity date of the revolving credit agreement until 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. We had $42 million outstanding on our revolving credit facility at December 31, 2022 and no amount outstanding at September 30, 2023. We borrowed $501 million and repaid $543 million on the revolving credit facility during the nine fiscal months ended September 30, 2023. The average outstanding balance on our revolving credit facility calculated at fiscal month-ends was $124.4 million and the highest amount outstanding on our revolving credit facility at a fiscal month end was $185 million during the nine fiscal months ended September 30, 2023. We used $185 million of the net proceeds from the convertible senior notes due 2030 to repay amounts outstanding on the revolving credit facility in the third fiscal quarter of 2023. The amendment and restatement of the facility replaced the leverage ratio used for compliance measurement with a net leverage ratio, reducing the measure of outstanding debt by up to $250 million of unrestricted cash. Measurements prior to the amendment and restatement were based on a total leverage ratio. Pursuant to the amended and restated credit facility, the financial maintenance covenants include (a) an interest coverage ratio of not less than 2.00 to 1; and (b) a net leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional debt). The computation of these ratios is prescribed in Article VI of the Credit Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., which was filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed May 8, 2023. 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 net 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 net leverage ratio is greater than 2.50 to 1.00). We were in compliance with all financial covenants under the credit facility at September 30, 2023. Our interest coverage ratio and net leverage ratio were 20.55 to 1 and 0.80 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 and due 2030 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated. The maturity date of the amended and restated credit facility will accelerate if within ninety-one days prior to the maturity of our convertible senior notes due 2025, the outstanding principal amount of such notes exceeds a defined liquidity measure as set forth in the Amended and Restated Credit Facility. The repurchase of $370.2 million principal amount of convertible senior notes due 2025 in the third fiscal quarter of 2023 reduces the risk that the maturity date of the amended and restated credit facility will accelerate. Prior to the amendment and restatement, borrowings under the credit facility bore interest at LIBOR plus an interest margin. The applicable interest margin is based on our total leverage ratio. We also pay a commitment fee, also based on our total leverage ratio, on undrawn amounts. The amended and restated credit facility replaced the LIBOR-based interest rate and related LIBOR-based mechanics applicable to U.S. dollar borrowings under the revolving credit agreement with an interest rate based on SOFR (including a customary spread adjustment) and related SOFR-based mechanics. Borrowings in foreign currency bear interest at a local reference rate plus an interest margin. Based on our current total leverage ratio of 1.14 to 1, any new borrowings will bear interest at SOFR plus 1.60% (including the applicable credit spread), and the undrawn commitment fee is 0.25% per annum. The borrowings under the credit facility are secured by a lien on substantially all assets, including accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate, intellectual property registered or licensed solely for use in, or arising solely under the laws of, any country other than the United States, assets located solely outside of the United States and deposit and securities accounts), of Vishay and certain significant subsidiaries located in the United States, and pledges of stock in certain subsidiaries; and are guaranteed by certain significant subsidiaries. We expect, at least initially, to fund certain future obligations required to be paid by the U.S. parent company by borrowing under our revolving credit facility. We also expect to continue to use the credit facility from time-to-time to meet certain short-term financing needs. Additional acquisition activity, convertible debt repurchases, or conversion of our convertible debt instruments may require additional borrowing under our credit facility or may otherwise require us to incur additional debt. No principal payments on our debt are due before 2025. 44 On September 12, 2023, we issued $750 million convertible senior notes due 2030. We used the net proceeds from the issuance of these notes to repurchase $370.2 million principal amount of convertible senior notes due 2025, to pay $94.2 million to enter into capped call transactions intended to mitigate the dilution risk of convertible senior notes due 2030 by synthetically increasing the conversion price of the notes to approximately $43.98 per share, to repay amounts outstanding on our amended and restated credit facility, and for other general corporate purposes. Prior to six months before the maturity date, our convertible senior notes due 2030 are convertible by the holders under certain circumstances. The convertible senior notes due 2030 are not convertible as of September 30, 2023 and will not be contingently convertible before the first fiscal quarter of 2024. Pursuant to the indenture governing the convertible senior notes due 2030, we will cash-settle the principal amount of $1,000 per note and settle any additional amounts in cash or shares of our common stock. We intend to finance the principal amount of any converted senior notes due 2030 using borrowings under our credit facility. The transactions effectively refinanced the majority of the convertible senior notes due 2025 for five additional years at the same coupon interest rate, reduced future interest expense due to the paydown of the revolving credit facility, and enhanced our U.S. liquidity position to execute our growth initiatives. The remaining convertible senior notes due 2025 are not currently convertible. Pursuant to the indenture governing the convertible senior notes due 2025 and the amendments thereto incorporated in the Supplemental Indenture dated December 23, 2020, we will cash-settle the principal amount of $1,000 per note and settle any additional amounts in shares of our common stock. We intend to finance the principal amount of any converted notes using borrowings under our credit facility. No conversions have occurred to date. 45 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 (including due to political, economic, and health instability and military conflicts and hostilities); 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 in U.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 the SEC, 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 2022 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.