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 16, 2024. 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 culture. To increase our internal capacity, we had planned to invest approximately $435 million in 2024. At the midpoint of the year, the industry recovery is slower than expected. Accordingly, we have adjusted our timetable for investments for our new 12-inch wafer fab in Itzehoe, Germany beyond 2024, and now expect total capital expenditures for 2024 to be between $360 million and $390 million. We remain committed to spending a total of $2.6 billion in total capital expenditures for the period 2023 - 2028. We can adjust the timing of our capital expenditures and still fulfill our customer commitments because we now have intermediate capacity due to the qualification of a foundry partner and the acquisition of the Newport wafer fab. 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. We expect the facility to initially 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 believe 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 slightly in the second fiscal quarter of 2024 primarily due to the negative impacts of an on-going distributor inventory correction. Net revenues and margins decreased versus the prior year periods primarily due to lower sales volume. 25 Net revenues for the fiscal quarter ended June 29, 2024 were $741.2 million, compared to $746.3 million and $892.1 million for the fiscal quarters ended March 30, 2024 and July 1, 2023, respectively. The net earnings attributable to Vishay stockholders for the fiscal quarter ended June 29, 2024 were $23.5 million, or $0.17 per diluted share, compared to $30.9 million, or $0.22 per diluted share for the fiscal quarter ended March 30, 2024, and $95.0 million, or $0.68 per diluted share for the fiscal quarter ended July 1, 2023. Net revenues for the six fiscal months ended June 29, 2024 were $1,487.5 million, compared to $1,763.2 million for the six fiscal months ended July 1, 2023. The net earnings attributable to Vishay stockholders for the six fiscal months ended June 29, 2024 were $54.5 million, or $0.39 per diluted share, compared to $206.8 million, or $1.47 per diluted share for the six fiscal months ended July 1, 2023. We define adjusted net earnings as net earnings determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business. We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment. The reconciliations below include certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings, adjusted earnings per share, and free cash. These non-GAAP measures should not be viewed as alternatives to GAAP measures of performance or liquidity. Non-GAAP measures such as adjusted net earnings, adjusted earnings per share, and free cash do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results. Management believes that free cash is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. We utilize the free cash metric in defining our Stockholder Return Policy. Net earnings attributable to Vishay stockholders for the fiscal quarters ended June 29, 2024, March 30, 2024, and July 1, 2023 and for the six fiscal months ended June 29, 2024 and July 1, 2023 include no items affecting comparability. The following table reconciles gross profit by segment to consolidated gross profit ( in thousands ) . Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 MOSFETs $ 21,569 $ 25,473 $ 71,954 $ 47,042 $ 144,812 Diodes 30,999 32,370 40,877 63,369 89,006 Optoelectronic Components 14,205 7,001 15,609 21,206 37,549 Resistors 41,182 46,471 64,634 87,653 138,670 Inductors 28,284 26,787 30,808 55,071 54,531 Capacitors 26,631 32,305 33,591 58,936 71,618 Gross profit $ 162,870 $ 170,407 $ 257,473 $ 333,277 $ 536,186 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 Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net cash provided by continuing operating activities $ (24,730 ) $ 80,211 $ 107,239 $ 55,481 $ 237,132 Proceeds from sale of property and equipment 514 751 687 1,265 1,013 Less: Capital expenditures (62,564 ) (53,084 ) (71,676 ) (115,648 ) (117,250 ) Free cash $ (86,780 ) $ 27,878 $ 36,250 $ (58,902 ) $ 120,895 Our results have been negatively impacted by the distributor inventory correction that began in the fourth fiscal quarter of 2022 and continued through the second fiscal quarter of 2024. Our results for the second fiscal quarter of 2024 remain strong, although weaker than our prior fiscal quarter and prior year results. Our free cash results were significantly impacted by the installment payments of the U.S. transition tax of $37.6 million and $27.7 million in the second fiscal quarters of 2024 and 2023, respectively , and $15.0 million of payments of withholding taxes on foreign earnings for the $120.0 million that was repatriated to the U.S. in the second fiscal quarter of 2024. 26 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): Fiscal quarters ended Six fiscal months ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Dividends paid to stockholders $ 13,700 $ 13,937 $ 27,452 $ 27,957 Stock repurchases 12,622 20,226 25,160 40,399 Total $ 26,322 $ 34,163 $ 52,612 $ 68,356 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 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. 27 Financial Metrics We utilize several financial metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, operating margin, segment operating income, segment operating margin, end-of-period backlog, and the book-to-bill ratio. We also monitor changes in inventory turnover and our or publicly available average selling prices (“ASP”). Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs. Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used. We also regularly evaluate gross profit by segment to assist in the analysis of consolidated gross profit. Gross profit margin and gross profit margin by segment are clearly a function of net revenues, but also reflect our cost management programs and our ability to contain fixed costs. Operating margin is computed as gross profit less operating expenses, expressed as a percentage of net revenues. Operating margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs. Our chief operating decision maker makes decisions, allocates resources, and evaluates business segment performance based on segment operating income. Only dedicated, direct selling, general, and administrative ("SG&A") expenses of the segments are included in the calculation of segment operating income. We do not allocate certain SG&A expenses that are managed at the regional or corporate global level to our segments. Accordingly, segment operating income excludes these SG&A expenses that are not directly traceable to the segments. Segment operating income would also exclude costs not routinely used in the management of the segments in periods when those items are present, such as restructuring and severance costs, and other items affecting comparability. Segment operating income is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs. Segment operating margin is segment operating income expressed as a percentage of net revenues. End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that we expect to ship in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods. An important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues. We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital. Pricing in our industry can be volatile. Using our and publicly available data, we analyze trends and changes in average selling prices to evaluate likely future pricing. The erosion of average selling prices of established products is typical for semiconductor products. We attempt to offset this deterioration with ongoing cost reduction activities and new product introductions. Our specialty passive components are more resistant to average selling price erosion. All pricing is subject to governing market conditions and is independently set by us. 28 The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the second fiscal quarter of 2023 through the second fiscal quarter of 2024 (dollars in thousands) : 2nd Quarter 2023 3rd Quarter 2023 4th Quarter 2023 1st Quarter 2024 2nd Quarter 2024 Net revenues $ 892,110 $ 853,653 $ 785,236 $ 746,279 $ 741,239 Gross profit margin 28.9 % 27.8 % 25.6 % 22.8 % 22.0 % Operating margin 15.1 % 13.5 % 9.9 % 5.7 % 5.1 % End-of-period backlog $ 1,895,100 $ 1,552,400 $ 1,381,800 $ 1,253,400 $ 1,145,400 Book-to-bill ratio 0.69 0.63 0.75 0.82 0.86 Inventory turnover 3.9 3.7 3.6 3.5 3.4 Change in ASP vs. prior quarter (0.7 )% (0.8 )% (0.7 )% (2.5 )% (0.7 )% _________________________________________ 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 second fiscal quarter of 2023 primarily due to lower sales volume and lower average selling prices. The book-to-bill ratio increased slightly versus the prior fiscal quarter, but orders and backlog continued to be negatively impacted by the distributor inventory correction that continued in the second fiscal quarter of 2024. We continue to increase manufacturing capacity for critical product lines. Average selling prices decreased versus the prior fiscal quarter and prior year quarter. Gross profit margin decreased versus the prior fiscal quarter and the prior year quarter primarily due to decreased average selling prices and the impact of the Newport acquisition. Lower sales volume and cost inflation also contributed to the decrease versus the prior year quarter. The book-to-bill ratio in the second fiscal quarter of 2024 increased to 0.86 versus 0.82 in the first fiscal quarter of 2024. 29 Financial Metrics by Segment The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the second fiscal quarter of 2023 through the second fiscal quarter of 2024 (dollars in thousands) : 2nd Quarter 2023 3rd Quarter 2023 4th Quarter 2023 1st Quarter 2024 2nd Quarter 2024 MOSFETs Net revenues $ 207,388 $ 205,027 $ 168,158 $ 153,173 $ 155,053 Book-to-bill ratio 0.68 0.50 0.62 0.68 0.79 Gross profit margin 34.7 % 33.5 % 27.3 % 16.6 % 13.9 % Segment operating margin 27.4 % 25.7 % 16.8 % 5.3 % 1.2 % Diodes Net revenues $ 174,735 $ 176,788 $ 163,324 $ 149,130 $ 146,265 Book-to-bill ratio 0.54 0.58 0.61 0.72 0.85 Gross profit margin 23.4 % 26.7 % 24.1 % 21.7 % 21.2 % Segment operating margin 20.1 % 23.5 % 20.9 % 17.4 % 16.7 % Optoelectronic Components Net revenues $ 64,449 $ 64,441 $ 53,853 $ 49,199 $ 53,010 Book-to-bill ratio 0.70 0.57 0.59 0.89 0.82 Gross profit margin 24.2 % 28.1 % 12.1 % 14.2 % 26.8 % Segment operating margin 16.7 % 20.3 % 3.4 % 3.0 % 16.4 % Resistors Net revenues $ 222,433 $ 199,877 $ 198,022 $ 188,196 $ 179,498 Book-to-bill ratio 0.74 0.65 0.82 0.79 0.87 Gross profit margin 29.1 % 24.6 % 25.6 % 24.7 % 22.9 % Segment operating margin 25.8 % 20.9 % 22.0 % 20.3 % 18.3 % Inductors Net revenues $ 89,239 $ 89,947 $ 87,868 $ 88,651 $ 94,061 Book-to-bill ratio 0.84 0.85 0.91 0.96 0.97 Gross profit margin 34.5 % 31.7 % 33.4 % 30.2 % 30.1 % Segment operating margin 30.9 % 27.9 % 29.6 % 26.1 % 26.1 % Capacitors Net revenues $ 133,866 $ 117,573 $ 114,011 $ 117,930 $ 113,352 Book-to-bill ratio 0.70 0.75 0.95 1.03 0.87 Gross profit margin 25.1 % 22.1 % 25.3 % 27.4 % 23.5 % Segment operating margin 21.0 % 17.5 % 20.4 % 22.5 % 18.5 % 30 Results of Operations Statements of operations’ captions as a percentage of net revenues and the effective tax rates were as follows: Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Cost of products sold 78.0 % 77.2 % 71.1 % 77.6 % 69.6 % Gross profit 22.0 % 22.8 % 28.9 % 22.4 % 30.4 % Selling, general & administrative expenses 16.9 % 17.1 % 13.8 % 17.0 % 13.8 % Operating income 5.1 % 5.7 % 15.1 % 5.4 % 16.6 % Income before taxes and noncontrolling interest 4.9 % 5.9 % 15.0 % 5.4 % 16.5 % Net earnings attributable to Vishay stockholders 3.2 % 4.1 % 10.7 % 3.7 % 11.7 % ________ Effective tax rate 34.2 % 29.0 % 28.5 % 31.3 % 28.5 % Net Revenues Net revenues were as follows (dollars in thousands) : Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 741,239 $ 746,279 $ 892,110 $ 1,487,518 $ 1,763,156 The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ (5,040 ) (0.7 )% n/a n/a July 1, 2023 $ (150,871 ) (16.9 )% $ (275,638 ) (15.6 )% 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 (1.1 )% (15.4 )% (13.8 )% Decrease in average selling prices (0.7 )% (3.9 )% (3.7 )% Foreign currency effects (0.3 )% (0.3 )% 0.0 % Acquisitions 1.8 % 1.8 % 1.1 % Other (0.4 )% 0.9 % 0.8 % Net change (0.7 )% (16.9 )% (15.6 )% 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 decrease in net revenues versus the prior fiscal quarter and prior year quarter are primarily due to sales volume and average selling prices. Gross Profit Margins Gross profit margins for the fiscal quarter ended June 29, 2024 were 22.0%, versus 22.8% and 28.9%, for the comparable prior quarter and prior year period, respectively. Gross profit margins for the six fiscal months ended June 29, 2024 were 22.4%, versus 30.4% for the comparable prior year period. The decreases versus the prior year periods are primarily due to lower sales volume and cost inflation. D ecreased average selling prices and the impact of the Newport acquisition contributed to the decreases versus the prior periods. 31 Segments Analysis of revenues and margins for our segments is provided below. MOSFETs Net revenues, gross profit margins, and segment operating margins of the MOSFETs segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 155,053 $ 153,173 $ 207,388 $ 308,226 $ 405,569 Gross profit margin 13.9 % 16.6 % 34.7 % 15.3 % 35.7 % Segment operating margin 1.2 % 5.3 % 27.4 % 3.2 % 28.3 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ 1,880 1.2 % n/a n/a July 1, 2023 $ (52,335 ) (25.2 )% $ (97,343) (24.0 )% 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 (7.1 )% (25.6 )% (21.5 )% Change in average selling prices 0.0 % (11.3 )% (10.8 )% Foreign currency effects (0.1 )% (0.1 )% 0.0 % Acquisition 8.5 % 7.8 % 4.8 % Other (0.1 )% 4.0 % 3.5 % Net change 1.2 % (25.2 )% (24.0 )% Net revenues of the MOSFETS segment increased slightly versus the prior fiscal quarter, but decreased significantly versus the prior year periods. The increase versus the prior fiscal quarter is primarily due to the Newport wafer fab acquisition, partially offset by decreased sales to automotive end market customers. The decrease versus the prior year quarter is primarily due decreased sales to distributor customers and customers in all regions. The decrease versus the prior year-to-date period is due decreased sales to all end market customers and customers in all regions, partially offset by the Newport wafer fab acquisition. Gross profit margin decreased versus the prior fiscal quarter and prior year periods. The decrease from the prior fiscal quarter is primarily due to costs associated with the Newport wafer fab. The decreases versus the prior year periods are primarily due to lower sales volume, decreased average selling prices, and costs associated with the Newport wafer fab. The segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The decreases are primarily due to gross profit margin decreases. Average selling prices were flat versus the prior fiscal quarter, but decreased versus the prior year periods. We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines. We have begun building a 12-inch wafer fab 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. 32 Diodes Net revenues, gross profit margins, and segment operating margins of the Diodes segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 146,265 $ 149,130 $ 174,735 $ 295,395 $ 350,428 Gross profit margin 21.2 % 21.7 % 23.4 % 21.5 % 25.4 % Segment operating margin 16.7 % 17.4 % 20.1 % 17.1 % 22.2 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ (2,865 ) (1.9 )% n/a n/a July 1, 2023 $ (28,470 ) (16.3 )% $ (55,033 ) (15.7 )% 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: Decrease in volume (0.7 )% (15.5 )% (13.7 )% Decrease in average selling prices (0.9 )% (0.5 )% (2.6 )% Foreign currency effects (0.3 )% (0.4 )% (0.1 )% Other 0.0 % 0.1 % 0.7 % Net change (1.9 )% (16.3 )% (15.7 )% Net revenues of the Diodes segment decreased slightly versus the prior fiscal quarter and significantly versus the prior year periods. The decrease versus the prior fiscal quarter was primarily due to decreased sales to automotive and industrial end market customers and customers in the Europe region. The decreases versus the prior year periods are due to decreased sales to nearly all end market customers and customers in all regions. Gross profit margin decreased versus the prior fiscal quarter and prior year periods. The decreases are primarily due to lower sales volume and lower average selling prices. Higher labor costs also contributed to the decreases versus the prior year periods. Segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The decreases are primarily due to gross profit margin decreases. Average selling prices decreased versus the prior fiscal quarter and the prior year periods. 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. 33 Optoelectronic Components Net revenues, gross profit margins, and segment operating margins of the Optoelectronic Components segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ $ 53,010 $ $ 49,199 $ $ 64,449 $ 102,209 $ 124,852 Gross profit margin 26.8 % 14.2 % 24.2 % 20.7 % 30.1 % Segment operating margin 16.4 % 3.0 % 16.7 % 10.0 % 22.5 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ 3,811 7.7 % n/a n/a July 1, 2023 $ (11,439 ) (17.7 )% (22,643 ) (18.1 )% 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 6.6 % (16.0 )% (16.7 )% Change in average selling prices 1.3 % (1.6 )% (1.9 )% Foreign currency effects (0.4 )% (0.3 )% 0.1 % Other 0.2 % 0.2 % 0.4 % Net change 7.7 % (17.7 )% (18.1 )% Net revenues of the Optoelectronic Components segment increased versus the prior fiscal quarter, but decreased versus the prior year periods. The increase versus the prior fiscal quarter is due to increased sales to distribution customers and industrial end market customers and customers in the Asia region. The decreases versus the prior year periods are primarily due to distribution customers, all end market customers, and customers in the Europe and Americas regions. Gross profit margin increased versus the prior fiscal quarter and prior year quarter, but decreased versus the prior year-to-date period. The increase versus the prior fiscal quarter is primarily due to increased sales volume, increased average selling prices, manufacturing efficiencies, and cost containment initiatives. The increase versus the prior year quarter is due to cost containment initiatives and manufacturing efficiencies, partially offset by decreased sales volume and average selling prices. The decrease versus the prior year-to-date period is primarily due to decreased sales volume and average selling prices. Segment operating margin increased versus the prior fiscal quarter, but decreased versus the prior year periods. The fluctuations are primarily due to gross profit margin fluctuations. Average selling prices increased versus the prior fiscal quarter, but decreased versus the prior year periods. We are now using our recently modernized and expanded wafer fab in Heilbronn, Germany. 34 Resistors Net revenues, gross profit margins, and segment operating margins of the Resistors segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 179,498 $ 188,196 $ 222,433 $ 367,694 $ 445,573 Gross profit margin 22.9 % 24.7 % 29.1 % 23.8 % 31.1 % Segment operating margin 18.3 % 20.3 % 25.8 % 19.3 % 27.8 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ (8,698 ) (4.6 )% n/a n/a July 1, 2023 $ (42,935 ) (19.3 )% $ (77,879 ) (17.5 )% 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: Decrease in volume (2.3 )% (16.9 )% (16.2 )% Decrease in average selling prices (1.6 )% (2.7 )% (1.8 )% Foreign currency effects (0.3 )% (0.4 )% 0.0 % Acquisitions 0.1 % 0.1 % 0.0 % Other (0.5 )% 0.6 % 0.5 % Net change (4.6 )% (19.3 )% (17.5 )% Net revenues of the Resistors segment decreased slightly versus the prior fiscal quarter and significantly versus the prior year periods. The decrease versus the prior fiscal quarter is primarily due to decreased sales to industrial and automotive end market customers and customers in the Europe region. The decreases versus the prior year periods were due to decreased sales to nearly all end market customers and customers in all regions. Gross profit margin decreased versus the prior fiscal quarter and prior year periods. The decreases were primarily due to lower sales volume, lower average selling prices, increased labor costs, and increased logistics costs. Segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The decreases are primarily due to gross profit margin decreases. Average selling prices decreased versus the prior fiscal quarter and prior year periods. We are increasing critical manufacturing capacities for certain product lines. We continue to broaden our business with targeted acquisitions of specialty resistors businesses. 35 Inductors Net revenues, gross profit margins, and segment operating margins of the Inductors segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 94,061 $ 88,651 $ 89,239 $ 182,712 $ 169,577 Gross profit margin 30.1 % 30.2 % 34.5 % 30.1 % 32.2 % Segment operating margin 26.1 % 26.1 % 30.9 % 26.1 % 28.6 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ 5,410 6.1 % n/a n/a July 1, 2023 $ 4,822 5.4 % $ 13,135 7.7 % Changes in net revenues were attributable to the following: vs. Prior Quarter vs. Prior Year Quarter vs. Prior Year-to-Date Change attributable to: Increase in volume 6.4 % 8.8 % 10.2 % Decrease in average selling prices (0.2 )% (2.7 )% (2.0 )% Foreign currency effects (0.1 )% (0.2 )% 0.0 % Other 0.0 % (0.5 )% (0.5 )% Net change 6.1 % 5.4 % 7.7 % Net revenues of the Inductors segment increased versus the prior fiscal quarter and prior year periods. The increase versus the prior fiscal quarter was primarily due to increased sales to distribution and EMS customers, medical end market customers, and customers in the Americas region. The increase versus the prior year quarter was primarily due to increased sales to distribution customers, military and aerospace and medical end market customers, and customers in the Americas region. The increase versus the prior year-to-date period was primarily due to increased sales to distribution customers, automotive, military and aerospace, and medical end market customers, and customers in the Americas and Asia regions. Gross profit margin was flat versus the prior fiscal quarter, but decreased versus the prior year periods. The decreases versus the prior year periods are primarily due to decreased average selling prices, higher logistics, materials, and labor costs, and start-up costs of a new manufacturing facility. Segment operating margin was flat versus the prior fiscal quarter, but decreased versus the prior year periods. The decreases are primarily due to gross profit margin decreases. Average selling prices decreased versus the prior fiscal quarter and prior year periods. We expect long-term growth in this segment, and are continuously expanding manufacturing capacity for certain product lines and evaluating acquisition opportunities, particularly of specialty businesses. 36 Capacitors Net revenues, gross profit margins, and segment operating margins of the Capacitors segment were as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net revenues $ 113,352 $ 117,930 $ 133,866 $ 231,282 $ 267,157 Gross profit margin 23.5 % 27.4 % 25.1 % 25.5 % 26.8 % Segment operating margin 18.5 % 22.5 % 21.0 % 20.5 % 22.9 % The change in net revenues versus the comparable prior periods was as follows (dollars in thousands) : Fiscal quarter ended June 29, 2024 Six fiscal months ended June 29, 2024 Change in net revenues % change Change in net revenues % change March 30, 2024 $ (4,578 ) (3.9 )% n/a n/a July 1, 2023 $ (20,514 ) (15.3 )% $ (35,875 ) (13.4 )% 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 (1.0 )% (13.1 )% (12.5 )% Decrease in average selling prices (1.4 )% (1.8 )% (0.7 )% Foreign currency effects (0.4 )% (0.5 )% (0.1 )% Other (1.1 )% 0.1 % (0.1 )% Net change (3.9 )% (15.3 )% (13.4 )% Net revenues of the Capacitors segment decreased slightly versus the prior fiscal quarter and significantly versus the prior year periods. 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, industrial end market customers, and customers in the Europe and Americas regions. The decrease versus the prior year-to-date period is primarily due to decreased sales to industrial end market customers and customers in the Europe and Americas regions. Gross profit margin decreased versus the prior fiscal quarter and prior year periods. The decreases are due to lower sales volume, lower average selling prices, increased labor costs, and production inefficiencies. Segment operating margin decreased versus the prior fiscal quarter and the prior year periods. The decreases are primarily due to gross profit margin decreases. Average selling prices decreased versus the prior fiscal quarter and prior year periods. 37 Selling, General, and Administrative Expenses Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands): Fiscal quarters ended Six fiscal months ended June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Total SG&A expenses $ 124,953 $ 127,736 $ 122,857 $ 252,689 $ 243,002 as a percentage of revenues 16.9 % 17.1 % 13.8 % 17.0 % 13.8 % The sequential decrease in SG&A expenses is primarily attributable to uneven attribution of stock-based compensation expense and lower bonus compensation. SG&A expenses increased versus the prior year periods due to higher stock-based compensation expense and general cost inflation. Other Income (Expense) Interest expense for the fiscal quarter ended June 29, 2024 increased $0.2 million versus the fiscal quarter ended March 30, 2024 and increased $0.3 million versus the fiscal quarter ended July 1, 2023. Interest expense for the six fiscal months ended June 29, 2024 increased by $1.6 million versus the six fiscal months ended July 1, 2023. The increase versus the prior fiscal quarter is due to higher average outstanding balances on the revolving credit facility. The increases versus the prior year periods are due to the issuance of the convertible senior notes due 2030 in the third fiscal quarter of 2023. The following tables analyze the components of the line “Other” on the consolidated condensed statements of operations (in thousands): Fiscal quarters ended June 29, 2024 July 1, 2023 Change Foreign exchange gain (loss) $ 620 $ 1,203 $ (583 ) Interest income 6,663 6,292 371 Other components of net periodic pension expense (2,056 ) (1,906 ) (150) Investment income (expense) (148 ) (193 ) 45 Other (68 ) (139 ) 71 $ 5,011 $ 5,257 $ (246) Fiscal quarters ended June 29, 2024 March 30, 2024 Change Foreign exchange gain (loss) $ 620 $ 1,293 $ (673 ) Interest income 6,663 9,053 (2,390 ) Other components of net periodic pension expense (2,056 ) (2,073 ) 17 Investment income (expense) (148 ) (366 ) 218 Other (68 ) 180 (248 ) $ 5,011 $ 8,087 $ (3,076 ) Six fiscal months ended June 29, 2024 July 1, 2023 Change Foreign exchange gain (loss) $ 1,913 $ (287) $ 2,200 Interest income 15,716 12,236 3,480 Other components of net periodic pension expense (4,129 ) (3,794 ) (335) Investment income (expense) (514 ) 551 (1,065) Other 112 (120 ) 232 $ 13,098 $ 8,586 $ 4,512 38 Income Taxes For the fiscal quarter ended June 29, 2024, our effective tax rate was 34.2%, as compared to 29.0% and 28.5% for the fiscal quarters ended March 30, 2024 and July 1, 2023, respectively. For the six fiscal months ended June 29, 2024, our effective tax rate was 31.3%, as compared to 28.5% for the six fiscal months ended July 1, 2023. We expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions. During the six fiscal months ended June 29, 2024, the liabilities for unrecognized tax benefits decreased $0.7 million on a net basis, primarily due to statute expirations, partially offset by accruals for the current period. 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. 39 Financial Condition, Liquidity, and Capital Resources Our financial condition as of June 29, 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 $55.5 million for the six fiscal months ended June 29, 2024, as compared to cash flows provided by operations of $237.1 million for the six fiscal months ended July 1, 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 second fiscal quarter of 2023 through the second fiscal quarter of 2024: Fiscal quarters ended 2nd Quarter 2023 3rd Quarter 2023 4th Quarter 2023 1st Quarter 2024 2nd Quarter 2024 Days sales outstanding ("DSO") (a) 46 48 50 51 51 Days inventory outstanding ("DIO") (b) 94 96 101 104 105 Days payable outstanding ("DPO") (c) (32 ) (33 ) (31 ) (31 ) (31 ) Cash conversion cycle 108 111 120 124 125 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 six fiscal months ended June 29, 2024 was $115.6 million, as compared to $117.3 million for the six fiscal months ended July 1, 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. To increase our internal capacity, we had planned to invest approximately $435 million in 2024. At the midpoint of the year, the industry recovery is slower than expected. Accordingly, we have adjusted our timetable for investments for our new 12-inch wafer fab in Itzehoe, Germany beyond 2024, and now expect total capital expenditures for 2024 to be between $360 million and $390 million. We remain committed to spending a total of $2.6 billion in total capital expenditures for the period 2023 - 2028. Free cash flow for the six fiscal months ended June 29, 2024 decreased versus the six fiscal months ended July 1, 2023 primarily due to decreased net earnings and withholding taxes paid for the repatriation of cash to the U.S. 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) at June 29, 2024 and December 31, 2023 (in thousands) : June 29, 2024 December 31, 2023 Credit facility $ - $ - Convertible senior notes, due 2025 95,102 95,102 Convertible senior notes, due 2030 750,000 750,000 Deferred financing costs (24,480 ) (26,914 ) Total debt 820,622 818,188 Cash and cash equivalents 672,731 972,719 Short-term investments 15,320 35,808 Net cash and short-term investments (debt) $ (132,571 ) $ 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. 40 We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated balance sheets. As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt). The interest rates on our short-term investments vary by location. Transactions related to these investments are classified as investing activities on our consolidated condensed statements of cash flows. 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 June 29, 2024, $73.4 million of our cash and cash equivalents and short-term investments were held by our U.S. subsidiaries. Based on expected cash payments pursuant to our Stockholder Return Policy and funding of the Newport expansion, we expect to be in a net borrowing position in the U.S. before year-end 2024. As of June 29, 2024, we have approximately $495 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 $74 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 would 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 substantially 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 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. We had no amount outstanding on our revolving credit facility at December 31, 2023 and June 29, 2024. We borrowed and repaid $52 million on the revolving credit facility during the six fiscal months ended June 29, 2024. No amounts were outstanding on our revolving credit facility at any fiscal month-end. We expect to use the revolving credit facility from time-to-time to meet short-term financing needs. Pursuant to the 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). Net leverage ratio reduces the measure of outstanding debt by up to $250 million of unrestricted cash. 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 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 June 29, 2024. Our interest coverage ratio and net leverage ratio were 8.60 to 1 and 1.15 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 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 credit facility. The repurchase of $370.2 million principal amount of convertible senior notes due 2025 in 2023 reduces the risk that the maturity date of the credit facility will accelerate. 41 Borrowings under the credit facility bear interest at variable reference rates 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. U.S. dollar borrowings under the credit facility are based on SOFR (including a customary spread adjustment). Borrowings in foreign currencies bear interest at currency-specific reference rates plus an interest margin. Based on our current total leverage ratio of 1.63 to 1, any new U.S. dollar borrowings will bear interest at SOFR plus 1.85% (including the applicable credit spread), and the undrawn commitment fee is 0.30% 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 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. The convertible senior notes due 2025 and due 2030 are not currently convertible. 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. 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. We have the intent and ability to finance the principal amount of the convertible senior notes due 2025 using borrowings under our credit facility upon maturity of the notes. 42 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 (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 2023 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.