Vishay Intertechnology(VSH) - 2023 Q3 - Quarterly Report

FORM 10-Q Cover Page Vishay Intertechnology, Inc. (VSH) filed its Quarterly Report on Form 10-Q for the period ended September 30, 2023, as a large accelerated filer - Vishay Intertechnology, Inc. (VSH) filed its Quarterly Report on Form 10-Q for the period ended September 30, 2023, as a large accelerated filer[2][3] Table of Contents This section provides an organized listing of all chapters and items included in the Form 10-Q filing PART I. FINANCIAL INFORMATION This part presents the company's unaudited consolidated condensed financial statements and management's discussion and analysis Item 1. Financial Statements This section presents Vishay Intertechnology, Inc.'s unaudited consolidated condensed financial statements and related detailed notes Consolidated Condensed Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Condensed Balance Sheets (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Assets | | | | Total current assets | $2,440,126 | $2,121,210 | | Property and equipment, net | $1,180,186 | $1,130,459 | | Total assets | $4,241,207 | $3,865,653 | | Liabilities & Equity | | | | Total current liabilities | $716,949 | $726,258 | | Long-term debt less current portion | $817,257 | $500,937 | | Total liabilities | $2,098,684 | $1,815,503 | | Total equity | $2,142,523 | $2,050,150 | | Total liabilities and equity | $4,241,207 | $3,865,653 | Consolidated Condensed Statements of Operations (Fiscal Quarters) This statement details the company's revenues, expenses, and net earnings for the fiscal quarters ended September 30, 2023, and October 1, 2022 Consolidated Condensed Statements of Operations (Q3 2023 vs. Q3 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :--------------------------------------- | :----------- | :---------- | :----------- | | Net revenues | $853,653 | $924,798 | -7.7% | | Gross profit | $237,643 | $289,538 | -17.9% | | Operating income | $115,130 | $183,102 | -37.1% | | Income before taxes | $96,512 | $181,129 | -46.7% | | Net earnings attributable to Vishay stockholders | $65,529 | $140,061 | -53.2% | | Basic earnings per share | $0.47 | $0.98 | -52.0% | | Diluted earnings per share | $0.47 | $0.98 | -52.0% | Consolidated Condensed Statements of Comprehensive Income (Fiscal Quarters) This statement presents net earnings and other comprehensive income components for the fiscal quarters Consolidated Condensed Statements of Comprehensive Income (Q3 2023 vs. Q3 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :------------------------------------------ | :----------- | :---------- | :----------- | | Net earnings | $65,955 | $140,563 | -53.1% | | Foreign currency translation adjustment | $(38,901) | $(50,070) | 22.3% | | Other comprehensive income (loss) | $(38,538) | $(48,749) | 20.9% | | Comprehensive income attributable to Vishay stockholders | $26,991 | $91,312 | -70.4% | Consolidated Condensed Statements of Operations (Nine Fiscal Months) This statement outlines the company's revenues, expenses, and net earnings for the nine fiscal months ended September 30, 2023, and October 1, 2022 Consolidated Condensed Statements of Operations (Nine Months 2023 vs. 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :--------------------------------------- | :----------- | :---------- | :----------- | | Net revenues | $2,616,809 | $2,642,103 | -1.0% | | Gross profit | $773,829 | $809,869 | -4.5% | | Operating income | $408,314 | $480,178 | -14.9% | | Income before taxes | $386,758 | $465,305 | -16.9% | | Net earnings attributable to Vishay stockholders | $272,348 | $356,022 | -23.5% | | Basic earnings per share | $1.95 | $2.47 | -21.1% | | Diluted earnings per share | $1.94 | $2.46 | -21.2% | Consolidated Condensed Statements of Comprehensive Income (Nine Fiscal Months) This statement details net earnings and other comprehensive income components for the nine fiscal months Consolidated Condensed Statements of Comprehensive Income (Nine Months 2023 vs. 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :------------------------------------------ | :----------- | :---------- | :----------- | | Net earnings | $273,559 | $357,282 | -23.4% | | Foreign currency translation adjustment | $(15,703) | $(113,086) | 86.1% | | Other comprehensive income (loss) | $(15,056) | $(108,841) | 86.2% | | Comprehensive income attributable to Vishay stockholders | $257,292 | $247,181 | 4.1% | Consolidated Condensed Statements of Cash Flows (Nine Fiscal Months) This statement reports the cash inflows and outflows from operating, investing, and financing activities for the nine fiscal months Consolidated Condensed Statements of Cash Flows (Nine Months 2023 vs. 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :--------------------------------------- | :----------- | :---------- | :----------- | | Net cash provided by operating activities | $359,435 | $317,792 | 13.1% | | Net cash provided by (used in) investing activities | $36,588 | $(221,089) | N/A | | Net cash provided by (used in) financing activities | $96,150 | $(100,597) | N/A | | Net increase (decrease) in cash and cash equivalents | $484,294 | $(39,116) | N/A | | Cash and cash equivalents at end of period | $1,095,119 | $734,992 | 49.0% | Consolidated Condensed Statements of Equity This statement presents changes in stockholders' equity, including common stock, retained earnings, and accumulated other comprehensive income Total Vishay Stockholders' Equity (in thousands) | Date | Total Vishay Stockholders' Equity | | :------------------- | :------------------------------ | | September 30, 2023 | $2,138,280 | | December 31, 2022 | $2,046,251 | | October 1, 2022 | $1,896,795 | - Treasury stock increased to $140,633 thousand as of September 30, 2023, from $82,972 thousand at December 31, 2022, reflecting ongoing share repurchases[19][21] - Retained earnings grew to $1,003,700 thousand by September 30, 2023, from $773,228 thousand at December 31, 2022[19][21] Notes to the Consolidated Condensed Financial Statements This section provides detailed explanations and disclosures supporting the consolidated condensed financial statements Note 1 – Basis of Presentation This note describes the accounting principles and conventions used in preparing the unaudited consolidated condensed financial statements - The unaudited consolidated condensed financial statements are prepared in accordance with Form 10-Q and reflect normal recurring adjustments without all GAAP information[23] - Fiscal quarters for 2023 end on April 1, July 1, September 30, and December 31[24] Note 2 – Acquisition Activities This note details the company's recent acquisition activities, including MaxPower Semiconductor, Inc. and Centerline Technologies, LLC - On October 28, 2022, Vishay acquired MaxPower Semiconductor, Inc. for $50,000 thousand in cash, enhancing its silicon carbide (SiC) offerings for electric vehicles, including $18,600 thousand in definite-lived intangible assets and $34,246 thousand in goodwill[27][28][29] - On June 30, 2023, Vishay acquired Centerline Technologies, LLC for $5,003 thousand, integrating it into the Resistors segment, including $1,500 thousand in definite-lived intangible assets and $2,213 thousand in goodwill[31] Note 3 – Leases This note provides information on the company's operating lease assets, liabilities, and related expenses Operating Lease Assets and Liabilities (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Right of use assets | $127,992 | $131,193 | | Current lease liabilities | $26,097 | $25,319 | | Long-term lease liabilities | $103,223 | $108,493 | | Total lease liabilities | $129,320 | $133,812 | Total Lease Expense (in thousands) | Period | Sep 30, 2023 | Oct 1, 2022 | | :--------------------------------- | :----------- | :---------- | | Fiscal quarter ended | $7,384 | $6,589 | | Nine fiscal months ended | $21,971 | $19,985 | - The weighted-average remaining lease term for operating leases is 9.4 years, with a weighted-average discount rate of 6.2% as of September 30, 2023[32] Note 4 – Income Taxes This note details the company's effective tax rates and changes in liabilities for unrecognized tax benefits Effective Tax Rates | Period | Sep 30, 2023 | Oct 1, 2022 | | :----------------------- | :----------- | :---------- | | Fiscal quarter ended | 31.7% | 22.4% | | Nine fiscal months ended | 29.3% | 23.2% | - Liabilities for unrecognized tax benefits decreased by $4,483 thousand (net) during the nine fiscal months ended September 30, 2023, primarily due to settlements[35] Note 5 – Long-Term Debt This note outlines the company's long-term debt structure, including convertible senior notes and credit facilities, and recent financing activities Long-Term Debt (in thousands) | Debt Type | Sep 30, 2023 | Dec 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 long-term debt | $817,257 | $500,937 | - In September 2023, Vishay issued $750,000 thousand aggregate principal amount of 2.25% convertible senior notes due 2030, using proceeds to repurchase $370,242 thousand of 2025 Notes, reduce the credit facility, and enter into capped call transactions[42][50] - A loss of $18,874 thousand was recognized on the early extinguishment of the 2025 Notes, and capped call transactions costing $94,200 thousand were entered into to mitigate dilution risk for the 2030 Notes, with an initial cap price of $43.98 per share[48][50] Note 6 – Stockholders' Equity This note describes the company's stockholder return policy, dividend payments, and stock repurchase activities - The Board of Directors adopted a Stockholder Return Policy in 2022, aiming to return at least 70% of free cash flow (net of scheduled long-term debt principal payments) annually through dividends or stock repurchases[56][113] Stockholder Return Activity (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :----------------------- | :------ | :------ | :--------------- | :--------------- | | Dividends paid | $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 | - The number of common shares held as treasury stock increased to 6,634,442 as of September 30, 2023, from 4,240,573 at December 31, 2022[56] Note 7 – Revenue Recognition This note provides details on the company's accounting policies for revenue recognition, including sales returns and allowances Sales Returns and Allowances Accrual Activity (in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | | :----------------- | :----------- | :---------- | | Beginning balance | $49,350 | $40,775 | | Sales allowances | $27,554 | $33,015 | | Credits issued | $(31,034) | $(32,202) | | Ending balance | $45,174 | $40,739 | Note 8 – Accumulated Other Comprehensive Income (Loss) This note presents the components of accumulated other comprehensive income (loss), primarily driven by foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | Jan 1, 2023 | Sep 30, 2023 | | :------------------------------------------ | :---------- | :----------- | | Balance | $(10,827) | $(25,883) | | Net other comprehensive income (loss) | N/A | $(15,056) | - The primary driver of the change in accumulated other comprehensive income (loss) was a foreign currency translation adjustment of $(15,703) thousand for the nine months ended September 30, 2023[58] Note 9 – Pensions and Other Postretirement Benefits This note details the net periodic pension and other postretirement benefit costs for the company's U.S. and non-U.S. plans Net Periodic Pension Cost (Nine Fiscal Months, in thousands) | Component | Sep 30, 2023 | Oct 1, 2022 | | :-------------------------- | :----------- | :---------- | | U.S. Plans | $1,516 | $2,229 | | Non-U.S. Plans | $6,800 | $8,886 | | Total | $8,316 | $11,115 | Net Periodic Other Postretirement Benefit Cost (Nine Fiscal Months, in thousands) | Component | Sep 30, 2023 | Oct 1, 2022 | | :-------------------------- | :----------- | :---------- | | U.S. Plans | $(57) | $420 | | Non-U.S. Plans | $206 | $286 | | Total | $149 | $706 | Note 10 – Stock-Based Compensation This note describes the company's stock-based compensation plans, including the 2023 Long-Term Incentive Plan, and related expenses - The 2023 Long-Term Incentive Plan, approved on May 23, 2023, allows for the grant of up to 6,000,000 shares of various stock-based awards to employees, directors, and consultants[65] Stock-Based Compensation Expense (in thousands) | Period | Sep 30, 2023 | Oct 1, 2022 | | :----------------------- | :----------- | :---------- | | Fiscal quarter ended | $5,528 | $828 | | Nine fiscal months ended | $11,610 | $5,717 | - As of September 30, 2023, unrecognized compensation cost for restricted stock units was $19,929 thousand, with a weighted average remaining amortization period of 1.6 years[67] Note 11 – Segment Information This note provides a breakdown of the company's net revenues by product segment, customer type, and geographic region Net Revenues by Segment (Q3 2023, in thousands) | Segment | Net Revenues | | :------------------------ | :----------- | | MOSFETs | $205,027 | | Diodes | $176,788 | | Optoelectronic Components | $64,441 | | Resistors | $199,877 | | Inductors | $89,947 | | Capacitors | $117,573 | Net Revenues by Customer Type (Q3 2023, in thousands) | Customer Type | Net Revenues | | :-------------- | :----------- | | Distributors | $438,126 | | OEMs | $358,791 | | EMS companies | $56,736 | Net Revenues by Region (Q3 2023, in thousands) | Region | Net Revenues | | :------- | :----------- | | Asia | $323,750 | | Europe | $315,264 | | Americas | $214,639 | Note 12 – Earnings Per Share This note presents basic and diluted earnings per share and discusses factors affecting their calculation Earnings Per Share Attributable to Vishay Stockholders | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--------------------------------------- | :------ | :------ | :--------------- | :--------------- | | Basic EPS | $0.47 | $0.98 | $1.95 | $2.47 | | Diluted EPS | $0.47 | $0.98 | $1.94 | $2.46 | - Diluted EPS for the periods presented do not reflect certain restricted stock units or capped call transactions, as their effect would have been anti-dilutive[79][80] Note 13 – Fair Value Measurements This note provides information on the fair value of financial assets and liabilities, including assets held in rabbi trusts and contingent consideration Financial Assets and Liabilities at Fair Value (Sep 30, 2023, in thousands) | Item | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :--------------- | :------ | :------ | :------ | | Assets held in rabbi trusts | $46,240 | $22,250 | $23,990 | $- | | Available for sale securities | $3,674 | $3,674 | $- | $- | | MaxPower acquisition contingent consideration | $6,955 | $- | $- | $6,955 | - The MaxPower acquisition contingent consideration is a Level 3 measurement, determined by estimating the net present value of expected cash flows based on payment probability[86] - The fair value of long-term debt (excluding derivatives and deferred financing costs) was approximately $831,400 thousand at September 30, 2023, compared to a carrying value of $845,102 thousand[87] Note 14 – Subsequent Events This note discloses significant events occurring after the reporting period, specifically the agreement to acquire Nexperia's wafer fabrication facility - On November 8, 2023, Vishay announced an agreement to acquire Nexperia's wafer fabrication facility and operations in Newport, U.K., for approximately $177,000 thousand in cash, with the transaction expected to close in Q1 2024, subject to regulatory approvals[93][94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Vishay's financial condition, results of operations, and cash flows, focusing on key performance indicators, strategic initiatives, and recent financial events Overview This overview introduces Vishay's business, strategic focus, and key financial highlights for the reporting period - Vishay manufactures discrete semiconductors and passive electronic components for diverse markets including automotive, industrial, computing, and medical[97] - The company's strategy focuses on growth through R&D, opportunistic acquisitions, and capitalizing on mega trends like electrification, with planned capital investments of $350 million in 2023 and $1.2 billion over three years for capacity expansion outside China[98] - Key financial metrics for Q3 2023 decreased primarily due to an ongoing distributor inventory correction, leading to lower orders and negatively impacting gross profit[104] Key Financial Highlights (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net revenues | $853,700 | $924,800 | $2,616,800 | $2,642,100 | | Net earnings attributable to Vishay stockholders | $65,500 | $140,100 | $272,300 | $356,000 | | Diluted EPS | $0.47 | $0.98 | $1.94 | $2.46 | Stockholder Value This section discusses Vishay's commitment to enhancing stockholder value through business growth, improved EPS, and its Stockholder Return Policy - Vishay aims to enhance stockholder value through business growth, improved EPS, and a Stockholder Return Policy adopted in 2022, targeting at least 70% of free cash flow (net of scheduled long-term debt principal payments) annually[112][113] - The company expects higher internal growth rates due to accelerated electrification trends and plans to increase capital expenditures for capacity expansion outside of China, including a 12-inch wafer fab in Germany[112] Stockholder Return Activity (in thousands) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :----------------------- | :------ | :------ | :------ | :------ | | Dividends paid | $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 | Financial Metrics This section presents key financial performance indicators, including revenues, margins, backlog, and inventory turnover Key Financial Metrics (in thousands, except percentages) | Metric | Q3 2023 | Q2 2023 | Q3 2022 | | :------------------------ | :------ | :------ | :------ | | Net revenues | $853,653 | $892,110 | $924,798 | | Gross profit margin | 27.8% | 28.9% | 31.3% | | Operating margin | 13.5% | 15.1% | 19.8% | | End-of-period backlog | $1,552,400 | $1,895,100 | $2,261,400 | | Book-to-bill ratio | 0.63 | 0.69 | 0.88 | | Inventory turnover | 3.7 | 3.9 | 4.1 | | Change in ASP vs. prior quarter | (0.8)% | (0.7)% | 0.0% | - Revenues, book-to-bill ratio, and backlog were negatively impacted by the ongoing distributor inventory correction in Q3 2023[128][130] - Gross profit margin decreased due to lower sales volume, decreased average selling prices, cost inflation, and manufacturing inefficiencies[129] Financial Metrics by Segment This section provides a detailed breakdown of net revenues, book-to-bill ratio, and margins for each of Vishay's operating segments Segment Performance (Q3 2023) | Segment | Net Revenues (in thousands) | Book-to-bill ratio | Gross profit margin | Segment operating margin | | :------------------------ | :-------------------------- | :----------------- | :------------------ | :----------------------- | | MOSFETs | $205,027 | 0.50 | 33.5% | 25.7% | | Diodes | $176,788 | 0.58 | 26.7% | 23.5% | | Optoelectronic Components | $64,441 | 0.57 | 28.1% | 20.3% | | Resistors | $199,877 | 0.65 | 24.6% | 20.9% | | Inductors | $89,947 | 0.85 | 31.7% | 27.9% | | Capacitors | $117,573 | 0.75 | 22.1% | 17.5% | Results of Operations This section analyzes the company's financial performance, detailing changes in net revenues, gross profit margins, and segment-specific results Net Revenues This subsection analyzes the changes in net revenues, attributing them to factors such as sales volume, average selling prices, and foreign currency effects Net Revenues (in thousands) | Period | Sep 30, 2023 | Oct 1, 2022 | Change (YoY) | | :----------------------- | :----------- | :---------- | :----------- | | Fiscal quarter ended | $853,653 | $924,798 | -7.7% | | Nine fiscal months ended | $2,616,809 | $2,642,103 | -1.0% | Net Revenue Change Attributable To (Q3 2023 vs. Q3 2022) | Factor | % Change | | :-------------------------- | :------- | | Decrease in volume | (10.7)% | | Change in average selling prices | 0.9% | | Foreign currency effects | 2.1% | | Acquisition | 0.5% | | Other | (0.5)% | | Net change | (7.7)% | - The decreases in net revenues were primarily driven by sales volume, partially offset by increased average selling prices and positive foreign currency impacts[134] Gross Profit Margins This subsection examines the factors contributing to changes in gross profit margins, including sales volume, pricing, and manufacturing costs Gross Profit Margins | Period | Sep 30, 2023 | Oct 1, 2022 | | :----------------------- | :----------- | :---------- | | Fiscal quarter ended | 27.8% | 31.3% | | Nine fiscal months ended | 29.6% | 30.7% | - The decreases in gross profit margins were primarily due to lower sales volume, decreased average selling prices, cost inflation, and manufacturing inefficiencies[135] Segments This subsection provides a detailed analysis of the financial performance for each of Vishay's operating segments MOSFETs Segment Performance This section details the MOSFETs segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change MOSFETs Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $205,027 | $225,186 | $610,596 | $556,255 | | Gross profit margin | 33.5% | 36.9% | 35.0% | 35.5% | | Segment operating margin | 25.7% | 31.9% | 27.4% | 29.7% | - Q3 2023 net revenues decreased 9.0% YoY due to lower sales to distribution, EMS, computing end market, and Americas region, while 9M 2023 net revenues increased 9.8% YoY, driven by automotive, power supply, and industrial end markets in Europe and Americas[137] - Gross profit margin decreased YoY and QoQ due to lower sales volume, unfavorable product mix, higher utilities and material prices, increased depreciation, and personnel costs[138] Diodes Segment Performance This section details the Diodes segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change Diodes Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $176,788 | $209,012 | $527,216 | $583,429 | | Gross profit margin | 26.7% | 27.0% | 25.8% | 26.7% | | Segment operating margin | 23.5% | 24.6% | 22.6% | 24.0% | - Q3 2023 net revenues increased 1.2% QoQ due to increased sales to automotive end market and Americas/Asia regions, but decreased 15.4% YoY due to lower sales across most regions and end markets (except automotive)[142] - Gross profit margin increased QoQ due to higher sales volume, decreased material costs, and manufacturing efficiencies, but decreased YoY due to lower sales volume[143] Optoelectronic Components Segment Performance This section details the Optoelectronic Components segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change Optoelectronic Components Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $64,441 | $73,447 | $189,293 | $232,399 | | Gross profit margin | 28.1% | 35.3% | 29.4% | 36.5% | | Segment operating margin | 20.3% | 30.0% | 21.7% | 31.2% | - Q3 2023 net revenues were flat QoQ but decreased 12.3% YoY, primarily due to decreased sales to distribution customers and across all regions (especially Americas) and most end markets (except automotive and telecommunications)[145] - Gross profit margin increased QoQ due to favorable product mix, manufacturing efficiencies, and lower utility costs, but decreased YoY due to lower sales volume, manufacturing inefficiencies, and higher material/subcontractor costs[146] Resistors Segment Performance This section details the Resistors segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change Resistors Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $199,877 | $207,437 | $645,450 | $627,645 | | Gross profit margin | 24.6% | 33.0% | 29.1% | 32.5% | | Segment operating margin | 20.9% | 29.7% | 25.7% | 29.2% | - Q3 2023 net revenues decreased 10.1% QoQ and 3.6% YoY, primarily due to lower sales to distribution, EMS, industrial end market, and Americas region, while 9M 2023 net revenues increased 2.8% YoY, driven by military & aerospace, automotive, and industrial end markets in Europe[150] - Gross profit margin decreased QoQ and YoY due to lower volume, decreased average selling prices, manufacturing inefficiencies, and higher labor/utility costs[151] Inductors Segment Performance This section details the Inductors segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change Inductors Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $89,947 | $83,503 | $259,524 | $255,888 | | Gross profit margin | 31.7% | 30.8% | 32.0% | 31.4% | | Segment operating margin | 27.9% | 27.0% | 28.4% | 28.0% | - Q3 2023 net revenues increased 7.7% YoY and 0.8% QoQ, driven by increased sales to automotive and power supply end market customers and in the Asia region[155] - Gross profit margin decreased QoQ due to higher labor costs and manufacturing inefficiencies, but increased YoY due to higher volume and increased average selling prices[156] Capacitors Segment Performance This section details the Capacitors segment's net revenues, gross profit margin, and operating margin, highlighting key drivers of change Capacitors Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Net revenues (in thousands) | $117,573 | $126,213 | $384,730 | $386,487 | | Gross profit margin | 22.1% | 23.7% | 25.4% | 24.5% | | Segment operating margin | 17.5% | 20.1% | 21.2% | 20.8% | - Q3 2023 net revenues decreased 12.2% QoQ and 6.8% YoY, primarily due to lower sales to distribution customers and in the Americas and Asia regions[160] - Gross profit margin decreased QoQ and YoY due to lower sales volume and manufacturing inefficiencies, partially offset by favorable product mix and lower metals prices[161] Selling, General, and Administrative Expenses This subsection analyzes changes in selling, general, and administrative expenses, attributing them to factors like inflation and compensation costs SG&A Expenses (in thousands) | Period | Sep 30, 2023 | Oct 1, 2022 | 9M 2023 | 9M 2022 | | :------------------------ | :----------- | :---------- | :------ | :------ | | Total SG&A expenses | $122,513 | $106,436 | $365,515 | $329,691 | | As a percentage of revenues | 14.4% | 11.5% | 14.0% | 12.5% | - SG&A expenses increased versus prior year periods due to general inflation and higher compensation costs, including the implementation of the 2023 Long-Term Incentive Plan[163] Other Income (Expense) This subsection details the components of other income and expense, including interest expense and foreign exchange gains or losses Interest Expense (in thousands) | Period | Sep 30, 2023 | Oct 1, 2022 | 9M 2023 | 9M 2022 | | :----------------------- | :----------- | :---------- | :------ | :------ | | Interest expense | $7,153 | $4,110 | $18,677 | $12,639 | - Interest expense increased due to higher interest rates and higher average balances outstanding on the revolving credit facility prior to September 2023[164] Components of 'Other' Income (Expense) (9M 2023 vs. 9M 2022, in thousands) | Component | Sep 30, 2023 | Oct 1, 2022 | | :------------------------------------ | :----------- | :---------- | | Foreign exchange gain (loss) | $1,120 | $10,695 | | Interest income | $21,419 | $3,186 | | Other components of net periodic pension expense | $(6,183) | $(8,417) | | Investment income (expense) | $(868) | $(7,436) | | Other | $507 | $(262) | | Total | $15,995 | $(2,234) | Income Taxes This subsection discusses the company's effective tax rates and the factors influencing them across various global jurisdictions Effective Tax Rates | Period | Sep 30, 2023 | Oct 1, 2022 | | :----------------------- | :----------- | :---------- | | Fiscal quarter ended | 31.7% | 22.4% | | Nine fiscal months ended | 29.3% | 23.2% | - The effective tax rate is a composite rate reflecting earnings and applicable tax rates in various global jurisdictions, expected to be higher than the U.S. statutory rate[166][168] Financial Condition, Liquidity, and Capital Resources This section assesses Vishay's financial health, liquidity position, and capital allocation strategies, including cash flows and debt management - Vishay's financial condition remains strong, with cash and short-term investments exceeding long-term debt, and operating cash flows at $359.4 million for the nine fiscal months ended September 30, 2023, up from $317.8 million in the prior year[171][172] Cash Conversion Cycle (in days) | Metric | Sep 30, 2023 | Jul 1, 2023 | Oct 1, 2022 | | :------------------------ | :----------- | :---------- | :---------- | | Days sales outstanding (DSO) | 48 | 46 | 42 | | Days inventory outstanding (DIO) | 96 | 94 | 90 | | Days payable outstanding (DPO) | (33) | (32) | (33) | | Cash conversion cycle | 111 | 108 | 99 | - Capital expenditures for the nine fiscal months ended September 30, 2023, were $184.1 million, with plans to invest approximately $350 million in 2023 and $1.2 billion over the next three years for capital expansion projects outside of China[175] Net Cash and Short-Term Investments (Debt) (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | 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 | - The $750 million revolving credit agreement was amended to mature in May 2028, with no amount outstanding as of September 30, 2023, and Vishay was in compliance with all financial covenants, reporting an interest coverage ratio of 20.55 to 1 and a net leverage ratio of 0.80 to 1[181][183][187] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's market risk exposures since December 31, 2022 - There have been no material changes to Vishay's market risks since December 31, 2022[200] Item 4. Controls and Procedures This section confirms the effectiveness of Vishay's disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that Vishay's disclosure controls and procedures were effective as of September 30, 2023[201] - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[202] PART II. OTHER INFORMATION This part contains disclosures regarding legal proceedings, risk factors, equity security sales, and other miscellaneous information Item 1. Legal Proceedings This section provides an update on Vishay's legal proceedings, specifically highlighting ongoing environmental remediation programs and a new complaint related to groundwater contamination - Vishay is involved in ongoing environmental remediation programs at various sites and as a potentially responsible party (PRP) at Superfund sites[205] - Vishay GSI, Inc. (VGSI) was served with a new complaint in August 2023 by the Hicksville Water District, alleging groundwater contamination from a predecessor's manufacturing operations in Hicksville, New York[206] Item 1A. Risk Factors This section outlines new or updated risk factors, primarily concerning potential dilution from convertible notes, funding for cash settlements, and counterparty risk - The conversion of Vishay's outstanding 2025 and 2030 Notes may dilute the ownership interest of existing stockholders[207] - Vishay may not have sufficient funds to settle cash conversions or repurchase notes upon a fundamental change, which could lead to a default under its debt agreements[208][209] - The company is subject to counterparty risk with respect to the unsecured capped call transactions, which could lead to greater dilution if a counterparty defaults[217] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports on the issuance of $750 million in unregistered convertible senior notes due 2030, the use of proceeds for debt repurchase, and common stock repurchases - In September 2023, Vishay issued $750 million principal amount of 2.25% senior convertible notes due 2030 to qualified institutional buyers under a Rule 144A exemption[218][219] - Net proceeds were used to repurchase $370.2 million principal amount of 2025 convertible senior notes, enter into capped call transactions, repay the credit facility, and for general corporate purposes[218] Common Stock Repurchases (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Total Dollar Amount Purchased | | :------------------- | :--------------------- | :--------------------------- | :---------------------------- | | July 2 - 29 | 194,485 | $29.14 | $5,667,698 | | July 30 - August 27 | 221,383 | $27.27 | $6,036,603 | | August 28 - September 30 | 214,578 | $25.90 | $5,557,853 | | Total | 630,446 | $27.38 | $17,262,154 | Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - This item is not applicable[223] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - This item is not applicable[224] Item 5. Other Information This section discloses that Marc Zandman, Executive Chair and Chief Business Development Officer, adopted a Rule 10b5-1 trading plan for the sale of company securities - Marc Zandman, Executive Chair of the Board and Chief Business Development Officer, adopted a Rule 10b5-1 Plan on September 14, 2023, allowing the sale of up to 69,743 shares of Vishay common stock from January 15, 2024, to June 30, 2024[225] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including indentures, capped call confirmations, and certifications - Key exhibits include the Indenture for the 2.25% Senior Convertible Notes due 2030, Forms of Capped Call Confirmation, and certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act)[227] Signatures This section contains the required signatures from authorized officers of the company, certifying the accuracy of the Form 10-Q filing