Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of Vishay's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes filed herewith, commencing on page F-1 of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. “Risk Factors.”
Overview
Vishay Intertechnology, Inc. ("Vishay," "we," "us," or "our") manufactures one of the world’s largest portfolios of discrete semiconductors and passive electronic components that are essential to innovative designs in the automotive, industrial, computing, consumer, telecommunications, military, aerospace, and healthcare markets.
We operate in six segments based on product functionality: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.
Our goal is to enhance 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. We have developed go-to-market strategies and are 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.
We are focused on realizing the full value of our broad product portfolio, becoming a customer-first company, and capitalizing on the mega trends of e-mobility, sustainability, and connectivity to drive top line growth, expand margins, and optimize stockholder returns. We are using eight strategic levers to achieve these goals. Despite the industry recovery being slower than expected, we remain committed to our long-term plan of increasing our capacity to assure our customers of reliable volume as they scale. While we plan to advance our capacity expansion projects, we have and will continue to modulate spending in response to order flow and the timing of customer demand and qualification. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending. We invested $273 million for capital expenditures in 2025, 82% of which was invested in capacity expansion projects for high growth product lines, including our wafer fab expansions.
In addition to enhancing stockholder value through growing our business, in 2022, our Board of Directors adopted a Stockholder Return Policy, which calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. See further discussion in “Stockholder Return Policy” below.
Our business and operating results have been and will continue to be impacted by worldwide economic conditions. Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets. In this volatile economic environment, we continue to closely monitor our fixed costs, capital expenditure plans, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs. We believe we can react quickly and professionally to changes in demand to minimize manufacturing inefficiencies and excess inventory build in periods of decline and maximize opportunities in periods of growth. We implemented restructuring actions in the third fiscal quarter of 2024 designed to optimize our manufacturing footprint and streamline business decision making. We believe we have sufficient liquidity to withstand temporary disruptions in the economic environment. See additional information regarding our competitive strengths and key challenges as in Part I.
We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business. See further discussion in “Financial Metrics” and “Financial Condition, Liquidity, and Capital Resources” below. The key financial metrics were mostly higher versus the prior fiscal quarter and the prior year period. Net revenues increased versus the prior fiscal quarter and the prior year period primarily due to higher sales volume, but margins were mixed versus the prior fiscal quarter and prior year period. Margins were negatively impacted by lower average selling prices, higher metals prices and labor costs, and tariffs.
Net revenues for the year ended December 31, 2025 were $3.069 billion, compared to net revenues of $2.938 billion and $3.402 billion for the years ended December 31, 2024 and 2023, respectively. The net loss attributable to Vishay stockholders for the year ended December 31, 2025 was $(9.0) million, or $(0.07) per share, compared to a net loss of $(31.2) million, or $(0.23) per share, and net earnings of $323.8 million, or $2.31 per diluted share, for the years ended December 31, 2024 and 2023, respectively.
We define adjusted net earnings as net earnings (loss) determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business. We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment. We define segment operating income as operating income excluding selling, general, and administrative costs of our global operations, sales and marketing, information systems, finance, and administrative groups, as well as restructuring and severance costs, goodwill impairments, and other items affecting comparability. 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. Note 15 to our consolidated financial statements includes the reconciliation for segment operating income. 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, free cash, and segment operating income 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, adjusted earnings per share, and segment operating income 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 stockholder value through stock repurchases or dividends. We utilize the free cash metric in defining our Stockholder Return Policy. Management uses segment operating income, along with segment gross profit, to make decisions, allocate resources, and assess performance of its operating segments.
Net earnings attributable to Vishay stockholders for the years ended December 31, 2025, 2024, and 2023 include items affecting comparability. The items affecting comparability are (in thousands, except per share amounts) :
Years ended December 31,
GAAP net earnings (loss) attributable to Vishay stockholders
Other reconciling items affecting operating income:
Favorable resolution of a contingency
Impairment of goodwill
Restructuring and severance costs
Reconciling items affecting other income (expense):
Loss on early extinguishment of debt
Reconciling items affecting tax expense:
Changes in tax laws and regulations
Tax effects of pre-tax items above
Adjusted net earnings (loss)
Adjusted weighted average diluted shares outstanding
Adjusted earnings (loss) per diluted share
Although the term "free cash" is not defined in GAAP, each of the elements used to calculate free cash is presented as a line item on the face of our consolidated statements of cash flows prepared in accordance with GAAP. Our free cash results are as follows (in thousands) :
Years ended December 31,
Net cash provided by continuing operating activities
Proceeds from sale of property and equipment
Less: Capital expenditures
Free cash
Our accelerated investments to expand capacity have positioned us to be able to better serve our customers and capture the early stages of upturns in end market demand. The long-term outlook for our business remains strong.
Our free cash results were significantly impacted by the installment payments of the U.S. transition tax of $47.0 million in 2025, $37.6 million in 2024, and $27.7 million in 2023, respectively, and payments of foreign and withholding cash taxes of $9.4 million in 2025, $15.0 million in 2024, and $63.6 million in 2023 on foreign earnings of $75.0 million, $105.0 million, and $276.8 million that were repatriated to the U.S. in 2025, 2024, and 2023, respectively.
Growth and Company Transformation Initiatives
Effective January 1, 2023, a new executive leadership team, promoted from within, embarked on a new era at Vishay ("Vishay 3.0"). The new executive management team laid out a three-year plan to expand capacity to support our highest growth and highest return product lines and to position Vishay to be ready for the next phase of megatrends in e-mobility, sustainability, and connectivity. 2023 was the staging year for this plan as all elements of the plan progressed throughout the organization. In 2024, many of these initiatives advanced and increased manufacturing capacity began to be available. Additional capacity became available in 2025 and we began to benefit from the additional capacity as we are now able to satisfy quick-turn demand while maintaining competitive lead times. In 2026, we expect to use our additional capacity to supply customers that are in need of product due to unforeseen events or spikes in demand. We are also in a much-improved position to participate in the EMS channel as EMS customers are frequently operating with only short-term demand visibility.
To focus this growth, we have identified product lines for growth across each reportable segment. Most of these product lines serve multiple end-market segments, applications, and business channels. We have developed go-to market strategies for each one of these product lines, concentrating our resources on improving the technical performance of certified and custom products, to better position Vishay to support the mega trends toward electrification and data communications.
See the eight strategic levers being used to achieve our goals in "Key Business Strategies" in Item 1.
All of this is being done as we implement organizational and structural change at Vishay, focused on a “Think Customer First” philosophy, and becoming a more responsive company. We are fostering collaboration internally and externally, particularly in the functions connected to customer programs. To facilitate that change internally, we re-designed our short- and long-term incentive plans to align the performance of about 1,000 key employees with Company growth and profitability objectives and stockholder interests. The equity-based plan was approved by our stockholders at our 2023 annual meeting.
These Vishay 3.0 initiatives are the foundation for our ambitions to unleash the potential at Vishay, realizing the full value of our broad product portfolio and becoming a customer-first company, and for our goals of driving top line growth, expanding margins and optimizing returns.
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 policy sets forth our intention, but does not obligate us to acquire any shares of common stock or declare any dividends, and the policy maybe be terminated or suspended at any time at our discretion, in accordance with applicable laws and regulations. As a result of our negative free cash flow for the fiscal year ended December 31, 2025 due primarily to our capacity expansion plans, we exceeded our intended return through quarterly cash dividends and opportunistic share repurchases. We did not repurchase any shares of common stock after the first fiscal quarter of 2025. For 2026, we expect to maintain our dividend and opportunistically repurchase shares based on U.S. available liquidity in line with this policy.
The following table summarizes activity pursuant to this policy (in thousands):
Years ended
December 31, 2025
December 31, 2024
Dividends paid to stockholders
Stock repurchases
Total
The structure of our Stockholder Return Policy enables us to allocate capital responsibly among our business, our lenders, and our stockholders. We will continue to invest in growth initiatives including key product line expansions, targeted R&D, and synergistic acquisitions.
We have paid dividends each quarter since the first quarter of 2014, and the Stockholder Return Policy will remain in effect until such time as the Board votes to amend or rescind the policy. Implementation of the Stockholder Return Policy is subject to future declarations of dividends by the Board of Directors, market and business conditions, legal requirements, and other factors. The policy sets forth our intention, but does not obligate us to acquire any shares of common stock or declare any dividends, and the policy may be terminated or suspended at any time at our discretion, in accordance with applicable laws and regulations.
Financial Metrics
We utilize several financial metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, operating margin, segment operating income, segment operating margin, end-of-period backlog, and the book-to-bill ratio. We also monitor changes in our inventory turnover and our or publicly available average selling prices (“ASP”).
Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs. Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used. We also regularly evaluate gross profit by segment to assist in the analysis of consolidated gross profit. Gross profit margin and gross profit margin by segment are clearly a function of net revenues, but also reflect our cost management programs and our ability to contain fixed costs.
Operating margin is computed as gross profit less operating expenses, expressed as a percentage of net revenues. Operating margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.
Our chief operating decision maker makes decisions, allocates resources, and evaluates business segment performance based on segment gross profit and segment operating income. Only dedicated, direct selling, general, and administrative ("SG&A") expenses of the segments are included in the calculation of segment operating income. We do not allocate certain SG&A expenses that are managed at the regional or corporate global level to our segments. Accordingly, segment operating income excludes these SG&A expenses that are not directly traceable to the segments. Segment operating income would also exclude costs not routinely used in the management of the segments in periods when those items are present, such as restructuring and severance costs, goodwill impairment charges, 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.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2024 through the fourth fiscal quarter of 2025 (dollars in thousands) :
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Net revenues
Gross profit margin
Operating margin (1)
End-of-period backlog
Book-to-bill ratio
Inventory turnover
Change in ASP vs. prior quarter
(1) Operating margin for the second fiscal quarter of 2025 includes an $11.3 million gain recognized upon the favorable resolution of a contingency (See Note 2 to our consolidated financial statements). Operating margin for the fourth fiscal quarter of 2024 includes $66.5 million of goodwill impairment charges (see Note 19 to our consolidated financial statements).
See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin by segment.
Revenues in the fourth fiscal quarter of 2025 increased versus the fourth fiscal quarter of 2024 and prior fiscal quarter primarily due to higher sales volume. Favorable foreign currency impacts also contributed to the increase versus the fourth fiscal quarter of 2024. The book-to-bill ratio and backlog increased significantly versus the prior fiscal quarter and the fourth fiscal quarter of 2024. We continue to increase capacity for critical product lines. Average selling prices, including tariff adders, decreased versus the fourth fiscal quarter of 2024 and prior fiscal quarter.
Gross profit margin increased slightly versus the prior fiscal quarter, but decreased versus the fourth fiscal quarter of 2024. The decrease versus the fourth fiscal quarter of 2024 is primarily due to lower average selling prices, the impact of tariffs, and higher input costs.
The book-to-bill ratio in the fourth fiscal quarter of 2025 increased to 1.20 versus 0.97 in the third fiscal quarter of 2025.
Financial Metrics by Segment
The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2024 through the fourth fiscal quarter of 2025 (dollars in thousands) :
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
MOSFETs
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Diodes
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Optoelectronic Components
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Resistors
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Inductors
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Capacitors
Net revenues
Book-to-bill ratio
Gross profit margin
Segment operating margin
Acquisition Activity
part of its growth strategy, the Company seeks to expand through targeted acquisitions of other manufacturers of electronic components. These acquisition targets include businesses that have established positions in major markets, reputations for product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise. It also includes certain businesses that possess technologies which the Company expects to further develop and commercialize, businesses with well-developed technologies that the Company expects to grow using its manufacturing capabilities, capacity, and economies of scale to expand production and sell to its global customer base, such as Ametherm, Inc., acquired in 2024; and key niche suppliers to vertically integrate our supply chain, such as Birkelbach Kondensatortechnik GmbH, acquired in 2024. To limit our financial exposure, we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest, taxes, depreciation, and amortization (“EBITDA”). For these purposes, we calculate pro forma EBITDA as the adjusted EBITDA of Vishay and the target for the trailing four fiscal quarters, with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by Vishay at the beginning of the trailing four fiscal quarters.
In 2024, we acquired 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 use the Newport wafer fabrication facility to further develop and scale our SiC MOSFETs and diodes capabilities. The facility is a long-term investment which was not expected to generate income or cash flows in 2024 and 2025 while we invested in new equipment and qualified new products, but should enhance the long-term position of our MOSFETs business. We expect the facility to start generating profit in 2026.
There is no assurance that we will be able to identify and acquire suitable acquisition candidates at price levels and on terms and conditions we consider acceptable.
See Note 2 to our consolidated financial statements.
Cost Management
We place a strong emphasis on controlling our costs, and use various measures and metrics to evaluate our cost structure.
We define variable costs as expenses that vary with respect to quantity produced. Fixed costs do not vary with respect to quantity produced over the relevant time period. Contributive margin is calculated as net revenue less variable costs. It may be expressed in dollars or as a percentage of net revenue. Management uses this measure to determine the amount of profit to be expected for any change in revenues. While these measures are typical cost accounting measures, none of these measures are recognized in accordance with GAAP. The classification of expenses as either variable or fixed is judgmental and other companies might classify such expenses differently. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies.
We closely monitor variable costs and seek to achieve the contributive margin in our business model. Over a period of many years, we have generally maintained a contributive margin of between 45% and 47% of revenues. The erosion of average selling prices, particularly of our semiconductor products, that is typical of our industry, and inflation negatively impact contributive margin and drive us to continually seek ways to reduce our variable costs. Our variable cost reduction efforts include increasing the efficiency in our production facilities by expending capital for automation, reducing materials costs, materials substitution, increasing wafer size and shrinking dies to maximize efficiency in our semiconductor production processes, and other yield improvement activities.
Our cost management strategy also includes a focus on controlling fixed costs recorded as costs of products sold or selling, general, and administrative expenses and maintaining our break-even point (adjusted for acquisitions). We generally seek to limit increases in selling, general, and administrative expenses to the rate of inflation, excluding foreign currency exchange effects and substantially independent of sales volume changes. At constant fixed costs, we would expect each $1 million increase in revenues to increase our operating income by approximately $450,000 to $470,000. Sudden changes in the business conditions, however, may not allow us to quickly adapt our manufacturing capacity and cost structure.
As the Company transforms, we are incurring certain costs which are reducing current profitability while positioning the Company for future long-term profitable growth.
The acquisition of Nexperia's Newport fab in 2024 will enhance the manufacturing capacity and capabilities of our MOSFETs segment. The facility added significant depreciation and other costs to our MOSFETs segment. The facility has generated losses while we invested in new equipment and qualified new products. We expect the facility to start generating profit in 2026. Also, beginning in 2023, we began making significant investments in capital expenditures primarily for capital expansion projects primarily outside of China, which has and will further increase depreciation expense. At the same time, we are focusing on increasing our technical resources, adding additional customer-facing engineers, and intensifying our activities in R&D.
We have seen and expect to continue to see an increase in operating expenses over the next couple of years as we add engineering talents, fill gaps in our technology, and become a preferred supplier to more customers and more broadly sell our product portfolio.
For several years prior to 2023, share-based compensation expense was between $4 million and $6 million annually. During 2023, we implemented the Vishay Intertechnology, Inc. 2023 Long-Term Incentive Plan (the "2023 Plan") to enable us to recruit and retain highly qualified employees, directors, consultants and other service providers, provide them with an incentive for productivity, and create an opportunity for them to share in the growth and value of the Company. The 2023 Plan enhanced incentive compensation for our executive officers and is the first broad-based stock compensation program at Vishay in over 20 years. Share-based compensation expense was $22.4 million in 2025 and is expected to be between approximately $27 million and $30 million in 2026. Management believes such additional non-cash costs will enhance the long-term performance of the Company by providing selected participants with an incentive to improve the growth and profitability of the Company.
In 2024, we revised our short-term incentive ("STI") compensation structure to better align with our growth objectives. The revised structure incentivizes daily behaviors and actions of our organizational leaders to create immediate growth in line with our cross-functional business objectives. Under the structure, organizational leaders are rewarded annually for meeting determined targets in revenue, operating margin, gross margin, and variable margin. Managers are able to earn up to 130% of their former STI bonus targets for results which exceed expectations. The better alignment of the STI program with business results creates higher volatility in costs. The industry downturn that led to results that were below expectations in 2024 led to relatively low bonus accruals and thus lower reported SG&A expenses, while 2025 bonus accruals were higher compared to 2024. Costs associated with the STI program in 2026 are expected to be significantly higher if business results meet or exceed expectations.
In September 2024, we announced restructuring actions designed, in part, to optimize our manufacturing footprint and streamline business decision making. We recognized restructuring expense pursuant to on-going benefit arrangements of $40.6 million in 2024. The actions are expected to generate annualized cost savings of approximately $23 million (annualized), including $12 million of selling, general and administration expenses, when the actions are fully implemented by the end of 2026.
We continue to monitor the economic environment and its potential effects on our customers and the end markets that we serve. We are continuing to assess our manufacturing footprint in light of ongoing geopolitical events and cost savings opportunities.
In uncertain times, we focus on managing our production capacities in accordance with customer requirements, and maintain discipline in terms of our fixed costs and capital expenditures. Even as we seek to manage our costs, we remain cognizant of the future requirements of our demanding markets. We continue to pursue our growth plans through investing in capacities for strategic product lines, and through increasing our resources for R&D, technical marketing, and field application engineering; supplemented by opportunistic acquisitions of specialty businesses.
Our long-term strategy includes growth through the integration of acquired businesses, and GAAP requires plant closure and employee termination costs that we incur in connection with our acquisition activities to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred. We have not incurred any material plant closure or employee termination costs related to any of the businesses acquired since 2011, but we expect to have some level of future restructuring expenses due to acquisitions.
Foreign Currency Translation
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. We occasionally use forward exchange contracts to economically hedge a portion of our projected cash flows from these exposures.
GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have both situations among our subsidiaries.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies. The dollar was weaker during 2025 versus 2024, with the translation of foreign currency revenues and expenses into U.S. dollars increasing reported revenues and expenses in 2025 versus 2024. The net change of the dollar was not material when comparing 2024 versus 2023.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel, the United Kingdom, and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. The cost of products sold and selling, general, and administrative expense have been unfavorably impacted for the year ended December 31, 2025 compared to 2024 by local currency transactions of subsidiaries which use the U.S. dollar as their functional currency. The costs of products sold and selling, general, and administrative expense were favorably impacted for the year ended December 31, 2024 compared to 2023.
See Item 7A for additional discussion of foreign currency exchange risk and forward contracts used to mitigate certain foreign currency risks.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number of policies that entail significant judgments or estimates.
Revenue Recognition
Revenue is measured based on the consideration specified in contracts with customers, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy our performance obligations.
We have a broad line of products that we sell to OEMs, electronic manufacturing services ("EMS") companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large inventories of electronic components for resale to OEMs and EMS companies.
We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. In addition, we have contractual arrangements whereby we provide distributors with protection against price reductions initiated by us after product is sold by us to the distributor and prior to resale by the distributor.
We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our customers during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. We utilize a number of different methodologies and consider several factors when estimating the accruals. Some of the factors that we consider are sales levels to customers during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. These procedures require the exercise of significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.
See Notes 1 and 15 to our consolidated financial statements for further information.
Inventories
We value our inventories at the lower of cost or net realizable value, with cost determined using moving average and the first-in, first-out methods. The valuation of our inventories requires our management to make market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based on age of the inventory and upon estimates of future demand, technology developments, and market conditions.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the date of acquisition. We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. Impairment tests must be performed more frequently if there are indicators of impairment. A reporting unit is an operating segment, or one level below an operating segment, if it constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Our business segments represent our reporting units for goodwill impairment testing purposes. See Note 15 to our consolidated financial statements for a description of our business segments.
When performing a quantitative goodwill impairment test, we determine fair values generally based on a weighting of income and market approaches. For purposes of the income approach, fair values are determined based upon the present value of the reporting unit’s estimated future cash flows, discounted at appropriate risk-adjusted rates. We use our internal forecasts to estimate future cash flows, which may include estimates of long-term future growth rates based upon our most recent reviews of the long-term outlook for each reporting unit. Cash flow estimates used to establish fair values under our income approach involve management judgments based on a broad range of information and historical results. In addition, external economic and competitive conditions can influence future performance. For purposes of the market approach, we use valuation multiples for companies comparable to our reporting units.
The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which we compete; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization (components of earnings before interest, taxes, depreciation, and amortization, "EBITDA"); and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. In addition, changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting unit and the amount of the goodwill impairment charge.
See Notes 1 and 19 to our consolidated financial statements for a description of our goodwill impairment tests.
Pension and Other Postretirement Benefits
Our defined benefit plans are concentrated in the United States, Germany, and the Republic of China (Taiwan). At December 31, 2025, our U.S. plans include various non-qualified plans. The table below summarizes information about our pension and other postretirement benefit plans. This information should be read in conjunction with Note 11 to our consolidated financial statements (amounts in thousands):
Benefit
obligation
Plan assets
Funded
position
Informally
funded assets
Net position
Unrecognized
actuarial
items
U.S. non-qualified pension plans
German pension plans
Taiwanese pension plans
Other pension plans
OPEB plans
Other retirement obligations
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for certain postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries and investment advisers to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate.
In the U.S., we utilize published long-term high quality bonds to determine the discount rate at the measurement date. In Germany and the Republic of China (Taiwan), we utilize published long-term government bond rates to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates that reflect the timing of expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively be settled.
Non-qualified plans in the U.S. are considered by law to be unfunded. However, the Company maintains assets in a rabbi trust to fund benefit payments under certain of these plans. Such assets would be subject to creditor claims under certain conditions. (See also Notes 11 and 18 to our consolidated financial statements.)
Many of our non-U.S. plans are unfunded based on local laws and customs. For those non-U.S. plans that do maintain investments, their asset holdings are primarily cash and fixed income securities, based on local laws and customs. Some non-U.S. plans also informally fund their plans by holding certain available-for-sale investments. Such assets would be subject to creditor claims under certain conditions. (See also Note 18 to our consolidated financial statements.)
We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses (gains) affects the calculated value of plan assets and, ultimately, future pension expense (income).
We continue to seek to de-risk our global pension exposures. Such actions could result in increased net periodic pension cost due to lower expected rates of return on plan assets and/or possible additional charges to recognize unamortized actuarial items if all or a portion of the obligations were to be settled.
We believe that the current assumptions used to estimate plan obligations and annual expenses are appropriate. However, if economic conditions change or if our investment strategy changes, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheet.
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
These accruals for tax-related uncertainties are based on our best estimate of potential tax exposures. When particular matters arise, a number of years may elapse before such matters are audited by tax authorities and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.
During 2025, certain tax examinations were concluded and certain statutes of limitations lapsed. Our tax provision for 2025 includes adjustments related to the resolution of these matters. During 2023, we settled an examination of our U.S. federal income tax returns for the periods ended December 31, 2017 through 2019. Our federal income tax returns for the years 2022 through 2024 remain subject to examination. The tax returns of significant non-U.S. subsidiaries currently under examination are located in the following jurisdictions: Israel (2021), China (2022 through 2024), India (2004 through 2023), and Philippines (2020 through 2022). The Company and its subsidiaries also file income tax returns in other taxing jurisdictions in the U.S. and around the world, many of which are still open to examination.
See Notes 1 and 5 to consolidated financial statements for additional information.
Results of Operations
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
Years ended December 31,
Costs of products sold
Gross profit
Selling, general, and administrative expenses
Operating income
Income (loss) before taxes and noncontrolling interest
Net earnings (loss) attributable to Vishay stockholders
Effective tax rate
Net Revenues
Net revenues were as follows (dollars in thousands) :
Net revenues
Change versus prior year
Percentage change versus prior year
Changes in net revenues were attributable to the following:
Change attributable to:
Change in volume
Decrease in average selling prices
Foreign currency effects
Acquisitions
Other
Net change
For most of 2024 and 2025, we operated in a challenging environment, in part due to distribution customers digesting high channel inventories. The fourth quarter of 2025 saw short-term market conditions improving, and the long-term prospects for our business remain favorable. We continue to increase manufacturing capacities for critical product lines. The increase in net revenues in 2025 is primarily due to higher sales volume. The decrease in net revenues in 2024 was primarily due to lower sales volume and decreased average selling prices.
Gross Profit and Margins
Gross profit margins for the year ended December 31, 2025 were 19.4%, as compared to 21.3% for the year ended December 31, 2024. The decrease in gross profit margin is primarily due to lower average selling prices and higher metals and materials costs. Higher labor costs and depreciation expense also negatively impacted the gross profit margin.
Segments
Analysis of revenues and margins for our segments is provided below.
MOSFETs
Net revenues of the MOSFETs segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in MOSFETs segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Decrease in average selling prices
Foreign currency effects
Acquisition
Other
Net change
Gross profit margins and segment operating margins for the MOSFETs segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the MOSFETs segment increased in 2025 versus the prior year. The increase is primarily due to increased sales to distribution customers, computing end market customers, and customers in the Asia region.
Gross profit margin decreased versus the prior year primarily due to decreased average selling prices, partially offset by higher sales volume. Costs associated with the Newport wafer fab also contributed to the decrease versus the prior year.
Segment operating margin decreased versus the prior year. The decrease is primarily due to gross profit margin decreases and increased segment SG&A expenses associated with the Newport wafer fab.
Average selling prices decreased versus the prior year.
We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines. We plan to use the Newport wafer fabrication facility, acquired in 2024, to further develop and scale our SiC MOSFETs and diodes capabilities. We are also committed to building a 12-inch wafer fab in Itzehoe, Germany. These are long-term investments which were not expected to generate significant income or cash flows in the near-term, but should greatly enhance the long-term position of our MOSFETs business.
Diodes
Net revenues of the Diodes segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in Diodes segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Decrease in average selling prices
Foreign currency effects
Other
Net change
Gross profit margins and segment operating margins for the Diodes segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the Diodes segment increased in 2025 versus the prior year. The increase versus the prior year is primarily due to increased sales to distribution customers, industrial and power supply end market customers, and customer in the Europe region.
Gross profit margin decreased versus the prior year primarily due to decreased average selling prices, partially offset by higher sales volume.
Segment operating margin decreased versus the prior year primarily due to decreased gross profit.
Average selling prices decreased versus the prior year.
O ptoelectronic Components
Net revenues of the Optoelectronic Components segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in Optoelectronic Components segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Decrease in average selling prices
Foreign currency effects
Other
Net change
Gross profit margins and segment operating margins for the Optoelectronic Components segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the Optoelectronic Components segment increased in 2025 versus the prior year. The increase is primarily due to increased sales to distribution customers, industrial end market customers, and customers in the Europe and Americas regions.
Gross profit margin increased versus the prior year. The increase is primarily due to increased sales volume, lower fixed and variable costs, and less inventory obsolescence.
Segment operating margin increased primarily due to the increase in gross profit.
Average selling prices decreased versus the prior year.
Resistors
Net revenues of the Resistors segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in Resistors segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Decrease in average selling prices
Foreign currency effects
Acquisitions
Other
Net change
Gross profit margins and segment operating margins for the Resistors segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the Resistors segment increased in 2025 versus the prior year. The increase is primarily due to increased sales to distribution customers, industrial and automotive end market customers, and customers in the Asia and Americas regions.
Gross profit margin decreased versus the prior year. The decrease is due to decreased average selling prices and higher materials costs, partially offset by higher sales volume.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit and increased SG&A costs.
Average selling prices decreased versus the prior year.
We are increasing critical manufacturing capacities for certain product lines. We continue to broaden our business with targeted acquisitions of specialty resistors businesses.
Inductors
Net revenues of the Inductors segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in Inductors segment net revenues were attributable to the following:
Change attributable to:
Increase in volume
Change in average selling prices
Foreign currency effects
Net change
Gross profit margins and segment operating margins for the Inductors segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the Inductors segment increased slightly in 2025 versus the prior year. The increase is primarily due to increased sales to distribution customers, industrial and healthcare end market customers, and customers in the Asia region, partially offset by decreased sales to military and aerospace end market customers.
Gross profit margin decreased versus the prior year. The decrease is primarily due to higher variable costs.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit.
Average selling prices increased versus the prior year.
We expect long-term growth in this segment, and are continuously expanding manufacturing capacity for certain product lines and evaluating acquisition opportunities, particularly of specialty businesses.
Capacitors
Net revenues of the Capacitors segment were as follows (dollars in thousands):
Years ended December 31,
Net revenues
Change versus comparable prior year period
Percentage change versus comparable prior year period
Changes in Capacitors segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Change in average selling prices
Foreign currency effects
Acquisitions
Other
Net change
Gross profit margins and segment operating margins for the Capacitors segment were as follows:
Years ended December 31,
Gross profit margin
Segment operating margin
Net revenues of the Capacitors segment increased significantly in 2025 versus the prior year. The increase is primarily due to increased sales to distribution customers, industrial and telecommunications end market customers, and customers in the Asia region, partially offset by decreased sales to military and aerospace end market customers.
Gross profit margin decreased versus the prior year. The decrease is primarily due to higher material and fixed costs, partially offset by higher sales volume and increased average selling prices.
Segment operating margin decreased versus the prior year. The decrease is primarily due to decreased gross profit.
Average selling prices have increased slightly versus the prior year.
A large portion of expected growth of our Capacitors segment is in high voltage high power film capacitors used for smart-grid infrastructure projects.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses are summarized as follows (dollars in thousands) :
Years ended December 31,
Total SG&A expenses
as a percentage of sales
We are incurring additional SG&A costs associated with our strategic initiatives. See "Cost Management" above. SG&A expenses for the year ended December 31, 2025 increased versus the year ended December 31, 2024 due to higher stock-based compensation, general cost inflation, and foreign currency impacts. SG&A expenses in 2025 include an $11.3 million gain recognized upon the favorable resolution of a contingency.
Other Income (Expense)
2025 Compared to 2024
Interest expense for the year ended December 31, 2025 increased by $11.2 million versus the year ended December 31, 2024. The increase is primarily due to higher average outstanding balances on our revolving credit facility.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Years ended December 31,
Change
Foreign exchange gain (loss)
Interest income
Other components of net periodic pension expense
Investment income (loss)
Other
2024 Compared to 2023
Interest expense for the year ended December 31, 2024 increased by $ 2.3 million versus the year ended December 31, 2023. The increase is primarily due to the issuance of the convertible senior notes due 2030 in the third fiscal quarter of 2023.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Years ended December 31,
Change
Foreign exchange gain
Interest income
Other components of net periodic pension expense
Investment income (loss)
Other
Income Taxes
For the years ended December 31, 2025, 2024, and 2023, the effective tax rates were 135.2%, (1,145.5)%,
and 30.4%, respectively. We expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions. Our GAAP effective tax rates for the years ended December 31, 2025 and 2024 are not meaningful at the low levels of pre-tax loss. Our current effective tax rate is not indicative of expected future tax rates due to relatively small items having a disproportionate impact on the current effective tax rate. When pre-tax earnings increase, we expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions.
On July 4, 2025, H.R. 1 (the "Act"), a tax reconciliation act, was enacted into law in the United States. The Act did not change the U.S. federal tax rate and most of the provisions of the Act are effective for tax years beginning after December 31, 2025. We have recorded no change to the deferred U.S. taxes directly related to the Act. The Act allows the deduction in tax year 2025, or in tax years 2025 and 2026, of some previously capitalized research and development costs. We anticipate that these additional tax deductions may preclude the utilization of a U.S. foreign tax credit ("FTC") that is due to expire in 2028. As an indirect result of this change in tax law, we have recorded a valuation allowance of $9.4 million on the deferred tax asset related to this FTC. The Act made significant change of foreign GILTI income, now called net CFC tested income. We anticipate that these changes will negatively impact our effective tax rate in the future.
In the third fiscal quarter of 2025, the Federal Republic of Germany enacted tax legislation decreasing the federal tax rate beginning in 2028 by 1% per year for five years. We have recorded deferred tax expense of $4.2 million to reduce the carrying amount of deferred tax assets in Germany based on these new rates.
There were no unusual tax transactions that impacted the effective tax rate for the years ended December 31, 2024 and December 31, 2023.
We operate in a global environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives.
Additional information about income taxes is included in Note 5 to our consolidated financial statements.
Financial Condition, Liquidity, and Capital Resources
Our financial condition as of December 31, 2025 is adequate to meet our capital expenditure and other growth plans. 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 $184.3 million for the year ended December 31, 2025, as compared to cash flows provided by operating activities of $173.7 million for the year ended December 31, 2024.
In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle. The following table presents the components of our cash conversion cycle during the five fiscal quarters beginning with the fourth fiscal quarter of 2024 through the fourth fiscal quarter of 2025:
4th Quarter 2024
1st Quarter 2025
2nd Quarter 2025
3rd Quarter 2025
4th Quarter 2025
Days sales outstanding ("DSO") (a)
Days inventory outstanding ("DIO") (b)
Days payable outstanding ("DPO") (c)
Cash conversion cycle
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.
The cash conversion cycle improved to 125 days in the fourth fiscal quarter of 2025, reflecting our sale of $62.2 million trade receivables and disciplined working capital management.
Cash paid for property and equipment for the year ended December 31, 2025 was $273.3 million, as compared to $320.1 million for the year ended December 31, 2024. Cash paid for property and equipment for the year ended December 31, 2025 was slightly below expectations as delivery of some equipment was delayed until the first fiscal quarter of 2026. To be well positioned to service our customers and to fully participate in growing markets, we have increased and expect to maintain a relatively high level of capital expenditures for expansion in the mid-term. We remain committed to our long-term plan of increasing Vishay's capacity, to assure our customers of reliable volume as they scale. While we plan to advance our capacity expansion projects, we have and will continue to modulate spending in response to order flow and the timing of customer demand and qualifications. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending. For 2026, we plan to spend between $400 million to $440 million, at least 70% of which will be invested in capacity expansion projects for high growth product lines, including our wafer fab expansions.
Free cash flow for the years ended December 31, 2025 and December 31, 2024 were negative primarily due to high levels of capital expenditures for expansion. Free cash flow improved for the year ended December 31, 2025 versus the year ended December 31, 2024 primarily due to the sale of trade receivables and decreased capital expenditures. We expect free cash flow will be negatively impacted by the expected high level of capital expenditures for expansion after which we expect to generate increasingly higher levels of free cash. There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash at our historical levels, or at all, going forward if the economic environment worsens.
In 2022, our Board of Directors adopted a Stockholder Return Policy that will remain in effect until such time as the Board votes to amend or rescind the policy. See “Stockholder Return Policy” above for additional information.
The following table summarizes the components of net cash and short-term investments (debt) (in thousands) :
December 31,
December 31,
Credit facility
Convertible senior notes, due 2025
Convertible senior notes, due 2030
Deferred financing costs
Total debt
Cash and cash equivalents
Short-term investments
Net cash and short-term investments (debt)
"Net cash and short-term investments (debt)" does not have a uniform definition and is not recognized in accordance with GAAP. This measure should not be viewed as an alternative to GAAP measures of performance or liquidity. However, management believes that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. The measure, as calculated by us, may not be comparable to similarly titled measures used by other companies.
We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated balance sheets. As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt).
The interest rates on our short-term investments vary by location. Transactions related to these investments are classified as investing activities on our consolidated 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 2025, we repatriated $75 million of accumulated earnings to the United States and paid withholding taxes in Israel of $9.4 million. As of December 31, 2025, $13.4 million of our cash and cash equivalents and short-term investments were held by our U.S. subsidiaries. As of December 31, 2025, we are in a net borrowing position in the U.S. and we expect to continue to be at least through 2026 based on expected cash payments pursuant to our Stockholder Return Policy and funding of our growth plan. As of December 31, 2025, we have approximately $493 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 $76 million, which has been accrued, but will only be paid upon repatriation of the unremitted earnings. Repatriating these unremitted earnings earlier than currently planned may not be possible and may incur additional tax expense. We also have amounts of unremitted foreign earnings held by subsidiaries in countries other than Israel and Germany, which continue to be reinvested indefinitely, that we have not accrued for the incremental foreign income taxes and withholding taxes payable to foreign jurisdictions that would be incurred to repatriate these amounts. Certain of these subsidiaries are located in countries with restrictive regulations and high tax rates for repatriating cash. Due to the uncertainties associated with the ability, timing, and method to repatriate these unremitted earnings and other complexities associated with its hypothetical calculation, determination of the amount of tax expense that would be incurred to repatriate the unremitted earnings is not practicable, but could be significant. Our undrawn credit facility provides us with adequate operating liquidity in the United States.
Upon successful completion of our growth plan, we expect to generate increasingly higher levels of free cash that will be sufficient to meet our long-term financing needs related to normal operating requirements, regular dividend payments, share repurchases pursuant to our Stockholder Return Policy, while allowing us to manage our repatriation and financing activities to minimize tax and interest expense. During the current period of intensified capital expenditures to achieve our growth plans, we are considering a combination of additional and alternative sources of financing and our cash on hand to fund a portion of the capital expenditures that would conserve cash for future acquisitions while enabling us to minimize tax expense. In the fourth fiscal quarter of 2025, we entered into agreements to sell accounts receivable on a revolving basis that provides up to approximately $150 million source of funding without impacting our credit facility compliance ratios.
We maintain a $750 million revolving credit agreement with a consortium of banks led by JPMorgan Chase Bank, N.A., that matures on May 8, 2028. The maximum amount available on the revolving credit facility is restricted by the financial covenants described below. The credit facility also provides us the ability to request up to $300 million of incremental facilities, subject to the satisfaction of certain conditions, which could take the form of additional revolving commitments, incremental “term loan A” or “term loan B” facilities, or incremental equivalent debt.
Pursuant to the credit facility, the financial maintenance covenants include (a) an interest coverage ratio of not less than 3.25 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 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 December 31, 2025. Our interest coverage ratio and net leverage ratio were 9.20 to 1 and 2.42 to 1, respectively. We expect to continue to be in compliance with these covenants based on current projections. Based on our current EBITDA and outstanding revolver balance, the usable capacity on the credit facility is approximately $254 million.
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 2030 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
Borrowings under the credit facility bear interest at 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 3.23 to 1, any new U.S. dollar borrowings will bear interest at SOFR plus 2.10% (including the applicable credit spread), and the undrawn commitment fee is 0.35% 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 had $136 million outstanding on our revolving credit facility at December 31, 2024 and $219 million outstanding at December 31, 2025. We borrowed $832 million and repaid $749 million on the revolving credit facility during the fiscal year ended December 31, 2025. The average outstanding balance on our revolving credit facility calculated at fiscal month-ends was $220 million and the highest amount outstanding at a fiscal month end was $309 million during the fiscal year ended December 31, 2025. 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 amounts of our debt are due until 2028.
The convertible senior notes 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. We intend to finance the principal amount of any converted notes using borrowings under our credit facility. No conversions have occurred to date.
The convertible senior notes due 2025 matured on June 15, 2025. 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 cash-settled the $41.9 million aggregate principal amount outstanding as of June 15, 2025. The settlement was funded using borrowings under our credit facility. No shares were issued to settle the convertible senior notes due 2025.
In evaluating our liquidity and capital resources, we consider our outstanding commitments. As of December 31, 2025 our commitments were as follows (in
thousands) :
Payments due by period
Total
Thereafter
Long-term debt
Interest payments on long-term debt
Operating leases
Letters of credit
Expected pension and postretirement plan funding
Estimated costs to complete construction in progress
Estimated costs to complete MOSFETs wafer fab
Uncertain tax positions
Purchase commitments
Other long-term liabilities
Total contractual cash obligations
Commitments for long-term debt are based on the amount required to settle the obligation. Accordingly, the capitalized deferred financing costs associated with our long-term debt are excluded from the calculation of long-term debt commitments in the table above.
Commitments for interest payments on long-term debt are cash commitments based on the stated maturity dates of each agreement and include fees under our revolving credit facility, which expires on May 8, 2028. Commitments for interest payments on long-term debt exclude non-cash interest expense related to the amortization of deferred financing costs.
Various factors could have a material effect on the amount of future principal and interest payments. Principal and interest commitments associated with our convertible notes are based on the amounts outstanding as of December 31, 2025. Additionally, interest commitments for our revolving credit facility are based on the rate prevailing at December 31, 2025, but actual rates are variable and are certain to change over time.
Our consolidated balance sheet at December 31, 2025 includes liabilities associated with uncertain tax positions in multiple taxing jurisdictions where we conduct business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, we cannot make reliable estimates of the timing of the remaining cash outflows relating to these liabilities. Accordingly, we have classified all non-current uncertain tax positions as payments due thereafter, although actual timing of payments may be sooner.
Expected pension and postretirement plan funding is based on a projected schedule of benefit payments under the plans adjusted for payments from fully-funded plans.
We maintain long-term arrangements with subcontractors, suppliers, and other business partners to ensure access to external capacity and supplies for certain products. The purchase commitments in the table above represent the estimated minimum commitments under these arrangements. Our actual purchases in future periods are expected to be greater than these minimum commitments.
Other long-term liabilities in the table above include obligations that are reflected on our consolidated balance sheets as of December 31, 2025. We include the current portion of the long-term liabilities in the table above. Other long-term liabilities for which we are unable to reasonably estimate the timing of the settlement are classified as payments due thereafter in the table above, although actual timing of payments may be sooner.
For a further discussion of our long-term debt, pensions and other postretirement benefits, leases, uncertain tax positions, and purchase commitments, see Notes 4, 5, 6, 11, and 13 to our consolidated financial statements.
