Vishay Precision Group, Inc. - FORM 10-K

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EX-32.2 - EXHIBIT 32.2 - Vishay Precision Group, Inc.	vpg-20191231x10kxex322.htm
EX-32.1 - EXHIBIT 32.1 - Vishay Precision Group, Inc.	vpg-20191231x10kxex321.htm
EX-31.2 - EXHIBIT 31.2 - Vishay Precision Group, Inc.	vpg-20191231x10kxex312.htm
EX-31.1 - EXHIBIT 31.1 - Vishay Precision Group, Inc.	vpg-20191231x10kxex311.htm
EX-23.2 - EXHIBIT 23.2 - Vishay Precision Group, Inc.	vpg-20191231x10kxex232.htm
EX-23.1 - EXHIBIT 23.1 - Vishay Precision Group, Inc.	vpg-20191231x10kxex231.htm
EX-21.1 - EXHIBIT 21.1 - Vishay Precision Group, Inc.	vpg-20191231x10kxex211.htm
EX-4.1 - EXHIBIT 4.1 - Vishay Precision Group, Inc.	vpg-20191231x10kxex41.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-34679

Vishay Precision Group, Inc.

(Exact name of registrant as specified in its charter)



Delaware	27-0986328
(State or other jurisdiction of	(IRS employer identification no.)
incorporation or organization)

3 Great Valley Parkway, Suite 150

Malvern, PA 19355

(Address of principal executive offices)

484-321-5300

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value	VPG	New York Stock Exchange
(Title of class)	(Trading Symbol)	(Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Note – Checking the box above will not relieve any registrant required to file reports under Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Act. (Check one):



Large accelerated filer o	Non-accelerated filer o
Accelerated filer ý	Smaller reporting company o
	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($40.63 on June 29, 2019), assuming conversion of all of its Class B convertible common stock held by non-affiliates into common stock of the registrant, was $515,849,000. There is no non-voting stock outstanding.

As of March 11, 2020, the registrant had 12,511,392 shares of its common stock and 1,022,887 shares of its Class B convertible common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, which will be filed within 120 days of December 31, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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Vishay Precision Group, Inc.

Form 10-K for the year ended December 31, 2019



CONTENTS
PART I
Item 1. Business Description	3
Item 1A. Risk Factors	12
Item 1B. Unresolved Staff Comments	23
Item 2. Properties	23
Item 3. Legal Proceedings	23
Item 4. Mine Safety Disclosures	23

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	24
Item 6. Selected Financial Data	26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	45
Item 8. Financial Statements and Supplementary Data	46
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A. Controls and Procedures	46
Item 9B. Other Information	49

PART III
Item 10. Directors, Executive Officers, and Corporate Governance	49
Item 11. Executive Compensation	49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13. Certain Relationships and Related Party Transactions, and Director Independence	49
Item 14. Principal Accounting Fees and Services	49

PART IV
Item 15. Exhibits, Financial Statement Schedules	50
Item 16. Form 10-K Summary	53

SIGNATURES	54

Index to Consolidated Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-4
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, 2017	F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, 2017	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, 2017	F-8
Consolidated Statements of Equity for the years ended December 31, 2019, 2018, 2017	F-9
Notes to Consolidated Financial Statements	F-10

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PART I

Item 1. BUSINESS DESCRIPTION

General

Vishay Precision Group, Inc. (“VPG,” the “Company,” “we,” “us” or “our”) is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon our proprietary technology. We provide precision products and solutions, many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements. A significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure. We believe this strategy results in higher quality, more cost effective and focused solutions for our customers. Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality. Our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and systems.

The Company also has a long heritage of innovation in precision foil resistors, foil strain gages, and sensors that convert mechanical inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products. Our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary, highly automated environment. Precision sensors are essential to the accurate measurement, resolution and display of force, weight, pressure, torque, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplaces. This expertise served as a foundation for our expansion into strain gage instrumentation, load cells, transducers, weighing modules, and complete systems for process control and on-board weighing. Although our products are typically used in the industrial market, our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications.

The precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus, including medical, agricultural, transportation, industrial, avionics, military, and space applications. We believe that as original equipment manufacturers (“OEMs”) continue a drive to make products “smarter,” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and/or response. We believe this offers a substantial growth opportunity for our products and expertise.

Our History

In 1962, Dr. Felix Zandman founded Vishay Intertechnology Inc. (“Vishay Intertechnology”) to develop and manufacture the first generation of Bulk Metal® foil resistors and later, foil strain gages.

Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. They vary widely in precision and cost, and are manufactured from numerous materials and in many forms. Bulk Metal foil resistors, developed by Dr. Zandman in the 1950’s, are the most precise and stable type of resistors currently available. A strain gage is a resistive sensor that is attached to the surface of an object to determine the surface strain caused by an applied force.

Beginning in the 1960’s, Vishay Intertechnology established itself as a technical and market leader in precision foil resistors, and foil strain gages. These innovations were the genesis of the foil technology that is a unique strategic competitive advantage of VPG. The subsequent innovations and advancement of foil resistance and strain gage technology opened the door to numerous commercial applications, such as force sensors and control systems on a vertical market basis.

On July 6, 2010, Vishay Intertechnology spun off its precision measurement and foil technology businesses through a tax-free stock dividend of VPG stock to Vishay Intertechnology’s stockholders, and we became a publicly-traded company. In the decade prior to the spin-off, Vishay Intertechnology expanded our sensor and measurement business through acquisitions, extending our business from its initial focus on precision foil resistors and foil strain gages to include an array of sensor-based solutions. These solutions include transducers/load cells, which are force sensors combining strain gages and the metallic structures to which they are bonded; load cell modules that utilize electronic instrumentation and software for measuring the load cell output; and measurement instrumentation and complete systems for process control and on-board weighing.

In 2013, we completed our first acquisition as an independent public company when we acquired substantially all of the assets of the George Kelk Corporation ("KELK"). KELK engineers, designs and manufactures highly accurate optical and electronic roll force measurement and control equipment primarily used by metals rolling mills and mining applications throughout the world. As a part of our acquisition, we acquired a leased manufacturing, engineering, sales, and administrative facility in Toronto, Canada.

On December 30, 2015, we completed the acquisition of Stress-Tek, Inc. ("Stress-Tek") based in Kent, Washington. Stress-Tek designs and manufactures state-of-the-art, rugged and reliable strain gage-based load cells and force measurement systems. Stress-Tek primarily operates in North America, where their sensors and display systems are used in a wide range of industries,

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predominantly in transportation and trucking, for timber, refuse, aggregate, mining, and general trucking applications. Stress-Tek products are marketed under the Vulcan brand as part of the VPG Onboard Weighing offerings for our Weighing and Control Systems reporting segment. As a part of the Stress-Tek acquisition, we acquired ownership of a manufacturing, engineering, sales, administrative, and warehouse facility in Kent, Washington.

On April 6, 2016, we completed the acquisition of Pacific Instruments, Inc. ("Pacific") based in Concord, California. Pacific designs and manufactures high-performance signal conditioning, data acquisition and control systems and has extensive experience integrating these systems. Pacific sells primarily to the aerospace, commercial aviation and defense markets in the United States. Pacific products expanded the offerings of our Foil Technology Products reporting segment, which already offered data acquisition systems, primarily in the field of strain measurement. As a result of our acquisition, we acquired a leased manufacturing, engineering, sales and administrative facility in Concord, California.

On November 1, 2019, we completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes. DSI is an established, high margin business, with a strong brand and has the largest installed base of products of its type in the world, according to market estimates. DSI expands our position in the steel market and offers opportunities for growth by leveraging our sales capabilities and market presence, and by expanding DSI’s product line to address new opportunities. DSI will report into the Company's Weighing and Control Systems segment.

While our acquisitions provided us an array of strong brand names, in addition to our historical resistor and strain gage brands, we believe the continued success of our strategy is best served by the establishment of a strong overall global brand. In 2014, we launched the “VPG” brand, which is intended to leverage the strength of these historical brands under the umbrella of a more unified, globally recognizable VPG name. We continue to broaden and emphasize the VPG brand in the markets we serve under the following brands for each of our business segments:



Foil Technology Products	Force Sensors	Weighing and Control Systems
VPG Foil Resistors	VPG Transducers	BLH Nobel
- Alpha Electronics	- Celtron	KELK
- Powertron	- Revere	VPG Onboard Weighing
- Vishay Foil Resistors	- Sensortronics	Gleeble (DSI)
Micro-Measurements	- Tedea-Huntleigh
Pacific Instruments

Our acquisitions added to our strong, diverse, global manufacturing, sales and distribution network, which includes facilities in Canada, China, France, Germany, India, Israel, Japan, Sweden, Taiwan, the United Kingdom, and the United States.

We were incorporated in Delaware on August 28, 2009. Our principal executive offices are located at 3 Great Valley Parkway, Suite 150, Malvern, PA 19355. Our main telephone number is 484-321-5300.

Key Business Vision and Strategies

Our vision is to be the leading provider of sensors, and sensor-based systems with the highest precision, quality, value, and service for measuring force (weight, pressure, torque, acceleration) and current. As part of that vision, we are a leading provider of foil specialty resistors and strain gages, which are particularly effective in precision measurement applications.

Our strategy is to achieve corporate growth and shareholder value by expanding our existing product portfolio organically, as well as by acquiring complementary precision measurement products. Specifically, we are focused on the following strategic initiatives:

Optimize Core Competence

The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and precision measurement sensors and sensor-based systems. Our foil technology resistors and strain gages are recognized as global market leading products that provide high precision and high stability over extreme temperature ranges, and long life. Our force sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision measurements of force, weight, pressure, torque, tilt, motion, and acceleration. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes.

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Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we recently signed a long term lease for a state of the art facility to be constructed in Israel to move forward with our advanced sensors business.

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, China, and Israel, where we can benefit from lower labor costs, improved efficiencies, or available tax and other government-sponsored incentives. For example, in 2018 we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. In 2017, we closed two leased facilities in the United States and moved to more cost effective locations.

Organic Growth

Our product portfolio is focused, to a significant extent, on specialty products serving niche markets. The development of specialty products requires us to form long-term relationships with our customers. Our specialty products are usually designed, or engineered, to meet unique specifications for OEMs. This often results in our customers creating a non-standard part number used solely to designate our product on their bill of materials. We call this customer activity a “design win.” This activity may create organic growth as the OEM customer begins to order increasing quantities to meet their production requirements, with little or no opportunity to purchase a similar part from competing suppliers. The “design in” time for these initiatives is typically 12 to 24 months.

We expect to continue to use our research and development, engineering, and product marketing resources to introduce new and innovative specialty products. An example of our success in this regard is the recent acceptance and growth of our on-board vehicle weighing solution incorporating microelectromechanical systems ("MEMS") technology. Our ability to react to changing customer needs, emerging markets, and industry trends will continue to be a key to our success.

Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function.

Growth from Acquisitions

We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments. Historically, our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our force sensor products, and incorporating those products into our weighing and control systems. The acquisitions of Stress-Tek and KELK, each of which employ our foil strain gages to manufacture load cells for their systems, continued this strategy. Additionally, the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific acquisition significantly broadened our existing data acquisition offerings and opened new markets for us. Our most recent acquisition, of DSI, expands our position in the steel market. Along with our success in MEMS technology for on-board weighing, we expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.

Product Segments

Foil Technology Products

The Foil Technology Products ("FTP") segment includes our foil resistor and strain gage operating segments. Foil resistor products offer superior precision, stability, and reliability. Our resistor portfolio encompasses a wide variety of configurations and packages designed to meet the requirements of even the most demanding applications. Typical applications for foil resistors include high end test equipment and electronics for the aviation, military and space, semiconductor, process control, oil and gas, and medical markets. Typical applications for strain gages, which include advanced sensor gages, are stress analysis for structural testing in the aviation, military and space, infrastructure, and construction markets, along with force measurement and weighing markets. Our innovative advanced sensors product line enhances the capability and performance of our strain gages, while simultaneously reducing their size and power consumption. This segment also includes our data acquisition systems business.

The products in these segments are primarily based on our resistive foil technology, which continues to evolve and enables many products in both segments to be suited for new and varied applications.

The manufacturing of the foil material is a critical and common component of the Company’s strain gage and precision foil resistor operating segments, and as a result, we experience synergies between our foil resistor and strain gage operating segments. The

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production cycles for foil resistors and strain gages are similar and many of the same raw materials are utilized in the manufacturing processes for both operating segments. The foil resistor and strain gage products require a similar level of labor and capital. However, the advanced sensors’ manufacturing technology offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing costs and lead times, higher quality, and increased margins.

Our Pacific business offers a broad range of high performance signal conditioning, data acquisition and control systems, many of which reach customers outside our traditional commercial customer base, such as U.S. government related customers.

A significant portion of products from the strain gage operating segment are sold to third parties as “standard catalog items”; the remainder of this operating segment's products are sold as non-standard and/or custom products to third parties and to our Force Sensors segment.

Force Sensors

The Force Sensors segment includes a broad line of load cells and force measurement transducers that are offered as precision sensors for industrial and commercial use. Typical applications for force sensors are in construction machinery(for stability control, overload protection), agricultural equipment (for precision force measurement), and medical devices (such as hospital beds and medication dosing). The truck and heavy equipment market has begun to adopt force sensors technology as process control and equipment control features for their products. These sensors use our foil technology products, which serve as sensing elements and components within each unit. Further integration of our load cells technology is also offered as part of our weighing module products, which provide customers with a complete sensor assembly that may be used within a wide variety of digital transducers.

A majority of products from the Force Sensors segment are sold to third parties as “standard catalog items,” but a growing sector of this segment’s products are sold as non-standard and/or custom products to third parties. In addition, we sell products from this segment to our Weighing and Control Systems segment as well as to OEM manufacturers, which often involve "design-in" features. Direct sales channels (field application engineers (“FAEs”)) are utilized as the primary customer interface relating to initial design specifications, development of prototypes, and pricing/delivery of this segment’s products. Distributors are also used for those customers that desire standard products.

Weighing and Control Systems

The Weighing and Control Systems segment designs and manufactures complete systems comprised of load cells and instrumentation for weighing and force control/measurement for a variety of uses, including on-board weighing and overload monitor systems. Typical applications for our weighing and control systems products are: process weighing of chemicals, food and pharmaceuticals; aircraft and truck weighing and overload protections; weight, force and process optimization in steel and paper mills; and force measurement for offshore oil and gas exploration.

Other major components that comprise our systems are: load cells, electronic displays; optical gages; signal processors; MEMS sensors; cabling; system software; and communication software/hardware. The end use for the majority of these products is the precision measurement of force, weight, pressure, torque, tilt, motion, and acceleration. FAEs are utilized as the primary customer interface relating to initial design specifications, development of prototypes, and pricing/delivery of this segment’s products. Distributors and sales agents are also used, as appropriate, to market, sell, and support certain products in this segment.

Products

Our precision sensor and sensor-based systems include products such as load cells, transducers, weighing modules, and complete systems for process control and on-board weighing applications. Our precision foil resistors and strain gages are based on our proprietary foil technology, which we invented. We manufacture and sell high precision foil resistors, foil strain gages, and data acquisition systems.

Our product portfolio includes:


•	Foil resistors – Foil resistors are the most precise and stable type of resistors currently available. Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. Our current sense resistors were developed with a low absolute TCR and Kelvin connections to meet the demand of stable resistive products

Our foil resistors are used in applications requiring a high degree of precision and stability, such as in the following market segments: Avionics/Military/Aerospace applications, Precision Weighing, Medical applications, Test & Measurements/ Semiconductors, Oil & Gas and Process Control. We sell our foil resistors under the Vishay Foil Resistors, Alpha Electronics, and Powertron brands, including under our well-known Bulk Metal® trademark. The ultra-precision technology also provides extremely low temperature coefficient resistance and exceptional long term stability through temperature extremes. To complement our extensive portfolio of high-performance foil resistors, we also offer decade boxes, standard resistors, exceptional precision thin film and power resistors including special construction configurations

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to meet the requirements of high temperature applications. We have a road map of new technology products to meet the required needs of our customers.

•

Foil strain gages – Strain gages, including our advanced sensors, are resistive sensors that are attached to the surface of an object to determine the surface strain caused by an applied force. Typical uses of strain gages include test and measurement applications where the strength of the object is the main consideration and the object under test is a structural component in a machine or device, such as an automobile, an aircraft, or a highway bridge. Strain gages are also used inside precision transducers where the magnitude of an applied force is the focus of the measurement. A variety of physical measurements can be made using strain gages attached to metal components including force, weight, pressure, displacement, and acceleration. We sell our strain gages under the well-known Micro-Measurements brand.

•

Transducers, load cells, and modules – A transducer is mounted on a structure that is subjected to weight or other forces, such as the platform of an industrial scale. The term “load cell” is primarily used to describe transducers used in weighing applications. Strain-gage based transducers consist of one or more strain gages bonded to a metallic support. The change in resistance of the strain gages in response to deformation of the transducer by the applied load is detected by electronic instrumentation. Transducers are manufactured with different designs and configurations depending on their application and the type of stress or strain to be measured; for example, weight or tension. We produce both analog and digital transducers. Modules are transducers combined with a mounting and with external features, such as instruments and cables, and are used for weighing and control applications. We sell our load cells and modules under the overall VPG Transducers name as we continue to transition from the previously used Celtron, Revere, Sensortronics, and Tedea-Huntleigh brands.


•	Data acquisition systems – Data acquisition systems, which include instruments to measure, process, digitize, display, and record the output of our strain gages, transducers, and other sensor or sensor-based systems as well as deliver information to control systems. Our acquisition of Pacific significantly expanded our previous instruments offerings.

•

Weighing and control systems – Weighing and control systems are integrated systems for the detection and measurement of weight and other types of force, primarily for use in industrial applications. These include systems to control process weighing in food, chemical, and pharmaceutical plants; force measurement systems used to control web tension in paper mills, roller force in steel mills, and cable tension in winch controls; on-board weighing systems installed in logging and waste-handling trucks; and special scale systems used for aircraft weighing and portable truck weighing. Our mechanical and thermal simulators are used for testing and developing various types of metals. With our acquisition of Stress-Tek, we enhanced and broadened our on-board weighing offerings with products that are recognized for high quality in their markets. With our acquisition of KELK, we added certain optical gages for control systems and enhanced our other product offerings for process control in the steel mill industry. With the acquisition of DSI, we broadened our offerings to the steel mill industry and to materials testing labs. We sell our systems under a variety of brand names including BLH Nobel, KELK, Gleeble, and VPG Onboard Weighing.

Qualifications and Specifications

Certain of our products must be qualified or approved under various military and aerospace specifications and other standards.

We have qualified certain of our foil resistor and sensor products under various military specifications approved and monitored by the United States Defense Logistics Agency (“DLA”), under certain European military specifications, and various aerospace standards approved by the U.S. National Aeronautics and Space Administration (“NASA”) and the European Space Agency (“ESA”).

Qualification and specification levels are based in part upon the rate of failure of products. We must continuously perform tests on our products, and report the results for qualified products to the qualifying organization. If a product fails to meet the requirements for the applicable classification level, the product’s classification may be suspended or reduced to a lower level. During the time that the classification is suspended or reduced, net revenues and earnings attributable to that product may be adversely affected.

Certain of our load cell and instrumentation products are approved by the National Type Evaluation Program (“NTEP”) and International Organization of Legal Metrology (“OIML”). Many of our weighing systems must also meet these standards to make them usable for legal-for-trade weighing applications. Products and systems that are to be used in hazardous areas, where explosive atmospheres might exist, must comply with special safety standards, such as the European Atmosphère Explosible (“ATEX”) Standard and the U.S. Factory Mutual (“FM”) Standard. Our load cell manufacturing sites undergo periodic audits by regulatory authorities in order to verify compliance with standard requirements and to extend product approvals.

Manufacturing Operations

Our principal manufacturing facilities are located in Israel, the United States, Canada, India, the People’s Republic of China, Germany, and Japan. We also have manufacturing facilities in Sweden, the United Kingdom, the Republic of China (Taiwan), and

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France. Over the past several years, we have invested substantial resources to increase capacity and to enhance automation in our plants, which we believe will further reduce production costs.

We have quality management systems at all of our major manufacturing facilities approved under the ISO 9001 Quality Management Systems Standard. ISO 9001 is a comprehensive set of quality program standards developed by the International Organization for Standardization ("ISO"). The quality management system in our major foil resistors manufacturing site is certified against Aerospace Standard AS9100.

To maintain our cost competitiveness, we are pursuing our strategic initiatives to shift manufacturing emphasis to more advanced automation in higher-labor-cost regions and to relocate production to regions with skilled workforces and relatively lower labor costs. See additional information in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cost Management” related to our restructuring efforts.

Sources of Supplies

Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers. The principal materials used in our products include various metallic foil alloys, aluminum, stainless steel, tool steel, plastics, and for a few products, gold. Some of the most highly specialized materials for our sensors are sourced from a single vendor. We maintain a safety stock inventory of certain critical materials at our facilities. We are taking steps to determine the use, source, and origin of any tin, tantalum, tungsten, or gold in our global product portfolio and, if appropriate, would work with our suppliers to remediate issues and source more responsibly.

A significant portion of our Force Sensors and Weighing and Control Systems segment products are based on strain gages produced by our Foil Technology Products segment.

Inventory and Backlog

We manufacture both standardized products and those designed and produced to meet customer specifications. We maintain an inventory of standardized components, and monitor the backlog of outstanding orders for our products.

We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. Many of our customers for strain gages, load cells, and foil resistors encounter uncertain and changing demand for their products. They typically order products from us based on their forecasts. If the customers' business needs change, 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 at any point in time is not necessarily indicative of the results to be expected for future periods.

Customers and Marketing

Our customer base is diversified in terms of industry, geographic region, and range of product needs. No single customer comprises greater than 5% of net revenues. The vast majority of our products are used in the broad industrial market, with selected uses in the military and aerospace, medical, agricultural, steel, and construction sectors. Within the broad industrial market, our products serve a wide variety of applications in waste management, bulk hauling, logging, scales manufacturing, engineering systems, pharmaceutical, oil, chemical, steel, paper, and food industries.

Many of our products have historically been sold by dedicated sales forces, consisting mainly of FAEs focusing on specific market segments or specific customers. The FAEs help identify the products in our portfolio that best meet the needs of our customers and provide technical and applications support. Their in-depth knowledge of customer needs is a key factor in new product design and future research and development initiatives.

Competition

Our competitive success depends on our ability to maintain a competitive advantage on the basis of superior product capability and performance, product quality, know-how, proprietary data, market knowledge, service capability, and business reputation. Price competitiveness can be an important factor, especially within our Force Sensors segment. Our sales and marketing programs offer our customers a broad range of world-class precision technologies, and superior global sales and support.

Competition in the markets where we sell the bulk of our products is extremely fragmented, both geographically and by application. To our knowledge, there are no competitors with the same product mix and proprietary technology as ours. Our competitors range from very small, local companies to large, international companies with greater financial resources than us.

Our foil resistors and our foil strain gages are based on our proprietary technology. Competitors try to compete in this market using different technology to offer functionally equivalent products. Examples of competition in our Foil Technology Products segment includes TT Electronics, Susumu, Isabellenhute, Caddock and Flat Dashi for foil resistors, and HBK, an operating company of Spectris, Tokyo Sokki Kenkyujo Co., Ltd (TML), Kyowa and Zemic for foil strain gages. Competitors in our Force Sensors

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segment include HBK, Zemic, Utilcell, and Flintec. Competitors in our Weighing and Control Systems segment include Hardy Instruments and Mettler-Toledo for process weighing; ABB, Siemens, Haehne, Dalian, IMS and Fuji for steel mill systems; and Air-Weigh, Vehicle Weighing Systems, MOBA, and AMCS for onboard weighing.

Research and Development

Many of our products, manufacturing techniques, and technologies have been invented, designed, and developed by our engineers and scientists. Special proprietary resistive metal foil is the most important material in both our foil resistors and our foil strain gages, and our research and development activities related to foil materials are an important linkage between these two products.

We maintain strategically placed design centers for each of our business segments where proximity to customers enables us to more easily monitor and satisfy the needs of local markets. These design centers are located in the United States, Israel, Canada, Sweden, Japan, the United Kingdom, and Germany.

We also maintain research and development staff, and promote programs at a number of our production facilities to develop new products and new applications of existing products, and to improve manufacturing techniques. This decentralized system encourages individualized product development at specific manufacturing facilities that occasionally has applications at other facilities.

Our research and development staff and our sales force are closely linked. Our sales force is comprised of individuals with an engineering background who can help meet the needs of our customers for technical and applications support. This in-depth knowledge of customer needs and specifications is a key factor in future research and development initiatives.

Research and development will continue to play a key role in our efforts to introduce innovative products for new sales, and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base and, ultimately, our financial performance. To that end, we expect to sustain or increase our R&D expenditures in order to fill the product development pipeline and lay the foundation for future sales growth.

Patents and Licenses

We have made a significant investment in securing intellectual property protection for our technology and products. We seek to protect our technology by, among other things, filing patent applications for technology considered important to the development of our business. Although we have numerous United States and foreign patents covering certain of our products and manufacturing processes, no particular patent is considered individually material to our business. We also rely upon trade secrets, unpatented know-how, and continuing technological innovation.

Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have obtained numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents, or the likelihood that pending patents will be issued.

We require all of our technical, research and development, sales and marketing, and management employees, and most consultants and other advisors to execute confidentiality agreements upon the commencement of employment, or consulting relationships with us. These agreements provide that all confidential information developed, or made known to the entity or individual during the course of the entity’s or individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. Substantially all of our technical, research and development, sales and marketing, and management employees have entered into agreements providing for the assignment to us of rights to inventions made by them while employed by us.

Environmental, Health and Safety

We have an Environmental, Health and Safety Policy that commits us to achieve health and safety for employees and protection of the environment, to maintain compliance with applicable environmental, health and safety laws, to promote proper management of hazardous materials, and to minimize the hazardous materials generated in the course of our operations. In addition, our manufacturing operations are subject to various regional, federal, state, and local laws restricting discharge of materials into the environment. We are not involved in any pending or threatened proceedings that would require curtailment of our operations.

Employees

As of December 31, 2019, we employed approximately 2,400 total employees, substantially all of which were full-time employees. Approximately 85% of the employees were located outside the United States. Our future success is substantially dependent on our ability to attract and retain highly qualified technical and administrative personnel. Some of our employees outside the United

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States are members of trade unions. Our relationship with our employees is generally good. However, no assurance can be given that labor unrest or strikes will not occur.

Executive Officers

The following table sets forth certain information regarding our executive officers as of March 11, 2020:



Name	Age	Positions
Ziv Shoshani	53	Chief Executive Officer, President, and Director
William M. Clancy	57	Executive Vice President and Chief Financial Officer
Amir Tal	50	Senior Vice President and Chief Accounting Officer

Ziv Shoshani is our Chief Executive Officer and President, and also serves on the board of directors. Mr. Shoshani was Chief Operating Officer of Vishay Intertechnology from January 1, 2007 to November 1, 2009. During 2006, he was Deputy Chief Operating Officer of Vishay Intertechnology. Mr. Shoshani was Executive Vice President of Vishay Intertechnology from 2000 to 2009 with various areas of responsibility, including Executive Vice President of the Capacitors and the Resistors businesses, as well as heading the Measurements Group and Foil Divisions. Mr. Shoshani had been employed by Vishay Intertechnology since 1995. He continues to serve on the Vishay Intertechnology board of directors. Mr. Shoshani is a nephew of the late Dr. Felix Zandman, the founder of Vishay Intertechnology.

William M. Clancy is our Executive Vice President and Chief Financial Officer. Mr. Clancy was Corporate Controller of Vishay Intertechnology from 1993 until November 1, 2009. He became a Vice President of Vishay Intertechnology in 2001 and a Senior Vice President of Vishay Intertechnology in 2005. Mr. Clancy served as Corporate Secretary of Vishay Intertechnology from 2006 to 2009. From June 16, 2000 until May 16, 2005 (the date Vishay Intertechnology acquired the noncontrolling interest in Siliconix incorporated), Mr. Clancy served as the principal accounting officer of Siliconix. Mr. Clancy had been employed by Vishay Intertechnology since 1988. Mr. Clancy is a licensed CPA in Pennsylvania.

Amir Tal is our Senior Vice President and Chief Accounting Officer. Mr. Tal was appointed by the board of directors to such position effective February 5, 2020. He served as the Company’s Senior Vice President, Finance from March 2017 until February 2020. From July 2010 to February 2017, Mr. Tal served as the Company’s Vice President Operational Controller and Regional Controller Israel. Mr. Tal holds a bachelor’s degree in economics and business administration from the University of Haifa and an MBA from Bar Ilan University.

Company Information and Website

We began filing annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 after our spin-off from Vishay Intertechnology on July 6, 2010. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.

In addition, our company website can be found on the Internet at www.vpgsensors.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. To view the reports, access http://ir.vpgsensors.com and click on “SEC Filings”/ “Documents.”

The following corporate governance related documents are also available on our website:


•	Compensation Committee Charter


•	Nominating and Corporate Governance Committee Charter


•	Audit Committee Charter


•	Code of Business Conduct and Ethics


•	Code of Ethics Applicable to the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer or Controller


•	Corporate Governance Principles

To view these documents, access http://ir.vpgsensors.com and click on “Corporate Governance.”

To view our Ethics Program Reporting Procedures, access http:/www.vpgsensors.com/company and click on “Ethics.”

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We are not incorporating by reference into this Annual Report on Form 10-K any material from our website.

Any of the above documents can also be obtained in print by any stockholder, upon request to our Investor Relations Department at the following address:

Corporate Investor Relations

Vishay Precision Group, Inc.

3 Great Valley Parkway, Suite 150

Malvern, PA 19355

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Item 1A. RISK FACTORS

You should carefully consider the following risks and other information in this Form 10-K in evaluating our company and common stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our business, results of operations or financial condition, and could also adversely affect the trading price of our common stock.

Risks Related to Our Business

We face intense competition in our business.

We face various degrees and types of competition throughout the world in our different businesses. In some cases our products compete directly with those of third party competitors. In other cases, competition in one segment, such as in our Weighing and Control Systems segment, may affect not only the sales of our systems within that segment, but also sales of products that we incorporate in those systems from other segments, such as load cells and strain gages.

We are a leading supplier of foil resistors and foil strain gages. Foil resistors and foil strain gages are also produced by competitors, principally located in China. We believe that our foil technology products provide superior performance relative to our competitors, but that could change if our competitors succeed in developing and introducing innovative competitive offerings. Also, our foil strain gages compete with other types of strain gages, such as semiconductor strain gages, which we do not manufacture. We believe that other types of strain gages are not as reliable or stable as our foil strain gages, but that could change as the technology for these other products continues to evolve. If our competitors are able to improve the quality, performance, or pricing of their products relative to our offerings, our results of operations could be adversely affected.

The market for transducer/load cell products is highly fragmented and very competitive. Our load cell modules and systems face competition from numerous other load cell module and systems manufacturers. Competition for modules and systems is most often based on customer relationships, product reliability, technical performance, and the ability to anticipate and satisfy customer needs for specific design configurations. Many other manufacturers have more experience in particular geographic markets and specific applications than we do, and may be better positioned to compete in these areas. We cannot assure you that we will be able to successfully grow our business in the face of these competitive challenges.

Our vertical product integration exposes us to certain risks.

Our business structure emphasizes vertical product integration. For example our force sensor business is significant customer (by volume) for our strain gages. While we believe this has been, and will continue to be, a sound business structure, vertical product integration and the resulting interdependencies of our divisions exposes us to certain risks. As a consequence of our vertical integration, our force sensors business may compete with certain of our customers and potential customers for strain gages while our systems business may compete with certain of our customers and potential customers for force sensors, who, for that reason, may elect not to do business with us.

To remain successful, we must continue to innovate, and our investments in new technologies may not prove successful.

Our future operating results depend on our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change, and to customize certain products to meet customer requirements. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change, that customers may be unwilling, or unable, to adopt the new products or methods of using them, that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands, or that such products will experience quality or other qualification issues with our customers as they, and we, gain experience with qualifying them and using them. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of operations.

We may not be successful in future acquisitions or other strategic transaction endeavors, if any, which could have an adverse effect on our business and results of operations.

Historically, we expanded our business in part by completing acquisitions, and an important element of our business strategy continues to be expansion through acquisition. We cannot assure that we will identify, have the financial capabilities to execute, and/or successfully complete strategic transactions with suitable partners in the future. We also cannot assure that any such transactions that we do complete in the future will be successful.

Such transactions, including our recent acquisition of DSI, involve a number of risks, including the following:


•	we may incur substantial costs, including advisory fees and diversion of management attention, in evaluating a potential transaction;


•	we may be unable to achieve the anticipated benefits from the transaction;

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•	we may have difficulty integrating the operations, personnel and culture of an acquired business, and may have difficulty retaining the key personnel of the acquired business;


•	we may have difficulty enforcing restrictive covenants against the seller of the acquired business or former employees or other personnel of the acquired business;


•	we may have difficulty incorporating acquired technologies or products into our existing solutions;


•	our ongoing business and management's attention may be disrupted or diverted by transition or integration issues, and the complexity of managing geographically and culturally diverse locations; and


•	we may lose customers of those companies, or may lose our customers due to the change in control or for other reasons.

The factors noted above could have a material adverse effect on our business, results of operations, and financial condition or cash flows, particularly in the case of a larger acquisition. From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management time, as well as out-of-pocket costs.

Future acquisitions may require us to incur or issue additional indebtedness or issue additional equity.

If we were to undertake future substantial acquisitions for cash, these acquisitions would likely need to be financed in part through bank borrowings, or the issuance of public or private debt. This acquisition financing would likely decrease our ratio of earnings to fixed charges and adversely affect other credit metrics. Our revolving credit facilities require us to obtain the lenders’ consent for certain additional debt financing and to comply with other covenants, including the application of specific financial ratios. We cannot assure that the necessary acquisition financing would be available to us on acceptable terms, if and when, required. If we were to make an acquisition with equity, the acquisition may have a dilutive effect on the interests of the holders of our common stock.

We may experience difficulties, delays, or unexpected costs in completing our cost reduction programs.

To remain competitive, particularly when business conditions are difficult, we sometimes take steps to reduce our cost structure by restructuring our existing businesses to achieve efficiencies, eliminate redundant functions, facilities and staff positions, and move operations, where possible, to reduce labor or other costs.

We may not realize, in full or in part, the anticipated benefits of these programs without encountering difficulties, which may include complications in the transfer of production knowledge, loss of key employees and/or customers, and the disruption of ongoing business. Any of these difficulties could delay and/or undermine our ability to realize the benefits of these cost reduction programs, as well as potentially adversely affecting our customer relationships and operations.

Our business is cyclical, and in periods of increased economic strength, we may experience intense demand for our products. If our cost reduction programs and related restructuring result in us not being able to satisfy our customer’s demand for products during a rising economy, and our competitors sufficiently expand production, we could lose customers and/or market share. These losses could have an adverse effect on our operations, financial condition, and results of operations.

We might require additional capital to support business growth and this capital might not be available.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to develop new offerings or enhance our existing offerings, enhance our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

We may encounter difficulties in the implementation or operation of new enterprise resource planning systems.

We have implemented, and continue to implement, new enterprise resource planning (“ERP”) systems in different parts of our business. ERP systems are integral to our ability to accurately and efficiently manage our manufacturing and sales activities, and provide critical business information to management. The implementation of an ERP system may cause us to incur additional costs, shipment delays, and related customer dissatisfaction; expend employee (including Company management) time and attention; and otherwise burden our internal resources. Any difficulties we encounter with the implementation or successful operation of an ERP system could damage the effectiveness of our business processes and could adversely impact our ability to accurately and effectively forecast and manage sales demand, manage our supply chain, and report management information on an accurate and timely basis, any of which could have a material adverse effect on our business and results of operations.

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Our success is dependent upon our ability to protect our proprietary technology and other intellectual property.

We rely on a combination of the protections provided by applicable patent, trademark, copyright, and trade secret laws, as well as on confidentiality procedures and other contractual arrangements, to establish and protect our rights in our technology, and related materials and information. We enter into agreements with our customers and distributors. These agreements contain confidentiality and non-disclosure provisions, a limited warranty covering our products, and indemnification for the customer from infringement actions related to our products.

Despite our efforts, it may be possible for others to copy portions of our products, reverse engineer them, or obtain and use information that we regard as proprietary, all of which could adversely affect our competitive position. Furthermore, there can be no assurance that our competitors will not independently develop technology similar to ours. The laws of certain countries in which we manufacture do not protect our intellectual property ("IP") rights to the same extent as the laws of the United States. In the Office of the United States Trade Representative (“USTR”) annual "Special 301" Report released in April 2018, the adequacy and effectiveness of intellectual property protection in a number of foreign countries were analyzed.

A number of countries in which we manufacture are identified in the report as being on the Priority Watch List. In China, for instance, the USTR is concerned about the urgent need to remediate a range of IP-related concerns, including trade secret theft, online piracy and counterfeiting, the high-volume manufacture and export of counterfeit goods, technology transfer requirements imposed as a condition to access the Chinese market, the mandatory application of adverse terms to foreign IP licensors, and IP ownership and research and development localization requirements. Structural impediments to administrative, civil, and criminal IP enforcement are also problematic. The USTR also expressed concern that in India there is a lack of sufficient measurable improvements to its IP framework on long standing and new challenges that have negatively affected U.S. right holders over the past year. Other countries in which we do business were also identified because of problems in intellectual property enforcement. The absence of harmonized intellectual property protection laws and effective enforcement makes it difficult to ensure consistent respect for patent, trade secret, and other intellectual property rights on a worldwide basis. As a result, it is possible that we will not be able to enforce our rights against third parties that misappropriate our proprietary technology in those countries.

The success of our business is highly dependent on maintenance of intellectual property rights.

The unauthorized use of our IP rights may increase the cost of protecting these rights or reduce our revenues. We seek to protect trade secrets and our other proprietary technology, in part, by requiring each of our employees to enter into non-disclosure and IP assignment agreements. In these agreements, the employee agrees to maintain the confidentiality of all of our proprietary information and, subject to certain exceptions, to assign to us all rights in any proprietary information or technology made, or contributed, by the employee during his or her employment. Generally, we do not enter into non-compete arrangements with our employees, with the exception of certain executives and, in some cases, one or more of the principals of the businesses that we acquire.

All of these types of agreements may be breached or be found unenforceable, and we may not have an adequate remedy for any such breach of, or inability to enforce, these agreements. We may initiate, or be subject to, claims or litigation for infringement of proprietary rights, or to establish the validity of our proprietary rights, which could result in significant expense to us, cause product shipment delays, require us to enter royalty or licensing agreements, and divert the efforts of our technical and management personnel from productive tasks, whether or not such litigation were determined in our favor.

We may be exposed to product liability claims.

While our agreements with our customers and distributors typically contain provisions designed to limit our exposure to potential material product liability claims, including appropriate warranty, indemnification, damages waiver, and limitation of liability provisions, it is possible that such provisions may not be effective under the laws of some jurisdictions, thus exposing us to substantial liability. Moreover, defending a suit, regardless of its merits, could entail substantial expense, and require the time and attention of key management personnel. If product liability claims are brought against us, the costs associated with defending such claims may adversely affect our results of operations and future cash flows.

We must expend significant resources to obtain design wins without assurance that we will be successful.

In many cases, we must initiate communication with our customers, and convince the customer that our products and systems will offer solutions for its business that are technically superior and more cost effective compared to their existing arrangements. To do so, we must often expend significant financial and human resources to develop technologically compelling products or systems with no guarantee that they will be adopted by our customers. The non-recurring engineering (“NRE”) costs for product development in these cases could be substantial, and may adversely affect our profitability if we are unable to recover these costs.

Also, customers will often require a lengthy period of on-site testing before committing to purchase a product or system, during which period we will not receive material revenue from the customer. While a design win for our products and systems may result in a long period of recurring revenue during which we hope to recover our costs, we must often internally finance our development

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costs over significant time periods. If our products or systems fail to gain acceptance with our customers, we will be forced to absorb any NRE costs, which could adversely affect our business if these costs are substantial.

The long development times for certain of our products and systems may result in unpredictable fluctuations in revenue and results of operations.

Our force sensor products, and weighing and control systems, often have long product development cycles, both to develop the product or system and to secure customer acceptance following what may be a lengthy on-site testing period. During product development and testing, we may incur substantial costs without corresponding revenues. If our custom product or system is ultimately accepted by the customer, we may then begin to realize substantial revenues from our development efforts.

In particular, our weighing and control systems can be priced for several hundred thousand dollars per unit, so that a contract to acquire one or more units can materially contribute to our revenues during the period or periods that we are permitted to recognize the contract revenues for accounting purposes. The nature of our weighing and control products and systems, and in particular, the products and systems manufactured by the steel business, may therefore result in substantial fluctuations in our operating results, including revenues and profitability, from period to period, even though there has been no fundamental change in our business or its prospects. Further, customers may request a delay in shipping a product they have ordered due to changes in their business needs, which may delay the revenue recognition for the product until shipment occurs. This may make it difficult for investors to undertake period-to-period comparisons of our performance. Also, the fluctuating nature of key components of our revenues may limit the visibility of our management regarding performance in future periods, and make it more difficult for our management to provide guidance to our investors.

We may not have adequate facilities to satisfy future increases in demand for our products.

Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. During such periods, we may have difficulty expanding our manufacturing capacity to satisfy demand. Factors which could limit such expansion include delays in procurement of manufacturing equipment, shortages of skilled personnel, and physical constraints on expansion at our facilities. If we are unable to meet our customers’ requirements and our competitors sufficiently expand production, we could lose customers and/or market share. These losses could have an adverse effect on our financial condition and results of operations. Also, capacity that we add during upturns in the business cycle may result in excess capacity during periods when demand for our products recedes, resulting in inefficient use of capital, adversely affecting our business.

The nature of the market for our products may render them particularly susceptible to downturns in the economic environment.

Our products are designed to replace and provide superior functionality over existing product infrastructure utilized by our customers. Often, it is only after introductory demonstrations by our sales and engineering teams that our customers come to appreciate the advantages of our products and systems, and the long-term benefits of their adoption. An economic downturn or extended period of economic uncertainty may make customers less receptive to adopting new technological solutions at our suggestion - even ones with demonstrated operational and financial advantages. During these periods, customers may defer, or even cancel, orders for products and systems for which they have previously contracted, or given indications of interest.

Also, because our business is concentrated largely in the industrial sector, we do not benefit from countervailing fluctuations in consumer demand. As a result, our business may be more significantly affected by the consequences of a general economic slowdown than other segments of our industry, and may also take longer to recover from the effects of a slowdown.

Our backlog is subject to customer cancellation.

Many of the orders that comprise our backlog may be canceled by our customers without penalty. Our customers, particularly for our foil technology products, often cancel orders when business is weak and inventories are excessive, a situation that we have previously experienced during periods of economic slowdown. Therefore, we cannot be certain that the amount of our backlog accurately forecasts the level of orders that will ultimately be delivered. Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog.

The complexity of our sophisticated weighing and control systems may require costly corrections if design flaws are found.

Our weighing and control systems combine sophisticated electronic hardware and computer software. We believe that the sophistication of our systems contributes to their competitive advantage over similar products offered by other system integrators. We go to substantial lengths to assure that our systems are free of design flaws when they are delivered to our customers for installation and testing. However, due to the systems’ complexity, design flaws may occur and require correction. If the requisite corrections are substantial, or difficult to implement due to the systems’ complexity, we may not be able to recover the costs of correction and retesting, with the result that our profit margins on these systems could be substantially reduced, or even negated by losses, and our results of operations could be materially and adversely affected.

Our results are sensitive to raw material availability, quality, and cost.

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Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers. We generally maintain a supply of strategic raw materials for continuity and risk management. Our customers would need significant advance notification to qualify alternative materials, if we had to use them. Alternative suppliers are available worldwide for most of our raw materials, but significant time (up to 12 months) would be required to qualify new suppliers and establish efficient production scheduling.

Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility.

Our results of operations may be materially and adversely affected if we have difficulty obtaining certain raw materials, if the quality of available raw materials deteriorates, if there are significant price changes for these raw materials, or if compliance with the laws and regulations described below proves costly and time-consuming. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.

Pursuant to the SEC’s “conflict minerals” rules, reporting companies that determine that certain metals, dubbed “conflict minerals” by the SEC (which include tantalum, gold, tin, and tungsten sourced from the Democratic Republic of the Congo or adjoining countries), are necessary to the functionality or production of a product they manufacture, or contract to have manufactured, must file a specialized disclosure form with the SEC. We use raw materials that are subject to conflict minerals rules. The compliance with the SEC's related disclosure requirements may affect the sourcing and availability of minerals used in the manufacture of our products. Also, because our supply chain is complex, we may face reputational challenges with our customers and other stakeholders if we are unable to materially verify the origins of all "in scope" metals used in our products.

Our product sales may be adversely affected by changes in product classification levels under various qualification and specification standards.

Certain of our products must be qualified or approved under various military and aerospace specifications and other standards. We have qualified certain of our foil resistor products under various military specifications approved and monitored by the DLA, and under certain European military specifications, and various aerospace standards approved by NASA and the ESA. Qualification and specification levels are based in part upon product failure rate. We must continuously perform tests on our products, and for products that are qualified, the results of these tests must be reported to the qualifying organization. Certain of our force sensor products are approved by the NTEP and OIML. Our on-board weighing systems must meet approved standards to make them legal-for-trade. If a product fails to meet the requirements for the applicable classification level or other approval, the product’s classification or approval may be suspended or reduced to a lower level. During the time that the classification is suspended or reduced to a lower level, net revenues and earnings attributable to that product may be adversely affected.

Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing, finance, and administrative personnel.

The competitive environment of our business requires us to attract and retain highly qualified personnel to develop technological innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified administrative personnel in functions such as legal, tax, accounting, business development, financial reporting, and treasury. The market for personnel with such qualifications is highly competitive. We have not entered into employment or non-competition agreements with many of our key personnel.

The loss of the services of, or the failure to effectively recruit, qualified personnel, including for key executive positions, could have a material adverse effect on our business.

Failure to maintain effective internal control over financial reporting could adversely affect our ability to meet our reporting requirements.

Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial reports, and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our operating results could be harmed. In the past, we experienced a material weakness in our internal control over financial reporting related to deficiencies in our internal control structure arising out of our significant change in size, complexity and structure due to multiple restructurings and acquisitions. We have since remediated the material weakness through updates to our control activities documentation and process in numerous locations and improved processes related to monitoring of the design and effectiveness of internal controls. If we fail to maintain the effectiveness of our internal control over financial

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reporting, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our stock price.

We are exposed to, and may be adversely affected by, interruptions to our computer and information technology systems and sophisticated cyber-attacks.

We rely on our information technology systems and networks in connection with many of our business activities. Some of these networks and systems are managed by third party service providers and are not under our direct control. Our operations routinely involve receiving, storing, processing, and transmitting sensitive information pertaining to our business, customers, suppliers, employees, and other sensitive matters. Any cyber incidents could materially disrupt operational systems; result in loss of trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information regarding customers or employees; and jeopardize the security of our facilities. Because techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques, or to implement adequate preventative measures. Information technology security threats, including security breaches, computer malware, and other cyber-attacks are increasing in both frequency and sophistication, and could create financial liability, subject us to legal or regulatory sanctions, or damage our reputation with customers, suppliers, and other stakeholders. We continuously seek to maintain a robust program of information security and controls, but the impact of a material information technology event could have a material adverse effect on our competitive position, reputation, results of operations, financial condition, and cash flows.

Interruptions in our information technology systems could adversely affect our business.

We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. Any significant system or network disruption, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues or energy blackouts could have a material adverse impact on our operations and results of operations. Such network disruption could result in a loss of the confidentiality of our intellectual property or the release of sensitive competitive information or customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. We have implemented protective measures to prevent against and limit the effects of system or network disruptions, but there can be no assurance that such measures will be sufficient to prevent or limit the damage from any future disruptions and any such disruption could have a material adverse impact on our business and results of operations.

Third-party service providers, such as subcontractors, distributors and vendors have access to certain portions of our sensitive data. In the event that these service providers do not properly safeguard our data that they hold, security breaches and loss of our data could result. Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.

Future changes in our environmental liability and compliance obligations may harm our ability to operate or increase costs.

Our manufacturing operations, products and/or packaging are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal, and remediation of hazardous substances, wastes, and certain chemicals used or generated in our manufacturing processes, workplace health and safety labeling, or other notifications with respect to the content, or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or packaging, and responsibility for disposal of products or packaging. New liabilities could arise, and we may have unavoidably inherited certain pre-existing environmental liabilities, generally based on successor liability doctrines. Although we have never been involved in any environmental matter that has had a material adverse impact on our overall operations, there can be no assurance that in connection with any past or future operation, acquisition or otherwise, we will not be obligated to address environmental matters that could have a material adverse impact on our operations. In addition, more stringent environmental regulations may be enacted in the future, and we cannot presently determine the modifications, if any, in our operations that any such future regulations might require, or the cost of compliance with these regulations.

Our credit facilities subject us to financial and operating restrictions.

We maintain revolving credit agreements and term loans with banks that we use, or may use, for working capital, acquisition financing, and other purposes. These credit facilities subject us to certain restrictions which may affect, and in some cases significantly limit or prohibit, among other things, our ability to:


•	borrow additional funds;


•	pay dividends or make other distributions;


•	repurchase our common stock;

- 17 -


•	make investments, including capital expenditures;


•	complete acquisitions;


•	engage in transactions with affiliates or subsidiaries; or


•	create liens on our assets.

Our primary credit facility requires us to maintain certain financial ratios. If we fail to comply with the covenant restrictions contained in the credit facility, that failure could result in termination of the facility, and all amounts outstanding could become immediately payable.

Unexpected events, such as a natural disaster, could disrupt our operations and adversely affect our results of operations.

We have manufacturing and other facilities in countries around the world. Unexpected events, including fires or explosions at facilities; natural disasters, such as flooding, hurricanes, and earthquakes; war or terrorist activities; civil unrest; unplanned outages; supply or labor disruptions; and failures of equipment or systems at any of our facilities could adversely affect our results of operation. If adverse conditions were to arise with respect to any of our facilities as a result of a natural disaster or other unexpected event, they may result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key operating facilities, the temporary disruptions of information systems, and/or an adverse effect on our results of operations.

A significant portion of our cash and cash equivalents and short-term investments balances were held by our non-U.S. subsidiaries.

We generate a significant amount of cash and profits from our non-U.S. subsidiaries. As of December 31, 2019, $80.5 million of our cash and cash equivalents and short-term investments were held by subsidiaries outside of the United States.

The Tax Cuts and Jobs Act (“2017 Tax Act”), enacted on December 22, 2017, transitioned the U.S. from a worldwide tax system to a modified territorial tax system. Under previous law, companies could indefinitely defer U.S. income taxation on unremitted foreign earnings. The 2017 Tax Act imposes a one-time transition tax on deferred foreign earnings of 15.5% for liquid assets and 8% for illiquid assets, payable in defined increments over eight years. In 2017, we provided a provisional amount of $0.2 million. After finalizing the amount of earnings and profits subject to the transition tax and our foreign tax credit calculation in 2018, we determined the final current portion of transition tax to be immaterial. We did not need to repatriate amounts from our non-U.S. subsidiaries to the United States to satisfy this tax obligation.

These previously deferred foreign earnings may now be repatriated to the United States with little to no additional U.S. federal taxation. However, any such repatriation could incur local withholding tax in the source and intervening foreign jurisdictions. These amounts could also be subject to certain U.S. state taxes.

Changes in our tax rate or exposure to additional income tax liabilities could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.

We are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate can be affected by changes in the mix of earnings in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities, the results of audits and examinations of previously filed tax returns, and changes in tax laws.

Any of these factors may adversely affect our tax rate and decrease our profitability. The amount of income taxes we pay is subject to audit by U.S. federal, state, local, and foreign tax authorities. If these tax audits result in assessments, our future results may be unfavorably impacted.

As a global business, we have a complex tax structure, and there is a risk that the tax authorities will disagree with our transfer pricing.

We are subject to complex transfer pricing regulations in the U.S. and foreign countries in which we operate. Transfer pricing regulations generally require that transactions between related companies be determined comparable to transactions on an arm’s length basis and that contemporaneous documentation be maintained to support the pricing used. Although transfer pricing standards are generally similar in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity in complying with these requirements. This topic has received additional scrutiny in recent years, including the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. To the extent that any tax authority disagrees with our transfer pricing practices, we could incur significant costs to defend our position and could be subject to significant additional tax liabilities, interest, and penalties.

We may not be able to realize our deferred tax assets which would adversely impact tax expense in future periods.

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We regularly assess the ability to realize deferred tax assets in each jurisdiction in which we operate based on a number of factors, including historic operating results, estimates of future earnings, the economic environment, the nature and character of the income, and the existence of cost effective tax planning strategies. This assessment requires significant judgment. If we determine that deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to a level that is expected to be realized. If we subsequently determine that realization becomes "more likely than not", a valuation allowance will be reversed. Any increase or decrease in our valuation allowances could have a significant impact on our financial results.

We use the mark Vishay under license from Vishay Intertechnology, which could result in product and market confusion.

We use the mark Vishay as part of our name and in connection with many of our products. Our use of the Vishay mark is governed by an agreement between us and Vishay Intertechnology, giving us a perpetual, royalty-free, worldwide license for the use of the mark. We believe that it is important that we continue the use of the Vishay name, to a certain extent, in order to benefit from the reputation of the Vishay brand, which was first used in connection with our foil resistors and strain gages when Vishay Intertechnology was founded over 50 years ago.

There are risks associated with our use of the Vishay mark, however, both for us and for Vishay Intertechnology. Because both we, and Vishay Intertechnology, use the Vishay mark, confusion could arise in the market regarding the products offered by the two companies, and there could be a misplaced perception of our continuing to be associated with Vishay Intertechnology. Also, any negative publicity associated with one of the two companies in the future could adversely affect the public image of the other. Finally, Vishay Intertechnology will have the right to terminate the license agreement, in certain extreme circumstances, if we are in material and repeated breach of the terms of the agreement, which would likely have an adverse effect on us and our business.

Risks relating to our operations outside the United States

We attempt to improve profitability by operating in countries in which manufacturing efficiencies may be achieved, but the shift of operations to these regions may entail considerable expense.

Our strategy is aimed at achieving significant production cost savings through the transfer and expansion of manufacturing operations to and in countries in which we have existing capacity, as well as countries with lower production costs or other benefits, such as India. During this process, we may experience under-utilization of certain plants and factories in higher-cost regions, and capacity constraints in plants and factories located in lower-cost regions. Also, we may experience delays in the expected transition from a higher-cost location to a lower-cost one that results in greater than expected use of the higher-cost facility. This transitional utilization may result initially in production inefficiencies and higher costs. These costs include those associated with compensation in connection with workforce reductions and plant closings in the higher-cost regions, start-up expenses, manufacturing and construction delays, and increased depreciation costs in connection with the initiation or expansion of production in lower-cost regions. In addition, as we implement transfers of certain of our operations, we may experience strikes or other types of labor unrest as a result of layoffs or termination of our employees in higher-cost countries.

In connection with the transfer of manufacturing operations to lower-cost countries, and upgrading of existing facilities in higher-cost countries, we are also increasing the level of automation in our plants to optimize our capital and labor resources in production, inventory management, quality control, and warehousing. Although we have substantial experience with automation in several of our plants in higher-cost countries, there are risks in automating plants which previously did not use a significant amount of automation, including the possibility of inefficiencies and higher operating costs in the transition from manual to automated operations. If the transition extends longer than anticipated, we could suffer product yield inefficiencies, contributing to higher product costs and increasing the time it will take for us to achieve a return on our investment in the capital equipment involved in the automation process. Furthermore, any layoffs or termination of our employees as a result of increased automation may lead to strikes or other types of labor unrest. If we experience these types of inefficiencies, they could have an adverse effect on our operating results, customer relationships, and financial condition.

We conduct a significant amount of business in the European Union, including in England, and our operations may be affected by the departure of the United Kingdom from the European Union.

On June 23, 2016, the citizens of the United Kingdom approved a referendum to leave the European Union (“Brexit”), which led to significant market volatility around the world, as well as political, economic and legal uncertainty. In addition, the Brexit vote triggered a devaluing of the pound sterling relative to the euro and the U.S. dollar, and in Europe we generally sell our products and incur expense in local currencies including the pound sterling and the euro, but incur exchange rate gains and losses for U.S. dollar denominated assets and liabilities including intercompany and third-party accounts receivables and payables. This exposure to movements in foreign currency exchange rates relative to some of these U.S. dollar denominated balances may result in an adverse impact on our results of operations.

The long-term nature of the United Kingdom’s relationship with the European Union is unclear and there is considerable uncertainty when any relationship will be agreed and established. Withdrawal from the European Union is controversial in the United Kingdom

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notwithstanding the 2016 vote.In January 2020, the United Kingdom and the European Union approved of an agreement between the United Kingdom and the European Union, and the United Kingdom officially departed from the European Union. On February 1, 2020, the United Kingdom entered into a transition and implementation period, during which all European Union laws regulations, court decisions, trading agreements and other obligations continue to apply to the United Kingdom. During this period, which is set to expire on December 31, 2020, the United Kingdom and the European Union will negotiate additional terms. At this stage, it is uncertain what the final results of these negotiations will be and, given the lack of comparable precedent, it is unclear how Brexit, will affect economic conditions in the United Kingdom, the European Union, or globally. Because we have sales throughout the European Union and offices in England and throughout the European Union, it is possible that Brexit may require us to restructure our European operations, and depending on what is negotiated, could impair our ability to transact business in other countries in the European Union.

Significant developments from the recent and potential changes in tariffs, trade regulation or other restrictions may adversely impact our business, financial condition and results of operations.

We have manufacturing operations in China, Europe, Canada, Israel and the United States, as well as in other countries. Significant tariffs or other restrictions which are placed on Chinese, European, Canadian or Israeli imports to the United States, or any related counter-measures which are taken by the countries involved, may materially harm our revenues and results of operations. Examples of recent actions are Section 232 tariffs on steel and aluminum product imports announced by the U.S. Department of Commerce in March 2018, and Section 301 tariffs on certain products that originate in China announced by the United States Trade Representative that first started in June 2018 and now are in four separate lists with varying tariff increases.

Despite recent progress on the first-phase of an agreement with China, the current U.S. administration continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China. We are implementing operational changes that we intend to mitigate these recent tariff increase actions.

These new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental actions related to tariffs, quotas, duties, taxes or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, and our suppliers, which in turn could adversely impact our business, financial condition and results of operations.

We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which we operate.

Some of our products are produced in Israel, India, China, and other countries which are particularly subject to risks of political, economic, health (including the COVID-19 "coronavirus")and military instability. This instability could result in wars, riots, nationalization of industry, currency fluctuations, and labor unrest or unavailability. These conditions could have an adverse impact on our ability to manufacture, ship and operate in these regions and, depending on the extent and severity of these conditions, could result in a reduction in customer orders and sales to certain regions and end-markets and materially and adversely affect our overall financial condition and operating results.

We have principal manufacturing facilities and operations located in Israel. Accordingly, our business will be directly influenced by the political, economic and military conditions affecting Israel at any given time. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries. We have never experienced any material interruption in our operations attributable to these factors, in spite of several Middle East crises, including wars. A change in the security and political situation in Israel and in the economy could have a material adverse effect on our business, operating results and financial condition.

We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and/or business.

Our business could be adversely impacted by the effects of the COVID-19 “coronavirus” outbreak originating in China, or by other health epidemics or pandemics. We currently rely on our Chinese facility to manufacture load cells. Accordingly, there is a risk that supplies of our product and services may be significantly delayed by or may become unavailable as a result of COVID-19 or other health epidemic. Although currently there has been no material impact on our operations and we have mitigation plans in place, there can be no assurance that operations would not be negatively impacted in the future. Such impacts might include disruptions in our ability to manufacture products and disruptions in the operations of our business, resulting in negative impacts on our financial condition and results of operations.

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Operational difficulties, including those associated with a planned new facility in Israel, could adversely impact our business.

We have entered into a long term lease for property in Israel on which a new approximately 121,400 square foot facility will be constructed. We intend to consolidate certain of our operations in Israel in this facility, including expanding the capability of our advance sensors product line. Any delay in constructing and opening this new facility and in consolidating our operations could adversely affect our future business and results of operations. We cannot guarantee that this facility will be completed in a timely manner or that the consolidation of operations in Israel will be completed successfully.

We are subject to foreign currency exchange rate risks which may impact our results of operations.

We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries.

Our significant foreign subsidiaries are located in the United Kingdom, Canada, Germany, Israel, Japan, and India. Our operations in Europe, Canada and certain locations in Asia primarily generate and expend cash in local currencies. Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency exchange rate risk is more pronounced in situations such as our operations in Canada, India, Israel, and China - where costs, such as production labor costs are predominantly paid in local currencies while the sales revenue for those products is predominantly denominated in U.S. dollars.

As of December 31, 2019, we did not have in place any arrangements to mitigate or hedge against exposures relating to fluctuations in foreign currency exchange rate.

A change in the mix of the currencies in which we transact our business could have a material effect on results of operations. Furthermore, the timing of cash receipts and disbursements could have a material effect on our results of operations, particularly if there are significant changes in exchange rates in a short period of time.

Our global operations are subject to extensive anti-corruption laws and other regulations.

The U.S. Foreign Corrupt Practices and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of such violations under other regulations relating to limitations on or licenses required for sales made to customers located in certain countries. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in a material adverse effect on our reputation, business and results of operations or financial condition.

Risks Relating to Our Common Stock

Our stock price could become more volatile and investments could lose value.

The market price of our common stock, and the number of shares traded each day, has experienced significant fluctuations and may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including, but not limited to:


•	shortfalls in our expected net revenue, earnings or key performance metrics;


•	changes in recommendations or estimates by securities analysts;


•	the announcement of new products by us or our competitors;


•	quarterly variations in our or our competitors’ results of operations;


•	a change in our dividend or stock repurchase activities;


•	developments in our industry or changes in the market for technology stocks;


•	changes in rules or regulations applicable to our business; and


•	other factors, including economic instability and changes in political or market conditions.

A significant drop in our stock price could expose us to costly and time consuming litigation, which could result in substantial costs, and divert management’s attention and resources, resulting in an adverse effect on our business.

Also, given our market capitalization and trading volume fluctuations, it is possible that there will be less market and institutional interest in our shares, and that we will not attract substantial coverage in the analyst community. As a result, the trading market for our shares may be less liquid, making it more difficult for investors to dispose of their shares at favorable prices, and investors may have less independent information and analysis available to them concerning our company.

The holders of Class B convertible common stock have effective voting control of our company.

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We have two classes of common stock: common stock and Class B convertible common stock. The holders of common stock are entitled to one vote for each share held, while the holders of Class B convertible common stock are entitled to 10 votes for each share held. The ownership of Class B convertible common stock is highly concentrated, and holders of Class B convertible common stock effectively can cause the election of directors and the approval/or disapproval of other matters requiring stockholder approval. Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of, the voting of approximately 76.9% of our Class B convertible common stock, representing 34.6% of the total voting power of our capital stock as of December 31, 2019.

Your percentage ownership of our common stock may be diluted in the future.

Your percentage ownership of our common stock may be diluted in the future because of equity awards that we expect will be granted to our directors, officers, and employees. The Vishay Precision Group, Inc. 2010 Stock Incentive Program provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, and other equity-based awards to our directors, officers, and other employees, advisors and consultants.

Certain provisions of our certificate of incorporation and bylaws may reduce the likelihood of any unsolicited acquisition proposal or potential change of control that you might consider favorable.

Our bylaws contain provisions that could be considered “anti-takeover” provisions because they make it harder for a third party to acquire us without the consent of our incumbent board of directors. Under these by-law provisions:


•	stockholders may not change the size of the board of directors or, except in limited circumstances, fill vacancies on the board of directors;


•	stockholders may not call special meetings of stockholders;


•	stockholders must comply with advance notice provisions for nominating directors or presenting other proposals at stockholder meetings; and


•	our Board of Directors, may without stockholder approval, issue preferred shares and determine their rights and terms, including voting rights, or adopt a stockholder rights plan.

These provisions could have the effect of discouraging an unsolicited acquisition proposal or delaying, deferring, or preventing a change of control transaction that might involve a premium price or otherwise be considered favorable by our stockholders.

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Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

Our business has approximately 19 principal locations. Our facilities include owned locations and locations leased from third parties. The principal locations, along with available space including administrative offices, are listed below:



	Reporting segment	Approx. Available Space (square feet)
Owned Locations
Wendell, North Carolina USA	Foil Technology Products	147,000
Chennai, India^(a)	Force Sensors	129,000
Holon, Israel	Foil Technology Products	97,000
Bradford, United Kingdom	Weighing and Control Systems	75,000
Kent, Washington	Weighing and Control Systems	47,000
Akita, Japan ^(b)	Foil Technology Products	46,000
Poestenkill, New York	Weighing and Control Systems	32,000
Chartres, France	Force Sensors	11,000
Basingstoke, United Kingdom	Force Sensors/Foil Technology Products	11,000

Third-Party Leased Locations
Toronto, Canada	Weighing and Control Systems	65,000
Tianjin, People’s Republic of China	Force Sensors	34,000
Karmiel, Israel	Force Sensors	26,000
Omer, Israel	Foil Technology Products	24,000
Holon, Israel	Foil Technology Products	18,000
Concord, California USA	Foil Technology Products	16,000
Taipei, Republic of China (Taiwan)	Force Sensors/Weighing and Control Systems	13,000
Teltow, Germany	Foil Technology Products	11,000
Degerfors, Sweden	Weighing and Control Systems	10,000
Malvern, Pennsylvania USA	Corporate	8,000


(a)	The Chennai building is owned and the land is held under a 99 year lease (which began in 2012).


(b)	A facility on the campus is leased to Vishay Intertechnology. Approximate available space reported above excludes the area leased.

In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing leases as they expire, or in finding alternative facilities.

On February 17, 2019, one of our indirect wholly-owned subsidiaries entered into a lease agreement as tenant related to a property in Israel. Such lease agreement provides that we will lease a new building containing approximately 121,400 square feet that will be built by the landlord.

Our corporate headquarters are located at 3 Great Valley Parkway, Suite 150, Malvern, PA 19355.

Item 3. LEGAL PROCEEDINGS

We are subject to various legal proceedings that constitute ordinary, routine litigation incidental to our business. In our opinion, the disposition of these proceedings will not have a material adverse effect on our business or our financial condition, results of operations, and cash flows.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the symbol VPG. The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible common stock if it grants such dividends or distributions in the same amount, per share, with respect to the other class of stock. Stock dividends or distributions, on any class of stock, are payable only in shares of stock of that class. Shares of either common stock or Class B convertible common stock cannot be split, divided, or combined unless the other is also split, divided, or combined equally. Holders of record of our common stock totaled approximately 733 at March 11, 2020.

We have two classes of common stock: common stock and Class B convertible common stock. The holders of common stock are entitled to one vote for each share held, while the holders of Class B convertible common stock are entitled to 10 votes for each share held. At March 11, 2020 we had outstanding 1,022,887 shares of Class B convertible common stock, par value $0.10 per share. Currently, the holders of VPG’s Class B convertible common stock hold approximately 45.0% of the voting power of our Company. Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of, the voting of approximately 76.9% of our Class B convertible common stock, representing 34.6% of the total voting power of our capital stock as of December 31, 2019.

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Stock Performance Graph

The graph and table below compare the cumulative total stockholder return on the Company’s common stock over a sixty month period, with the returns on the Russell 2000 Stock Index, and a peer group of companies selected by our management. The peer group is made up of six publicly held manufacturers of sensors, sensor-based equipment, and sensor-based systems. Management believes that the product offerings of the peer group companies are more similar to our product offerings than those of the companies contained in any published industry index. The return of each peer issuer has been weighted according to the respective issuer’s stock market capitalization. The graph and table assume that $100 had been invested at December 31, 2014, and that all dividends were reinvested. The graph and table are not necessarily indicative of future investment performance.



		12/31/14	12/31/15	12/31/16	12/31/17	12/31/18	12/31/19
Vishay Precision Group, Inc.	Cumulative $	100.00	65.97	110.14	146.56	176.17	198.14
Russell 2000 Index	Cumulative $	100.00	95.59	115.95	132.94	118.30	148.49
Peer Group *	Cumulative $	100.00	97.08	103.21	140.08	125.61	166.88

*The management selected peer group includes: MTS Systems, Kyowa Electronic Instruments, Mettler – Toledo, Spectris, Sensata Technologies, CTS Corp.

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Item 6. SELECTED FINANCIAL DATA

The following table presents our selected historical financial data. The statements of operations data for each of the five years ended December 31, 2019 and the balance sheet data as of December 31, 2019, 2018, 2017, 2016, and 2015 have been derived from our audited consolidated financial statements.

The data should be read in conjunction with our historical financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document.



(in thousands, except per share amounts)	As of and for the years ended December 31,
	2019			2018			2017			2016			2015
Statement of Operations Data:
Net revenues	$	283,958		$	299,794		$	254,350		$	224,929		$	232,178
Costs of products sold	172,341			178,527			156,067			142,120			147,949
Gross profit	111,617			121,267			98,283			82,809			84,229

Selling, general, and administrative expenses	79,622			80,935			73,751			68,382			71,282
Acquisition costs	443			—			—			494			185
Impairment of goodwill and indefinite-lived intangibles	—			2,820			—			—			4,942
Executive severance costs	611			—			—			—			—
Restructuring costs	2,293			289			2,044			2,666			4,461
Operating income	28,648			37,223			22,488			11,267			3,359

Other income (expense):
Interest expense	(1,507		)	(1,738		)	(1,842		)	(1,486		)	(771		)
Other	(701		)	(1,496		)	(83		)	(174		)	(2,082		)
Other expenses - net	(2,208		)	(3,234		)	(1,925		)	(1,660		)	(2,853		)

Income before taxes	26,440			33,989			20,563			9,607			506

Income tax expense	4,145			10,344			6,169			3,199			13,500

Net earnings (loss)	22,295			23,645			14,394			6,408			(12,994		)
Less: net earnings (loss) attributable to noncontrolling interests	107			(1		)	49			4			14
Net earnings (loss) attributable to VPG stockholders	$	22,188		$	23,646		$	14,345		$	6,404		$	(13,008	)

Earnings (loss) per share data:
Basic	$	1.64		$	1.76		$	1.08		$	0.49		$	(0.96	)
Diluted	$	1.63		$	1.75		$	1.07		$	0.48		$	(0.96	)

Weighted average shares outstanding - basic	13,515			13,439			13,262			13,187			13,485
Weighted average shares outstanding - diluted	13,597			13,535			13,471			13,419			13,485

Balance Sheet Data:
Cash and cash equivalents	$	86,910		$	90,159		$	74,292		$	58,452		$	62,641
Total assets	370,413			326,383			306,551			270,510			263,747
Long-term debt, less current portion	17			22,421			28,477			33,529			31,037
Working capital	123,650			160,088			139,400			118,952			121,065
Total VPG stockholders' equity	241,360			218,415			193,156			171,383			172,256

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

VPG is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon our proprietary technology. We provide precision products and solutions, many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements. A significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure. We believe this strategy results in higher quality, more cost effective and focused solutions for our customers. Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality. Our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and systems.

VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control and on-board weighing applications.

Net revenues for the year ended December 31, 2019 were $284.0 million compared to net revenues of $299.8 million for the year ended December 31, 2018. Net earnings attributable to VPG stockholders for the year ended December 31, 2019 were $22.2 million, or $1.63 per diluted share, compared to $23.6 million, or $1.75 per diluted share, for the year ended December 31, 2018.

The results of operations for the years ended December 31, 2019 and 2018 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance with U.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating performance for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company’s performance and in comparing the Company’s financial performance to that of its peer companies and competitors. Management believes that the Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results.

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The items affecting comparability are (dollars in thousands, except per share amounts):



	Gross Profit						Operating Income						Net Earnings Attributable to VPG Stockholders					Diluted Earnings Per share
Fiscal Year Ended December 31,	2019			2018			2019			2018			2019		2018			2019		2018
As reported - GAAP	111,617			121,267			28,648			37,223			$	22,188	$	23,646		$	1.63	$	1.75
As reported - GAAP Margins	39.3		%	40.5		%	10.1		%	12.4		%
Acquisition purchase accounting adjustments ^(a)	1,254			—			1,254			—			1,254		—			0.09		—
Acquisition costs ^(b)							443			—			443		—			0.03		—
Executive Severance costs ^(c)							611			—			611		—			0.04		—
Impairment of goodwill and indefinite-lived intangibles							—			2,820			—		2,820			—		0.21
Restructuring costs							2,293			289			2,293		289			0.17		0.02
UK pension settlement ^(d)													—		673			—		0.05
Less: Tax effect of reconciling items and discrete tax items ^(e)													3,743		(333		)	0.27		(0.02		)
As Adjusted - Non GAAP	$	112,871		$	121,267		$	33,249		$	40,332		$	23,046	$	27,761		$	1.69	$	2.05
As Adjusted - Non GAAP Margins	39.7		%	40.5		%	11.7		%	13.5		%


(a)	Acquisition purchase accounting adjustments in 2019 include fair market value adjustments associated with inventory recorded as a component of costs of products sold.


(b)	Acquisition costs associated with the acquisition of DSI in 2019.


(c)	Severance costs associated with the resignation of an executive officer of the Company in 2019.


(d)	In 2018, the Company incurred one-time settlement costs in connection with the de-risking of the pension plan in our UK location (see Note 9 to our consolidated financial statements).


(e)	Included in the discrete items for 2019 is a $3.4 million tax benefit primarily related to the acquisition of DSI.

Financial Metrics

We utilize several financial measures and 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, end-of-period backlog, book-to-bill ratio, and inventory turnover.

Gross profit margin is gross profit shown as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is clearly a function of net revenues, but also reflects our cost-cutting programs and our ability to contain fixed costs.

End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment 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.

Another 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 compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities, and it indicates that we may generate increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales.

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 quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.

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, the end-of-period backlog, the book-to-bill ratio, and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2018 and through the fourth quarter of 2019 (dollars in thousands):

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	4th Quarter			1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	2018			2019			2019			2019			2019
Net revenues	$	76,982		$	76,525		$	70,870		$	67,421		$	69,142

Gross profit margin	40.0		%	43.2		%	40.4		%	38.3		%	35.0		%

End-of-period backlog	$	93,400		$	87,100		$	83,400		$	79,300		$	90,900

Book-to-bill ratio	0.93			0.92			0.94			0.96			1.15

Inventory turnover	2.89			2.77			2.66			2.60			2.72



	4th Quarter			1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	2018			2019			2019			2019			2019
Foil Technology Products
Net revenues	$	36,741		$	37,049		$	32,999		$	32,119		$	29,636
Gross profit margin	42.0		%	44.7		%	43.6		%	37.3		%	34.9		%
End-of-period backlog	$	48,700		$	44,000		$	42,100		$	38,900		$	44,600
Book-to-bill ratio	0.88			0.88			0.93			0.91			1.18
Inventory turnover	3.07			2.97			2.65			2.79			2.66
Force Sensors
Net revenues	$	16,998		$	16,732		$	16,349		$	16,217		$	15,059
Gross profit margin	26.6		%	30.2		%	26.9		%	30.4		%	24.2		%
End-of-period backlog	$	17,700		$	17,400		$	16,400		$	15,200		$	17,100
Book-to-bill ratio	1.05			0.98			0.95			0.94			1.11
Inventory turnover	2.34			2.29			2.39			2.30			2.43
Weighing and Control Systems
Net revenues	$	23,243		$	22,744		$	21,522		$	19,085		$	24,447
Gross profit margin	46.8		%	50.2		%	45.6		%	46.6		%	41.6		%
End-of-period backlog	$	27,000		$	25,700		$	24,900		$	25,200		$	29,200
Book-to-bill ratio	0.92			0.93			0.95			1.04			1.15
Inventory turnover	3.36			3.07			3.03			2.61			3.10

Net revenues for the fourth quarter of 2019 increased 2.6% from the net revenues of $67.4 million reported in the third quarter of 2019, and decreased 10.2% from $77.0 million for the comparable prior year period.

Net revenues in the Foil Technology Products segment of $29.6 million in the fourth quarter of 2019 decreased 7.7% from $32.1 million in the third quarter of 2019, and decreased 19.3% from $36.7 million in the fourth quarter of 2018. The sequential decline in revenue was attributable to precision resistor products in the test and measurement market. Compared to the fourth quarter of 2018, the decline in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement and avionics, military and space markets.

Net revenues in the Force Sensors segment of $15.1 million in the fourth quarter of 2019 decreased 7.1% compared to revenues of $16.2 million in the third quarter of 2019 due to lower volume attributable to OEM customers in the precision weighing and force measurement markets in the Americas and Europe. Net revenues in the fourth quarter of 2019 decreased 11.4% compared to $17.0 million in the fourth quarter of 2018 mainly due to lower volume attributable to distribution customers in the precision weighing market across all regions.

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Net revenues in the Weighing and Control Systems segment of $24.4 million in the fourth quarter of 2019 increased 28.1% from $19.1 million in the third quarter of 2019 and increased 5.2% from $23.2 million in the fourth quarter of 2018. The sequential increase in revenues was primarily attributable to the addition of DSI, with an increase in our European process weighing product line along with an increase in the steel product line. Compared to the fourth quarter of 2018, the increase in net revenues was primarily attributable to the addition of DSI in November 2019, which offset lower sales of steel, process weighing, and U.S.-based onboard weighing products.

The gross profit margin for the fourth quarter of 2019 decreased 3.3% compared to the third quarter of 2019, and decreased 5% from the fourth quarter of 2018.

Sequentially, gross profit margins declined in all reporting segments. In the Foil Technology Products segment, the decline in gross profit margin was primarily due to lower volume, product mix, and one-time inventory reductions. In the Force Sensors segment, the decline in gross profit margin was due to lower volume and a reduction in inventory. In the Weighing and Control System segment, gross profit margin decreased due to recording $1.3 million of purchase accounting adjustments related to the DSI acquisition. Excluding the purchase accounting adjustments of $1.3 million related to the DSI acquisition, the gross profit margin would have been 46.8%, and increase of 0.2%, reflecting the higher volume attributable to the DSI acquisition.

Compared to the fourth quarter of 2018, gross profit margins declined in all reporting segments. In the Foil Technology Products segment, the decline in gross profit margin was primarily due to lower volume and the negative impact of foreign exchange rates. In the Force Sensors segment the lower gross profit margin was primarily due to lower volume and one-time inventory reductions, which was partially offset by higher export grants. In the Weighing and Control Systems segment, gross profit margin decreased due to recording $1.3 million of purchase accounting adjustments related to the DSI acquisition. Excluding the purchase accounting adjustments of $1.3 million related to the DSI acquisition the gross profit margin would have been 46.8% which is the same as the prior year period.

Optimize Core Competence

Our foil technology research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers “design in” these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we recently signed a long term lease for a state of the art facility to be constructed in Israel to move forward with our advanced sensors business.

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Acquisition Strategy

Research and Development

Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance. The amount charged to expense for research and development aggregated $12.1 million, $11.8 million, and $11.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Cost Management

To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation.

Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

The Company recorded restructuring costs of $2.3 million, $0.3 million, and $2.0 million during the years ended December 31, 2019, 2018, and 2017, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China. In 2018 and 2017, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.

Foreign Currency

We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. U.S. 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 subsidiaries that fall into each of these categories.

Foreign Subsidiaries which use the Local Currency as the Functional Currency

Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using 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

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of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of 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 statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.

Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency

Our operations in Israel and certain locations in Asia primarily generate cash 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 related to payroll, which are incurred in the local currency.

Effects of Foreign Exchange Rate on Operations

For the year ended December 31, 2019, exchange rate impacts decreased net revenues by $5.7 million, decreased costs of products sold and selling, general, and administrative expenses by $5.2 million, and decreased net earnings by $1.3 million or $0.10 per diluted share, when compared to the prior year. Refer to Item 7. “Overview” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 and the year ended December 31, 2017.

Off-Balance Sheet Arrangements

As of December 31, 2019 and 2018, we did not have any off-balance sheet arrangements.

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 by management.

Revenue Recognition

The Company derives substantially all of its revenue from product sales. The Company recognizes the vast majority of its sales at a point-in-time. It utilizes the core principle of recognizing revenue when the Company satisfies performance obligations as evidenced by the transfer of control of its products to the customer.

Such revenues are derived from purchase orders and/or contracts with customers. Each contract has the promise to transfer the control of the products, each of which is individually distinct and is considered the identified performance obligation. As part of the decision to enter into each contract, the Company evaluates the customer’s credit risk, but its contracts do not have any significant financing components, as payment is generally due net 30 to 60 days after delivery. In accordance with contract terms, revenue from the Company’s product sales is recognized at the time of product shipment from its facilities or delivery to the customer location, as determined by the agreed upon shipping terms.

Under the terms of some of its contracts, the Company may be required to perform certain installation services. These installation services are performed at the time of product delivery or at some point thereafter. The installation services do not significantly modify the product provided, and although the Company may be required contractually to provide these services, the installation services could be performed by a third party or the customer. Thus, these installation services are a distinct performance obligation. In most of the applicable contracts, this installation service element is immaterial in the context of the agreement. When the installation services are accounted for as a separate performance obligation, the Company allocates the transaction price to this element based on its relative standalone selling price.

Given the specialized nature of the Company's products, the Company generally does not allow product returns. Shipping and handling costs are recorded to Costs of product sold when control of the product has transferred to the customer. The Company offers standard product warranties. Warranty related costs continue to be recognized as expense when the products are sold. Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

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Inventories

We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based upon net realizable value. The valuation of our inventories requires 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 upon estimates of future demand, technology developments, and market conditions.

Business Combinations

The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes. These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.

Estimates of Restructuring and Severance Costs

To maintain our cost competitiveness, we are shifting manufacturing emphasis to more advanced automation in higher-cost regions and relocating production to regions with skilled workforces and relatively lower labor costs. We could also incur similar costs after we acquire companies.

These production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We anticipate that we will realize the benefits of our restructuring efforts through lower labor costs and other operating efficiencies in future periods.

Restructuring and severance costs are expensed during the period in which we incur those costs and all other requirements for accrual are met. Because transfers of manufacturing operations sometimes occur incrementally over a period of time, the expense initially recorded is often based on estimates. Because these costs are recorded based on estimates, our actual expenditures for restructuring activities may differ from the initially recorded costs. If this happens, we will adjust our estimates in future periods, either by recording additional expenses in future periods if our initial estimates were too low, or by reversing part of the charges that we recorded initially if our initial estimates were too high.

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining if it is necessary to perform the quantitative goodwill impairment test. However, if we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing it against its carrying amount. We estimate the fair value of our steel and on-board weighing reporting units using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.

During 2018, we recognized an impairment loss associated with the goodwill and indefinite lived intangible assets in the instrumentation reporting unit, which holds goodwill related to our 2016 Pacific acquisition, which was recognized in the fourth quarter of fiscal 2018. The impairment was primarily from lower margins on the forecasted projections due to product mix. After considering the impact of the impairment charges, the carrying amount of goodwill and indefinite-lived trade names as of December 31, 2018 was $3.5 million and $0.4 million, respectively.

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In 2019, we did not recognize an impairment for the instrumentation reporting unit, as the fair value exceeded its carrying value by approximately 12%. The instrumentation reporting unit is particularly sensitive to the revenue projections used in the income approach valuation to determine the fair value and its related impact on gross margin.

Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.

The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified.

Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements, and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of five to eighteen years. Trade names are being amortized over their contractual period ranging from seven to ten years. Non-competition agreements are being amortized over periods of five to ten years. We review the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets, when combined with the broader asset group in which they belong, may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition.

Impairment of Long-Lived Assets

We assess the impairment of our long-lived assets, other than goodwill and indefinite-lived intangible assets, including property and equipment, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant changes in the manner of our use of the asset, changes in historical or projected operating performance, and significant negative economic trends.

Pension and Other Postretirement Benefits

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 postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries 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.

Our defined benefit plans are concentrated in the United States and the United Kingdom. Plans in these countries comprise approximately 79% of our retirement obligations at December 31, 2019. We utilize published long-term high-quality bond indices to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to 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.

For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. 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.

We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change, 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 sheets.

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Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our annual effective tax rate is based on pre-tax earnings, statutory tax rates and enacted tax laws. Significant judgments and estimates must be made in determining our consolidated income tax expense as presented in our financial statements.

We must assess the likelihood that we will realize deferred tax assets which requires significant judgment. If we determine that deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to a level that is expected to be realized. If we subsequently determine that realization of a deferred tax asset becomes "more likely than not", the valuation allowance will be reversed. Any change in valuation allowances could have a significant impact on our financial results.

The calculation of our tax liabilities involves an assessment of uncertainties in the application of complex tax laws and regulations in multiple jurisdictions. We record a benefit from an uncertain tax position when it is "more likely than not" that a tax return position will be sustained upon examination, including resolutions of any related appeals or litigation based on the technical merits of the position. If the position is not "more likely than not" to be sustained, a liability for the tax return position is established. We adjust the liability when our judgment changes as a result of the evaluation of new information. The ultimate tax due in a jurisdiction may result in a payment that is materially different from our most recent estimate of the liability. Further judgment is required in determining whether an uncertain tax position is effectively settled. Any change in the analysis will impact income tax expense.

We consider the earnings of most of our non-U.S. subsidiaries to be indefinitely invested outside the United States based on our estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment of foreign subsidiary earnings. As a result of the Tax Cut and Jobs Act, in 2017 the Company had recorded a deferred tax liability of approximately $1.8 million of withholding tax associated with a planned distribution of approximately $25.5 million of previously unremitted earnings. As of December 31, 2019, the planned distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million. In addition, we estimate that additional withholding taxes of approximately $17.5 million would be payable upon the distribution of the balance of our previously unremitted earnings at December 31, 2019. If we decide to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the United States.

On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act permanently reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.

The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company elects to recognize tax expense related to GILTI in the year the tax is incurred.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

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Results of Operations – Years Ended December 31, 2019, and 2018

Refer to Item 7. “Results of Operations - Years Ended December 31, 2018, 2017, and 2016” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December 31, 2017.

Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:



	Years ended December 31,
	2019		2018
Costs of products sold	60.7	%	59.5	%
Gross profit	39.3	%	40.5	%
Selling, general, and administrative expenses	28.0	%	27.0	%
Operating income	10.1	%	12.4	%
Income before taxes	9.3	%	11.3	%
Net earnings	7.9	%	7.9	%
Net earnings attributable to VPG stockholders	7.8	%	7.9	%

Effective tax rate	15.7	%	30.4	%

Net Revenues

Net revenues were as follows (dollars in thousands):



	Years ended December 31,
	2019			2018
Net revenues	$	283,958		$	299,794
Change versus prior year	$	(15,836	)
Percentage change versus prior year	(5.3		)%

Changes in net revenues were attributable to the following:



	2019 vs. 2018
Change attributable to:
Change in volume	(5.6	)%
Change in average selling prices	0.9	%
Foreign currency effects	(2.0	)%
Acquisitions	1.4	%
Net change	(5.3	)%

During the year ended December 31, 2019, net revenues decreased 5.3% over the prior year. The decrease in net revenues is attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and Electronic Manufacturing Services ("EMS") customers, primarily in the test and measurement, and avionics, military and space market sectors in the Foil Technology Products segment, and to the distribution customers in the precision weighing markets across all regions in the Force Sensors segment. This was partially offset by an increase in revenues for the Weighing and Control System segment, which was primarily attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for process weighing market and the US on board weighing product lines.

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Gross Profit Margin

Gross profit as a percentage of net revenues was as follows:



	Years ended December 31,
	2019		2018
Gross profit margin	39.3	%	40.5	%

The gross profit margin for the year ended December 31, 2019 decreased 1.2% over the prior year. The reduction in gross profit margin was primarily due to lower volume in the Foil Technology Products and Force Sensors reporting segments, partially offset by an increase in volume in the Weighing and Controls System segment. The gross profit margin was also impacted by $1.3 million relating to the purchase accounting adjustment for the DSI acquisition. Excluding the $1.3 million purchase accounting adjustment, the gross profit margin would have been 39.7%. The gross profit margin was also negatively impacted by $1.8 million related to foreign currency exchange rates.

Segments

Analysis of revenues and gross profit margins for our reportable segments is provided below.

Foil Technology Products

Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):



	Years ended December 31,
	2019			2018
Net revenues	$	131,803		$	141,009
Change versus prior year	$	(9,206	)
Percentage change versus prior year	(6.5		)%

Changes in Foil Technology Products segment net revenues were attributable to the following:



	2019 vs. 2018
Change attributable to:
Change in volume	(6.2	)%
Change in average selling prices	0.8	%
Foreign currency effects	(1.1	)%
Net change	(6.5	)%

For the year ended December 31, 2019, net revenues decreased 6.5% as compared to the prior year. The decrease in net revenues is attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement, and avionics, military and space market sectors in the Foil Technology Products segment. Negative exchange rate impacts, mainly from the Euro, also impacted net revenues for the year ended December 31, 2019 as compared to the comparable prior year period.

Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:



	Years ended December 31,
	2019		2018
Gross profit margin	40.4	%	43.7	%

For the year ended December 31, 2019, the gross profit margin decreased 3.3% as compared to the prior year primarily due to lower volume and negative exchange rate impacts relating to the Euro.

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Force Sensors

Net revenues of the Force Sensors segment were as follows (dollars in thousands):



	Years ended December 31,
	2019			2018
Net revenues	$	64,357		$	73,186
Change versus prior year	$	(8,829	)
Percentage change versus prior year	(12.1		)%

Changes in Force Sensors segment net revenues were attributable to the following:



	2019 vs. 2018
Change attributable to:
Change in volume	(11.3	)%
Change in average selling prices	1.0	%
Foreign currency effects	(1.8	)%
Net change	(12.1	)%

For the year ended December 31, 2019, net revenues decreased 12.1% from the prior year mainly due to lower volume to the distribution customers in the precision weighing markets across all regions. Negative exchange rate impacts from the Euro, British pound, India rupee and the China Renminbi lowered net revenues.

Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:



	Years ended December 31,
	2019		2018
Gross profit margin	28.0	%	27.3	%

For the year ended December 31, 2019, the gross profit margin increased 0.7% when compared to the prior year. Lower net revenues were more than offset by labor and manufacturing efficiencies, increase in export grants and a favorable exchange rate impact with the India rupee.

Weighing and Control Systems

Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):



	Years ended December 31,
	2019			2018
Net revenues	$	87,798		$	85,599
Change versus prior year	$	2,199
Percentage change versus prior year	2.6		%

Changes in Weighing and Control Systems segment net revenues were attributable to the following:



	2019 vs. 2018
Change attributable to:
Change in volume	0.5	%
Change in average selling prices	0.9	%
Foreign currency effects	(3.5	)%
Acquisitions	4.7	%
Net change	2.6	%

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For the year ended December 31, 2019, net revenues increased 2.6% when compared to the prior year which was primarily attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for process weighing market and the US on board weighing product lines. This was partially offset by unfavorable exchange rate impacts with the Euro, British pound, Swedish Krona and the Canadian Dollar compared to the prior year.

Gross profit as a percentage of net revenues for the Weighing and Control Systems segment was as follows:



	Years ended December 31,
	2019		2018
Gross profit margin	45.9	%	46.4	%

For the year ended December 31, 2019, the gross profit margin decreased 0.5% from the prior year mainly due to the recording of $1.3 million of purchase accounting adjustments related to the DSI acquisition. Excluding the $1.3 million purchase accounting adjustment, the gross profit margin would have been 47.3% as compared to 46.4% in the prior year.

Selling, General, and Administrative Expenses

Selling, general, and administrative (“SG&A”) expenses were as follows (dollars in thousands):



	Years ended December 31,
	2019			2018
Total SG&A expenses	$	79,622		$	80,935
as a percentage of net revenues	28.0		%	27.0		%

SG&A expenses for the year ended December 31, 2019 decreased $1.3 million versus the prior year mainly due to a reduction in bonus accruals and $1.4 million related to favorable exchange rate impacts partially offset by higher personnel costs, including wage increases, and headcount, and SG&A expenses related to the acquisition of DSI, which was completed in November of 2019.

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the year ended December 31, 2019, there were no impairment charges recorded, as a result of our annual impairment test. For the year ended December 31, 2018, as a result of our required annual impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a $2.5 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and a $0.3 million net of tax, non-cash impairment charge which reduced the carrying value of indefinite-lived intangible assets. See our critical accounting policies and Note 4 for further discussion.

Executive Severance Costs

During 2019, the Company recorded $0.6 million of severance costs associated with the resignation of an executive officer of the Company. The severance costs consisted of payments and other benefits as specified in the executive officers resignation agreement.

Restructuring Costs

Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods, or to reverse part of the previously recorded charges.

The Company recorded restructuring costs of $2.3 million and $0.3 million during the years ended December 31, 2019 and 2018, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China. In 2018, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

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Acquisition Costs

For the year ended December 31, 2019, we recorded acquisition costs in our consolidated statements of operations of $0.4 million in connection with the acquisitions of DSI. There were no acquisition costs recorded in our consolidated statements of operations for the years ended December 31, 2018 and December 31, 2017.

Other Income (Expense)

Interest Expense

The Company recorded interest expense of $1.5 million and $1.7 million for the years ended December 31, 2019 and 2018, respectively. Interest expense was lower in 2019 compared to 2018, with lower debt balances and lower interim borrowings, prior to the acquisition of DSI in November of 2019.

Other

The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):



	Years ended December 31,
	2019			2018			Change
Foreign exchange gain/(loss)	$	(1,638	)	$	(279	)	$	(1,359	)
Interest income	622			506			116
Pension expense	(643		)	(1,682		)	1,039
Other	958			(41		)	999
	$	(701	)	$	(1,496	)	$	795

Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel, the Euro, India Rupee and the Canadian dollar.

Included in the pension expense for 2018 is $0.7 million associated with the de-risking of the pension plan in our UK location.

Included within Other, for the year ended December 31, 2019, is net proceeds of $0.8 million related to a liquidation of a foreign subsidiary.

Income Taxes

Our effective tax rate for the year ended December 31, 2019 was 15.7%, compared to 30.4% for the year ended December 31, 2018. Our effective tax rate was lower in 2019 compared to 2018 primarily due to foreign exchange, a net reduction in valuation allowance on deferred tax assets as a result of our acquisition of Dynamic Systems, Inc., and changes in the geographical mix of income.

On December 22, 2017, the 2017 Tax Act was enacted. The 2017 Tax Act significantly changed U.S. tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduced the U.S. tax rate from a maximum of 35% to a flat 21% , effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.

Guidance issued by the Securities Exchange Commission ("SEC"), provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company had provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million for 2017. This amount included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million of withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017. In accordance with SAB 118 the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 which resulted in a net increase in tax expense of approximately $0.8 million caused by a decrease in the transition tax and an increase in the valuation allowance.

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We reassessed our ability to realize our U.S. deferred tax assets during 2019 and have concluded that realization of those deferred tax assets is still not "more likely than not". Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions as compared to the U.S. federal statutory tax rate, and the relative amount of income earned in each jurisdiction. The tax rate is also impacted by discrete items that vary from year to year and may not be indicative of the tax rate on continuing operations. The following items had the most significant impact on the difference between the statutory U.S. federal income tax rate and our effective tax rate:

2019


•	4.4% decrease related to foreign currency primarily attributable to our operations in Israel and India.


•	2.4% decrease related to a reduction in valuation allowance. This reduction was primarily a result of the acquisition of Dynamic Systems, Inc.


•	1.4% decrease related to stock compensation.


•	2.5% increase related to changes in reserves for uncertain tax positions.


•	3.7% increase related to the loss of the benefit of current year U.S. net operating loss as a result of the 2017 Tax Act and the effects of GILTI.

2018


•	2.4% increase as a result of the enactment of the 2017 Tax Act in the U.S., as described above.


•	1.8% increase related to the effects of foreign operations primarily related to the difference between the U.S. statutory rate and foreign tax rates.


•	1.5% increase related to increase in valuation allowance primarily related to our US entities.


•	1.5% increase related to impairment of goodwill.


•	0.9% increase related to foreign currency primarily attributable to our operations in Israel and India.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

Financial Condition, Liquidity, and Capital Resources

Refer to Item 7. “Financial Condition, Liquidity, and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December 31, 2017.

We believe that our current cash and cash equivalents, credit facilities, and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months.

On December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for the following facilities: (1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S. and Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which was used to fund the Stress-Tek and Pacific acquisitions; (2) a secured closing date term facility for the Company (the “2015 U.S. Closing Date Term Facility”) in an aggregate principal amount of $4.5 million, the proceeds of which were used by the Company to refinance indebtedness under its existing term loan; (3) a secured delayed draw term facility for the Company (the "2015 U.S. Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million, the proceeds of which were used to fund a portion of the Stress-Tek acquisition; and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”) in an aggregate principal amount of $9.5 million, the proceeds of which were used by VPG Canada to refinance indebtedness under its existing term loan. The aggregate principal amount of the 2015 Revolving Facility may be increased by a maximum of $15.0 million upon the request of the Company, subject to the terms of the 2015 Credit Agreement. The 2015 Credit Agreement terminates on December 30, 2020. The term loans are being repaid in quarterly installments.

Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S. Closing Date Term Facility, the 2015 U.S. Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2) LIBOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage ratio, an interest rate margin ranging from 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the interest payable on the Facilities. The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each

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quarter. Additional customary fees apply with respect to letters of credit. The total interest rates at December 31, 2019 and December 31, 2018, were 3.97% and 4.82%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 3.97% and 4.82%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.

The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015 Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The Company was in compliance with its financial maintenance covenants at December 31, 2019. If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

On October 23, 2019, the Company exercised all of the $15.0 million accordion feature (the “Accordion”) of the 2015 Revolving Facility. The exercise of the Accordion increases the aggregate principal amount available under the 2015 Revolving Facility to $45.0 million.

By reason of the spin-off, VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes effective July 6, 2010. The maturity date of the notes was December 13, 2102.

Effective February 26, 2018, the holder of the Company's exchangeable notes exercised its option to exchange the remaining $2.8 million principal amount of the notes for 123,808 shares of VPG common stock at the contractual put/call rate of $22.57 per share. Following these transactions, all exchangeable notes have been canceled and VPG has no further obligations pursuant to such notes.

Our other long-term debt is not significant and consists of debt held by one of our Japanese subsidiaries of approximately $0.1 million at December 31, 2019 and $0.3 million at December 31, 2018. The debt is payable monthly over the next 2 years at a zero percent interest rate.

See Note 7 to our consolidated financial statements for additional details.

Our business has historically generated significant cash flow. Our cash provided by operating activities for the year ended December 31, 2019 was $30.9 million as compared to $35.4 million for the year ended December 31, 2018. Cash provided by operating activities for the year ended December 31, 2019 was lower than the cash provided by operating activities for the year ended December 31, 2018 due to a decrease in net earnings. Our net cash used in investing activities for the year ended December 31, 2019 was $51.1 million as compared to $14.4 million for the year ended December 31, 2018. This increase was primarily due to the purchase of DSI. Our net cash provided by financing activities for the year ended December 31, 2019 was $16.5 million as compared to net cash used for financing activities of $3.5 million for the year ended December 31, 2018. This reflects the higher borrowings on the revolving credit facility which were used to fund the purchase of DSI.

Approximately 93% of our cash and cash equivalents balance at December 31, 2019 and 2018, respectively, was held by our non-U.S. subsidiaries. See the following table for the percentage of cash and cash equivalents, by region, at December 31, 2019 and December 31, 2018:



	December 31,
	2019		2018
Asia	23	%	28	%
United States	7	%	7	%
Israel	28	%	35	%
Europe	14	%	13	%
United Kingdom	17	%	12	%
Canada	11	%	5	%
Total	100	%	100	%

We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments

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are held by foreign subsidiaries. As a result of the 2017 Tax Act, the Company reassessed its assertion with respect to the indefinite reinvestment for certain of Company’s foreign subsidiaries and recorded a deferred tax liability of approximately $1.8 million of withholding tax associated with the planned cash distribution of approximately $25.5 million. As of December 31, 2019, the remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

If we should require more capital in the United States than is generated by our domestic operations, and the planned dividend noted above, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of December 31, 2019, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $1.5 million noted above.

For the year ended December 31, 2019, we generated adjusted free cash flow of $20.4 million. We refer to “adjusted free cash flow,” a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating activities ($30.9 million) in excess of our capital expenditures ($11.2 million) and net of proceeds from the sale of assets ($0.6 million).

The following table summarizes the components of net cash at December 31, 2019 and at December 31, 2018 (in thousands):



	December 31,
	2019			2018
Cash and cash equivalents	$	86,910		$	90,159

Third-party debt, including current and long-term
Term loans	$	10,496		$	15,018
Revolving debt	34,000			12,000
Third-party debt held by Japanese subsidiary	149			279
Deferred financing costs	(112		)	(222		)
Total third-party debt	44,533			27,075
Net cash	$	42,377		$	63,084

Measurements such as “adjusted free cash flow” and “net cash " do not have uniform definitions and are not recognized in accordance with U.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.

Our financial condition as of December 31, 2019 is strong, with a current ratio (current assets to current liabilities) of 2.4 to 1.0, as compared to a current ratio of 3.9 to 1.0 at December 31, 2018.

Cash paid for property and equipment for the year ended December 31, 2019 and December 31, 2018 was $11.2 million and $14.5 million, respectively. Capital spending for 2019 was comprised of projects related to the normal maintenance of business, cost reduction programs, and some carryover projects from 2018. Capital expenditures for 2020 are expected to be approximately $33 million, which includes expected building projects of approximately $20 million for capacity expansion in Israel and Asia.

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Contractual Commitments

As of December 31, 2019, we had contractual obligations as follows (in thousands):



			Payments due by period
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt	$	44,645	$	44,628	$	17	$	—	$	—
Interest payments on long-term debt	376		376		—		—		—
Operating leases	10,038		3,349		4,143		1,970		576
Unrecognized tax benefits, including interest and penalties	1,473		116		53		—		1,304
Expected pension and postretirement plan benefit payments from unfunded plans ^(a)	7,915		550		1,589		1,633		4,143
Expected pension and postretirement plan contributions to funded plans^(b)	974		974		—		—		—
Total contractual cash obligations	$	65,421	$	49,993	$	5,802	$	3,603	$	6,023


(a)	Due to the nature of unfunded plans, benefit payments are considered to be funded when paid.


(b)	Due to the uncertainty of future cash outflows, contributions to the pension and other postretirement benefit plans subsequent to 2019 have been excluded from the table above.

Our consolidated balance sheet at December 31, 2019 includes approximately $1.5 million of liabilities associated with uncertain tax positions relating to multiple taxing jurisdictions. There are certain guarantees and indemnifications extended among Vishay Intertechnology and us in accordance with the terms of the Master Separation and Distribution Agreement and the Tax Matters Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Matters Agreement. However, of the $1.5 million of unrecognized tax benefits, none are covered under the terms of the Tax Matters Agreement.

Due to the uncertainty and complexity relating to the settlement of tax matters, including the difficulty in predicting the conclusion of tax audits around the world, we are unable to make reliable estimates of the timing and amount of the remaining cash outflows, if any, relating to these liabilities. Accordingly, the remaining uncertain tax positions are classified as payments due after five years, although actual timing of payments may be sooner. See Note 6 to our consolidated financial statements for additional information.

Inflation

Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates, interest rates, and commodity prices. We manage our exposure to these market risks through internally established policies and procedures. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our strategies as needed.

Interest Rate Risk

We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances.

The Company entered into a second amended and restated revolving credit facility on December 30, 2015. Interest payable on the facility is based upon the Agent’s prime rate, the Federal Funds rate or LIBOR, plus a spread. At December 31, 2019, the Company has $34.0 million borrowings outstanding under the revolving credit facility and $10.5 million in outstanding term loans.

At December 31, 2019, we have $86.9 million of cash and cash equivalents, which accrue interest at various variable rates.

Based on the debt and cash positions at December 31, 2019 and 2018, we would expect a 50 basis point increase or decrease in interest rates to increase or decrease our annualized net earnings by $0.1 million and $0.2 million in 2019 and 2018, respectively.

See Note 7 to our consolidated financial statements for additional information about our long-term debt.

Foreign Exchange Risk

We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries. Our significant foreign currency exposures are to the British pound, Canadian dollar, Chinese renminbi, euro, Indian rupee, Israeli shekel, Japanese yen, Swedish krona, and Taiwanese dollar.

Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash in local currencies. Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the revenues earned in a particular currency offset one another. Our exposure to foreign currency risk, with respect to expenses, is more pronounced in Israel and India because the percentage of expenses denominated in Israeli shekels and Indian rupee to total expenses is much greater than the percentage of sales denominated in Israeli shekels and Indian rupee to total sales. Therefore, if the Israeli shekel and Indian rupee strengthen against all or most of our other major currencies, our operating profit is reduced. We also have a higher percentage of British pound-denominated sales than expenses. Therefore, when the British pound strengthens against all or most of our other major currencies, our operating profit is increased. VPG Canada has a secured term facility denominated in U.S. dollars. Therefore, we are exposed to potentially significant foreign exchange risk based on the valuation of this long-term debt related to the exchange rate between the U.S. dollar and the Canadian dollar.

We have performed a sensitivity analysis as of December 31, 2019 and 2018, respectively, using a model that measures the change in the values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at December 31, 2019 and 2018, respectively. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would impact our net earnings by approximately $2.7 million and $2.8 million for the years ended December 31, 2019 and December 31, 2018, respectively, although individual line items in our consolidated statements of operations could be materially affected. For example, a 10% weakening in all foreign currencies would increase the U.S. dollar equivalent of operating income generated in foreign currencies, which would be offset by foreign exchange losses of our foreign subsidiaries that have significant transactions in U.S. dollars or have the U.S. dollar as their functional currency.

A change in the mix of the currencies in which we transact our business could have a material effect on the estimated impact of the hypothetical 10% movement in the value of the U.S. dollar. Furthermore, the timing of cash receipts and disbursements could result in materially different actual results versus the hypothetical 10% movement in the value of the U.S. dollar, particularly if there are significant changes in exchange rates in a short period of time.

- 45 -

Commodity Price Risk

Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers.

Some of the most highly specialized materials for our sensors are sourced from a single vendor. We maintain a safety stock inventory of certain critical materials at our facilities.

Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility.

Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price changes for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.

We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk would decrease or increase our net earnings by $1.2 million and $1.5 million for the years ended December 31, 2019 and December 31, 2018, respectively, assuming that such changes in our costs have no impact on the selling prices of our products, and that we have no pending commitments to purchase metals at fixed prices.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this Item are included herein, commencing on page F-1 of this report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our CEO and CFO, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must consider the benefits of controls relative to their costs. Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. While the design of any system of controls is to provide reasonable assurance of the effectiveness of disclosure controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be prevented or detected.

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Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 based on the 2013 framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

Our evaluation of internal control over financial reporting did not include the internal controls of the business acquired upon the purchase of Dynamic Systems, Inc., which is included in our 2019 consolidated financial statements beginning November 1, 2019 and constituted 4.3% of our total assets at December 31, 2019 and 1.4% of our net revenues for the year ended December 31, 2019. We are currently in the process of integrating Dynamic Systems, Inc. into our internal control over financial reporting process.

Brightman Almagor Zohar & Co., a firm in the Deloitte Global Network, has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated in their report which is set forth on the next page.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Vishay Precision Group, Inc. (the “Company”) as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated financial statements of the Company and our report dated March 11, 2020 expressed an unqualified opinion thereon.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Dynamic Systems, Inc., which was acquired on November 1, 2019. And whose financial statements constitute 4.3% of total assets and 1.4% of revenues as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal control over financial reporting at Dynamic Systems, Inc.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Brightman Almagor Zohar & Co,

A Firm in the Deloitte Global Network

Tel Aviv, Israel

March 11,2020

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Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Certain information required under this Item with respect to our Executive Officers is contained under the heading “Executive Officers” in Item 1 hereof. Other information required under this Item will be contained under the heading “Nominees for Election as Directors” in our definitive proxy statement for the Company’s 2020 Annual Meeting of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated herein by reference.

The Company has adopted codes of conduct that constitute “codes of ethics” as that term is defined in paragraph (b) of Item 406 of Regulation S-K and that apply to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, and to any persons performing similar functions. Such codes of conduct are posted on the Company’s internet website, the address of which is www.vpgsensors.com.

Item 11. EXECUTIVE COMPENSATION

Information required under this Item will be contained in our definitive proxy statement for the Company’s 2020 Annual Meeting of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a)	Documents Filed as part of Form 10-K


1)	Financial Statements

The Consolidated Financial Statements for the year ended December 31, 2019 are filed herewith. See index to the Consolidated Financial Statements on page F-1 of this report.


2)	Financial Statement Schedules

All financial statement schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.


3)	Exhibits



Exhibit No.		Description
2.1		Asset Purchase Agreement, dated December 18, 2012, by and among Vishay Precision Group, Inc., Vishay Precision Group Canada ULC, George Kelk Corporation, Endevor Corporation and Peter Kelk (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012 and incorporated herein by reference).
2.2		Stock Purchase Agreement, dated November 1, 2019, by and among Vishay Precision Group, Inc., DSI Holdings DE Inc., the sellers identified therein, and HCI Equity Partners III, L.P., not individually but solely in its capacity as the representative of the Sellers (previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 4, 2019 and incorporated herein by reference).
3.1		Amended and Restated Certificate of Incorporation of Vishay Precision Group, Inc., effective June 25, 2010 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 1, 2010 and incorporated herein by reference).
3.2		Amendment no. 1 to Amended and Restated Certificate of Incorporation of Vishay Precision Group, Inc., effective June 2, 2011 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 6, 2011 and incorporated herein by reference).
3.3		Second Amended and Restated Bylaws of Vishay Precision Group, Inc., adopted as of June 2, 2011 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 6, 2011 and incorporated herein by reference).
4.1		Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
10.1		Master Separation and Distribution Agreement, dated June 22, 2010, between Vishay Precision Group, Inc. and Vishay Intertechnology, Inc. (previously filed as an exhibit to the Registrant’s Form 10 Registration Statement of Vishay Precision Group, Inc., filed with the Securities and Exchange Commission on June 22, 2010 and incorporated herein by reference).
10.2		Employee Matters Agreement, dated June 22, 2010, by and among Vishay Intertechnology, Inc. and Vishay Precision Group, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 23, 2010 and incorporated herein by reference).
10.3		Tax Matters Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Intertechnology, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.4		Trademark License Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Intertechnology, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.5		Supply Agreement, dated July 6, 2010, between Vishay Advanced Technology, Ltd. and Vishay Dale Electronics, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.6*		Patent License Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Dale Electronics, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.7*		Supply Agreement, dated July 6, 2010, between Vishay Dale Electronics, Inc. and Vishay Advanced Technology, Ltd. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).

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Exhibit No.		Description
10.8*		Lease Agreement, dated July 4, 2010, between Vishay Advanced Technology, Ltd. and V.I.E.C. Ltd. (previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.9*		Supply Agreement, dated July 6, 2010, between Vishay Measurements Group, Inc. and Vishay S.A. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.10*		Manufacturing Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Precision Foil GmbH (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.11		Intellectual Property License Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Precision Foil GmbH (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.12*		Supply Agreement, dated July 6, 2010, between Vishay Precision Foil GmbH and Vishay S.A. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.13		Intellectual Property License Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Measurements Group, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.14		Lease Agreement, between Alpha Electronics Corp. and Vishay Japan Co., Ltd. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
10.15†		Amended and Restated 2010 Vishay Stock Incentive Program, adopted as of June 2, 2011 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 6, 2011 and incorporated herein by reference).
10.16		Lease Agreement between Vishay Advanced Technologies Ltd and Mega Or Holdings Ltd, dated February 17, 2019 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 19, 2019 and incorporated herein by reference).
10.17†		Form of Stock Option Award Agreement (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
10.18†		Form of Restricted Stock Unit Award Agreement for Director Grants (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
10.19†		Form of Restricted Stock Unit Award Agreement for Employee Grants (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
10.20†		Employment Agreement, dated November 17, 2010, by and among Vishay Advanced Technology and Ziv Shoshani (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2010 and incorporated herein by reference).
10.21†		Employment Agreement, dated November 17, 2010, by and among Vishay Precision Group, Inc. and William M. Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2010 and incorporated herein by reference).
10.22†		Amendment to Employment Agreement, dated December 8, 2011 by and among Vishay Advanced Technologies, Ltd. and Ziv Shoshani (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December 13, 2011 and incorporated herein by reference).
10.23†		Amendment to Employment Agreement, dated December 8, 2011 by and among Vishay Precision Group, Inc. and William M. Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December 13, 2011 and incorporated herein by reference).
10.24†		Form of Performance Restricted Stock Unit Award Agreement for Employee Grants (previously filed as an exhibit to the Registrant’s Current Report on Form 10-K filed with the SEC on March 12, 2013 and incorporated herein by reference).
10.25		Lease Agreement, between George Kelk Corporation and Anndale Properties Limited (and its successors), dated January 30, 1996 and as amended as of January 17, 2011 (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with SEC on May 8, 2013 and incorporated herein by reference).
10.26		Vishay Precision Group, Inc. 2010 Stock Incentive Program, as Amended and Restated Effective May 21, 2013 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on May 22, 2013 and incorporated herein by reference).

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Exhibit No.		Description
10.27†		Amendment to Employment Agreement, dated November 7, 2013 by and among Vishay Advanced Technologies, Ltd. and Ziv Shoshani (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November 12, 2013 and incorporated herein by reference).
10.28†		Amendment to Employment Agreement, dated November 7, 2013 by and among Vishay Precision Group, Inc. and William Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November 12, 2013 and incorporated herein by reference).
10.29†		Lease agreement, dated January 26, 2014, by and among between Vishay Advanced Technologies, Inc. and Tefen Enterprises Ltd. (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2014 and incorporated herein by reference).
10.30		Stock Purchase Agreement, dated December 14, 2015, by and among VPG Systems U.S., Inc., Stress-Tek, Inc., the shareholders of Stress-Tek, Inc., and Keith Reichow, as Representative (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December 15, 2015 and incorporated herein by reference).
10.31		Second Amended and Restated Credit Agreement, dated December 30, 2015, by and among Vishay Precision Group, Inc., Vishay Precision Group Canada ULC, JPMorgan Chase Bank, National Association, as agent, and lenders party thereto (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2016 and incorporated herein by reference).
10.32		Stock Purchase Agreement, dated March 30, 2016, by and among Vishay Precision Group, Inc., Pacific Instruments, Inc., the shareholders of Pacific Instruments, Inc., John Hueckel and Norman Hueckel as Owners, and John Hueckel, as Representative (previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on April 5, 2016 and incorporated herein by reference).
10.33†		Form of Indemnification Agreement with directors (previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 11, 2016 and incorporated herein by reference).
10.34†		Employment agreement, dated January 1, 2016, by and among Vishay Precision Group, Inc. and Roland Desilets ( previously filed as an exhibit to the Registrants' Quarterly Report on Form 10-Q filed with the SEC on August 10, 2016 and incorporated herein by reference).
10.35		Lease agreement, dated July 7, 2016, by and among between Vishay Advanced Technologies, Ltd. and Marshee Estates & Investments Ltd. (previously filed as an exhibit to the Registrant's Current Report on Form 10-K filed with the SEC on March 16, 2016 and incorporated herein by reference).
10.36†		Amendment to Employment Agreement, dated May 8, 2017, by and among Vishay Precision Group, Inc. and William M. Clancy (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2017 and incorporated herein by reference).
10.37†		Amendment to Employment Agreement, dated May 8, 2017, by and among Vishay Precision Group, Inc. and Roland Desilets (previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2017 and incorporated herein by reference).
10.38†		Amendment to Employment Agreement, dated August 7, 2017, by and among Vishay Advanced Technologies, Ltd. and Ziv Shoshani (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2017 and incorporated herein by reference).
10.39†		Vishay Precision Group, Inc. 2017 Non-Employee Director Compensation Plan (previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 9, 2018 and incorporated herein by reference).
10.40†		Amendment to Employment Agreement, dated May 4, 2018, by and between Vishay Precision Group, Inc. and Roland Desilets (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 9, 2018 and incorporated herein by reference).
10.41†		Amendment to Employment Agreement,dated March 10, 2019, by and among Vishay Advanced Technologies Ltd. and Ziv Shoshani.
10.42†		Amendment to Employment Agreement, dated March 11, 2019, by and among Vishay Precision Group, Inc. and William Clancy.
10.43†		Separation and Release Agreement, dated April 26, 2019, by and between Vishay Precision Group and Roland B. Desilets (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 1, 2019 and incorporated herein by reference).
10.44		Amendment No. 2 to Seconded Amended & Restated Credit Agreement, dated October 23, 2019, by and among Vishay Precision Group, Inc., Vishay Precision Group Canada ULC and JPMorgan Chase Bank, National Association, as agent (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 5, 2019 and incorporated herein by reference).
16.1		Letter of Ernst & Young LLP, dated May 31, 2019 (previously filed as Exhibit 16.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 31, 2019 and incorporated herein by reference).

- 52 -



Exhibit No.		Description
21.1		List of Subsidiaries.
23.1		Consent of Brightman Almagor Zohar & Co, a Firm in the Deloitte Global Network, relating to the Registrant’s financial statements.
23.2		Consent of Ernst & Young LLP relating to the Registrant’s financial statements.
31.1		Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Ziv Shoshani, Chief Executive Officer.
31.2		Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - William M. Clancy, Chief Financial Officer.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Ziv Shoshani, Chief Executive Officer.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - William M. Clancy, Chief Financial Officer.
101		Interactive Data File (Annual Report on Form 10-K, for the year ended December 31, 2019, furnished in XBRL (eXtensible Business Reporting Language)).

* Confidential treatment has been accorded to certain portions of this Exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

† Denotes a management contract or compensatory plan, contract or arrangement.

Item 16. FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	VISHAY PRECISION GROUP, INC.
	By:	/s/ Ziv Shoshani
		Ziv Shoshani
Date: March 11, 2020		President and Chief Executive Officer

POWER OF ATTORNEY

Vishay Precision Group, Inc., a Delaware corporation, and each person whose signature appears below constitutes and appoints each of Ziv Shoshani and William M. Clancy, and either of them, such person’s true and lawful attorney-in-fact, with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign on such person’s behalf, individually and in each capacity stated below, any and all amendments to this Annual Report on Form 10-K and other documents in connection therewith, and to file the same and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated below.



Signature	Title	Date
/s/ Ziv Shoshani	Chief Executive Officer and Director	March 11, 2020
Ziv Shoshani	(Principal Executive Officer)

/s/ William M. Clancy	Executive Vice President & Chief Financial Officer	March 11, 2020
William M. Clancy	(Principal Financial and Accounting Officer)

/s/ Marc Zandman	Director	March 11, 2020
Marc Zandman

/s/ Saul V. Reibstein	Director	March 11, 2020
Saul V. Reibstein

/s/ Timothy V. Talbert	Director	March 11, 2020
Timothy V. Talbert

/s/ Janet Clarke	Director	March 11, 2020
Janet Clarke

/s/ Bruce Lerner	Director	March 11, 2020
Bruce Lerner

/s/ Wesley Cummins	Director	March 11, 2020
Wesley Cummins

- 54 -

Vishay Precision Group, Inc.

Index to Consolidated Financial Statements



Reports of Independent Registered Public Accounting Firms	F-2

Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-6
Consolidated Statements of Comprehensive Income	F-7
Consolidated Statements of Cash Flows	F-8
Consolidated Statements of Equity	F-9
Notes to Consolidated Financial Statements	F-10

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Vishay Precision Group, Inc. (the "Company") as of December 31, 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 11, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2019.

/s/ Brightman Almagor Zohar & Co,

A Firm in the Deloitte Global Network

Tel Aviv, Israel

March 11, 2020

F-2

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Vishay Precision Group, Inc. (the Company) as of December 31, 2018, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We served as the Company’s auditor from 2009 to 2019.

Philadelphia, Pennsylvania

March 14, 2019

F-3

VISHAY PRECISION GROUP, INC.

Consolidated Balance Sheets

(In thousands, except share amounts)



	December 31, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	86,910		$	90,159
Accounts receivable, net of allowances for doubtful accounts of $555 and $517, respectively	43,198			53,156
Inventories:
Raw materials	21,701			18,052
Work in process	23,128			22,007
Finished goods	22,066			22,182
Inventories	66,895			62,241
Prepaid expenses and other current assets	15,558			9,314
Total current assets	212,561			214,870

Property and equipment, at cost:
Land	4,243			3,390
Buildings and improvements	52,708			51,055
Machinery and equipment	111,492			105,840
Software	9,384			8,532
Construction in progress	2,485			2,157
Accumulated depreciation	(119,042		)	(111,555		)
Property and equipment, net	61,270			59,419

Goodwill	35,018			16,141

Intangible assets, net	34,198			17,656

Other assets	27,366			18,297
Total assets	$	370,413		$	326,383

Continues on the following page.

F-4

VISHAY PRECISION GROUP, INC.

Consolidated Balance Sheets (continued)

(In thousands, except share amounts)



	December 31, 2019			December 31, 2018
Liabilities and equity
Current liabilities:
Trade accounts payable	$	8,869		$	11,461
Payroll and related expenses	16,312			17,757
Other accrued expenses	18,953			17,031
Income taxes	261			3,879
Current portion of long-term debt	44,516			4,654
Total current liabilities	88,911			54,782

Long-term debt, less current portion	17			22,421
Deferred income taxes	3,478			2,200
Other liabilities	20,586			13,545
Accrued pension and other postretirement costs	15,669			14,982
Total liabilities	128,661			107,930

Commitments and contingencies

Equity:
Preferred stock, par value $1.00 per share: authorized - 1,000,000 shares; none issued	—			—
Common stock, par value $0.10 per share: authorized - 25,000,000 shares; 12,500,006 shares outstanding as of December 31, 2019 and 12,449,253 shares outstanding as of December 31, 2018	1,312			1,307
Class B convertible common stock, par value $0.10 per share: authorized - 3,000,000 shares; 1,022,887 shares outstanding as of December 31, 2019 and 1,025,158 shares outstanding December 31, 2018	103			103
Treasury stock, at cost - 619,667 shares held at December 31, 2019 and December 31, 2018	(8,765		)	(8,765		)
Capital in excess of par value	197,125			196,666
Retained earnings	89,288			66,569
Accumulated other comprehensive loss	(37,703		)	(37,465		)
Total Vishay Precision Group, Inc. stockholders' equity	241,360			218,415
Noncontrolling interests	392			38
Total equity	241,752			218,453
Total liabilities and equity	$	370,413		$	326,383

See accompanying notes.

F-5

VISHAY PRECISION GROUP, INC.

Consolidated Statements of Operations

(In thousands, except per share amounts)



	Years ended December 31,
	2019			2018			2017
Net revenues	$	283,958		$	299,794		$	254,350
Costs of products sold	172,341			178,527			156,067
Gross profit	111,617			121,267			98,283

Selling, general, and administrative expenses	79,622			80,935			73,751
Acquisition costs	443			—			—
Impairment of goodwill and indefinite-lived intangibles	—			2,820			—
Executive severance costs	611			—			—
Restructuring costs	2,293			289			2,044
Operating income	28,648			37,223			22,488

Other income (expense):
Interest expense	(1,507		)	(1,738		)	(1,842		)
Other	(701		)	(1,496		)	(83		)
Other expenses - net	(2,208		)	(3,234		)	(1,925		)

Income before taxes	26,440			33,989			20,563

Income tax expense	4,145			10,344			6,169

Net earnings	22,295			23,645			14,394
Less: net earnings (loss) attributable to noncontrolling interests	107			(1		)	49
Net earnings attributable to VPG stockholders	$	22,188		$	23,646		$	14,345

Basic earnings per share attributable to VPG stockholders	$	1.64		$	1.76		$	1.08
Diluted earnings per share attributable to VPG stockholders	$	1.63		$	1.75		$	1.07

Weighted average shares outstanding - basic	13,515			13,439			13,262
Weighted average shares outstanding - diluted	13,597			13,535			13,471

See accompanying notes.

F-6

VISHAY PRECISION GROUP, INC.

Consolidated Statements of Comprehensive Income

(In thousands)



	Years ended December 31,
	2019			2018			2017
Net earnings	$	22,295		$	23,645		$	14,394

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	558			(3,929		)	5,802
Pension and other postretirement actuarial items	(796		)	1,914			(915		)
Other comprehensive income (loss)	(238		)	(2,015		)	4,887

Comprehensive income	22,057			21,630			19,281

Less: comprehensive income (loss) attributable to noncontrolling interests	107			(1		)	49

Comprehensive income attributable to VPG stockholders	$	21,950		$	21,631		$	19,232

See accompanying notes.

F-7

VISHAY PRECISION GROUP, INC.

Consolidated Statements of Cash Flows

(In thousands)



	Years ended December 31,
	2019			2018			2017
Operating activities
Net earnings	$	22,295		$	23,645		$	14,394
Adjustments to reconcile net earnings to net cash provided by operating activities:
Impairment of goodwill and indefinite-lived intangibles	—			2,820			—
Depreciation and amortization	11,795			10,631			10,626
(Gain) loss on disposal of property and equipment	34			(120		)	(195		)
Reclassification of foreign currency translation adjustment related to disposal of subsidiary	(827		)	—			—
Share-based compensation expense	1,336			1,799			1,499
Inventory write-offs for obsolescence	2,588			1,876			2,065
Deferred income taxes	(2,556		)	1,011			1,890
Other	358			819			893
Net changes in operating assets and liabilities, net of acquisition:
Accounts receivable	11,369			(7,757		)	(10,537		)
Inventories	(619		)	(5,095		)	(4,307		)
Prepaid expenses and other current assets	(5,087		)	588			(3,260		)
Trade accounts payable	(2,273		)	(819		)	2,009
Other current liabilities	(7,481		)	5,981			7,652
Net cash provided by operating activities	30,932			35,379			22,729

Investing activities
Capital expenditures	(11,196		)	(14,521		)	(6,960		)
Proceeds from sale of property and equipment	615			132			541
Purchase of business	(40,481		)	—			—
Net cash used in investing activities	(51,062		)	(14,389		)	(6,419		)

Financing activities
Principal payments on long-term debt	(4,618		)	(5,603		)	(2,628		)
Proceeds from revolving facility	22,000			22,000			41,000
Payments on revolving facility	—			(19,000		)	(41,000		)
Distributions to noncontrolling interests	(52		)	(109		)	(75		)
Payments of employee taxes on certain share-based arrangements	(854		)	(801		)	(303		)
Net cash provided by (used in) financing activities	16,476			(3,513		)	(3,006		)
Effect of exchange rate changes on cash and cash equivalents	405			(1,610		)	2,536
(Decrease) increase in cash and cash equivalents	(3,249		)	15,867			15,840

Cash and cash equivalents at beginning of year	90,159			74,292			58,452
Cash and cash equivalents at end of year	$	86,910		$	90,159		$	74,292

Supplemental disclosure of investing transactions:
Capital expenditures purchased	$	(10,529	)	$	(13,239	)	$	(10,092	)
Supplemental disclosure of non-cash financing transactions:
Conversion of exchangeable notes to common stock	$	—		$	(2,794	)	$	(1,303	)

Capital expenditures accrued but not yet paid as of December 31, 2019 were $1,183

See accompanying notes.

F-8

VISHAY PRECISION GROUP, INC.

Consolidated Statements of Equity

(In thousands, except share amounts)



	Common Stock		Class B Convertible Common Stock		Treasury Stock			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total VPG Inc. Stockholders' Equity			Noncontrolling Interests			Total Equity
Balance at January 1, 2017	$	1,278	$	103	$	(8,765	)	$	190,373		$	28,731		$	(40,337	)	$	171,383		$	174		$	171,557
Net earnings	—		—		—			—			14,345			—			14,345			49			14,394
Other comprehensive loss	—		—		—			—			—			4,887			4,887			—			4,887
Share-based compensation expense	—		—		—			1,499			—			—			1,499			—			1,499
Restricted stock issuances (41,322 shares)	4		—		—			(265		)	—			—			(261		)	—			(261		)
Common stock issuance from conversion of exchangeable notes ( 57,729 shares)	6		—		—			1,297			—			—			1,303			—			1,303
Distributions to noncontrolling interests	—		—		—			—			—			—			—			(75		)	(75		)
Balance at December 31, 2017	$	1,288	$	103	$	(8,765	)	$	192,904		$	43,076		$	(35,450	)	$	193,156		$	148		$	193,304
Net earnings	—		—		—			—			23,646			—			23,646			(1		)	23,645
Other comprehensive income	—		—		—			—			—			(2,015		)	(2,015		)	—			(2,015		)
Share-based compensation expense	—		—		—			1,799			—			—			1,799			—			1,799
Restricted stock issuances (59,038 shares)	7		—		—			(819		)	—			—			(812		)	—			(812		)
Common stock issuance from conversion of exchangeable notes ( 123,808 shares)	12		—		—			2,782			—			—			2,794			—			2,794
Cumulative effect adjustment for adoption of ASU 2016-16											(153		)				(153		)				(153		)
Distributions to noncontrolling interests	—		—		—			—			—			—			—			(109		)	(109		)
Balance at December 31, 2018	$	1,307	$	103	$	(8,765	)	$	196,666		$	66,569		$	(37,465	)	$	218,415		$	38		$	218,453
Net earnings	—		—		—			—			22,188			—			22,188			107			22,295
Other comprehensive income	—		—		—			—			—			(238		)	(238		)	—			(238		)
Share-based compensation expense	—		—		—			1,336			—			—			1,336			—			1,336
Restricted stock issuances (48,482 shares)	5		—		—			(877		)	—			—			(872		)	—			(872		)
Cumulative effect adjustment for adoption of ASC 842	—		—		—			—			531			—			531			—			531
Conversion from Class B to common stock (2,271shares)	—		—		—			—			—			—			—			—			—
Impact due to DSI acquisition	—		—		—			—			—			—			—			299			299
Distributions to noncontrolling interests	—		—		—			—			—			—			—			(52		)	(52		)
Balance at December 31, 2019	$	1,312	$	103	$	(8,765	)	$	197,125		$	89,288		$	(37,703	)	$	241,360		$	392		$	241,752

See accompanying notes.

F-9

Vishay Precision Group, Inc.

Notes to Consolidated Financial Statements

Note 1 – Background and Summary of Significant Accounting Policies

Background

Vishay Precision Group, Inc. (“VPG” or the “Company”) is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon the Company's proprietary technology. The Company provides precision products and solutions, many of which are “designed-in” by its customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements.

Principles of Consolidation

The consolidated financial statements include the accounts of the individual entities in which the Company maintained a controlling financial interest. For those subsidiaries in which the Company’s ownership is less than 100 percent, the outside stockholders’ interests are shown as noncontrolling interests in the accompanying consolidated balance sheets.

All transactions, accounts, and profits between individual members comprising the Company have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.

Revenue Recognition

Research and Development Expenses

Research and development costs are expensed as incurred. The amount charged to expense for research and development was $12.1 million, $11.8 million, and $11.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this

F-10

Note 1 – Background and Summary of Significant Accounting Policies (continued)

method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes such assets will "more likely than not" be realized. In making this determination, the Company considers all positive and negative evidence, including historic earnings, projected future income, and cost-effective tax-planning strategies. When the Company determines that its ability to realize deferred tax assets is not "more likely than not", the Company adjusts its deferred tax asset valuation allowance, which increases income tax expense.

The Company records uncertain tax positions on the basis of a two-step process in which the Company first determines whether it is "more likely than not" that the tax positions will be sustained based on the technical merits of the position and then measures those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.

On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have all the necessary information available to prepare and analyze the accounting treatment for the proper recognition of the tax impact of the 2017 Tax Act. In accordance with SAB 118 guidance, the Company had recorded the provisional tax impacts related to the deemed distribution of foreign earnings and the expense for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net increase in tax expense of $0.8 million.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less when purchased. Highly liquid investments with maturities greater than three months are classified as short-term investments. There were no investments classified as short-term investments at December 31, 2019 or 2018.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends and an evaluation of the impact of current and projected economic conditions. The Company evaluates the past-due status of its trade receivables based on contractual terms of sale. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts was $0.6 million and $0.5 million at December 31, 2019 and 2018, respectively. Bad debt expense was $0.1 million, $0.0 million, and $0.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Inventories

Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market based on net realizable value. Inventories are adjusted for estimated excess and obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.

Property and Equipment

Property and equipment is carried at cost and is depreciated principally by the straight-line method based upon the estimated useful lives of the assets. Machinery and equipment are being depreciated over useful lives of seven to ten years. Buildings and building improvements are being depreciated over useful lives of twenty to forty years or the lease term. Software is being depreciated over useful lives of three to five years. Construction in progress is not depreciated until the assets are placed in service. Depreciation expense was $10.1 million, $8.9 million, and $8.7 million for the years ended December 31, 2019, 2018, and 2017, respectively, which included software depreciation expense of $0.6 million, $0.5 million, and $0.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.

F-11

Note 1 – Background and Summary of Significant Accounting Policies (continued)

Business Combinations

Goodwill and Other Intangible Assets

The Company's required goodwill annual impairment test is completed as of the first day of the fourth fiscal quarter each year. As more fully described in Note 4 to the consolidated financial statements, the 2019 annual impairment test resulted in no impairment. The 2018 annual impairment test resulted in an impairment charge in the fourth quarter of 2018. The 2017 annual impairment test resulted in no impairment.

The indefinite-lived trade names are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified. As more fully described in Note 4, the annual impairment test for 2019 resulted in no impairment. The 2018 annual impairment test resulted in the Company recording an impairment charge in the fourth quarter of 2018. The 2017 annual impairment test resulted in no impairment.

Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements, and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of five to fifteen years. Trade names are being amortized over useful lives of seven to ten years. Non-competition agreements are being amortized over periods of five to ten years. The Company continually evaluates the reasonableness of the useful lives of these assets. Additionally, the Company reviews the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition.

Impairment of Long-Lived Assets

The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based

F-12

Note 1 – Background and Summary of Significant Accounting Policies (continued)

on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived intangible assets, are determined in a similar manner, except that fair market values are reduced for disposal costs.

Foreign Currency Translation

The Company has significant operations outside of the United States. The Company's operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. The Company’s operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar 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. Revenues and expenses are translated at the average exchange rate for the year. Translation adjustments do not impact the consolidated statements of operations and are reported as a separate component of accumulated other comprehensive loss within the statement of comprehensive income. Foreign currency transaction gains and losses are included in the results of operations.

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 consolidated statements of operations.

Share-Based Compensation

Compensation costs related to share-based payments are recognized in the consolidated financial statements. The amount of compensation cost is measured based on the grant-date fair value of the equity instruments issued. For service-based awards, compensation cost is recognized over the period that an officer, employee, or non-employee director provides service in exchange for the award. The Company recognizes forfeitures as they occur. For performance based awards, the Company recognizes compensation cost for awards that are expected to vest based on whether performance criteria are expected to be met. For options and restricted stock units subject to graded vesting, the Company recognizes expense over the service period for each separately vesting portion of the award as if the award was comprised of multiple awards.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, “Leases (Topic 842),” a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of this ASU requires lessees to present the assets and liabilities that arise from leases on their balance sheets. The Company adopted this ASU effective January 1, 2019 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. See Note 12- Leases.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Act") related to items in accumulated other comprehensive income ("AOCI") that the FASB refers to as having been stranded in AOCI. The Company adopted ASU 2018-02 effective January 1, 2019, and elected not to reclassify the income tax effects from AOCI to retained earnings.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments in this ASU are effective for annual periods beginning after December 15, 2019 and early adoption is permitted. The effect on the Company's consolidated financial statements and related disclosures is not expected to be material.

F-13

Note 1 – Background and Summary of Significant Accounting Policies (continued)

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends Accounting Standards Codification ("ASC") 715 to add, remove and clarify disclosure requirements related to defined benefit and pension and other postretirement plans. The amendments in this ASU are effective for annual periods beginning after December 15, 2020 and early adoption is permitted. The Company is evaluating the standard to determine the impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements (Topic 820)." This ASU modifies the disclosures on fair value measurements by removing the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is evaluating the standard to determine the impact on the consolidated financial statements.

Note 2 – Revenues

The following table disaggregates net revenue by geographic region from contracts with customers based on net revenues generated by subsidiaries within that geographic location (in thousands):



	Year Ended December 31, 2019
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	56,393	$	33,695	$	24,227	$	114,315
United Kingdom	3,181		10,450		15,576		29,207
Other Europe	32,328		10,811		16,860		59,999
Israel	12,401		415		—		12,816
Asia	27,500		8,986		8,331		44,817
Canada	—		—		22,804		22,804
	$	131,803	$	64,357	$	87,798	$	283,958



	Year Ended December 31, 2018
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	61,132	$	39,955	$	23,818	$	124,905
United Kingdom	3,666		11,787		14,296		29,749
Other Europe	31,431		10,678		18,741		60,850
Israel	11,028		517		—		11,545
Asia	33,752		10,249		7,442		51,443
Canada	—		—		21,302		21,302
	$	141,009	$	73,186	$	85,599	$	299,794

F-14

Note 2 – Revenues (continued)



	Year Ended December 31, 2017
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	52,032	$	34,108	$	19,523	$	105,663
United Kingdom	3,173		12,187		11,127		26,487
Other Europe	26,322		8,793		17,312		52,427
Israel	6,673		635		—		7,308
Asia	28,073		9,723		7,288		45,084
Canada	—		—		17,381		17,381
	$	116,273	$	65,446	$	72,631	$	254,350

The following table disaggregates net revenue by market sector(in thousands):



	Years Ended December 31,
	2019		2018		2017
Test & Measurement	$	69,594	$	76,735	$	64,798
Avionics, Military & Space	23,975		26,743		22,378
Medical	10,863		9,868		8,769
Precision Weighing	91,001		93,734		81,439
Force Measurement	55,648		66,551		53,503
Steel	32,877		26,163		23,463
	$	283,958	$	299,794	$	254,350

Contract Assets & Liabilities

Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations. Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due is not significant.

The outstanding contract assets and liability accounts were as follows (in thousands):



	Contract Asset		Contract Liability
	Unbilled Revenue		Accrued Customer Advances
December 31, 2018	$	964	$	5,328
December 31, 2019	$	3,937	$	4,561
Increase ( decrease)	$	2,973	$	(767	)

Included in the contract asset at December 31, 2019 is $2.1 million attributable to the acquisition of DSI. The amount of revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018 was $5.1 million.

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts that have a duration of one year or less and for contracts that are substantially complete. The Company treats shipping and handling activities as fulfillment costs.

F-15

Note 3 – Acquisition Activity

Dynamic Systems Inc.

On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes, for a purchase price of $40.5 million, subject to customary adjustments, plus a potential earn out of up to an additional $3.0 million. DSI reports into the Company's Weighing and Control Systems segment. The following table summarizes the preliminary fair values assigned to the assets and liabilities of DSI as of November 1, 2019 (in thousands):



Working capital ^(a)	$	6,874
Property and equipment	1,727
Long-term deferred income tax liability	(4,321		)
Non-Controlling interest	(299		)
Intangible assets:
Patents and acquired technology	10,250
Customer relationships	4,344
Trade names	3,300
Total intangible assets	17,894
Fair value of acquired identifiable assets and liabilities	21,875
Purchase price	40,481
Goodwill	$	18,606

^{(a) Working capital accounts include accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, and accrued payroll.}

The fair value of the contingent consideration is zero. The weighted average useful lives for the patents and acquired technology and customer relationships are 16 years, and 15 years, respectively. Most of the goodwill associated with DSI will be deductible for income tax purposes.

The Company recorded acquisition costs of associated with this transaction in its consolidated statements of operation as follows (in thousands):



	Year ended December 31, 2019
Accounting and legal fees	$	214
Appraisal fees	13
Other	216
	$	443

Following are the supplemental consolidated financial results for the Company on a unaudited pro forma basis, as if the DSI acquisition had been consummated on January 1, 2018 (unaudited):



	Year ended December 31,
	2019		2018
Pro forma net revenues	$	298,085	$	314,437

Pro forma net earnings attributable to VPG stockholders	$	22,775	$	23,821

Pro forma basic earnings per share attributable to VPG stockholders	$	1.69	$	1.77
Pro forma diluted earnings per share attributable to VPG stockholders	$	1.68	$	1.76

F-16

Note 4 – Goodwill and Other Intangible Assets

The Company performed the first step of the impairment test as of the first day of the fiscal 2019 fourth quarter by calculating the fair value of the reporting units and comparing it against its carrying amount. The Company estimated the fair value of our steel and on-board weighing reporting units using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.After completing the impairment test, the Company determined the fair value exceeded the carrying value for all reporting units.

For the year ended December 31, 2018, the carrying value of the instrumentation reporting unit exceeded the fair value and the Company recorded an impairment charge of $2.5 million. The impairment was primarily from lower margins on the forecasted projections due to product mix related to the Pacific acquisition. The impairment test for the remaining reporting units resulted in the fair value exceeding the carrying value, passing the quantitative impairment test.

The Company's analysis in 2017 resulted in the fair value exceeding the carrying value for all reporting units.

The determination of the fair value of the reporting unit and the allocation of that value to individual assets and liabilities within the reporting unit requires the Company to make significant estimates and assumptions. These estimates and assumptions include the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the Company competes, the discount rate, terminal growth rates, and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures.

Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charges.

The change in the carrying amount of goodwill by segment is as follows (in thousands):



	Total			Weighing and Control Systems Segment							Foil Technology Products Segment
				KELK Acquisition			DSI Acquisition		Stress-Tek Acquisition		Pacific Instruments
Balance at January 1, 2018	$	19,181		$	6,828		$	—	$	6,311	$	6,042
Impairment charges	(2,500		)	—			—		—		(2,500		)
Foreign currency translation adjustment	(540		)	(540		)	—		—		—
Balance at December 31, 2018	16,141			6,288			—		6,311		3,542
Goodwill acquired	18,606						18,606		—		—
Foreign currency translation adjustment	271			271			—		—		—
Balance at December 31, 2019	$	35,018		$	6,559		$	18,606	$	6,311	$	3,542

F-17

Note 4 – Goodwill and Other Intangible Assets (continued)

Intangible assets were as follows (in thousands):



	December 31,
	2019			2018
Intangible assets subject to amortization
(Definite-lived):
Patents and acquired technology	$	19,504		$	9,067
Customer relationships	25,690			20,941
Trade names	1,690			1,674
Non-competition agreements	11,745			11,820
	58,629			43,502
Accumulated amortization:
Patents and acquired technology	(4,718		)	(4,103		)
Customer relationships	(11,727		)	(10,399		)
Trade names	(1,690		)	(1,674		)
Non-competition agreements	(11,717		)	(11,748		)
	(29,852		)	(27,924		)
Net intangible assets subject to amortization	$	28,777		$	15,578

Intangible assets not subject to amortization
(Indefinite-lived):
Trade names	5,421			2,078
	$	34,198		$	17,656

Certain intangible assets are subject to foreign currency translation.

In conjunction with the acquisition of DSI on November 1, 2019 (See Note 3), the Company allocated $14.6 million for the purchase price to definite-lived intangibles assets and $3.3 million to indefinite-lived intangible assets at December 31, 2019. The Company has determined that the trade name is an indefinite-lived intangibles asset.

The Company performed an impairment test on the indefinite-lived trade names as of the first day of the fiscal 2019 fourth quarter and determined there was no impairment. In 2018, the Company recorded an impairment charge of $0.3 million related to the Pacific acquisition. The impairment was primarily from lower margins on the forecasted projections due to product mix. The value of the trade names was determined using an income approach, where the Company estimated the future cash flows associated with the trade names and discounted those cash flows back to their net present value. Due to the decline in cash flows as a result of the lower margins, the Company reduced the royalty rate, under the relief of royalty method, when performing the income approach valuation. The Company's annual impairment test on the indefinite-lived trade names in 2017 resulted in no impairment.

Amortization expense was $1.7 million, $1.7 million, and $1.9 million, for the years ended December 31, 2019, 2018, and 2017, respectively. Amortization expense in 2019 included $0.2 million related to the DSI acquisition.

Estimated annual amortization expense for each of the next five years is as follows (in thousands):



2020	$	2,465
2021	2,416
2022	2,415
2023	2,311
2024	2,279

F-18

Note 5 – Restructuring Costs

Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges.

The Company recorded restructuring costs of $2.3 million, $0.3 million, and $2.0 million during the years ended December 31, 2019, 2018, and 2017, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs, including asset write downs and an impairment of a right of use asset associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China. In 2018 and 2017, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

The following table summarizes the activity to date related to these programs in the accrued restructuring liability, which is comprised of the activity associated primarily with the employee termination costs . The accrued restructuring liability balance as of December 31, 2019 and 2018, respectively, is included in other accrued expenses in the accompanying consolidated balance sheets (in thousands):



	December 31,
	2019			2018			2017
Balance at beginning of year	$	159		$	254		$	1,333
Restructuring charges	1,559			289			2,044
Adjustment for adoption of ASU 2016-02	(69		)	—			—
Cash payments	(1,064		)	(384		)	(3,122		)
Foreign currency translation	19			—			(1		)
Balance at end of year	$	604		159			254

F-19

Note 6 – Income Taxes

For financial reporting purposes, income before taxes includes the following components (in thousands):



	Years ended December 31,
	2019			2018			2017
Domestic	$	(7,405	)	$	(7,897	)	$	(3,552	)
Foreign	33,845			41,886			24,115
	$	26,440		$	33,989		$	20,563

The expense (benefit) for income taxes is comprised of (in thousands):



	Years ended December 31,
	2019			2018			2017
Current:
Federal	$	453		$	189		$	(425	)
State and local	(130		)	162			89
Foreign	6,378			8,982			4,615
	6,701			9,333			4,279
Deferred:
Federal	(2,638		)	197			(257		)
State and local	(123		)	(35		)	(1		)
Foreign	205			849			2,148
	(2,556		)	1,011			1,890
Total income tax expense	$	4,145		$	10,344		$	6,169

A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision is as follows (in thousands):



	Years ended December 31,
	2019			2018			2017
Tax at statutory rate	$	5,553		$	7,138		$	7,197
State income taxes, net of U.S. federal tax benefit	(21		)	89			93
Effect of foreign operations	(109		)	611			(1,137		)
Change in valuation allowance	(646		)	498			(397		)
Change in unrecognized tax benefits, net	650			258			105
Impairment of goodwill	—			525			—
Specialty tax credits	(176		)	(295		)	(139		)
Statutory rate changes	(249		)	272			(470		)
Effect of foreign exchange	(1,152		)	321			(1,292		)
Loss of benefit of U.S. net operating loss ^(a)	967			—			—
Excess tax benefits related to share based compensation ^(a)	(357		)	—			—
2017 Tax Act:
Effects of U.S. tax reform	—			(135		)	11,311
Change in valuation allowance	—			945			(9,093		)
Other	(315		)	117			(9		)
Total income tax expense	$	4,145		$	10,344		$	6,169

F-20

Note 6 – Income Taxes (continued)

^(a) Amounts for 2017 and 2018 are included in Other and fell below the 5% threshold.

On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changed U.S. tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.

Also on December 22, 2017, the SEC staff issued SAB 118 which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company had provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. This amount included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017. As of December 31, 2019, the remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million. In accordance with SAB 118, the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net $0.8 million increase in tax expense caused by a decrease in the transition tax and an increase in the valuation allowance.

The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize tax expense related to GILTI in the year the tax is incurred.

The Company recognized approximately $12.9 million and $15.6 million of GILTI income for the years ended December 31, 2019 and 2018, respectively. The U.S. tax on the GILTI income was fully offset by foreign tax credits associated with GILTI and U.S. operating losses exclusive of GILTI. Any excess foreign tax credits associated with GILTI are lost and cannot be carried forward to future years. The Company would have generated a net operating loss for U.S. federal income tax purposes but for the effects of the GILTI provision.

Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

F-21

Note 6 – Income Taxes (continued)



	December 31,
	2019			2018
Deferred tax assets:
Pension and other postretirement costs	$	3,770		$	3,600
Inventories	2,095			2,103
Net operating/capital loss and interest carryforwards	11,895			9,536
Tax credit carryforwards	1,431			748
Deferred compensation	2,865			2,009
Other accruals and reserves	3,362			3,547
Book over tax depreciation	—			12
Total gross deferred tax assets	25,418			21,555
Less: valuation allowance	(14,867		)	(14,455		)
	10,551			7,100
Deferred tax liabilities:
Tax over book depreciation	(290		)	—
Investment in subsidiary	(1,845		)	(1,983		)
Intangible assets, including tax deductible goodwill	(5,745		)	(884		)
Total gross deferred tax liabilities	(7,880		)	(2,867		)

Net deferred tax assets	$	2,671		$	4,233

In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to uncertainty regarding the realization of these assets. Throughout 2018 and 2019, the Company reassessed its ability to realize its U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek, Pacific and DSI was also considered in determining the realization of the U.S. deferred tax assets. Other aspects, such as operating results, additional interest expense and additional tax deductions related to the Stress-Tek acquisition, were also considered. The Company also considered positive evidence such as tax planning strategies and the projected benefits of our restructuring efforts. However, there was insufficient positive evidence to overcome the negative evidence.

In November 2019, the Company acquired Dynamic Systems, Inc. ("DSI"), a U.S. company. DSI's opening balance sheet included $17 million of gross deferred tax liabilities, including $4.1 million of indefinite-lived liabilities. The acquisition contributed to a $2.5 million net reduction in valuation allowance and current tax benefit for the Company. This reduction in the valuation allowance will be adjusted going forward.

Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable. We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient positive evidence of realization exists. At December 31, 2019 and 2018, the valuation allowance on U.S. deferred tax assets was approximately $11.8 million and $12.3 million, respectively. The net change in valuation allowance was approximately $(0.6) million.

The valuation allowance related to state taxes was $0.8 million and $1.0 million expense for the years ended December 31, 2019 and 2018, respectively.

The Company also has valuation allowances of $3.1 million and $2.2 million at December 31, 2019 and 2018, respectively, with respect to certain foreign net operating loss and capital loss carryforwards.

F-22

Note 6 – Income Taxes (continued)

Significant valuation allowances are as follows (in thousands):



	December 31,
Jurisdiction	2019		2018
U.S. federal	$	3,395	$	4,240
U.S. state (net of U.S. federal tax benefit)	8,411		8,057
Israel - capital losses	2,457		1,457

The following table summarizes significant net operating losses and credit carryforwards as of December 31, 2019 (in thousands):



	December 31,
Jurisdiction	2019	Expiring
U.S. foreign tax credit	1,431	2025-2039
U.S state net operating losses	92,407	2023-2039
Israel capital losses	10,684	No expiration

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $159.0 million at December 31, 2019 compared to $143.0 million at December 31, 2018. As a result of the 2017 Tax Act, in 2017 the Company had provided for a deferred tax liability of approximately $1.8 million of withholding tax associated with a planned cash distribution of approximately $25.5 million. As of December 31, 2019, other than the planned cash distribution of $14.1 million, substantially all of the remaining undistributed earnings are considered to be indefinitely reinvested and accordingly no provision has been made with respect to these earnings for incremental foreign income taxes, state income taxes or foreign withholding taxes. If those earnings were distributed to the U.S., the Company could be subject to incremental foreign income taxes, state income taxes, and withholding taxes. Determination of the amount of unrecognized deferred tax liability is not practicable because of the uncertainty regarding the timing of any such distribution and the impact on existing valuation allowances. In addition to the $1.5 million, additional withholding taxes of approximately $17.5 million are estimated to be payable upon remittance of the remaining previously unremitted earnings as of December 31, 2019.

Net income taxes paid were $11.1 million, $7.3 million, and $4.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties.

F-23

Note 6 – Income Taxes (continued)

The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with unrecognized tax benefits (in thousands):



	December 31,
	2019			2018			2017
Balance at beginning of year	$	912		$	823		$	772
Addition based on tax positions related to current year	144			189			163
Addition based on tax positions related to prior years	668			182			—
Reduction based on tax positions related to prior years	(32		)	(98		)	(12		)
Currency translation adjustments	3			(28		)	14
Reduction for payments made	(134		)	—			—
Reduction for lapses of statute of limitations	(206		)	(156		)	(114		)
Balance before indemnification receivable	1,355			912			823
Receivable from Vishay Intertechnology for indemnification	—			—			(12		)
Balance at end of year	$	1,355		$	912		$	811

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to the unrecognized tax benefits noted above, for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, the Company accrued total penalties and interest of $0.0 million, $0.1 million and $0.1 million, respectively, none of which was included in the indemnification receivable. As of December 31, 2019, December 31, 2018 and December 31, 2017, accrued penalties and interest were $0.1 million, $0.1 million and $0.1 million, respectively.

Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018, and 2017 is $1.4 million, $0.9 million, and $0.8 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2 million may be necessary in 2019. As of December 31, 2019, the Company anticipates that it is reasonably possible that it will reverse up to $0.1 million of its current unrecognized tax benefits within the calendar year due to the expiration of the statute of limitations in certain jurisdictions. None of the unrecognized tax benefits the Company expects to reverse in 2020 due to statute lapses are covered by the Tax Matters Agreement.

The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis. The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally range from 3 to 10 years.

During the 2nd and 3rd quarters of 2019, the Company concluded tax examinations in Taiwan and Belgium, respectively, for two of its subsidiaries, covering the years 2016 and 2017. The conclusion of the tax examinations resulted in no significant change in tax.

During the fourth quarter of 2018, the Company concluded a tax examination in Germany for one of its subsidiaries, covering the years 2015 and 2016. The conclusion of the tax examination resulted in no significant change in tax.

During the fourth quarter of 2017, the Company concluded a tax examination in Japan for one of its subsidiaries, covering the years 2014 through 2016. The conclusion of the tax examination resulted in no significant change in tax.

The Company is subject to ongoing income tax audits, administrative appeals and judicial proceedings in India spanning a number of years.

F-24

Note 7 – Long-Term Debt

Long-term debt consists of the following (in thousands):



	December 31,
	2019			2018
2015 Credit Agreement - Revolving Facility	$	34,000		$	12,000
2015 Credit Agreement - U.S. Closing Date Term Facility	2,038			2,967
2015 Credit Agreement - U.S. Delayed Draw Term Facility	4,982			7,253
2015 Credit Agreement - Canadian Term Facility	3,476			4,798
Other debt	149			279
Deferred financing costs	(112		)	(222		)
	44,533			27,075
Less: current portion	44,516			4,654
	$	17		$	22,421

2015 Credit Agreement

F-25

Note 7 – Long-Term Debt (continued)

Accordion Exercise

On October 23, 2019, VPG exercised all of the $15.0 million accordion feature (the “Accordion”) of its revolving credit facility (the “Revolving Credit Facility”). The exercise of the Accordion increases the aggregate principal amount available under the Revolving Credit Facility to $45.0 million.

Other Lines of Credit

In addition to the 2015 Revolving Facility discussed above, certain subsidiaries of the Company had committed short-term lines of credit with a foreign bank aggregating approximately $3.0 million and $3.0 million at December 31, 2019 and 2018, respectively. The Company had outstanding letters of credit under these short-term lines of credit of $0.9 million and $0.9 million at December 31, 2019 and 2018, respectively.

Other Debt

Other debt consists of debt held by VPG’s Japanese subsidiary and is payable monthly over the next 2 years at a zero percent interest rate.

Aggregate annual maturities of long-term debt are as follows (in thousands):



2020	$	44,628
2021	17
2022	—
2023	—
2024	—
Thereafter	—

Interest paid on third-party debt was $1.4 million, $1.6 million, and $1.7 million during the years ended December 31, 2019, 2018, and 2017, respectively.

Note 8 – Stockholders’ Equity

The Company’s Class B convertible common stock carries ten votes per share. The common stock carries one vote per share. Class B shares are transferable only to certain permitted transferees while the common stock is freely transferable. Class B shares are convertible on a one-for-one basis at any time into shares of common stock. Transfers of Class B shares other than to permitted transferees result in the automatic conversion of the Class B shares into common stock.

The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible common stock if it grants such dividends or distributions in the same amount per share with respect to the other class of stock. As discussed in Note 7, the Company is restricted from paying cash dividends. Stock dividends or distributions, on any class of stock, are payable only in shares of stock of that class. Shares of either common stock or Class B convertible common stock cannot be split, divided, or combined unless the other is also split, divided, or combined equally.

The Board of Directors is authorized, without further stockholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock in one or more series. The Board of Directors may fix or alter the designation, preferences, rights and any qualification, limitations, restrictions of the shares of any series, including the dividend rights, dividend rates, conversion rights, voting rights, redemption terms and prices, liquidation preferences and the number of shares constituting any series. No shares of the Company’s preferred stock are currently outstanding.

F-26

Note 8 – Stockholders’ Equity (continued)

Other Comprehensive Income (Loss)

The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows (in thousands):



	Beginning Balance			Before-Tax Amount			Tax Effect			Net-of-Tax Amount			Ending Balance
December 31, 2017
Pension and other postretirement actuarial items	$	(7,145	)	$	(1,465	)	$	112		$	(1,353	)	$	(8,498	)
Reclassification adjustment for recognition of actuarial items				583			(145		)	438			438
Foreign currency translation adjustment	(33,192		)	5,654			148			5,802			(27,390		)
	$	(40,337	)	$	4,772		$	115		$	4,887		$	(35,450	)
December 31, 2018
Pension and other postretirement actuarial items	$	(8,060	)	$	1,392		$	(18	)	$	1,374		$	(6,686	)
Reclassification adjustment for recognition of actuarial items				685			(145		)	540			540
Foreign currency translation adjustment	(27,390		)	(3,857		)	(72		)	(3,929		)	(31,319		)
	$	(35,450	)	$	(1,780	)	$	(235	)	$	(2,015	)	$	(37,465	)
December 31, 2019
Pension and other postretirement actuarial items	$	(6,146	)	$	(1,310	)	$	194		$	(1,116	)	$	(7,262	)
Reclassification adjustment for recognition of actuarial items				359			(39		)	320			320
Foreign currency translation adjustment	(31,319		)	(290		)	21			(269		)	(31,588		)
Reclassification adjustment for foreign currency translation				827			$	—		827			827
	$	(37,465	)	$	(414	)	$	176		$	(238	)	$	(37,703	)

Reclassification of foreign currency translation adjustment for gain on liquidation of a subsidiary is included in other income (expense) other ( See Note 15). Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9).

Note 9 – Pensions and Other Postretirement Benefits

Defined Benefit Plans

Employees of the Company participate in various defined benefit pension and other postretirement benefit plans.

U.S. Pension Plan

The Vishay Precision Group Non-Qualified Retirement Plan, like all nonqualified plans, is considered to be unfunded. The Company maintains a nonqualified trust, referred to as a “rabbi” trust, to fund benefits under this plan. Rabbi trust assets are subject to creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent assets within the consolidated balance sheets. The assets held in the rabbi trust are invested in money market funds and company-owned life insurance policies. The consolidated balance sheets include assets held in trust related to the nonqualified pension plan of $1.7 million at December 31, 2019 and $1.6 million at December 31, 2018, and the related liabilities of $2.4 million and $2.2 million at December 31, 2019 and 2018, respectively.

The Vishay Precision Group Non-Qualified Retirement Plan is frozen. Accordingly, no new employees may participate in the plan, no further participant contributions are permitted, and no further benefits accrue. Benefits accumulated prior to the freezing of the U.S. pension plan will be paid to employees upon retirement, and the Company will likely need to make additional cash contributions to the rabbi trust to fund this accumulated benefit obligation.

F-27

Note 9 – Pensions and Other Postretirement Benefits (continued)

Non-U.S. Pension Plans

The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries consistent with local practices. Pension benefits earned are generally based on years of service and compensation during active employment.

In 2018, the Company undertook several measures to de-risk the UK pension plan. The first measure was to freeze the plan, with no new participants permitted and no further benefits accrue. The second measure was to execute an enhanced transfer value exercise to transfer pension benefits outside of the plan. As s result, the Company incurred $0.7 million of expense related to these de-risking measures.



	December 31, 2019						December 31, 2018
	Pension Plans			OPEB Plans			Pension Plans			OPEB Plans
Change in benefit obligation:
Benefit obligation at beginning of year	$	23,922		$	4,645		$	28,617		$	4,726
Service cost (adjusted for actual employee contributions)	336			126			477			108
Interest cost	620			180			686			152
Contributions by participants	—			—			21			—
Actuarial (gains) losses	2,170			(131		)	(1,568		)	(97		)
Benefits paid	(856		)	(187		)	(1,042		)	(244		)
Curtailments and settlements	(25		)	—			(3,362		)	—
Plan amendments and other	573			—			1,107			—
Currency translation	531			—			(1,014		)	—
Benefit obligation at end of year	$	27,271		$	4,633		$	23,922		$	4,645

Change in plan assets:
Fair value of plan assets at beginning of year	$	14,501		$	—		$	17,454		$	—
Actual return on plan assets	1,338			—			(343		)	—
Company contributions	1,032			187			1,495			244
Contributions by participants				—			21			—
Benefits paid	(856		)	(187		)	(1,042		)	(244		)
Curtailments and settlements	(25		)	—			(2,429		)	—
Plan amendments and other				—			202			—
Currency translation	430			—			(857		)	—
Fair value of plan assets at end of year	$	16,420		$	—		$	14,501		$	—

Funded status at end of year	$	(10,851	)	$	(4,633	)	$	(9,421	)	$	(4,645	)



As of December 31, 2019			Fair value measurements at reporting date using:
	Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Defined benefit pension plan assets
Equity securities	$	7,796	$	7,796	$	—	$	—
Fixed income securities	6,975		6,975		—		—
Cash and cash equivalents	1,649		1,649		—		—
	$	16,420	$	16,420	$	—	$	—



As of December 31, 2018			Fair value measurements at reporting date using:
	Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Defined benefit pension plan assets
Equity securities	$	7,221	$	7,221	$	—	$	—
Fixed income securities	5,309		5,309		—		—
Cash and cash equivalents	1,971		1,971		—		—
	$	14,501	$	14,501	$	—	$	—



Vesting Date	Expected to Vest	Not Expected to Vest	Total
January 1, 2020	53	5	58
January 1, 2021	35	14	49
January 1, 2022	3	45	48



Leases	Classification on Balance Sheet	December 31, 2019
Assets
Operating lease right of use asset	Other Assets	$	8,691

Liabilities
Operating lease - current	Other Accrued Expenses	$	2,827
Operating lease - non-current	Other Liabilities	$	5,811



	December 31, 2019
Operating leases weighted average remaining lease term (in years)	4.0 years
Operating leases weighted average discount rate	5.05	%



	Year Ended
	December 31, 2019
Operating lease cost	$	3,376
Variable lease cost	44
Short-term lease cost	87
Total lease cost	$	3,507



2019	$	3,580
2020	2,126
2021	997
2022	725
2023	503
Thereafter	336
Total lease payments	$	8,267



	December 31,
Property and Equipment - Net	2019		2018
United States	$	12,009	$	10,933
United Kingdom	4,011		3,960
Other Europe	1,498		1,430
Israel	22,903		22,682
Asia	19,118		19,090
Canada and Other	1,731		1,324
	$	61,270	$	59,419


(b)	Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.

Vishay Precision Group, Inc. - FORM 10-K - March 11, 2020

Attached files

Vishay Precision Group, Inc. Reports