Vishay Precision Group, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Vishay Precision Group, Inc.	vpg-q12020xex322.htm
EX-32.1 - EXHIBIT 32.1 - Vishay Precision Group, Inc.	vpg-q12020xex321.htm
EX-31.2 - EXHIBIT 31.2 - Vishay Precision Group, Inc.	vpg-q12020xex312.htm
EX-31.1 - EXHIBIT 31.1 - Vishay Precision Group, Inc.	vpg-q12020xex311.htm
EX-10.1 - EXHIBIT 10.1 - Vishay Precision Group, Inc.	vpg-xq12020xex101.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended	March 28, 2020


¨	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 Incorporation)		(I.R.S. Employer Identification Number)
	3 Great Valley Parkway, Suite 150
	Malvern, PA 19355		484-321-5300
	(Address of Principal Executive Offices) (Zip Code)		(Registrant’s Telephone Number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value	VPG	New York Stock Exchange

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. ý Yes ¨ No

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 (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. ý Yes ¨ No

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 the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ý
Non-accelerated filer ¨	Smaller reporting company ¨
	Emerging growth company ¨
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 Exchange Act). ¨ Yes ý No

As of May 5, 2020, the registrant had 12,544,195 shares of its common stock and 1,022,887 shares of its Class B convertible common stock outstanding.

VISHAY PRECISION GROUP, INC.

FORM 10-Q

March 28, 2020

CONTENTS



		Page Number
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets– March 28, 2020 (Unaudited) and December 31, 2019	3

	Consolidated Condensed Statements of Operations (Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019	5

	Consolidated Condensed Statements of Comprehensive Income (Loss)(Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019	6

	Consolidated Condensed Statements of Cash Flows(Unaudited) –Fiscal Quarters Ended March 28, 2020 and March 30, 2019	7

	Consolidated Condensed Statements of Equity(Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019	8

	Notes to Unaudited Consolidated Condensed Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

	SIGNATURES	40

-2-

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands)

	March 28, 2020			December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	82,731		$	86,910
Accounts receivable, net	46,958			43,198
Inventories:
Raw materials	25,712			21,701
Work in process	19,062			23,128
Finished goods	19,198			22,066
Inventories, net	63,972			66,895

Prepaid expenses and other current assets	16,616			15,558
Total current assets	210,277			212,561

Property and equipment, at cost:
Land	4,172			4,243
Buildings and improvements	52,136			52,708
Machinery and equipment	112,204			111,492
Software	9,486			9,384
Construction in progress	3,955			2,485
Accumulated depreciation	(120,744		)	(119,042		)
Property and equipment, net	61,209			61,270

Goodwill	34,511			35,018

Intangible assets, net	32,937			34,198

Other assets	25,867			27,366
Total assets	$	364,801		$	370,413

Continues on the following page.

-3-

VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (continued) (In thousands)

	March 28, 2020			December 31, 2019
	(Unaudited)
Liabilities and equity
Current liabilities:
Trade accounts payable	$	7,937		$	8,869
Payroll and related expenses	17,096			16,312
Other accrued expenses	20,687			18,953
Income taxes	1,631			261
Current portion of long-term debt	115			44,516
Total current liabilities	47,466			88,911

Long-term debt, less current portion	40,599			17
Deferred income taxes	3,478			3,478
Other liabilities	18,631			20,586
Accrued pension and other postretirement costs	15,520			15,669
Total liabilities	125,694			128,661

Commitments and contingencies

Equity:
Common stock	1,316			1,312
Class B convertible common stock	103			103
Treasury stock	(8,765		)	(8,765		)
Capital in excess of par value	196,709			197,125
Retained earnings	92,600			89,288
Accumulated other comprehensive loss	(43,203		)	(37,703		)
Total Vishay Precision Group, Inc. stockholders' equity	238,760			241,360
Noncontrolling interests	347			392
Total equity	239,107			241,752
Total liabilities and equity	$	364,801		$	370,413

See accompanying notes.

-4-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Operations

(Unaudited - In thousands, except per share amounts)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues	$	67,696		$	76,525
Costs of products sold	42,631			43,474
Gross profit	25,065			33,051

Selling, general, and administrative expenses	20,291			20,448
Restructuring costs	130			—
Operating income	4,644			12,603

Other income (expense):
Interest expense	(461		)	(388		)
Other	683			(772		)
Other income (expense)	222			(1,160		)

Income before taxes	4,866			11,443

Income tax expense	1,574			3,117

Net earnings	3,292			8,326
Less: net (loss) earnings attributable to noncontrolling interests	(20		)	83
Net earnings attributable to VPG stockholders	$	3,312		$	8,243

Basic earnings per share attributable to VPG stockholders	$	0.24		$	0.61
Diluted earnings per share attributable to VPG stockholders	$	0.24		$	0.61

Weighted average shares outstanding - basic	13,541			13,495
Weighted average shares outstanding - diluted	13,586			13,563

See accompanying notes.

-5-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited - In thousands)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net earnings	$	3,292		$	8,326

Other comprehensive income (loss):
Foreign currency translation adjustment	(5,341		)	581
Pension and other postretirement actuarial items, net of tax	(159		)	105
Other comprehensive (loss) income	(5,500		)	686

Total comprehensive (loss) income	(2,208		)	9,012

Less: comprehensive (loss) income attributable to noncontrolling interests	(20		)	83

Comprehensive income attributable to VPG stockholders	$	(2,188	)	$	8,929

See accompanying notes.

-6-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Cash Flows

(Unaudited - In thousands)



	Three fiscal months ended
	March 28, 2020			March 30, 2019
Operating activities
Net earnings	$	3,292		$	8,326
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	3,199			2,854
Loss from extinguishment of debt	30			—
(Gain) loss on disposal of property and equipment	(3		)	1
Share-based compensation expense	379			514
Inventory write-offs for obsolescence	631			489
Deferred income taxes	(233		)	313
Other	(1,137		)	(2,367		)
Net changes in operating assets and liabilities:
Accounts receivable, net	(4,956		)	850
Inventories, net	1,449			(1,507		)
Prepaid expenses and other current assets	(1,380		)	(3,484		)
Trade accounts payable	(617		)	628
Other current liabilities	5,642			1,488
Net cash provided by operating activities	6,296			8,105

Investing activities
Capital expenditures	(3,344		)	(3,334		)
Proceeds from sale of property and equipment	15			29
Net cash used in investing activities	(3,329		)	(3,305		)

Financing activities
Principal payments on long-term debt	(33		)	(1,155		)
Repayments of principal upon termination of long-term borrowings	(3,352		)	—
Debt issuance costs	(402		)	—
Distributions to noncontrolling interests	(25		)	(34		)
Payments of employee taxes on certain share-based arrangements	(813		)	(795		)
Net cash used in financing activities	(4,625		)	(1,984		)
Effect of exchange rate changes on cash and cash equivalents	(2,521		)	169
Increase in cash and cash equivalents	(4,179		)	2,985

Cash and cash equivalents at beginning of period	86,910			90,159
Cash and cash equivalents at end of period	$	82,731		$	93,144

Supplemental disclosure of investing transactions:
Capital expenditures purchased	$	(3,178	)	$	(1,986	)
Supplemental disclosure of financing transactions:
Non-cash extinguishment of long-term debt facility (see Note 7)	$	(7,020	)	$	—
Non-cash refinancing of revolving facility (see Note 7)	$	7,020		$	—

Capital expenditures accrued but not yet paid as of March 28, 2020 were $1,016 .

See accompanying notes.

-7-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Equity

(Unaudited - In thousands, except share amounts)



	Three Fiscal Months Ended March 28, 2020
	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 December 31, 2019	$	1,312	$	103	$	(8,765	)	$	197,125		$	89,288	$	(37,703	)	$	241,360		$	392		$	241,752
Net earnings (loss)	—		—		—			—			3,312		—			3,312			(20		)	3,292
Other comprehensive loss	—		—		—			—			—		(5,500		)	(5,500		)	—			(5,500		)
Share-based compensation expense	—		—		—			379			—		—			379			—			379
Restricted stock issuances (44,189 shares)	4		—		—			(795		)	—		—			(791		)	—			(791		)
Distributions to noncontrolling interests	—		—		—			—			—		—			—			(25		)	(25		)
Balance at March 28, 2020	$	1,316	$	103	$	(8,765	)	$	196,709		$	92,600	$	(43,203	)	$	238,760		$	347		$	239,107



	Three Fiscal Months Ended March 30, 2019
	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 December 31, 2018	$	1,307	$	103	$	(8,765	)	$	196,666		$	66,569	$	(37,465	)	$	218,415		$	38		$	218,453
Net earnings	—		—		—			—			8,243		—			8,243			83			8,326
Other comprehensive income	—		—		—			—			—		686			686			—			686
Share-based compensation expense	—		—		—			514			—		—			514			—			514
Restricted stock issuances (37,187shares)	4		—		—			(602		)	—		—			(598		)	—			(598		)
Cumulative effect adjustment for adoption of ASU 2016-02	—		—		—			—			531		—			531			—			531
Distributions to noncontrolling interests	—		—		—			—			—		—			—			(34		)	(34		)
Balance at March 30, 2019	$	1,311	$	103	$	(8,765	)	$	196,578		$	75,343	$	(36,779	)	$	227,791		$	87		$	227,878

See accompanying notes.

-8-

Vishay Precision Group, Inc.

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1 – Basis of Presentation

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.

Interim Financial Statements

These unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020. The results of operations for the fiscal quarter ended March 28, 2020 are not necessarily indicative of the results to be expected for the full year. VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2020 and 2019 end on the following dates:



	2020	2019
Quarter 1	March 28,	March 30,
Quarter 2	June 27,	June 29,
Quarter 3	September 26,	September 28,
Quarter 4	December 31,	December 31,

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments. In determining the amount of the allowance for credit losses, the Company considers historical loss data, customer specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The Company adopted this ASU, effective January 1, 2020, using the modified retrospective approach, and the effect on the Company's consolidated condensed financial statements and related disclosures was not material.

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 Company adopted this ASU effective January 1, 2020, and the effect on the Company's disclosures in its consolidated condensed financial statements was not material.

Recent Accounting Pronouncements

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

-9-

Note 1 – Basis of Presentation (continued)

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 condensed financial statements.

In December 2019, the FASB issued ASU No. ASU 2019-12, "Simplifying the Accounting for Income Taxes". This ASU amends Accounting Standards Codification ("ASC") 740 by removing certain exceptions to the general principles, clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is evaluating the standard to determine the impact on the consolidated condensed financial statements.

Note 2 – Revenues

Revenue Recognition

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):



	Fiscal quarter ended March 28, 2020								Fiscal quarter ended March 30, 2019
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total		Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	11,934	$	8,392	$	8,889	$	29,215	$	16,909	$	8,052	$	5,033	$	29,994
United Kingdom	950		1,980		3,712		6,642		841		3,177		4,344		8,362
Other Europe	7,713		2,374		3,744		13,831		8,103		3,024		4,542		15,669
Israel	2,955		97		—		3,052		2,979		119		—		3,098
Asia	6,925		1,852		1,671		10,448		8,217		2,360		2,574		13,151
Canada	—		—		4,508		4,508		—		—		6,251		6,251
Total	$	30,477	$	14,695	$	22,524	$	67,696	$	37,049	$	16,732	$	22,744	$	76,525

The following table disaggregates net revenue from contracts with customers by market sector (in thousands). The Company revised its market sector categories beginning in 2020. Prior year data has been reclassified to reflect the current market sectors.



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Test & Measurement	$	14,345	$	17,621
Avionics, Military & Space	6,160		8,115
Transportation	8,244		9,619
Other Markets	13,128		12,924
Industrial Weighing	12,467		14,437
General Industrial	4,039		5,622
Steel	9,313		8,187
Total	$	67,696	$	76,525

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.

-10-

Note 2 – Revenues (continued)

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



	Contract Asset		Contract Liability
	Unbilled Revenue		Accrued Customer Advances
Balance at December 31, 2019	$	3,937	$	4,561
Balance at March 28, 2020	4,218		5,908
Increase	$	281	$	1,347

The amount of revenue recognized during the three fiscal months ended March 28, 2020 that was included in the contract liability balance at December 31, 2019 was $2.3 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.

Note 3 – Acquisitions

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	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 as of November 1, 2019 and March 28, 2020 was 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 associated with this transaction of $0.4 million during the fourth quarter of 2019.

Following is the supplemental consolidated financial results for the Company on an unaudited pro forma basis, as if the DSI acquisition had been consummated on January 1, 2019:

-11-

Note 3 - Acquisitions ( continued)



	Fiscal quarter ended
	March 30, 2019
Pro forma net revenues	$	83,622

Pro forma net earnings attributable to VPG stockholders	$	11,831

Pro forma basic earnings per share attributable to VPG stockholders	$	0.88
Pro forma diluted earnings per share attributable to VPG stockholders	$	0.87

Note 4 – Goodwill

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 Acquisition
Balance at December 31, 2019	$	35,018		$	6,559		$	18,606		$	6,311	$	3,542
Foreign currency translation adjustment	(507		)	(500		)	(7		)	—		—
Balance at March 28, 2020	$	34,511		$	6,059		$	18,599		$	6,311	$	3,542

Note 5 – Leases

Effective January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date. The Company determines if an arrangement is or contains a lease at inception or modification of such agreement. The arrangement is or contains a lease if the contract conveys the right to control the use of the identified asset for a period in exchange for consideration.

Lease right of use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected term at commencement date. As the implicit rate is not determinable in most of the Company's leases, the Company's incremental borrowing rate is used as the basis to determine the present value of future lease payments. Refer to Note 7 for discussion of the Company's borrowing rate. The expected lease terms include options to extend or terminate. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. Some of these leases contain variable payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date and are therefore not included in our future minimum lease payments. Variable payments are expensed in the periods incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. Additionally, the Company elected the package of practical expedients permitted under the transition guidance, which allows the carryforward the historical lease classification. The Company also made an election to exclude from balance sheet reporting leases with initial terms of 12 months or less and to exclude non-lease components from lease right of use assets and corresponding liabilities.

The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to six years. The Company has no finance leases.

-12-

Note 5 - Leases (continued)

Leases recorded on the balance sheet consist of the following (in thousands):



Leases	Classification on Balance Sheet	March 28, 2020		December 31, 2019

Assets
Operating lease right of use asset	Other Assets	$	8,143	$	8,691

Liabilities
Operating lease - current	Other Accrued Expenses	$	2,628	$	2,827
Operating lease - non-current	Other Liabilities	$	5,333	$	5,811

Other information related to lease term and discount rate is as follows:



	March 28, 2020
Operating leases weighted average remaining lease term (in years)	3.44 years
Operating leases weighted average discount rate	5.02	%

The components of lease expense are as follows (in thousands):



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Operating lease cost	$	874	$	823
Variable lease cost	—		—
Short-term lease cost	23		27
Total lease cost	$	897	$	850

Right of use assets obtained in exchange for new operating lease liability during 2020 were $0.3 million. The cash paid for amounts included in the measurement of lease liabilities approximates our operating lease cost for the three months ended March 28, 2020.

Undiscounted maturities of operating lease payments as of March 28, 2020 are summarized as follows (in thousands):



2020 (excluding the three months ended March 28, 2020)	$	2,496
2021	2,642
2022	1,653
2023	1,163
2024	742
Thereafter	538
Total future minimum lease payments	$	9,234
Less: amount representing interest	(1,273		)
Present value of future minimum lease payments	$	7,961

One of the Company's 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. The Company expects to commence occupancy in the second half of 2020.

Note 6 – Income Taxes

VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter ended March 28, 2020 was 32.3% compared to 27.2% for the fiscal quarter ended March 30, 2019.

-13-

Note 6 - Income Taxes (continued)

The tax rate in the current fiscal quarter is higher than the prior year fiscal quarter primarily due to changes in the mix of worldwide income.

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.

Note 7 – Long-Term Debt

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



	March 28, 2020			December 31, 2019
2020 Credit Agreement - Revolving Facility	$	41,020		$	—
2015 Credit Agreement - Revolving Facility	—			34,000
2015 Credit Agreement - U.S. Closing Date Term Facility	—			2,038
2015 Credit Agreement - U.S. Delayed Draw Term Facility	—			4,982
2015 Credit Agreement - Canadian Term Facility	—			3,476
Other debt	115			149
Deferred financing costs	(421		)	(112		)
Total long-term debt	40,714			44,533
Less: current portion	115			44,516
Long-term debt, less current portion	$	40,599		$	17

2020 Credit Agreement

On March 20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers 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 was revised to provide a secured revolving facility (the “2020 Revolving Facility”) in an aggregate principal amount of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which were used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows: (1) the “2015 U.S. Closing Date Term Facility” in an aggregate principal amount of $2.0 million; and (2) the "2015 U.S. Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. The 2020 Credit Agreement terminates on March 20, 2025.

Interest payable on amounts borrowed under the 2020 Revolving Facility 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 or CDOR 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 1.50% to 2.75% per annum is added to the applicable LIBOR or CDOR rate to determine the interest payable on the Libor or CDOR loans. The Company is required to pay a quarterly fee of 0.25% per annum to 0.40% per annum on the unused portion of the 2020 Revolving Facility, which is determined based on the Company’s leverage ratio each quarter. Additional customary fees apply with respect to letters of credit.

-14-

Note 7 - Long-Term Debt (continued)

financial ratios. The financial maintenance covenants include interest coverage ratio and a leverage ratio. 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.

Note 8 – Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in thousands):



	Foreign Currency Translation Adjustment			Pension and Other Postretirement Actuarial Items			Total
Balance at January 1, 2020	$	(30,761	)	$	(6,942	)	$	(37,703	)
Other comprehensive loss before reclassifications	(5,341		)	—			(5,341		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			(159		)	(159		)
Balance at March 28, 2020	$	(36,102	)	$	(7,101	)	$	(43,203	)



	Foreign Currency Translation Adjustment			Pension and Other Postretirement Actuarial Items			Total
Balance at January 1, 2019	$	(31,319	)	$	(6,146	)	$	(37,465	)
Other comprehensive loss before reclassifications	581			—			581
Amounts reclassified from accumulated other comprehensive income (loss)	—			105			105
Balance at March 30, 2019	$	(30,738	)	$	(6,041	)	$	(36,779	)

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 – Pension and Other Postretirement Benefits

Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. The following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands):



	Fiscal quarter ended March 28, 2020					Fiscal quarter ended March 30, 2019
	Pension Plans			OPEB Plans		Pension Plans			OPEB Plans
Net service cost	$	99		$	31	$	83		$	31
Interest cost	129			33		157			45
Expected return on plan assets	(111		)	—		(133		)	—
Amortization of actuarial losses	77			34		50			39
Net periodic benefit cost	$	194		$	98	$	157		$	115

Note 10 – Share-Based Compensation

The Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At March 28, 2020, the Company had reserved 387,201 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the Plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others.

-15-

Note 10 - Share-Based Compensation (continued)

On March 5, 2020, VPG’s three current executive officers were granted annual equity awards in the form of RSUs, of which 75% are performance-based. The awards have an aggregate target grant-date fair value of $1.2 million and were comprised of 44,269 RSUs. Twenty-five percent of these awards will vest on January 1, 2023, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2023, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and net earnings goals, each weighted equally.

On March 16, 2020, certain VPG employees were granted annual equity awards in the form of RSUs, of which 75% are performance-based. The awards have an aggregate grant-date fair value of $0.4 million and were comprised of 18,940 RSUs. Twenty-five percent of these awards will vest on January 1, 2023 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2023, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings and cash flow goals, each weighted equally.

Vesting of equity awards may be subject to acceleration under certain circumstances.

The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands):



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Restricted stock units	$	379	$	514

Note 11 – Segment Information

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 on-board weighing applications.

VPG evaluates reporting segment performance based on multiple performance measures including third party net revenues, gross profits and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring costs, executive severance costs, and other items is meaningful because it provides insight with respect to the intrinsic operating results of VPG. The following table sets forth reporting segment information (in thousands):

-16-

Note 11 - Segment Information (continued)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues:
Foil Technology Products	$	30,477		$	37,049
Force Sensors	14,695			16,732
Weighing and Control Systems	22,524			22,744
Total	$	67,696		$	76,525

Gross profit:
Foil Technology Products	$	11,201		$	16,579
Force Sensors	3,572			5,061
Weighing and Control Systems	10,292			11,411
Total	$	25,065		$	33,051

Reconciliation of segment operating income to consolidated results:
Foil Technology Products	$	5,384		$	10,306
Force Sensors	1,204			2,535
Weighing and Control Systems	4,668			6,575
Unallocated G&A expenses	(6,482		)	(6,813		)
Restructuring costs	(130		)	—
Operating income	$	4,644		$	12,603

Restructuring costs:
Foil Technology Products	$	(130	)	$	—
	$	(130	)	$	—

Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. The table below summarizes intersegment sales (in thousands):



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Foil Technology Products to Force Sensors and Weighing and Control Systems	$	724	$	933
Force Sensors to Foil Technology Products and Weighing and Control Systems	$	—	$	427
Weighing and Control Systems to Foil Technology Products and Force Sensors	$	87	$	153

-17-

Note 12 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share):



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Numerator:
Numerator for basic earnings per share:
Net earnings attributable to VPG stockholders	$	3,312	$	8,243

Denominator:
Denominator for basic earnings per share:
Weighted average shares	13,541		13,495

Effect of dilutive securities:
Restricted stock units	45		68
Dilutive potential common shares	45		68

Denominator for diluted earnings per share:
Adjusted weighted average shares	13,586		13,563

Basic earnings per share attributable to VPG stockholders	$	0.24	$	0.61

Diluted earnings per share attributable to VPG stockholders	$	0.24	$	0.61

-18-

Note 13 – Additional Financial Statement Information

Other Income (Expense) Other

The caption “Other” on the consolidated condensed statements of operations consists of the following (in thousands):



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Foreign exchange gain (loss)	$	900		$	(736	)
Interest income	67			155
Pension expense	(159		)	(158		)
Other	(125		)	(33		)
	$	683		$	(772	)

Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended March 28, 2020, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar and the British pound.

Note 14 – Fair Value Measurements

ASC Topic 820, Fair Value Measurement, establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the Company’s own assumptions.

An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands):



			Fair value measurements at reporting date using:
	Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
March 28, 2020
Assets
Assets held in rabbi trusts	$	4,727	$	117	$	4,610	$	—

December 31, 2019
Assets
Assets held in rabbi trusts	$	5,169	$	53	$	5,116	$	—

The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at March 28, 2020 and December 31, 2019, and company-owned life insurance assets. The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the marketable securities held in the rabbi trust is considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.

-19-

Note 14 - Fair Value Measurements (continued)

The fair value of the long-term debt, excluding capitalized deferred financing costs, at March 28, 2020 and December 31, 2019 approximates its carrying value. The revolving debt and term loans are reset on a quarterly basis based on current market rates, plus a base rate as specified in the corresponding debt agreements. The fair value of long-term debt is considered a Level 2 measurement within the fair value hierarchy. The Company’s financial instruments include cash and cash equivalents whose carrying amounts reported in the consolidated condensed balance sheets approximate their fair values.

Note 15 – 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 $0.1 million and $0.0 million of restructuring costs during the fiscal quarter ended March 28, 2020 and March 30, 2019, respectively. Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.

The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of March 28, 2020 and December 31, 2019, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands):



Balance at December 31, 2019	$	604
Restructuring charges in 2020	130
Cash payments	(380		)
Foreign currency translation	(11		)
Balance at March 28, 2020	$	343

-20-

Item 2. 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.

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.

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in economic disruption and has adversely affected and will likely continue to adversely affect our business. Uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. As previously disclosed, the Company's force sensor manufacturing facility in Tianjin, China was closed for three weeks due to governmental restrictions related to the COVID-19 pandemic. The closure of our Tianjin facility ended in February 2020, but had a negative impact on our financial performance in the quarter ended March 28, 2020. Our force sensor manufacturing facility in India had also been operating with a significantly reduced workforce since late March 2020. The Indian government has allowed us to resume partial operations at such factory effective May 4, 2020, and we expect that the Indian government will allow businesses such as ours to resume full operations on May 17, 2020. As of the date of this filing, all of the Company's facilities continue to operate, at least partially, as we believe that our business is “critical,” “essential” or “life-sustaining” under applicable laws, orders and guidelines, although they are operating with reduced numbers of personnel and following social distancing protocols. Factors related to the COVID-19 response that have negatively impacted and may negatively impact our results of operations in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or our ability to procure from other manufacturers, the materials we need to produce the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home, including, notably, with respect to our manufacturing facility in India where a material portion of our force sensor components and products are made; limitations on the ability of commercial carriers to deliver our products to customers; and limitations on the ability of our customers to conduct their business and purchase our products and services. We expect that many of our customers have closed or significantly reduced their operations due to the COVID-19 pandemic, and such actions may result in customer orders from the first and second quarters of 2020 being delayed to the third or fourth quarter of 2020 or later. We also expect the operating results of our Force Sensors and Weighing and Control Systems segments in at least the second quarter of 2020 to be negatively impacted, potentially significantly, by the partial closure of our India force sensor manufacturing facility during March, April and a portion of May 2020 and softer demand across the majority of our Weighing and Control Systems markets due to the impact of COVID-19 on key end-markets, such as transportation and industrial weighing. In particular, and assuming a full reopening of our India force sensor manufacturing facility on May 17, 2020, which is the current date that the Indian government has given for a full reopening, we expect revenues from our Force Sensors segment to be reduced by $5 million to $7 million and operating profit to be impacted by $3.5 million in the second quarter

-21-

of 2020. If the operations restrictions on our Indian facility are not lifted on May 17, 2020 as we expect, we anticipate an additional negative impact on our results of operation.

In light of the adverse effects of the COVID-19 pandemic, we are evaluating factors impacting our liquidity and taking actions to reduce costs and spending across our organization. This includes reducing hiring, adjusting salary programs, and limiting discretionary spending. We have also reduced anticipated spending on capital investment projects.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders. We are currently unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity and capital resources.

Overview of Financial Results

Net revenues for the fiscal quarter ended March 28, 2020 were $67.7 million versus $76.5 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended March 28, 2020 were $3.3 million, or $0.24 per diluted share, versus $8.2 million, or $0.61 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended March 28, 2020 and March 30, 2019 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.



	Gross Profit						Operating Income						Net Earnings Attributable to VPG Stockholders				Diluted Earnings Per share
Three fiscal months ended	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019			March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
As reported - GAAP	25,065			33,051			4,644			12,603			$	3,312	$	8,243	$	0.24	$	0.61
As reported - GAAP Margins	37.0		%	43.2		%	6.9		%	16.5		%
Acquisition purchase accounting adjustments (a)	515			—			515			—			515		—		0.04		—
Restructuring costs				—			130			—			130		—		0.01		—
Less: Tax effect of reconciling items and discrete tax items				—						—			7		—		—		—
As Adjusted - Non GAAP	$	25,580		$	33,051		$	5,289		$	12,603		$	3,950	$	8,243	$	0.29	$	0.61
As Adjusted - Non GAAP Margins	37.8		%	43.2		%	7.8		%	16.5		%


(a)	Acquisition purchase accounting adjustments in 2020 include fair market value adjustments associated with inventory recorded as a component of costs of products sold.

-22-

Financial Metrics

We utilize several financial measures and metrics to evaluate 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 computed as gross profit 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 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, backlog is not necessarily indicative of the results 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 amount of product shipped during that period. A book-to-bill ratio that is greater than one indicates that revenues may increase in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand and may foretell declining sales. The book-to-bill ratio is also impacted by the timing of orders, particularly from our project-based product lines.

We focus on inventory turnover as a measure of how well we manage 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 tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the first quarter of 2019 through the first quarter of 2020 (dollars in thousands):



	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			1st Quarter
	2019			2019			2019			2019			2020
Net revenues	$	76,525		$	70,870		$	67,421		$	69,142		$	67,696

Gross profit margin	43.2		%	40.4		%	38.3		%	35.0		%	37.0		%

End-of-period backlog	$	87,100		$	83,400		$	79,300		$	90,900		$	94,300

Book-to-bill ratio	0.92			0.94			0.96			1.15			1.08

Inventory turnover	2.77			2.66			2.60			2.72			2.58

-23-



	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			1st Quarter
	2019			2019			2019			2019			2020
Foil Technology Products
Net revenues	$	37,049		$	32,999		$	32,119		$	29,636		$	30,477
Gross profit margin	44.7		%	43.6		%	37.3		%	34.9		%	36.7		%
End-of-period backlog	$	44,000		$	42,100		$	38,900		$	44,600		$	51,700
Book-to-bill ratio	0.88			0.93			0.91			1.18			1.25
Inventory turnover	2.97			2.65			2.79			2.66			2.74

Force Sensors
Net revenues	$	16,732		$	16,349		$	16,217		$	15,059		$	14,695
Gross profit margin	30.2		%	26.9		%	30.4		%	24.2		%	24.3		%
End-of-period backlog	$	17,400		$	16,400		$	15,200		$	17,100		$	16,900
Book-to-bill ratio	0.98			0.95			0.94			1.11			1.02
Inventory turnover	2.29			2.39			2.30			2.43			2.64

Weighing and Control Systems
Net revenues	$	22,744		$	21,522		$	19,085		$	24,447		$	22,524
Gross profit margin	50.2		%	45.6		%	46.6		%	41.6		%	45.7		%
End-of-period backlog	$	25,700		$	24,900		$	25,200		$	29,200		$	25,700
Book-to-bill ratio	0.93			0.95			1.04			1.15			0.90
Inventory turnover	3.07			3.03			2.61			3.10			2.31

Net revenues for the first quarter of 2020 decreased 2.1% from the fourth quarter of 2019 mainly due to decreased volume in the Force Sensors and Weighing and Control Systems segments, partially offset by volume improvement in the Foil Technology Products segment. Net revenues decreased 11.5% from the first quarter of 2019 due to decreased volume in all of the reporting segments.

Net revenues in the Foil Technology Products reporting segment increased 2.8% compared to the fourth quarter of 2019 and decreased 17.7% from the first quarter of 2019. The sequential increase in revenue was attributable to precision resistor products in all regions for distribution and EMS customers, primarily in the avionics, military and space, as well as test and measurement end markets. Compared to the first quarter of 2019, the decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market. The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.

Net revenues in the Force Sensors reporting segment decreased 2.4% from the fourth quarter of 2019 and decreased 12.2% from the first quarter of 2019. The sequential decrease in revenue was attributable to distribution customers in the industrial weighing market, mainly in the Americas and Asia. Compared to the first quarter of 2019, the decrease in revenues was mainly due to lower volume from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.

Net revenues in the Weighing and Control Systems reporting segment decreased 7.9% from the fourth quarter of 2019 and decreased 1.0% from the first quarter of 2019. Sequentially, the lower net revenues are primarily attributable to a reduction in the steel product line in the Americas and in Asia for end user customers. Compared to the first quarter of 2019, the decrease in revenues are attributable to our KELK steel product line in the Americas and in Europe, onboard weighing product line for the transportation end market in Europe, and the European process weighing product line, mostly offset with the additional revenues of Dynamic Systems Inc. ("DSI"), which was acquired in November 2019.

Overall gross profit margin in the first quarter of 2020 increased 2% as compared to the fourth quarter of 2019 and decreased 6.2% from the first quarter of 2019.

Sequentially, the Foil Technology Products segment gross profit margin increased primarily due to higher volume. The Force Sensors segment gross profit margin was flat as the favorable impact from cost savings initiatives offset lower volume and a reduction in export grants. In the Weighing and Control Systems segment, the gross profit margin was 45.7% (48.0% excluding

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the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) compared to 41.6% (46.8% excluding the purchase accounting adjustment of $1.3 million related to the DSI acquisition). The increase was mainly due to manufacturing efficiencies which were partially offset by lower volume.

Compared to the first quarter of 2019, the Foil Technology Products reporting segment had a lower gross profit margin primarily due to lower volume, negative impact of foreign exchange rates and inventory reductions. The Force Sensors reporting segment decrease in gross profit margin was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives. In the Weighing and Control Systems segment, the gross profit margin of 45.7% (48.0% excluding the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) decreased from the first quarter of 2019 primarily due to unfavorable product mix.

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.

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 support our advanced sensors business.

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.

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.

Acquisition Strategy

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.

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.

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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 our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020.

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.

Goodwill

We test the goodwill in each of our reporting units for impairment at least annually, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. 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.

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 condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity.

For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the period. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated condensed statement 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.

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Effects of Foreign Exchange Rate on Operations

For the fiscal quarter ended March 28, 2020, exchange rates decreased net revenues by $0.6 million, and increased costs of products sold and selling, general, and administrative expenses by $0.4 million, when compared to the comparable prior year period.

Off-Balance Sheet Arrangements

As of March 28, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.

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Results of Operations

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



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Costs of products sold	63.0	%	56.8	%
Gross profit	37.0	%	43.2	%
Selling, general, and administrative expenses	30.0	%	26.7	%
Operating income	6.9	%	16.5	%
Income before taxes	7.2	%	15.0	%
Net earnings	4.9	%	10.9	%
Net earnings attributable to VPG stockholders	4.9	%	10.8	%

Effective tax rate	32.3	%	27.2	%

Net Revenues

Net revenues were as follows (dollars in thousands):



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues	$	67,696		$	76,525
Change versus comparable prior year period	$	(8,829	)
Percentage change versus prior year period	(11.5		)%

Changes in net revenues were attributable to the following:



	vs. prior year quarter
Change attributable to:
Change in volume	(16.1	)%
Change in average selling prices	0.6	%
Foreign currency effects	(0.8	)%
Acquisitions	4.8	%
Net change	(11.5	)%

During the fiscal quarter ended March 28, 2020, net revenues decreased 11.5%, as compared to the comparable prior year period due to decreased volume in all of the reporting segments.

Gross Profit Margin

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



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Gross profit margin	37.0	%	43.2	%

The gross profit margin for the fiscal quarter ended March 28, 2020 decreased 6.2% compared to the comparable prior year period, with all reporting segments contributing to the decline.

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Segments

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

Foil Technology Products

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



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues	$	30,477		$	37,049
Change versus comparable prior year period	$	(6,572	)
Percentage change versus prior year period	(17.7		)%

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



	vs. prior year quarter
Change attributable to:
Change in volume	(18.1	)%
Change in average selling prices	1.1	%
Foreign currency effects	(0.7	)%
Net change	(17.7	)%

Net revenues decreased 17.7% for the fiscal quarter ended March 28, 2020 as compared to the comparable prior year period. This decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market. The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.

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



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Gross profit margin	36.7	%	44.7	%

The gross profit margin decreased 8.0% for the fiscal quarter ended March 28, 2020, when compared to the comparable prior year period primarily due to lower volume, negative impact of foreign exchange rates and inventory reductions.

Force Sensors

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



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues	$	14,695		$	16,732
Change versus comparable prior year period	$	(2,037	)
Percentage change versus prior year period	(12.2		)%

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



	vs. prior year quarter
Change attributable to:
Change in volume	(11.8	)%
Change in average selling prices	0.4	%
Foreign currency effects	(0.8	)%
Net change	(12.2	)%

Net revenues decreased 12.2% for the fiscal quarter ended March 28, 2020, as compared to the comparable prior year period. The decrease for the fiscal quarter ended March 28, 2020 was attributable to lower revenues from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.

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



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Gross profit margin	24.3	%	30.2	%

The gross profit margin for the fiscal quarter ended March 28, 2020 decreased 5.9% compared to the comparable prior year period. This decrease was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives.

Weighing and Control Systems

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



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net revenues	$	22,524		$	22,744
Change versus comparable prior year period	$	(220	)
Percentage change versus prior year period	(1.0		)%

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



	vs. prior year quarter
Change attributable to:
Change in volume	(15.9	)%
Change in average selling prices	0.0	%
Foreign currency effects	(1.2	)%
Acquisitions	16.1	%
Net change	(1.0	)%

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Net revenues decreased 1.0% for the fiscal quarter ended March 28, 2020, as compared to the comparable prior year period. For the fiscal quarter ended March 28, 2020, the decline in net revenues is attributable to our KELK steel product line in the Americas and in Europe, onboard weighing product line for the transportation end market in Europe, and the European process weighing product line, mostly offset with the additional revenues of DSI, which was acquired in November 2019.

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



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Gross profit margin	45.7	%	50.2	%

The gross profit margin for the fiscal quarter ended March 28, 2020 of 45.7% (48.0% excluding the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) decreased from the first quarter of 2019 primarily due to unfavorable product mix.

Selling, General, and Administrative Expenses

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



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Total SG&A expenses	$	20,291		$	20,448

As a percentage of net revenues	30.0		%	26.7		%

SG&A expenses for the fiscal quarter ended March 28, 2020 decreased compared to the comparable prior year period mainly due to lower personnel costs and commissions, offset by SG&A expenses related to DSI.

Restructuring Costs

Other Income (Expense)

Interest expense for the fiscal quarter ended March 28, 2020 was higher compared with interest expense in the comparable prior year periods mainly due higher outstanding borrowings in the current year from the acquisition of DSI.

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



	Fiscal quarter ended
	March 28, 2020			March 30, 2019			Change
Foreign exchange gain (loss)	$	900		$	(736	)	$	1,636
Interest income	67			155			(88		)
Pension expense	(159		)	(158		)	(1		)
Other	(125		)	(33		)	(92		)
	$	683		$	(772	)	$	1,455

Income Taxes

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Financial Condition, Liquidity, and Capital Resources

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.

In March, 2020, we entered into a third amended and restated credit agreement. The terms of our credit agreement provide for the following facilities: (1) secured revolving facility of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes. The restated credit agreement was used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows: (1) the “2015 U.S. Closing Date Term Facility” in an aggregate principal amount of $2.0 million; (2) the "2015 U.S. Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. The 2020 Credit Agreement terminates on March 20, 2025.

The obligations of the Company under the 2020 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. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 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 interest coverage ratio and a leverage ratio. We were in compliance with these covenants at March 28, 2020. 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.

Our other long-term debt is not significant and consists of zero percent interest rate debt held by our Japanese subsidiary of approximately $0.1 million at March 28, 2020 and $0.1 million at December 31, 2019.

Our business has historically generated significant cash flow. For the three fiscal months ended March 28, 2020, cash provided by operating activities was $6.3 million. Cash provided by operating activities for the three fiscal months ended March 30, 2019 was $8.1 million. Cash provided by operating activities for the three fiscal months ended March 28, 2020 was lower than the cash provided by operating activities for the three fiscal months ended March 30, 2019 due to a decrease in net earnings. Our net cash used in investing activities for the three fiscal months ended March 28, 2020 was comparable with the prior year. Our net cash used by financing activities for the three fiscal months ended March 28, 2020, reflects the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.

Adjusted free cash flow generated during the three fiscal months ended March 28, 2020, was $3.0 million. We refer to the amount of cash provided by operating activities ($6.3 million) in excess of our capital expenditures ($3.3 million) and net of proceeds from the sale of assets ($0.0 million) as “adjusted free cash flow.”

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The following table summarizes the components of net cash at March 28, 2020 and December 31, 2019 (in thousands):



	March 28, 2020			December 31, 2019
Cash and cash equivalents	$	82,731		$	86,910

Third-party debt, including current and long-term:
Term loans	—			10,496
Revolving debt	41,020			34,000
Third-party debt held by Japanese subsidiary	115			149
Deferred financing costs	(421		)	(112		)
Total third-party debt	40,714			44,533
Net cash	$	42,017		$	42,377

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.

Approximately 95% and 86% of our cash and cash equivalents balance at March 28, 2020 and December 31, 2019, respectively, was held by our non-U.S. subsidiaries.

See the following table for the percentage of cash and cash equivalents, by region, at March 28, 2020 and December 31, 2019:



	March 28, 2020		December 31, 2019
Israel	30	%	23	%
Asia	25	%	7	%
Europe	16	%	28	%
United States	5	%	14	%
United Kingdom	16	%	17	%
Canada	8	%	11	%
	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 are held by foreign subsidiaries. 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, 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 March 28, 2020, to be indefinitely reinvested.

Our financial condition as of March 28, 2020 remains strong, with a current ratio (current assets to current liabilities) of 4.4 to 1.0, as compared to a ratio of 2.4 to 1.0 at December 31, 2019.

Cash paid for property and equipment for the three fiscal months ended March 28, 2020 was $3.3 million compared to $3.3 million in the comparable prior year period.

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Contractual Commitments

Our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 11, 2020, includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K.

Safe Harbor Statement

From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated.

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies (including Dynamic Systems, Inc.); the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, health (including the COVID-19 "coronavirus") and military instability in the countries in which we operate; difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; significant developments from the recent and potential changes in tariffs and trade regulation; our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter in place orders and business closures and resource allocations, manufacturing and supply chains; the Company’s status as a “critical”, “essential” or “life-sustaining” business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority; the Company’s ability to execute its business continuity, operational and budget plans in light of the COVID-19 outbreak; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020.

Item 4. 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 quarterly 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.

Changes in Internal Control over Financial Reporting

During our last fiscal quarter ended March 28, 2020, there was no change in our internal control over financial reporting that materially affected, or is reasonable likely to materially affect, internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020. With the exception of the following, there have been no material changes in reported risk factors from the information reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The COVID-19 outbreak could adversely impact our results of operations.

The impact of the COVID-19 outbreak and the spread of the novel coronavirus on a global basis is likely to adversely affect our business in a number of respects, although the extent, nature and timing of such impact cannot be predicted at this time. The COVID-19 outbreak has led countries around the world, as well as most states in the U.S., to implement restrictions relating to the operation of almost all types of businesses. The closure standards vary from jurisdiction to jurisdiction, but they typically require all but “critical”, “essential” or “life-sustaining” businesses to close all offices and facilities. We believe, based on the various standards published to date, that our businesses meet the requisite standard to remain open, at least partially, in all jurisdictions in which we operate, although there is no assurance that our decision to remain open will not be challenged. As of the date of this filing, all of our manufacturing and other facilities are operating, although some of them are operating at reduced capacity as a result of enacting procedures designed to prevent the spread of the virus, such as social distancing, reduced personnel and staggered shifts. Changing standards regarding what type of facilities are permitted to remain open, as well as evolving interpretations of existing standards, in both the United States and around the globe, could result in the closure of some or all of our facilities. In addition, while the government of India has allowed us to partially reopen our Indian manufacturing facility effective as of May 4, 2020, prior to that date such manufacturing facility, where a material portion of our force sensor products and components are made, had been open with a significantly reduced workforce in light of the business closure requirements and social distancing best practices. We also expect the operating results of our Force Sensors and Weighing and Control Systems segments in at least the second quarter of 2020 to be negatively impacted, potentially significantly, by the partial closure of our India force sensor manufacturing facility during March, April and a portion of May 2020 and softer demand across the majority of our Weighing and Control Systems markets due to the impact of COVID-19 on key end-markets, such as transportation and industrial weighing. In particular, and assuming a full reopening of our India force sensor manufacturing facility on May 17, 2020, which is the current date that the Indianan government has given for a full reopening, we expect revenues from our Force Sensors segment to be reduced by $5 million to $7 million and operating profit to be impacted by $3.5 million in the second quarter of 2020. If the operations restrictions on our Indian facility are not lifted on May 17, 2020 as we expect, we anticipate an additional negative impact on our results of operation.

To date, our supply chain has not experienced significant disruptions, and at this time we do not anticipate any such significant disruptions in the near term. However, our suppliers could be required by government authorities to temporarily cease operations in accordance with the various restrictions discussed above, might be limited in their production capacity due to complying with restrictions relating to the operation of businesses during the COVID-19 pandemic, or could suffer their own supply chain disruptions, impacting their ability to continue to supply us with the quantity of materials required by us.

If as a result of the COVID-19 outbreak governments take additional protective actions, or extend the time period for existing protective actions, it may have a material adverse impact on our business and operating results. This could include closures of our facilities or the closure of the facilities of our customers, suppliers, or other vendors in our supply chain. Any disruption of our supply chain or the businesses of our customers could adversely impact our business and results of operations. In addition, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets worldwide, resulting in an economic downturn that has adversely impacted many businesses, including ours. The extent and duration of the impact on the global economy and financial markets from the COVID-19 is difficult to predict, and the extent to which the COVID-19 will negatively affect us and the duration of any potential business disruption is uncertain. The impact to our business and results of operation will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 outbreak and the actions taken by authorities and other entities to contain the COVID-19 or treat its impact, and the impact of such actions, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our operating results.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

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Item 6. EXHIBITS



10.1		Employment Agreement, dated March 15, 2020, by and between Vishay Advanced Technologies, Ltd. and Amir Tal.
10.2		Third Amended and Restated Credit Agreement, dated March 20, 2020, by and among Vishay Precision Group, Inc., the lenders party thereto, Citizens Bank, National Association, Wells Fargo Bank, National Association, and JPMorgan Chase Bank, National Association (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 23, 2020 and incorporated herein by reference).
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 (Quarterly Report on Form 10-Q, for the quarterly period ended March 28, 2020, furnished in XBRL (eXtensible Business Reporting Language).

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SIGNATURES

Pursuant to the requirements 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.

	/s/ William M. Clancy
	William M. Clancy
	Executive Vice President and Chief Financial Officer
	(as a duly authorized officer and principal financial and accounting officer)

Date: May 5, 2020

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Vishay Precision Group, Inc. - FORM 10-Q - May 5, 2020

Attached files

Vishay Precision Group, Inc. Reports