Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.03M
2: EX-10.1 Material Contract HTML 27K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 23K
12: R1 Cover HTML 75K
13: R2 Consolidated Condensed Balance Sheets HTML 173K
14: R3 Consolidated Condensed Statements of Operations HTML 114K
15: R4 Consolidated Condensed Statements of Comprehensive HTML 58K
Income (Loss)
16: R5 Consolidated Condensed Statements of Cash Flows HTML 108K
17: R6 Consolidated Condensed Statements of Equity HTML 77K
18: R7 Consolidated Condensed Statements of Equity HTML 29K
(Parenthetical)
19: R8 Basis of Presentation HTML 31K
20: R9 Revenues HTML 127K
21: R10 Acquisition HTML 41K
22: R11 Goodwill HTML 41K
23: R12 Leases HTML 54K
24: R13 Income Taxes HTML 28K
25: R14 Long-Term Debt HTML 34K
26: R15 Accumulated Other Comprehensive Income (Loss) HTML 44K
27: R16 Pensions and Other Postretirement Benefits HTML 56K
28: R17 Share-Based Compensation HTML 37K
29: R18 Segment Information HTML 104K
30: R19 Earnings Per Share HTML 52K
31: R20 Additional Financial Statement Information HTML 39K
32: R21 Fair Value Measurements HTML 41K
33: R22 Restructuring Costs HTML 31K
34: R23 Stockholder's equity HTML 29K
35: R24 Basis of Presentation - (Policies) HTML 28K
36: R25 Basis of Presentation - (Tables) HTML 27K
37: R26 Revenues - (Tables) HTML 125K
38: R27 Acquisition - (Tables) HTML 40K
39: R28 Goodwill (Tables) HTML 43K
40: R29 Leases - (Tables) HTML 59K
41: R30 Long-Term Debt - (Tables) HTML 34K
42: R31 Accumulated Other Comprehensive Income (Loss) - HTML 43K
(Tables)
43: R32 Pensions and Other Postretirement Benefits - HTML 53K
(Tables)
44: R33 Share-Based Compensation - (Tables) HTML 30K
45: R34 Segment Information - (Tables) HTML 100K
46: R35 Earnings Per Share - (Tables) HTML 52K
47: R36 Additional Financial Statement Information - HTML 38K
(Tables)
48: R37 Fair Value Measurements - (Tables) HTML 37K
49: R38 Restructuring Costs - (Tables) HTML 29K
50: R39 Revenues - (Disaggregation of Revenue by HTML 70K
Geographic Area) (Details)
51: R40 Revenues - (Disaggregation of Revenue by Market HTML 43K
Sector) (Details)
52: R41 Revenues - (Contract Assets and Liabilities) HTML 32K
(Details)
53: R42 Revenues - (Narrative) (Details) HTML 24K
54: R43 Acquisition - (Narrative) (Details) HTML 64K
55: R44 Acquisition - (Schedule of Assets Acquired and HTML 51K
Liabilities Assumed) (Details)
56: R45 Acquisitions - (Pro Forma Information) (Details) HTML 33K
57: R46 Goodwill - (Schedule of Goodwill) (Details) HTML 42K
58: R47 Leases - (Narrative) (Details) HTML 34K
59: R48 Leases - (Leases Recorded on the Balance Sheet) HTML 29K
(Details)
60: R49 Leases - (Other Information Related to Leases) HTML 26K
(Details)
61: R50 Leases - (Components of Lease Expense) (Details) HTML 31K
62: R51 Leases - (Maturities of Operating Lease HTML 40K
Liabilities) (Details)
63: R52 Income Taxes - (Details) HTML 24K
64: R53 Long-Term Debt - (Schedule of Long-term Debt) HTML 33K
(Details)
65: R54 Accumulated Other Comprehensive Income (Loss) - HTML 49K
(Details)
66: R55 Pensions and Other Postretirement Benefits - HTML 44K
(Schedule of Net Pension and Other Retirement Plan
Costs) (Details)
67: R56 Share-Based Compensation - (Narrative) (Details) HTML 55K
68: R57 Share-Based Compensation - (Schedule of HTML 24K
Share-based Compensation Expense) (Details)
69: R58 Segment Information - (Narrative) (Details) HTML 23K
70: R59 Segment Information - (Schedule of Segment HTML 68K
Reporting) (Details)
71: R60 Segment Information - (Intersegment Sales) HTML 33K
(Details)
72: R61 Earnings Per Share - (Computation of Basic and HTML 63K
Diluted Earnings Per Share) (Details)
73: R62 Additional Financial Statement Information - HTML 33K
(Schedule of Other Items in Operations) (Details)
74: R63 Additional Financial Statement Information - HTML 26K
(Narrative) (Details)
75: R64 Fair Value Measurements - (Schedule of Assets and HTML 32K
Liabilities at Fair Value, Recurring) (Details)
76: R65 Restructuring Costs - (Narrative) (Details) HTML 25K
77: R66 Restructuring Costs - Restructuring Programs HTML 33K
(Details)
78: R67 Equity (Details) HTML 29K
81: XML IDEA XML File -- Filing Summary XML 149K
79: XML XBRL Instance -- vpg-20221001_htm XML 2.17M
80: EXCEL IDEA Workbook of Financial Reports XLSX 117K
8: EX-101.CAL XBRL Calculations -- vpg-20221001_cal XML 190K
9: EX-101.DEF XBRL Definitions -- vpg-20221001_def XML 429K
10: EX-101.LAB XBRL Labels -- vpg-20221001_lab XML 1.17M
11: EX-101.PRE XBRL Presentations -- vpg-20221001_pre XML 710K
7: EX-101.SCH XBRL Schema -- vpg-20221001 XSD 127K
82: JSON XBRL Instance as JSON Data -- MetaLinks 370± 529K
83: ZIP XBRL Zipped Folder -- 0001487952-22-000034-xbrl Zip 346K
(Exact name of registrant as specified in its charter)
iDelaware
i27-0986328
(State
or Other Jurisdiction of Incorporation)
(I.R.S. Employer Identification Number)
i3 Great Valley Parkway, Suite 150
iMalvern,
iPA, i19355
i484-i321-5300
(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
iCommon
stock, $0.10 par value
iVPG
iNew 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. ýiYes¨ 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. ýiYes¨ 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
¨
iAccelerated
filer
ý
Non-accelerated filer
¨
Smaller reporting company
i☐
Emerging growth company
i☐
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). i☐
Yes ý No
As of November 8, 2022, the registrant had i12,550,775 shares of its common stock and i1,022,887
shares of its Class B convertible common stock outstanding.
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1 – iBasis
of Presentation
Background
Vishay Precision Group, Inc. (“VPG” or the “Company”) is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems. Many of our precision measurement sensing products and solutions are “designed-in” by our customers, and address growing applications across a diverse array of industries and markets. 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, and we employ an operationally diversified structure to manage our businesses.
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, 2021 and 2020 and for each of the three years in the period ended December 31, 2021,
included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 4, 2022. The results of operations for the fiscal quarter ended October 1, 2022 are not necessarily indicative of the results to be expected for the full year. iiVPG
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 2022 and 2021 end on the following dates: /
2022
2021
Quarter 1
April
2,
April 3,
Quarter 2
July 2,
July 3,
Quarter 3
October 1,
October 2,
Quarter 4
December 31,
December 31,
Note
2 – iRevenues
Revenue Recognition
iThe 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):
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.
iThe outstanding contract assets and liability accounts were as follows (in thousands):
The
amount of revenue recognized during the nine fiscal months ended October 1, 2022 that was included in the contract liability balance at December 31, 2021 was$i3.2 million.
Note
3 - iAcquisition
Diversified Technical Systems, Inc.
On June 1, 2021, VPG completed the acquisition of California-based Diversified Technical Systems, Inc. (“DTS”), a manufacturer of data acquisition systems and sensors for product safety and testing, for a purchase price of $i47.2 million. The
Company used cash on hand and borrowings under its revolving credit facility to fund the purchase price under the purchase agreement. DTS reports into the Company's Measurement Systems segment. iThe following table summarizes the final fair values assigned to the assets and liabilities of DTS as of June 1, 2021 (in thousands):
The
Company utilizes certain valuations and studies to determine the fair value of the tangible and intangible assets acquired. The estimated weighted average useful lives for the acquired technology and customer relationships are ii15/
years. Trade names are treated as indefinite-lived intangible assets. None of the goodwill associated with DTS is deductible for income tax purposes. The Company recorded acquisition costs associated with this transaction of $i1.2 million in the second quarter of 2021, which included legal fees, appraisal fees, investments banker fees and insurance costs.
Included
in the results of the operations of the Company for the fiscal quarter ended October 1, 2022, are net revenues of $i7.9 million from DTS and a net income of $i0.2 million
from DTS. DTS results include amortization of the inventory step-up of $i0.3 million for the fiscal quarter ended October 1, 2022, and amortization of intangible assets of $i0.4 million
for the fiscal quarter ended October 1, 2022. Included in the results of the operations of the Company for the nine fiscal months ended October 1, 2022 are net revenues of $i22.5 million from DTS and a net loss of $i0.3 million
from DTS. DTS results include amortization of the inventory step-up of $i1.3 million and amortization of intangible assets of $i1.1 million for
the nine fiscal months ended October 1, 2022.
iFollowing is the supplemental consolidated financial results for the Company on an unaudited pro forma basis, as if the DTS acquisition had been consummated on January 1, 2021:
Pro
forma net earnings attributable to VPG stockholders
$
i17,641
Pro
forma basic earnings per share attributable to VPG stockholders
$
i1.30
Pro forma diluted earnings per share attributable to VPG stockholders
$
i1.29
Note
4 – iGoodwill
The Company tests the goodwill in each of its goodwill reporting units for impairment at least annually, as of the first day of its fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred.
i
The
change in the carrying amount of goodwill by segment is as follows (in thousands):
The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than ione
year to ifourteen years. The Company has no finance leases.
i
Leases recorded on the balance sheet consist of the following (in
thousands):
Right
of use assets obtained in exchange for new operating lease liability during 2022 were $i0.7 million. The Company paid $i3.9 million
and $i3.8 million for its operating leases for each of the nine fiscal months ended October 1, 2022 and October 2, 2021, which are included in operating cash flows on the consolidated condensed statements of cash flows.
i
Undiscounted
maturities of operating lease payments as of October 1, 2022 are summarized as follows (in thousands):
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 October 1, 2022 was i18.6% compared to i23.4%
for the fiscal quarter ended October 2, 2021. The effective tax rate for the nine fiscal months ended October 1, 2022 was i19.4% compared to i20.3%
for the nine fiscal months ended October 2, 2021.
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 – iLong-Term
Debt
i
Long-term debt consists of the following (in thousands):
Reclassification
of foreign currency translation adjustment for the loss on liquidation of subsidiaries is included in other income and expense other (see Note 13). 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 – iPension
and Other Postretirement Benefits
Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. iThe following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands):
-17-
Note
9 - Pension and Other Postretirement Benefits ( continued)
On May 26, 2022, the Company’s stockholders voted to approve the adoption of the Vishay Precision Group, Inc. 2022 Stock Incentive Plan (the "2022 plan"), which replaced the Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (the "previous plan"). The 2022 plan permits issuance
of up to i608,000 shares of common stock, which includes approximately i308,000
shares that were reserved for issuance under the previous plan and up to an additional i197,685 additional shares underlying awards outstanding under the previous plan. At October 1, 2022, the Company had reserved i590,034
shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the 2022 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. If shares are withheld for payment of taxes, those shares do not become available for grant under the 2022 plan.
On March 3, 2022 and in accordance with their respective employment agreements, VPG’s ithree
executive officers were granted annual equity awards in the form of RSUs, of which i50% are performance-based. The awards have an aggregate target grant-date fair value of $i1.5
million and were comprised of i47,831 RSUs. iFifty
percent of these awards will vest on January 1, 2025, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2025, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to ithree-year cumulative “adjusted free cash flow” and "net earnings goals", each weighted equally.
On
March 9, 2022, certain non-executive VPG employees were granted annual equity awards in the form of RSUs. Certain employees received awards, of which i75% are performance-based and certain employees received awards of which i50%
are performance-based. The awards have an aggregate grant-date fair value of $i0.5 million and were comprised of i16,324
RSUs. The non-performance portion of these awards (itwenty-five percent for certain employees and ififty
percent for certain employees) will vest on January 1, 2025 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2025, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to ithree-year cumulative earnings and cash flow goals, each weighted equally.
On
January 1, 2022 and in accordance with the Company's 2017 Non-Employee Director Compensation Plan (the "Director Plan"), the Board of Directors approved the issuance of an aggregate of i595 RSUs to the newly-appointed independent member of the Board of Directors. This award represented
a pro-rated portion of the annual equity grant made to non-executive directors pursuant to the Director Plan. The aggregate grant-date fair value of this award is immaterial, and the award vested on May 26, 2022, the date of the 2022 Annual Stockholders Meeting.
-18-
Note 10 - Share-Based Compensation (continued)
On May 26, 2022 and in accordance with the Company's 2017 Non-Employee Director Compensation Plan, the Board of Directors approved the issuance of an aggregate of i16,534
RSUs to the independent board members of the Board of Directors and to the non-executive Chairman of the Board of Directors. The awards have an aggregate grant-date fair value of $i0.5 million and will vest on the earlier of the 2023 Annual Stockholders Meeting or May 26, 2023, subject to the directors' continued
service on the Board of Directors.
On July 1, 2022, a non-executive VPG employee was granted an annual equity award in the form of RSU's, of which i50% are performance-based. The award has an aggregate grant-date fair value of $i0.04 million
and was comprised of i1,432 RSU's. The non-performance portion of this award will vest on July 1, 2025, subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on July 1, 2025, subject to the employees' continued employment and the satisfaction
of certain performance objectives relating to ithree-year cumulative earnings and cash flow goals, each weighted equally.
Vesting of equity awards is 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. iThe following table summarizes share-based compensation expense recognized (in
thousands):
VPG reports in ithree product segments: the Sensors segment, the Weighing Solutions segment, and
the Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing.
The chief operating decision maker ("CODM") is our chief executive officer. The CODM evaluates each operating segment's performance. The evaluation of the segment's performance is based on multiple performance measures including gross profits, revenues, and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring and severance costs, impairment of goodwill and indefinite-lived intangible assets, acquisition costs, and
other items is meaningful because they relate to occurrences or events that are outside of our core operations, and management believes that the use of these measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods.
iThe following table sets forth reporting segment information. The reporting segment information reported for the fiscal quarter and nine fiscal months ended October
2, 2021 has been recast to reflect the new reporting segments adopted by the Company in the fourth quarter of 2021, as described in the consolidated financial statements as of December 31, 2021, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 4, 2022(in thousands):
Reconciliation
of segment operating income to consolidated results:
Sensors
$
i10,703
$
i5,070
$
i32,721
$
i20,217
Weighing
Solutions
i5,392
i5,917
i15,783
i17,831
Measurement
Systems
i4,876
i4,659
i10,350
i7,046
Unallocated
G&A expenses
(i8,922)
(i8,381)
(i26,774)
(i24,045)
Acquisition
costs
i—
i—
i—
(i1,198)
Impairment
of goodwill and indefinite-lived intangibles
i—
i—
i—
(i1,223)
Restructuring
costs
(i165)
i—
(i1,330)
i—
Operating
income
$
i11,884
$
i7,265
$
i30,750
$
i18,628
Acquisition
costs:
Measurement Systems
i—
i—
i—
(i1,198)
$
i—
$
i—
$
i—
$
(i1,198)
Impairment
of goodwill and indefinite-lived intangibles:
Measurement Systems
i—
i—
i—
(i1,223)
$
i—
$
i—
$
i—
$
(i1,223)
Restructuring
costs:
Sensors
$
(i165)
$
i—
$
(i1,272)
$
i—
Measurement
Systems
i—
i—
(i58)
i—
$
(i165)
$
i—
$
(i1,330)
$
i—
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):
The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in
thousands, except earnings per share):
Foreign
currency exchange gains represent the impact of changes in foreign currency exchange rates. For the fiscal quarter and nine fiscal months ended October 1, 2022, the change in foreign currency exchange gains and losses during the period, as compared to the prior year periods, is largely due to exposure of currency fluctuations with the Israeli shekel, the Japanese yen, the Canadian dollar, and the British pound. The change in the dollar-shekel exchange rate resulted in a favorable foreign currency exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility in Israel.
Included in Other for the nine fiscal months ended October 1, 2022 is a $i0.2
million loss on the liquidation of itwo of the Company's European subsidiaries.
Note 14 – iFair
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.
i
The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands):
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 October 1, 2022 and December 31, 2021, 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 cash equivalents held in the rabbi trust are 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.
The fair value of the long-term debt, excluding capitalized deferred financing costs, at October 1, 2022 and December 31, 2021 approximates its carrying value as the revolving debt is reset on a monthly basis based on current market rates, plus a base rate as specified in the debt agreement. 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, accounts receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values.
Note 15 – iRestructuring 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
-22-
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 $i0.2 million and $i0.0 million of restructuring
costs during the fiscal quarter ended October 1, 2022 and October 2, 2021, respectively and $i1.3 million and $i0.0
million of restructuring costs during the nine fiscal months ended October 1, 2022 and October 2, 2021, respectively. Restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.
i
The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of October 1,
2022 and December 31, 2021, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands):
On August 8, 2022, the Board of Directors (the “Board”) of the Company authorized the repurchase of up toi600,000
shares ofthe Company’s outstanding common stock (the “Stock Repurchase Plan”). The Stock Repurchase Plan will expire on August 11, 2023, and the Board authorized purchases thereunder to be made through an issuer repurchase plan adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), open market purchases or private transactions, in accordance with the applicable federal securities laws, including Rule 10b-18 under the Exchange Act. At October 1, 2022, the Company had repurchased i32,601
shares of its common stock under the Stock Repurchase Plan.
-23-
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions,
and measurement systems. Many of our precision measurement sensing products and solutions are “designed-in” by our customers and address growing applications across a diverse array of industries and markets. 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, and we employ an operationally diversified structure to manage our businesses.
Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement technologies help ensure and deliver required levels of quality of mission-critical or high-value data. Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end
products. Our precision measurement solutions are used across a wide variety of end markets upon which we focus, including industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space, and consumer product applications. The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive. As the functionality of customers products increases, and they integrate more precision measurement sensors and related systems into their solutions in order to link the mechanical and physical world with digital control and/or response, we believe this will offer substantial growth opportunities for our products and expertise.
Overview of Financial Results
VPG
reports in three product segments: the Sensors segment, the Weighing Solutions segment, and the Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing.
Net revenues for the fiscal quarter ended October 1, 2022 were $90.1 million versus $82.0 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended October 1, 2022 were $10.1 million, or $0.74 per diluted share, versus $5.4 million, or $0.39 per diluted share,
for the comparable prior year period.
Net revenues for the nine fiscal months ended October 1, 2022 were $266.3 million versus $227.9 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the nine fiscal months ended October 1, 2022 were $27.2 million, or $1.99 per diluted share, versus $14.3 million, or $1.04 per diluted share, for the comparable prior year period.
The results of operations for the fiscal quarter and nine fiscal months ended October 1, 2022 and October 2, 2021 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, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA. 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, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA 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 results 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.
Impairment of goodwill and indefinite-lived intangibles
—
—
—
1,223
Acquisition
purchase accounting adjustments (a)
260
1,329
1,310
2,259
Acquisition costs
—
—
—
1,198
Restructuring
costs
165
—
1,330
—
COVID-19 impact (b)
—
111
138
(574)
Start-up
costs (c)
—
970
150
2,258
Foreign currency exchange (gain)/loss (d)
(1,261)
38
(5,195)
(523)
ADJUSTED
EBITDA
$
16,138
$
13,742
$
44,525
$
21,986
ADJUSTED EBITDA MARGIN
17.9
%
16.8
%
16.7
%
9.6
%
(a) Acquisition
purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products sold.
(b) COVID-19 impact is the net impact to the Company of costs incurred as a result of the COVID-19 pandemic, net of government subsidies received.
(c) Start-up costs in 2022 and 2021 are associated with the ramp up of our new manufacturing facility in Israel.
(d) Impact of foreign currency exchange rates on assets and liabilities.
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.
-26-
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 third quarter of 2021 through the third quarter of 2022 (dollars in thousands):
3rd
Quarter
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
2021
2021
2022
2022
2022
Net revenues
$
81,974
$
90,017
$
87,665
$
88,618
$
90,057
Gross
profit margin
38.8
%
38.7
%
40.2
%
42.1
%
41.4
%
End-of-period
backlog
$
146,700
$
150,500
$
170,600
$
171,400
$
171,700
Book-to-bill
ratio
1.21
1.06
1.25
1.08
1.08
Inventory turnover
2.55
2.82
2.69
2.52
2.47
3rd
Quarter
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
2021
2021
2022
2022
2022
Sensors
Net
revenues
$
30,721
$
34,149
$
37,750
$
40,280
$
37,879
Gross profit margin
31.1
%
32.1
%
37.8
%
44.3
%
40.5
%
End-of-period
backlog
$
70,100
$
72,900
$
81,300
$
84,200
$
80,600
Book-to-bill ratio
1.37
1.11
1.27
1.17
0.99
Inventory
turnover
3.14
3.53
3.54
3.20
3.04
Weighing Solutions
Net
revenues
$
30,676
$
32,071
$
32,768
$
28,459
$
31,399
Gross profit margin
37.2
%
34.0
%
36.9
%
33.7
%
33.3
%
End-of-period
backlog
$
42,600
$
41,800
$
43,600
$
43,000
$
43,000
Book-to-bill ratio
1.06
0.98
1.06
1.03
1.05
Inventory
turnover
2.47
2.63
2.61
2.33
2.48
Measurement Systems
Net
revenues
$
20,577
$
23,797
$
17,147
$
19,879
$
20,779
Gross profit margin
52.8
%
54.7
%
51.8
%
49.9
%
55.5
%
End-of-period
backlog
$
34,000
$
35,800
$
45,700
$
44,200
$
48,100
Book-to-bill ratio
1.18
1.08
1.56
0.98
1.27
Inventory
turnover
1.92
2.18
1.68
1.90
1.68
Net revenues for the third quarter of 2022 increased 1.6% from the second quarter of 2022 mainly due to increased volume in the Weighing Solutions and Measurement Systems reporting segments partially offset by decreased volume in the Sensors reporting segment. Net revenues increased 9.9% from the third quarter of 2021 with increased volume primarily from the Sensors reporting segment.
Net
revenues in the Sensors reporting segment decreased 6.0% compared to the second quarter of 2022 and increased 23.3% from the third quarter of 2021. Excluding the unfavorable impact of foreign currency exchange rates, revenue increased 35.1% from the third quarter of 2021. Excluding the unfavorable impact of foreign currency exchange rates, revenue decreased 4.2% from the second quarter of 2022. Sequentially, the decrease primarily reflected lower advanced sensors revenue in Other markets (mainly for consumer applications) and lower revenue of precision resistors in the Test and Measurements market.The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and
-27-
Measurements
market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer applications).
Net revenues in the Weighing Solutions reporting segment increased 10.3% from the second quarter of 2022 and increased 2.4% from the third quarter of 2021. The year-over-year and sequential increases in revenues were primarily attributable to increases in our Other markets for precision agriculture and construction applications.
Net revenues in the Measurement Systems reporting segment increased 4.5% from the second quarter of 2022 and increased 1.0% from the third quarter of 2021. Sequentially, the increase in revenue was primarily due to the higher revenue of Dynamic Systems Inc. ("DSI") products in the Steel market and our Diversified Technical Systems Inc. ("DTS") products
in the Transportation market. The year-over-year increase was primarily attributable to increased revenue in the Steel market.
Overall gross profit margin in the third quarter of 2022 decreased 0.7% as compared to the second quarter of 2022 and increased 2.6% from the third quarter of 2021.
Sequentially, the decrease in the gross profit margin in the Sensors and Weighing Solutions reporting segments was partially offset by an increase in the gross profit margin in the Measurement Systems reporting segments. In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, one-time inventory adjustments, and unfavorable foreign currency exchange rates. In the Weighing Solutions reporting segment, the sequential decrease in gross profit margins was primarily due to higher materials costs and reduction of inventories partially offset by higher
volume and selling price increases. The sequential increase in the gross profit margins in the Measurement Systems reporting segment was a result of favorable product mix and higher volume.
Compared to the third quarter of 2021, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.
The Sensors reporting segment had a higher gross profit margin due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases. In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the third quarter of 2021 primarily due to lower purchase accounting adjustments related to the DTS acquisition, partially offset by unfavorable product mix. The Weighing Solutions reporting segment decrease
in gross profit margin as compared to 2021 was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.
Optimize Core Competence
The Company’s core competencies include our innovative, deep technical and applications-specific expertise that adds value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy. 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 Sensors segment 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 signed a long-term lease for a state-of-the-art
facility that has been constructed in Israel. We fully transitioned to this facility in the third quarter of fiscal 2021.
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 improved efficiencies or available tax and other government-sponsored incentives. In the past several
years, we incurred restructuring expense related to closing and
-28-
downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.
Acquisition Strategy
We expect to continue to make strategic acquisitions where opportunities present themselves to grow and expand our segments. Historically, our growth and acquisition strategy had been largely focused on vertical product integration, using our foil strain gages in our load cell products, and incorporating those products into
our weighing solutions. In recent years, we widened our acquisition strategy to include a broader set of precision measurement systems and product companies.
We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision measurement solutions, including 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.
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 on March 4, 2022.
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, as of the first day of our fourth quarter, 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 impairmenttests, require significant managementjudgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigninggoodwillto 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.
-29-
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 and significant lease assets and liabilities.
Effects of Foreign Currency Exchange Rate on Operations
For the fiscal quarter ended October 1, 2022, exchange rates decreased net revenues by $5.3 million, and decreased costs of products sold and selling, general, and administrative expenses by $4.2 million, when compared to the comparable prior year period.
For the nine fiscal months ended October 1, 2022, exchange rates decreased
net revenues by $10.8 million, and decreased costs of products sold and selling, general, and administrative expenses by $7.7 million, when compared to the comparable prior year period.
-30-
Results of Operations
Results of operations by reporting segments for the fiscal quarter and nine fiscal months ended October 2, 2021 have been recast to reflect the new reporting segments as described under Item 7. Overview of Financial Results of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March
4, 2022.
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
Changes
in net revenues were attributable to the following:
vs. prior year quarter
vs. prior year- to-date
Change attributable to:
Change in volume
13.7
%
14.2
%
Change
in average selling prices
2.9
%
2.5
%
Foreign currency effects
(6.7)
%
(4.8)
%
Acquisitions
0.0
%
5.0
%
Net
change
9.9
%
16.9
%
During the fiscal quarter and nine fiscal months ended October 1, 2022, net revenues increased 9.9% and 16.9%, respectively, as compared to the comparable prior year periods, with increased volume primarily from the Sensors reporting segment.
-31-
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
The
gross profit margin for the fiscal quarter and nine fiscal months ended October 1, 2022 increased 2.6% and 1.7%, respectively, as compared to the comparable prior year periods. For the fiscal quarter period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period. For the nine fiscal month period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period.
Segments
Analysis of revenues and gross profit margins for each of our reportable segments is provided below.
Sensors
Net
revenues of the Sensors segment were as follows (dollars in thousands):
Changes
in Sensors segment net revenues were attributable to the following:
vs. prior year quarter
vs. prior year- to-date
Change attributable to:
Change in volume
32.1
%
28.3
%
Change
in average selling prices
1.7
%
1.9
%
Foreign currency effects
(10.5)
%
(6.5)
%
Net change
23.3
%
23.7
%
Net
revenues increased 23.3% for the fiscal quarter ended October 1, 2022, as compared to the comparable prior year period and increased 23.7% for the nine fiscal months ended October 1, 2022, as compared to the comparable prior year period. The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and Measurements market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer applications).
Gross profit as a percentage of net revenues for the Sensors segment was as follows:
The
gross profit margin increased 9.4% for the fiscal quarter ended October 1, 2022, when compared to the comparable prior year period due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases. Additionally, there were higher start-up costs associated with our new advanced sensors facility in 2021.
-32-
The gross profit margin increased 4.1% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period. Volume increases were partially offset by impacts from charges related to start-up costs in our new advanced sensors facility, wage increase, and labor inefficiencies.
Weighing
Solutions
Net revenues of the Weighing Solutions segment were as follows (dollars in thousands):
Changes
in Weighing Solutions segment net revenues were attributable to the following:
vs. prior year quarter
vs. prior year- to-date
Change attributable to:
Change in volume
4.5
%
0.2
%
Change
in average selling prices
5.3
%
4.0
%
Foreign currency effects
(7.4)
%
(4.9)
%
Net change
2.4
%
(0.7)
%
Net revenues increased 2.4% for the fiscal quarter ended October 1, 2022, and decreased 0.7% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year periods. The increase in fiscal quarter net revenues was primarily attributable to increases in our Other markets for precision agriculture and construction applications, while the same market reflected a decrease for the nine fiscal month period. Both the fiscal quarter and nine fiscal month periods were negatively impacted by foreign currency exchange rate effects.
Gross profit as a percentage of net revenues for the Weighing Solutions segment was as follows:
The
gross profit margin for the fiscal quarter ended October 1, 2022 decreased 3.9% as compared to the comparable prior year period and decreased 2.8% for the nine fiscal months ended October 1, 2022 when compared to the prior year period. The decrease for the fiscal quarter was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases. The decrease for the nine fiscal month period was primarily due to lower volume, higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by selling price increases.
-33-
Measurement
Systems
Net revenues of the Measurement Systems segment were as follows (dollars in thousands):
Changes
in Measurement Systems segment net revenues were attributable to the following:
vs. prior year quarter
vs. prior year- to-date
Change attributable to:
Change in volume
1.3
%
14.3
%
Change
in average selling prices
1.8
%
1.2
%
Foreign currency effects
(2.1)
%
(2.1)
%
Acquisitions
0.0
%
28.0
%
Net
change
1.0
%
41.4
%
Net revenues increased 1.0% for the fiscal quarter ended October 1, 2022 as compared to the comparable prior year period and increased 41.4% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period. The increase for the fiscal quarter was primarily due to increased revenue in the Steel market. The increase in revenue for the nine fiscal months period was primarily attributable to the addition of revenue for DTS, which was acquired on June 1, 2021, and higher revenue of our KELK and DSI
steel-related businesses.
Gross profit as a percentage of net revenues for the Measurement Systems segment were as follows:
The
gross profit margin for the fiscal quarter ended October 1, 2022 increased 2.7% compared to the third quarter of 2021. The increase was primarily due to lower purchase accounting adjustments related to the DTS acquisition partially offset by an unfavorable product mix.
The gross profit margin for the nine fiscal months ended October 1, 2022 increased 1.7% from the prior year period. Higher revenues coming from DTS and our KELK and DSI steel-related businesses and lower purchase accounting adjustment related to the DTS acquisition were partially offset by an unfavorable product mix and an unfavorable foreign currency exchange rate impact. Additionally, COVID-19 subsidies were received in 2021 that did not continue in 2022.
Selling, General, and Administrative Expenses
Selling,
general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
SG&A expenses for the fiscal quarter ended October 1, 2022 increased $0.7 million compared to the comparable prior year period due to increases in wages, travel costs and other fees, partially offset by favorable foreign currency exchange rate impacts.
-34-
SG&A
expenses for the nine fiscal months ended October 1, 2022 increased $8.6 million compared to the comparable prior year periods with $6.1 million of the increase driven by SG&A expenses from DTS. The remaining increase is from additional SG&A expenses related to wage increases, travel costs, and other fees.
Impairment of Goodwill and Indefinite-lived Intangible Assets
For the nine fiscal months ended October 2, 2021, as a result of our interim impairment test, we recorded a $1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets.
Acquisition Costs
For the nine fiscal months ended October 2,
2021, we recorded Acquisition Costs associated with the acquisition of DTS as follows (in thousands):
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 $0.2 million and $0.0 million of restructuring costs during the fiscal quarter ended October 1, 2022 and October 2,
2021, respectively, and $1.3 million and $0.0 million of restructuring costs during the nine fiscal months ended October 1, 2022 and October 2, 2021, respectively. Restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, in connection with various cost reduction programs.
Other Income (Expense)
Interest expense for the fiscal quarter and nine fiscal months ended October 1, 2022 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2022.
-35-
The
following table analyzes the components of the line “Other” on the consolidated condensed statements of operations (in thousands):
Foreign
currency exchange gains represent the impact of changes in foreign currency exchange rates. For the fiscal quarter and nine fiscal months ended October 1, 2022, the change in foreign currency exchange gains and losses during the period, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Japanese yen, the Canadian dollar, and the British pound. The change in the dollar-shekel exchange rate resulted in a favorable foreign currency exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility in Israel.
Included in Other for the nine fiscal months ended October 1, 2022 is a $0.2 million loss on the liquidation of two of the
Company's European subsidiaries.
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 October 1, 2022 was 18.6% compared to 23.4% for the fiscal quarter ended October 2, 2021. The effective tax rate for the fiscal quarter ended October 1, 2022 was lower than the prior year period primarily due to foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation
allowance on deferred tax assets. The effective tax rate for the nine fiscal months ended October 1, 2022 was 19.4% compared to 20.3% for the nine fiscal months ended October 2, 2021. The effective tax rate for the nine fiscal months ended October 1, 2022 was lower than the prior year period primarily due to changes in the mix of worldwide income and foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets.
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.
-36-
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.
On March
20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders named therein, 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 were 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 the 2020 Revolving Facility may be used on an ongoing basis for working capital and general corporate purposes. 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.
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 an interest coverage ratio and a leverage ratio. The Company was in compliance with its financial maintenance covenants at October 1, 2022. 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 business has historically generated significant
cash flow. For the nine fiscal months ended October 1, 2022, cash provided by operating activities was $20.5 million compared to cash provided by operations of $18.1 million in the comparable prior year period. Our net cash used in investing activities for the nine fiscal months ended October 1, 2022 was lower compared to the prior year period mainly due to the acquisition of DTS which took place in the second quarter of 2021. Our net cash used in financing activities for the nine fiscal months ended October 1, 2022 was lower than the comparable to prior year period due to the 2021 borrowings in connection with the acquisition of DTS.
We
earn a significant amount of our operating income outside the United States, and we consider the majority of the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, as of October 1, 2022. 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
-37-
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.
Adjusted free cash flow generated during the nine fiscal months ended October 1, 2022, was $5.4 million. We refer to the amount of cash provided by operating activities ($20.5 million) in excess of our capital expenditures ($15.5 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”
Third-party debt, including current and long-term:
Revolving debt
61,000
61,000
Deferred
financing costs
(220)
(286)
Total third-party debt
60,780
60,714
Net cash
$
19,130
$
23,621
Measurements such as “adjusted free cash flow” and “net
cash" do not have uniform definitions and are not recognized in accordance with U.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.
Our financial condition as of October 1, 2022 remains strong, with a current ratio (current assets to current liabilities) of 4.1 to 1.0, as compared to a ratio of 3.6 to 1.0 at December 31, 2021.
Cash paid for property and equipment for the
nine fiscal months ended October 1, 2022 was $15.5 million compared to $11.2 million in the comparable prior year period.
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 or constitute "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; impact of inflation, global labor and supply chain challenges; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies; 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 pandemic) 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; compliance issues under applicable laws, such as export control laws, including the outcome of our voluntary self-disclosure of export control non-compliance; 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 the related impact on resource allocations, manufacturing and supply chains; our 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; our ability to execute our new corporate strategy and business continuity, operational and budget plans; 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, 2021. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report or as of the dates otherwise indicated in such forward-looking
statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
-39-
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,
2021, filed with the SEC on March 4, 2022.
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 October 1,
2022, 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.
-40-
PART II - OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
The
Company is subject to various legal proceedings that constitute ordinary, routine litigation incidental to its business. In addition, the Company has determined that certain export shipments of products from one of its subsidiaries did not comply with the filing requirements of U.S. export administration and foreign trade regulations, and the Company voluntarily self-disclosed such non-compliance to the U.S. government. Non-compliance with the filing requirements may result in fines and penalties.
The Company believes that the foregoing matters
will not have a material adverse effect on the Company’s business or its financial condition, results of operations, and cash flows.
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, 2021, filed with the SEC on March 4, 2022. 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, 2021.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about repurchases of the Company's common stock during the three-month period ended October 1, 2022.
Total
Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans (a)
(a) On
August 8, 2022, the Board of Directors (the “Board”) of the Company authorized the repurchase of up to 600,000 shares of the Company’s outstanding common stock (the “Stock Repurchase Plan”). The Stock Repurchase Plan will expire on August 11, 2023, and the Board authorized purchases thereunder to be made through an issuer repurchase plan adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), open market purchases or private transactions, in accordance with the applicable federal securities laws, including Rule 10b-18 under the Exchange Act. As of October 1, 2022, the
Company had repurchased 32,601 shares under the Stock Repurchase Plan.
Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended October 1 2022, furnished in XBRL (eXtensible Business Reporting Language).
-42-
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.