VISHAY PRECISION GROUP, INC
Corporate Headquarters
3 Great Valley Parkway, Suite 150
Malvern, PA 19355, USA
Phone: +1.484.321.5300
Fax: +1.484.321.5301
vpgsensors.com
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ANNUAL
REPORT
TRANSFORMING
MARKETS.
TRANSFORMING
MARKETS.
vpgsensors.com
Board of Directors
Corporate Information
Shareholder Information
Marc Zandman
Chairman of the Board
Corporate Office
Annual Meeting
Vishay Precision Group, Inc.
May 17, 2018 at 9:00 a.m.
Executive Chairman of the Board
3 Great Valley Parkway, Suite 150
Vishay Intertechnology, Inc.
Malvern, PA 19355
The Desmond Hotel
1 Liberty Boulevard
Malvern, PA 19355
Ziv Shoshani
President
Chief Executive Officer
Janet Morrison Clarke
President and Founder
Clarke Littlefield LLC
Wesley Cummins
Analyst
Nokomis Capital, LLC
Bruce Lerner
President and CEO
PeroxyChem, LLC
Saul Reibstein
Retired Executive Vice President
and Chief Financial Officer
Penn National Gaming, Inc.
Timothy V. Talbert
President
LCA Bank Corporation
Senior Vice President
Credit and Originations
Lease Corporation of America
Cary Wood
President and CEO
Angelica
Executive Officers
Ziv Shoshani
President
Chief Executive Officer
William M. Clancy
Executive Vice President
Chief Financial Officer
Roland B. Desilets
Vice President
General Counsel,
and Secretary
Phone: +1-484-321-5300
Fax: +1-484-321-5301
Website: vpgsensors.com
Independent Auditors
Ernst & Young LLP
2005 Market Street, Suite 700
Philadelphia, PA 19103
Counsel
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Corporate Vice Presidents
Amir Tal
Finance
Senior Vice President
Yaron Kadim
Vice President
VPG Foil Resistors
Steven Klausner
Vice President
Treasurer
Benny Shaya
Vice President
Rafi Uzan
Vice President
Force Sensors
Gilad Yaron
Vice President
Advanced Sensors
Dubi Zandman
Vice President
Micro-Measurements Instruments and
Pacific Instruments
Shareholder Assistance
For information about stock transfers,
address changes, account
consolidation, registration changes,
and Form 1099, contact the company’s
Transfer Agent and Registrar.
Transfer Agent and Registrar
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Phone: +1-800-937-5449
Email: info@amstock.com
Common Stock
Ticker Symbol: VPG
The company’s common
stock is listed and principally
traded on the New York Stock
Exchange.
The company’s class B common stock
is not traded publicly.
Additional Information
The company’s Annual Report on
Form 10-K filed with the Securities and
Exchange Commission is part of this
annual report to shareholders.
An electronic copy of VPG’s Annual
Report and Proxy Statement, and other
filings are available online at:
vpgsensors.com
Copies of the company’s news releases
and other investor information may be
obtained by contacting:
Investor Relations
Vishay Precision Group
Phone: +1-484-321-5300
Fax: +1-484-321-5301
Weighing and Control Systems
Email: investors@vpgsensors.com
CONTENTS
2017 Market Overview
Transforming Partnerships
Letter from the Chairman
Letter from the CEO
Foil Technology Products
Force Sensors
Weighing & Control Systems
Major Manufacturing Locations
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vpgsensors.com
This year, VPG reached
an important benchmark.
Years of calculated movements
and strategic decisions have
transformed our business.
The pieces have come together.
The momentum is palpable.
Today, VPG is stronger, more efficient,
and more effective than ever.
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V P G 2 0 1 7 A N N U A L R E P O R T 1
Americas42%Asia25%Europe33%Revenue by Region($254.4M total)2PrecisionWeighing32%Test andMeasurement26%Medical 3%Steel 9%AvionicsMilitary Space 9%Force Measurement21%Revenue by End Market($254.4M total)Electronic Manufacturing Services6%End-Users21%Distributors29%Original Equipment Manufacturers44%Revenue by Customer Type($254.4M total)(1) The 2017 results include $0.1 million of purchase accounting adjustments, $0.2 million of tax rebates, $1.5 million of net proceeds from lease termination, $2.0 million of restructuring costs, the tax effects of these adjustments, and discrete tax items.(2) The 2016 results include $0.6 million of purchase accounting adjustments, $0.5 million of acquisition costs, $1.3 million of strategic evaluation costs, $0.8 million gain on the sale of a building, $2.7 million of restructuring costs, the tax effects of these adjustments, and discrete tax items.2017(1) $254,350 21,625 14,345 10,626 1.08 1.07 13,262 13,471 139,400 55,674 22,729 74,292 193,156 2016(2) $ 224,929 10,711 6,404 11,1490.490.48 13,187 13,419118,952 55,285 11,505 58,452 171,383AS OF AND FOR THE YEARS ENDED DECEMBER 31st (in thousands, except for per share amounts)Net revenuesOperating incomeNet earnings attributable to VPG stockholdersDepreciation and amortizationBasic earnings per share attributable to VPG stockholdersDiluted earnings per share attributable to VPG stockholdersWeighted average shares outstanding - basicWeighted average shares outstanding - dilutedWorking capitalProperty and equipment, netNet cash provided by operating activitiesCash and cash equivalentsTotal Vishay Precision Group, Inc. stockholders' equity2017 MARKET OVERVIEWFINANCIAL HIGHLIGHTS67318_Pages_1_4.indd 43/20/18 11:17 AM PROVIDING QUALITY PERFORMANCE
TO OUR PARTNERS.
VPG is proud of the relationships we’ve forged. The list below
represents a small slice of our customer base.
Foil Technology Products Reporting Segment
VPG Foil Resistors Customers
GE
Honeywell
KLA Tencoro
Raytheon
Teradyne
Micro-Measurements and
Pacific Instruments Customers
Airbus
Boeing
Caterpillar
Mettler Toledo
Force Sensors Reporting Segment
VPG Transducers Customers
JLG
John Deere
Mettler Toledo
Stryker
Weighing & Control Systems Reporting Segment
Steel Mill Systems Customers
Alcoa
Arcelor Mittal
Danieli
US Steel
Process Weighing and
Force Measurement Customers
Dow
International Paper
Lonza
National Oilwell Varco
Onboard Weighing Customers
Hyva
Scania
Veolia
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V P G 2 0 1 7 A N N U A L R E P O R T 3
A LETTER FROM
THE CHAIRMAN
Dear Shareholders,
2017 was a successful year for VPG. We operated well across the business, captured
opportunities for growth, delivered improved financial performance and, most importantly,
we made the strategic advancements to sustain our momentum into the future. We are
enthusiastic about the opportunities we see in front of us in 2018 and are confident in our
ability to translate them into continued value creation for our shareholders.
Our achievement of several key milestones within our multi-year restructuring program has
been effective. Beyond those larger projects, our culture has strengthened and embraced
continuous improvement, accountability and innovation as core values. We are confident
that this ongoing work will enable further gains in efficiency and profitability over time.
This work also creates a foundation for sustainable growth as we become a more capable,
more flexible partner with deeper and more collaborative customer relationships.
In July of 2017, we welcomed two new members to our Board of Directors. Bruce Lerner, PhD.,
currently serves as President and CEO of PeroxyChem, LLC, a private equity-backed global
specialty chemicals company. Bruce’s proven ability to manage complex global operations
and his track record of successful growth through diversification are an excellent fit for us
as we look to the future. Wes Cummins has been an analyst with Nokomis Capital, LLC,
an investment advisory firm, since 2012 and also serves as a director for Telenav, Inc.,
a leading provider of location-based platform services, since 2016. Wes provides solid
expertise and focus in the areas of strategic finance and capital allocation. We are fortunate
to add the unique perspectives of these accomplished advisors to our current Board, and
look forward to drawing upon each member’s counsel and experiences in our efforts to
maximize value creation for our shareholders.
Thank you to VPG’s shareholders, employees, customers and vendors, to our Board
for your stewardship and insight, and to our strategic business partners for your support.
I look forward to a successful year and many more years to come.
MARC ZANDMAN
Chairman of the Board
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A LETTER FROM THE CEODear Shareholders,I’m pleased to report that 2017 was a successfully transformative year for VPG, as clearly reflected by our growing revenue and improving margin in each of our three business segments. A strong and still improving business environment, coupled with completing key restructuring projects and ongoing cost reduction efforts, has all translated into an outstanding 2017, and, as of today, a positive outlook for 2018. We grew full-year revenues by 13.1% to $254.4 million as compared to revenues of $224.9 million for the prior year period. We also achieved EBITDA of $33.6 million or 13.2% of revenues in 2017 as compared to $26.6 million or 11.8% of revenues in the prior year period. Our progress and the hard work of dedicated employees around the world have made us leaner and more efficient than ever before. Our progress reflects a solid long-term growth strategy. Each of our three business segments drove growth in 2017 and we are well-positioned for the year ahead. Our commitment to pushing the envelope with investments in research and development supports our ability to have market-leading products and deliver clear and compelling value to our customers as we grow organically. Our success this past year certainly reflects broad strength in the business environment and favorable macro-economic trends. Our customers across nearly every major end-market are doing well and we are committed to helping them make the most of this shared opportunity. As we look ahead to 2018, as of today, there are signs of continued strength in many markets, including positive global trends in the markets for steel, energy, and aerospace and defense, all of which appear particularly solid.As we move forward, an important part of our growth strategy is to maintain our commitment to invest in technology and capability expansion in each of our business segments. Innovation and leadership are deeply related and we are working hard to create new, compelling and proprietary solutions for our customers. While there is tremendous opportunity in our business for growth, we are excited to continue to search for strategic acquisitions. This is a strategic priority supported by our stronger cash flow and balance sheet that, with a disciplined and thoughtful process, can accelerate our value creation for shareholders and enhance our leadership position in the marketplace. I would like to express my sincere appreciation to VPG’s shareholders for recognizing and rewarding our progress, to our employees for their hard work and dedication, and certainly to our customers and vendors for the kind of supportive and collaborative relationships that make us all successful together. We are excited for 2018 and beyond. ZIV SHOSHANI President and Chief Executive OfficerVPG 2017 ANNUAL REPORT 567318_FoldOut.indd 33/23/18 2:09 PM RE P O R TI NG SEGMENT
FOIL TECHNOLOGY PRODUCTS
6
VPG Foil Resistors VPG’s Bulk Metal® Foil resistors are the most stable and precise resistors available in the market for use in critical electronic circuitry applications.VPG Foil Resistors are used in the following target end markets:Avionics, Military & Space Energy Medical Precision Weighing Test & Measurement VPG’s complete line of Foil Technology Products power these core technologies: 67318_FoldOut.indd 53/23/18 2:10 PM Micro-Measurements & Pacific Instruments Micro-Measurements foil strain gages are the most precise sensors available for measuring the strain/stress applied to a structure. Our advanced sensors platform continues to gain acceptance, as it offers enhanced performance to customers, in conjunction with an efficient manufacturing platform.Pacific Instruments is a designer and manufacturer of high-performance data acquisition systems. They have extensive experience integrating large, high performance data acquisition and control systems, selling primarily to the aerospace, commercial aviation and defense markets, mainly in the U.S. The company provides installation, facility integration, training and on-going technical support for their manufactured products. These technologies are utilized by the following target end markets:Avionics, Military & Space Construction Energy Medical Precision Agriculture Precision Weighing Test & Measurement Trucking 67318_FoldOut.indd 63/23/18 2:10 PM TRANSFORMING PRODUCTS.Our Foil Technology Products deliver devices whose precise performance are suitable for mission-critical applications.VPG 2017 ANNUAL REPORT 767318_FoldOut.indd 13/23/18 2:09 PM FORCE SENSORSREPORTING SEGMENT8 VPG Transducers As one of the world’s largest load cell and transducer manufacturers, our customers have come to rely on the performance, precision and expertise that we’re committed to delivering with our technology.This commitment and our global reach allows us to provide a range of strain gage-based transducers including load cells, integrated weighing system subassemblies, weighing indicators, bonding and custom solutions. VPG Transducers are used in the following target end markets:Construction Medical Precision Agriculture Precision Weighing Process Weighing Trucking Force Sensors are the core technology behind our VPG Transducers.67318_BackPages.indd 33/23/18 2:26 PM 67318_BackPages.indd 43/23/18 2:27 PM TRANSFORMING OPERATIONS.
When applied force and weight
are important, our products
can deliver precise and reliable
measurements.
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V PG 2 0 1 7 A N N UA L R E POR T 9
WEIGHING & CONTROL SYSTEMSREPORTING SEGMENT1067318_BackPages.indd 23/23/18 2:25 PM KELK KELK is a designer and manufacturer of highly accurate, high technology mission critical electronic measurement and control equipment used by metal rolling mills and mining applications throughout the world.KELK is used in the following target end market:Steel & Metal BLH Nobel High-end solutions for process weighing and batch processing with high accuracy under harsh conditions.BLH Nobel is used in the following target end markets:Energy Process Weighing Steel & Metal Trucking Our complete line of Weighing & Control Systems are integral to these core technologies: VPG Onboard Weighing, SI On-Board Weighing and Vulcan On-Board Scales Load cell-based and accelerometer-based integrated weighing and monitoring systems for vehicle payload optimization and overload protection. These technologies are used in the following target end markets:Avionics, Military & Space Trucking 67318_BackPages.indd 83/23/18 2:31 PM TRANSFORMING INDUSTRIES.
Our Weighing and Control Systems
design and manufacture complete
systems comprised mostly of
load cells and instrumentation
for weighing and force control/
measurement for a variety of uses,
including on-board weighing and
overload monitoring systems.
V PG 2 0 1 7 A N N UA L R E POR T 11
VPG’S MAJOR
MANUFACTURING
LOCATIONS
AMERICAS
Corporate Headquarters
Malvern, PA, USA
Manufacturing
Toronto, Ontario, Canada
Wendell, NC, USA
Kent, WA, USA
EUROPE
Manufacturing
Teltow, Germany
ASIA /
ISRAEL
Manufacturing
Chennai, India
Akita, Japan
Tianjin, PR China
Holon, Israel
Karmiel, Israel
Omer, Israel
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
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
(State or other jurisdiction of
incorporation or organization)
27-0986328
(IRS employer identification no.)
3 Great Valley Parkway, Suite 150
Malvern, PA 19355
(Address of principal executive offices)
484-321-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value
(Title of class)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Note – Checking the box above will not relieve any registrant required to file reports under Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2
of the Act. (Check one):
Large accelerated filer
Accelerated filer
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 Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the common
stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($17.30 on July 1,
2017), assuming conversion of all of its Class B convertible common stock held by non-affiliates into common stock of the
registrant, was $215,641,000. There is no non-voting stock outstanding.
As of March 15, 2018, the registrant had 12,401,906 shares of its common stock and 1,025,158 shares of its Class B convertible
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, which will be filed within 120 days of December 31, 2017, are incorporated
by reference into Part III of this Annual Report on Form 10-K.
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Vishay Precision Group, Inc.
Form 10-K for the year ended December 31, 2017
CONTENTS
PART I
Item 1. Business Description
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016, 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, 2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016, 2015
Notes to Consolidated Financial Statements
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12
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25
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48
51
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Item 1. BUSINESS DESCRIPTION
General
PART I
Vishay Precision Group, Inc. (“VPG,” the “Company,” “we,” “us” or “our”) is an internationally recognized designer, manufacturer
and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon our
proprietary technology. We provide precision products and solutions, many of which are “designed-in” by our customers,
specializing in the growing markets of stress, force, weight, pressure, and current measurements. A significant portion of our
products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated
structure. We believe this strategy results in higher quality, more cost effective and focused solutions for our customers. Our
products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision
and quality. Our global operations enable us to produce a wide variety of products in strategically effective geographic locations
that also optimize our resources for specific technologies, sensors, assemblies, and systems.
The Company also has a long heritage of innovation in precision foil resistors, foil strain gages, and sensors that convert mechanical
inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products.
Our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary, highly
automated environment. Precision sensors are essential to the accurate measurement, resolution and display of force, weight,
pressure, torque, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplaces. This
expertise served as a foundation for our expansion into strain gage instrumentation, load cells, transducers, weighing modules,
and complete systems for process control and on-board weighing. Although our products are typically used in the industrial
market, our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial
applications.
The precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which
we focus, including medical, agricultural, transportation, industrial, avionics, military, and space applications. We believe that as
original equipment manufacturers (“OEMs”) continue a drive to make products “smarter,” they will integrate more sensors and
related systems into their solutions to link the mechanical/physical world with digital control and/or response. We believe this
offers a substantial growth opportunity for our products and expertise.
Our History
In 1962, Dr. Felix Zandman founded Vishay Intertechnology Inc. (“Vishay Intertechnology”) to develop and manufacture the first
generation of Bulk Metal® foil resistors and later, foil strain gages.
Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. They
vary widely in precision and cost, and are manufactured from numerous materials and in many forms. Bulk Metal foil resistors,
developed by Dr. Zandman in the 1950’s, are the most precise and stable type of resistors currently available. A strain gage is a
resistive sensor that is attached to the surface of an object to determine the surface strain caused by an applied force.
Throughout the 1960’s and 1970’s, Vishay Intertechnology established itself as a technical and market leader in precision foil
resistors, and foil strain gages. These innovations were the genesis of the foil technology that is a unique strategic competitive
advantage of Vishay Precision Group. The subsequent innovations and advancement of foil resistance and strain gage technology
opened the door to numerous commercial applications, such as force sensors and control systems on a vertical market basis.
On July 6, 2010, Vishay Intertechnology spun off its precision measurement and foil technology businesses through a tax-free
stock dividend of VPG stock to Vishay Intertechnology’s stockholders and we became a publicly-traded company. In the decade
prior to the spin-off, Vishay Intertechnology expanded our sensor and measurement business through acquisitions, extending our
business from its initial focus on precision foil resistors and foil strain gages to include an array of sensor-based solutions. These
solutions include transducers/load cells, which are force sensors combining strain gages and the metallic structures to which they
are bonded; load cell modules that utilize electronic instrumentation and software for measuring the load cell output; and
measurement instrumentation and complete systems for process control and on-board weighing.
In 2013, we completed our first acquisition as an independent public company when we acquired substantially all of the assets of
the George Kelk Corporation ("KELK"). KELK engineers, designs and manufactures highly accurate optical and electronic roll
force measurement and control equipment primarily used by metals rolling mills and mining applications throughout the world.
As a part of our acquisition, we acquired a leased manufacturing, engineering, sales, and administrative facility in Toronto, Canada.
On December 30, 2015, we completed the acquisition of Stress-Tek, Inc. ("Stress-Tek") based in Kent, Washington. Stress-Tek
designs and manufactures state-of-the-art, rugged and reliable strain gage-based load cells and force measurement systems. Stress-
Tek primarily operates in North America, where their sensors and display systems are used in a wide range of industries,
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predominantly in transportation and trucking, for timber, refuse, aggregate, mining, and general trucking applications. Stress-Tek
products are marketed under the Vulcan brand as part of the VPG Onboard Weighing offerings for our Weighing and Control
Systems reporting segment. As a part of the Stress-Tek acquisition, we acquired ownership of a 47,000 square foot manufacturing,
engineering, sales, administrative, and warehouse facility in Kent, Washington.
On April 6, 2016, the Company completed the acquisition of Pacific Instruments, Inc. ("Pacific") based in Concord, California.
Pacific designs and manufactures high-performance signal conditioning, data acquisition and control systems and has extensive
experience integrating these systems. Pacific sells primarily to the aerospace, commercial aviation and defense markets in the
United States. Pacific products expanded the offerings of our Foil Technology Products reporting segment, which already offered
data acquisition systems, primarily in the field of strain measurement. As a result of our acquisition, we occupy a leased 16,000
square foot manufacturing, engineering, sales and administrative facility in Concord, California.
While our acquisitions provided us an array of strong brand names, in addition to our historical resistor and strain gage brands,
we believe the continued success of our strategy is best served by the establishment of a strong overall global brand. In 2014, we
launched the “VPG” brand, which is intended to leverage the strength of these historical brands under the umbrella of a more
unified, globally recognizable VPG name. We continue to broaden and emphasize the VPG brand in the markets we serve under
the following brands for each of our business segments:
Foil Technology Products
VPG Foil Resistors
- Alpha Electronics
- Powertron
- Vishay Foil Resistors
Micro-Measurements
Pacific Instruments
Force Sensors
VPG Transducers
- Celtron
- Revere
- Sensortronics
- Tedea-Huntleigh
Weighing and Control Systems
BLH Nobel
KELK
VPG Onboard Weighing
Our acquisitions added to our strong, diverse, global manufacturing, sales and distribution network, which includes facilities in
Canada, China, France, Germany, India, Israel, Japan, Sweden, Taiwan, the United Kingdom, and the United States.
We were incorporated in Delaware on August 28, 2009. Our principal executive offices are located at 3 Great Valley Parkway,
Suite 150, Malvern, PA 19355. Our main telephone number is 484-321-5300.
Key Business Vision and Strategies
Our vision is to be the leading provider of sensors, and sensor-based systems with the highest precision, quality, value, and service
for measuring force (weight, pressure, torque, acceleration) and current. As part of that vision, we are a leading provider of foil
specialty resistors and strain gages, which are particularly effective in precision measurement applications.
Our strategy is to achieve corporate growth and shareholder value by expanding our existing product portfolio organically, as well
as by acquiring complementary precision measurement products. Specifically, we are focused on the following strategic initiatives:
Optimize Core Competence
The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and
precision measurement sensors and sensor-based systems. Our foil technology resistors and strain gages are recognized as global
market leading products that provide high precision and high stability over extreme temperature ranges, and long life. Our force
sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision
measurements of force, weight, pressure, torque, tilt, motion, and acceleration. We continue to optimize all aspects of our
development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in
product performance and design; and refining our manufacturing processes.
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.
We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing
operations in countries such as India and Israel, where we can benefit from lower labor costs, improved efficiencies, or available
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tax and other government-sponsored incentives. For example, in 2017 we closed two leased facilities in the U.S. and moved to
more cost effective locations. In 2016, we relocated a significant portion of our force sensor manufacturing from leased locations
with higher labor costs, to the owned facility we constructed in India. We closed a facility in Costa Rica and consolidated its
functions to existing operations where significant efficiencies were available. This consolidation was part of our global restructuring
and cost reduction program announced in November 2015 and substantially completed in 2016.
Organic Growth
Our product portfolio is focused, to a significant extent, on specialty products serving niche markets. The development of specialty
products requires us to form long-term relationships with our customers. Our specialty products are usually designed, or engineered,
to meet unique specifications for OEMs. This often results in our customers creating a non-standard part number used solely to
designate our product on their bill of materials. We call this customer activity a “design win.” This activity may create organic
growth as the OEM customer begins to order increasing quantities to meet their production requirements, with little or no opportunity
to purchase a similar part from competing suppliers. The “design in” time for these initiatives is typically 12 to 24 months.
We expect to continue to use our research and development, engineering, and product marketing resources to introduce new and
innovative specialty products. An example of our success in this regard is the recent acceptance and growth of our on-board vehicle
weighing solution incorporating microelectromechanical systems ("MEMS") technology. Our ability to react to changing customer
needs, emerging markets, and industry trends will continue to be a key to our success.
Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations
to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products
within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing
customer needs and industry trends in terms of form, fit, and function.
Growth from Acquisitions
We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments. Historically,
our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our
force sensor products, and incorporating those products into our weighing and control systems. The acquisitions of Stress-Tek and
KELK, each of which employ our foil strain gages to manufacture load cells for their systems, continue this strategy. Additionally,
the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific Instruments acquisition
significantly broadened our existing data acquisition offerings and opened new markets for us. Along with our recent success in
MEMS technology for on-board weighing, we expect to expand our expertise, and our acquisition focus, outside our traditional
vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion,
and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions
and from our current global manufacturing and distribution footprint.
Product Segments
Foil Technology Products
The Foil Technology Products ("FTP") segment includes our foil resistor and strain gage operating segments. Typical applications
for foil resistors include high end test equipment for the aviation, military and space, semiconductor, process control, oil and gas,
and medical markets. Typical applications for strain gages, which include advanced sensor gages, are stress analysis for structural
testing in the aviation, military and space, infrastructure, and construction markets. Our innovative advanced sensors product line
enhances the capability and performance of our strain gages, while simultaneously reducing their size and power consumption.
This segment also includes our data acquisition systems business.
The products in these segments are primarily based on our resistive foil technology, which continues to evolve and enables many
products in both segments to be suited for new and varied applications.
The manufacturing of the foil material is a critical and common component of the Company’s strain gage and precision foil resistor
operating segments, and as a result, we experience synergies between our foil resistor and strain gage operating segments. The
production cycles for foil resistors and strain gages are similar and many of the same raw materials are utilized in the manufacturing
processes for both operating segments. The foil resistor and strain gage products require a similar level of labor and capital.
However, the advanced sensors’ manufacturing technology offers us the capability to produce high-quality foil strain gages in a
highly automated environment, which we believe results in reduced manufacturing costs and lead times, higher quality, and
increased margins.
Our Pacific Instruments business offers a broad range of high performance signal conditioning, data acquisition and control systems,
many of which reach customers outside our traditional commercial customer base, such as U.S. government related customers.
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Our strain gage operating segment sells foil inventory to the Company’s foil resistor operating segment. A significant portion of
products from the strain gage operating segment are sold to third parties as “standard catalog items”; the remainder of this operating
segment's products are sold as non-standard and/or custom products to third parties and to our Force Sensors segment.
Force Sensors
The Force Sensors segment includes a broad line of load cells and force measurement transducers that are offered as precision
sensors for industrial and commercial use. Typical applications for force sensors are in medical devices (such as hospital beds and
medication dosing), agricultural equipment (for precision force measurement), and construction machinery (for tipping and
overload protection). These sensors use our foil technology products, which serve as sensing elements and components within
each unit. Further integration of our load cells technology is also offered as part of our weighing module products, which provide
customers with a complete sensor assembly that may be used within a wide variety of digital transducers.
A majority of products from the Force Sensors segment are sold to third parties as “standard catalog items,” but a growing sector
of this segment’s products are sold as non-standard and/or custom products to third parties and to our Weighing and Control
Systems segment. Direct sales channels (field application engineers (“FAEs”)) are utilized as the primary customer interface
relating to initial design specifications, development of prototypes, and pricing/delivery of this segment’s products. Distributors
are also used for those customers that desire standard products.
Weighing and Control Systems
The Weighing and Control Systems segment designs and manufactures complete systems comprised of load cells and
instrumentation for weighing and force control/measurement for a variety of uses, including on-board weighing and overload
monitor systems. Typical applications for our weighing and control systems products are: process weighing of chemicals, food
and pharmaceuticals; aircraft and truck weighing and overload protections; weight force and process optimization in steel and
paper mills; and force measurement for offshore oil and gas exploration.
The Weighing and Control Systems segment acquires many of the load cells it requires from our Force Sensors segment. As such,
the Company considers the load cell production line to be an integral component of the production process of our Weighing and
Control Systems segment. Other major components that comprise our systems are: electronic displays; optical gages; signal
processors; MEMS sensors; cabling; system software; and communication software/hardware. The end use for the majority of
these products is the precision measurement of force, weight, pressure, torque, tilt, motion, and acceleration. Direct sales channels
(FAEs) are utilized as the primary customer interface relating to initial design specifications, development of prototypes, and
pricing/delivery of this segment’s products. Distributors and sales agents are also used, as appropriate, to market, sell, and support
certain products in this segment.
Products
Our precision sensor and sensor-based systems include products such as load cells, transducers, weighing modules, and complete
systems for process control and on-board weighing applications. Our precision foil resistors and strain gages are based on our
proprietary foil technology, which we invented. We manufacture and sell high precision foil resistors, foil strain gages, and data
acquisition systems.
Our product portfolio includes:
• Foil resistors – Foil resistors are the most precise and stable type of resistors currently available. Resistors are basic
components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. Our foil resistors
and current sensors are used in applications requiring a high degree of precision and stability, such as in medical
applications, precision equipment for front-end and back-end semiconductor testing and semiconductor fabrication
equipment, and avionics/military/aerospace applications. We sell our foil resistors under the Vishay Foil Resistors, Alpha
Electronics, and Powertron brands, including under our well-known Bulk Metal® trademark.
• Foil strain gages – Strain gages, including our advanced sensors, are resistive sensors that are attached to the surface of
an object to determine the surface strain caused by an applied force. Typical uses of strain gages include test and
measurement applications where the strength of the object is the main consideration and the object under test is a structural
component in a machine or device, such as an automobile, an aircraft, or a highway bridge. Strain gages are also used
inside precision transducers where the magnitude of an applied force is the focus of the measurement. A variety of
physical measurements can be made using strain gages attached to metal components including force, weight, pressure,
displacement, and acceleration. We sell our strain gages under the well-known Micro-Measurements brand.
Transducers, load cells, and modules – A transducer is mounted on a structure that is subjected to weight or other stress,
such as the platform of an industrial scale. The term “load cell” is primarily used to describe transducers used in weighing
applications. Strain gage transducers consist of one or more strain gages bonded to a metallic support. The change in
resistance of the strain gages in response to deformation of the transducer by the applied load is detected by electronic
•
- 6 -
instrumentation. Transducers are manufactured with different designs and configurations depending on their application
and the type of stress or strain to be measured; for example, weight or tension. We produce both analog and digital
transducers. Modules are transducers combined with a mounting and with external features, such as instruments and
cables, and are used for weighing and control applications. We sell our load cells and modules under the overall VPG
Transducers name as we continue to transition from the previously used Celtron, Revere, Sensortronics, and Tedea-
Huntleigh brands.
• Data acquisition systems – Data acquisition systems, which include instruments, measure, process, digitize, display, and
record the output of our strain gages, transducers, and other sensor or sensor-based systems as well as deliver information
to control systems. Our acquisition of Pacific Instruments significantly expanded our previous instruments offerings.
• Weighing and control systems – Weighing and control systems are integrated systems for the detection and measurement
of weight and other types of force, primarily for use in industrial applications. These include systems to control process
weighing in food, chemical, and pharmaceutical plants; force measurement systems used to control web tension in paper
mills, roller force in steel mills, and cable tension in winch controls; on-board weighing systems installed in logging and
waste-handling trucks; and special scale systems used for aircraft weighing and portable truck weighing. With our
acquisition of Stress-Tek, we enhanced and broadened our on-board weighing offerings with products that are recognized
for high quality in their markets. With our acquisition of KELK, we added certain optical gages for control systems and
enhanced our other product offerings for process control in the steel mill industry. We sell our systems under a variety
of brand names including BLH Nobel, KELK, and VPG Onboard Weighing.
Qualifications and Specifications
Certain of our products must be qualified or approved under various military and aerospace specifications and other standards.
We have qualified certain of our foil resistor and sensor products under various military specifications approved and monitored
by the United States Defense Logistics Agency (“DLA”), under certain European military specifications, and various aerospace
standards approved by the U.S. National Aeronautics and Space Administration (“NASA”) and the European Space Agency
(“ESA”).
Qualification and specification levels are based in part upon the rate of failure of products. We must continuously perform tests
on our products, and report the results for qualified products to the qualifying organization. If a product fails to meet the requirements
for the applicable classification level, the product’s classification may be suspended or reduced to a lower level. During the time
that the classification is suspended or reduced, net revenues and earnings attributable to that product may be adversely affected.
Certain of our load cell and instrumentation products are approved by the National Type Evaluation Program (“NTEP”) and
International Organization of Legal Metrology (“OIML”). Many of our weighing systems must also meet these standards to make
them usable for legal-for-trade weighing applications. Products and systems that are to be used in hazardous areas, where explosive
atmospheres might exist, must comply with special safety standards, such as the European Atmosphère Explosible (“ATEX”)
Standard and the U.S. Factory Mutual (“FM”) Standard. Our load cell manufacturing sites undergo periodic audits by regulatory
authorities in order to verify compliance with standard requirements and to extend product approvals.
Manufacturing Operations
Our principal manufacturing facilities are located in Israel, the United States, Canada, India, the People’s Republic of China, and
Japan. We also have manufacturing facilities in Germany, Sweden, the United Kingdom, the Republic of China (Taiwan), and
France. Over the past several years, we have invested substantial resources to increase capacity and to enhance automation in our
plants, which we believe will further reduce production costs.
We have quality management systems at all of our major manufacturing facilities approved under the ISO 9001 Quality Management
Systems Standard. ISO 9001 is a comprehensive set of quality program standards developed by the International Organization
for Standardization ("ISO"). The quality management system in our major foil resistors manufacturing site is certified against
Aerospace Standard AS9100.
To maintain our cost competitiveness, we are pursuing our strategic initiatives to shift manufacturing emphasis to more advanced
automation in higher-labor-cost regions and to relocate production to regions with skilled workforces and relatively lower labor
costs. See additional information in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Cost Management” related to our restructuring efforts.
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Sources of Supplies
Although most materials incorporated in our products are available from a number of sources, certain materials are available only
from a relatively limited number of suppliers. The principal materials used in our products include various metallic foil alloys,
aluminum, stainless steel, tool steel, plastics, and for a few products, gold. Some of the most highly specialized materials for our
sensors are sourced from a single vendor. We maintain a safety stock inventory of certain critical materials at our facilities. We
are taking steps to determine the use, source, and origin of any tin, tantalum, tungsten, or gold in our global product portfolio and,
if appropriate, would work with our suppliers to remediate issues and source more responsibly.
A significant portion of our Force Sensors and Weighing and Control Systems segment products are based on strain gages produced
by our Foil Technology Products segment.
Inventory and Backlog
We manufacture both standardized products and those designed and produced to meet customer specifications. We maintain an
inventory of standardized components, and monitor the backlog of outstanding orders for our products.
We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. Many
of our customers for strain gages, load cells, and foil resistors encounter uncertain and changing demand for their products. They
typically order products from us based on their forecasts. If the customers' business needs change, they may cancel or reschedule
the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog at
any point in time is not necessarily indicative of the results to be expected for future periods.
Customers and Marketing
Our customer base is diversified in terms of industry, geographic region, and range of product needs. No single customer comprises
greater than 5% of net revenues. The vast majority of our products are used in the broad industrial market, with selected uses in
the military and aerospace, medical, agricultural, steel, and construction sectors. Within the broad industrial market, our products
serve a wide variety of applications in waste management, bulk hauling, logging, scales manufacturing, engineering systems,
pharmaceutical, oil, chemical, steel, paper, and food industries.
Our net revenues attributable to customers by region are as follows:
Americas
Europe
Asia
Years ended December 31,
2017
2016
2015
42%
33%
25%
100%
44%
35%
21%
100%
40%
38%
22%
100%
We sell through a variety of sales channels, including OEMs, electronic manufacturing services companies (“EMS”) (which
manufacture for OEMs on an outsourcing basis), and independent distributors. We also sell directly to end-use customers. During
2017, sales channels for our three reporting segments were as follows:
OEMs
EMS
Distributors
End users
Foil
Technology
Products
Force
Sensors
Weighing
and Control
Systems
36%
13%
32%
19%
100%
65%
—%
30%
5%
100%
37%
—%
24%
39%
100%
In 2017, the Weighing and Control Systems segment experienced a significant increase in the percentage of sales to end users and,
to a lesser extent, to distributors, resulting in a corresponding reduction in the percentage of sales to OEMs. The increase in sales
to end users was mostly related to the increase of sales by our steel business, which primarily sells to end users. The increase in
percentage of distributor sales was primarily due to expansion of that sales channel by our onboard weighing business.
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Many of our products have historically been sold by dedicated sales forces, consisting mainly of FAEs focusing on specific market
segments or specific customers. The FAEs help identify the products in our portfolio that best meet the needs of our customers
and provide technical and applications support. Their in-depth knowledge of customer needs is a key factor in new product design
and future research and development initiatives.
Competition
Our competitive success depends on our ability to maintain a competitive advantage on the basis of superior product capability
and performance, product quality, know-how, proprietary data, market knowledge, service capability, and business reputation.
Price competitiveness can be an important factor, especially within our Force Sensors segment. Our sales and marketing programs
offer our customers a broad range of world-class precision technologies, and superior global sales and support.
Competition in the markets where we sell the bulk of our products is extremely fragmented, both geographically and by application.
To our knowledge, there are no competitors with the same product mix and proprietary technology as ours. Our competitors range
from very small, local companies to large, international companies with greater financial resources than us.
Our foil resistors, where we maintain a leading market share, and our foil strain gages are based on our proprietary technology.
Competitors try to compete in this market using different technology to offer functionally equivalent products. Competition in our
Foil Technology Products segment includes IRC, SSM, Caddock and Flat Dashi for foil resistors, and HBM, an operating company
of Spectris, Tokyo Sokki Kenkyujo Co., Ltd (TML), Kyowa and Zemic for foil strain gages. Competitors in our Force Sensors
segment include HBM, Zemic, Keli, and Flintec. Competitors in our Weighing and Control Systems segment include Hardy
Instruments and Mettler-Toledo for process weighing; ABB, Siemens, Haehne, Dalian and IMS for steel mill systems; and Air-
Weigh, Vehicle Weighing Systems, MOBA, and AMCS for onboard weighing.
Research and Development
Many of our products, manufacturing techniques, and technologies have been invented, designed, and developed by our engineers
and scientists. Special proprietary resistive metal foil is the most important material in both our foil resistors and our foil strain
gages, and our research and development activities related to foil materials are an important linkage between these two products.
We maintain strategically placed design centers for each of our business segments where proximity to customers enables us to
more easily monitor and satisfy the needs of local markets. These design centers are located in the United States, Israel, Canada,
Sweden, Japan, the United Kingdom, and Germany.
We also maintain research and development staff, and promote programs at a number of our production facilities to develop new
products and new applications of existing products, and to improve manufacturing techniques. This decentralized system
encourages individualized product development at specific manufacturing facilities that occasionally has applications at other
facilities.
Our research and development staff and our sales force are closely linked. Our sales force is comprised of individuals with an
engineering background who can help meet the needs of our customers for technical and applications support. This in-depth
knowledge of customer needs and specifications is a key factor in future research and development initiatives.
Research and development will continue to play a key role in our efforts to introduce innovative products for new sales, and to
improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products.
We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our
manufacturing base and, ultimately, our financial performance. To that end, we expect to sustain or increase our R&D expenditures
in order to fill the product development pipeline and lay the foundation for future sales growth.
Patents and Licenses
We have made a significant investment in securing intellectual property protection for our technology and products. We seek to
protect our technology by, among other things, filing patent applications for technology considered important to the development
of our business. Although we have numerous United States and foreign patents covering certain of our products and manufacturing
processes, no particular patent is considered individually material to our business. We also rely upon trade secrets, unpatented
know-how, and continuing technological innovation.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our
technology. Although we have been awarded, have filed applications for, or have obtained numerous patents in the United States
and other countries, there can be no assurance concerning the degree of protection afforded by these patents, or the likelihood that
pending patents will be issued.
- 9 -
We require all of our technical, research and development, sales and marketing, and management employees, and most consultants
and other advisors to execute confidentiality agreements upon the commencement of employment, or consulting relationships
with us. These agreements provide that all confidential information developed, or made known to the entity or individual during
the course of the entity’s or individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in
specific circumstances. Substantially all of our technical, research and development, sales and marketing, and management
employees have entered into agreements providing for the assignment to us of rights to inventions made by them while employed
by us.
Environmental, Health and Safety
We have an Environmental, Health and Safety Policy that commits us to achieve health and safety for employees and protection
of the environment, to maintain compliance with applicable environmental, health and safety laws, to promote proper management
of hazardous materials, and to minimize the hazardous materials generated in the course of our operations. In addition, our
manufacturing operations are subject to various regional, federal, state, and local laws restricting discharge of materials into the
environment. We are not involved in any pending or threatened proceedings that would require curtailment of our operations.
Employees
As of December 31, 2017, we employed approximately 2,250 total employees, substantially all of which were full-time employees.
Approximately 87% of the employees were located outside the United States. Our future success is substantially dependent on
our ability to attract and retain highly qualified technical and administrative personnel. Some of our employees outside the United
States are members of trade unions. Our relationship with our employees is generally good. However, no assurance can be given
that labor unrest or strikes will not occur.
Executive Officers
The following table sets forth certain information regarding our executive officers as of March 15, 2018:
Name
Ziv Shoshani
William M. Clancy
Roland B. Desilets
Age
51
55
56
Positions
Chief Executive Officer, President, and Director
Executive Vice President and Chief Financial Officer
Vice President, General Counsel, and Secretary
Ziv Shoshani is our Chief Executive Officer and President, and also serves on the board of directors. Mr. Shoshani was Chief
Operating Officer of Vishay Intertechnology from January 1, 2007 to November 1, 2009. During 2006, he was Deputy Chief
Operating Officer of Vishay Intertechnology. Mr. Shoshani was Executive Vice President of Vishay Intertechnology from 2000
to 2009 with various areas of responsibility, including Executive Vice President of the Capacitors and the Resistors businesses,
as well as heading the Measurements Group and Foil Divisions. Mr. Shoshani had been employed by Vishay Intertechnology since
1995. He continues to serve on the Vishay Intertechnology board of directors. Mr. Shoshani is a nephew of the late Dr. Felix
Zandman, the founder of Vishay Intertechnology.
William M. Clancy is our Executive Vice President and Chief Financial Officer. Mr. Clancy was Corporate Controller of Vishay
Intertechnology from 1993 until November 1, 2009. He became a Vice President of Vishay Intertechnology in 2001 and a Senior
Vice President of Vishay Intertechnology in 2005. Mr. Clancy served as Corporate Secretary of Vishay Intertechnology from 2006
to 2009. From June 16, 2000 until May 16, 2005 (the date Vishay Intertechnology acquired the noncontrolling interest in Siliconix
incorporated), Mr. Clancy served as the principal accounting officer of Siliconix. Mr. Clancy had been employed by Vishay
Intertechnology since 1988. Mr. Clancy is a licensed CPA in Pennsylvania.
Roland B. Desilets is our Vice President, General Counsel, and Secretary. He joined VPG in March 2010 after serving as Executive
Vice President, General Counsel, and Secretary for QAD, Inc. (NASDAQ:QADA/QADB) from 2001 to 2009. Prior to that time
he spent one year as Executive Vice President, General Counsel, and Secretary of Atlas Commerce, Inc., a Safeguard Scientifics
(NYSE:SFE) partner company. Mr. Desilets initially joined QAD, Inc. in 1993, serving as Regional General Counsel until 1998,
when he was named General Counsel. Previously, he was Intellectual Property Counsel for Unisys Corporation. Mr. Desilets holds
a juris doctor degree from Widener University Delaware School of Law, a master of science degree in computer science from
Villanova University, and a bachelor of science degree in physics from Ursinus College.
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Company Information and Website
We began filing annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange
Commission (“SEC”) under the Securities Exchange Act of 1934 after our spin-off from Vishay Intertechnology on July 6, 2010.
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at Station Place, 100
F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements,
and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents
that we file with the SEC at www.sec.gov.
In addition, our company website can be found on the Internet at www.vpgsensors.com. The website contains information about
us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments
to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments
are electronically filed with or furnished to the SEC. To view the reports, access http://ir.vpgsensors.com and click on “SEC
Filings”/ “Documents.”
The following corporate governance related documents are also available on our website:
• Compensation Committee Charter
• Nominating and Corporate Governance Committee Charter
• Audit Committee Charter
• Code of Business Conduct and Ethics
• Code of Ethics Applicable to the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer or
Controller
• Corporate Governance Principles
To view these documents, access http://ir.vpgsensors.com and click on “Corporate Governance.”
To view our Ethics Program Reporting Procedures, access http:/www.vpgsensors.com/company and click on “Ethics.”
We are not incorporating by reference into this Annual Report on Form 10-K any material from our website.
Any of the above documents can also be obtained in print by any stockholder, upon request to our Investor Relations Department
at the following address:
Corporate Investor Relations
Vishay Precision Group, Inc.
3 Great Valley Parkway, Suite 150
Malvern, PA 19355
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Item 1A. RISK FACTORS
You should carefully consider the following risks and other information in this Form 10-K in evaluating our company and common
stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem
immaterial, could materially and adversely affect our business, results of operations or financial condition, and could also adversely
affect the trading price of our common stock.
Risks Related to Our Business
We face intense competition in our business.
We face various degrees and types of competition in our different businesses. In some cases our products compete directly with
those of third party competitors. In other cases, competition in one segment, such as in our Weighing and Control Systems segment,
may affect not only the sales of our systems within that segment, but also sales of products that we incorporate in those systems
from other segments, such as load cells and strain gages.
We have a significant market position in foil resistors and foil strain gages. Foil resistors and foil strain gages are also produced
by competitors, principally located in China. We believe that our foil technology products provide superior performance relative
to our competitors, but that could change if our competitors succeed in developing and introducing innovative competitive offerings.
Also, our foil strain gages compete with other types of strain gages, such as semiconductor strain gages, which we do not
manufacture. We believe that other types of strain gages are not as reliable or stable as our foil strain gages, but that could change
as the technology for these other products continues to evolve. If our competitors are able to improve the quality, performance, or
pricing of their products relative to our offerings, our results of operations could be adversely affected.
The market for transducer/load cell products is highly fragmented and very competitive. Our load cell modules and systems face
competition from numerous other load cell module and systems manufacturers. Competition for modules and systems is most
often based on customer relationships, product reliability, technical performance, and the ability to anticipate and satisfy customer
needs for specific design configurations. Many other manufacturers have more experience in particular geographic markets and
specific applications than we do, and may be better positioned to compete in these areas. We cannot assure you that we will be
able to successfully grow our business in the face of these competitive challenges.
Our vertical product integration exposes us to certain risks.
Our business structure emphasizes vertical product integration. For example our force sensor business is the largest customer (by
volume) for our strain gages. Similarly, our weighing and control systems business uses our force sensor products in its systems.
Many of our acquisitions, which form the core operations of our business, had the effect of extending our vertical integration.
While we believe this has been, and will continue to be, a sound business structure, vertical product integration and the resulting
interdependencies of our divisions exposes us to certain risks. As a consequence of our vertical integration, our force sensors
business may compete with certain of our customers and potential customers for strain gages while our systems business may
compete with certain of our customers and potential customers for force sensors, who, for that reason, may elect not to do business
with us.
To remain successful, we must continue to innovate, and our investments in new technologies may not prove successful.
Our future operating results depend on our ability to continually develop, introduce, and market new and innovative products, to
modify existing products, to respond to technological change, and to customize certain products to meet customer requirements.
There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological
change, that customers may be unwilling, or unable, to adopt the new products or methods of using them, that we will be unable
to develop and market new products and applications in a timely fashion to satisfy customer demands, or that such products will
experience quality or other qualification issues with our customers as they, and we, gain experience with qualifying them and
using them. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of
operations.
We may not be successful in future acquisitions or other strategic transaction endeavors, if any, which could have an adverse effect
on our business and results of operations.
Historically, we expanded our business in part by completing acquisitions, and an important element of our business strategy
continues to be expansion through acquisition. We cannot assure that we will identify, have the financial capabilities to execute,
and/or successfully complete strategic transactions with suitable partners in the future. We also cannot assure that any such
transactions that we do complete in the future will be successful.
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Such transactions or investments involve a number of risks, including the following:
• we may incur substantial costs, including advisory fees and diversion of management attention, in evaluating a potential
transaction;
• we may be unable to achieve the anticipated benefits from the transaction;
• we may have difficulty integrating the operations and personnel of an acquired business, and may have difficulty retaining
the key personnel of the acquired business;
• we may have difficulty incorporating acquired technologies or products into our existing solutions;
•
our ongoing business and management's attention may be disrupted or diverted by transition or integration issues, and the
complexity of managing geographically and culturally diverse locations; and
• we may lose customers of those companies, or may lose our customers due to the change in control or for other reasons.
The factors noted above could have a material adverse effect on our business, results of operations, and financial condition or cash
flows, particularly in the case of a larger acquisition. From time to time, we may enter into negotiations for acquisitions or
investments that are not ultimately consummated. These negotiations could result in significant diversion of management time,
as well as out-of-pocket costs.
Future acquisitions may require us to incur or issue additional indebtedness or issue additional equity.
If we were to undertake future substantial acquisitions for cash, these acquisitions would likely need to be financed in part through
bank borrowings, or the issuance of public or private debt. This acquisition financing would likely decrease our ratio of earnings
to fixed charges and adversely affect other credit metrics. Our revolving credit facilities require us to obtain the lenders’ consent
for certain additional debt financing and to comply with other covenants, including the application of specific financial ratios. We
cannot assure that the necessary acquisition financing would be available to us on acceptable terms, if and when, required. If we
were to make an acquisition with equity, the acquisition may have a dilutive effect on the interests of the holders of our common
stock.
We may experience difficulties, delays, or unexpected costs in completing our cost reduction programs.
To remain competitive, particularly when business conditions are difficult, we sometimes take steps to reduce our cost structure
by restructuring our existing businesses to achieve efficiencies, eliminate redundant functions, facilities and staff positions, and
move operations, where possible, to reduce labor or other costs.
We may not realize, in full or in part, the anticipated benefits of these programs without encountering difficulties, which may
include complications in the transfer of production knowledge, loss of key employees and/or customers, and the disruption of
ongoing business. Any of these difficulties could delay and/or undermine our ability to realize the benefits of these cost reduction
programs, as well as potentially adversely affecting our customer relationships and operations.
Our business is cyclical, and in periods of increased economic strength, we may experience intense demand for our products. If
our cost reduction programs and related restructuring result in us not being able to satisfy our customer’s demand for products
during a rising economy, and our competitors sufficiently expand production, we could lose customers and/or market share. These
losses could have an adverse effect on our operations, financial condition, and results of operations.
We might require additional capital to support business growth and this capital might not be available.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business
challenges or opportunities, including the need to develop new offerings or enhance our existing offerings, enhance our operating
infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt
financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities,
our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences,
and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve
additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may
make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and
to respond to business challenges could be significantly limited.
We may encounter difficulties in the implementation or operation of new enterprise resource planning systems.
We have implemented, and continue to implement, new enterprise resource planning (“ERP”) systems in different parts of our
business. ERP systems are integral to our ability to accurately and efficiently manage our manufacturing and sales activities, and
provide critical business information to management. The implementation of an ERP system may cause us to incur additional
costs, shipment delays, and related customer dissatisfaction; expend employee (including Company management) time and
attention; and otherwise burden our internal resources. Any difficulties we encounter with the implementation or successful
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operation of an ERP system could damage the effectiveness of our business processes and could adversely impact our ability to
accurately and effectively forecast and manage sales demand, manage our supply chain, and report management information on
an accurate and timely basis, any of which could have a material adverse effect on our business and results of operations.
Our success is dependent upon our ability to protect our proprietary technology and other intellectual property.
We rely on a combination of the protections provided by applicable patent, trademark, copyright, and trade secret laws, as well as
on confidentiality procedures and other contractual arrangements, to establish and protect our rights in our technology, and related
materials and information. We enter into agreements with our customers and distributors. These agreements contain confidentiality
and non-disclosure provisions, a limited warranty covering our products, and indemnification for the customer from infringement
actions related to our products.
Despite our efforts, it may be possible for others to copy portions of our products, reverse engineer them, or obtain and use
information that we regard as proprietary, all of which could adversely affect our competitive position. Furthermore, there can be
no assurance that our competitors will not independently develop technology similar to ours. The laws of certain countries in
which we manufacture do not protect our intellectual property ("IP") rights to the same extent as the laws of the United States. In
the Office of the United States Trade Representative (“USTR”) annual "Special 301" Report released in April 2017, the adequacy
and effectiveness of intellectual property protection in a number of foreign countries were analyzed.
A number of countries in which we manufacture are identified in the report as being on the Priority Watch List. In China, for
instance, the USTR is concerned about the existence of widespread infringing activity, including trade secret theft, rampant online
piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe. Structural
impediments to civil and criminal enforcement of IP rights are also problematic. Further, China imposes requirements that U.S.
firms develop their IP in China or transfer their IP to Chinese entities as a condition to accessing the Chinese market. China also
requires that mandatory adverse terms be applied to foreign IP licensors, and requires that U.S. firms localize research and
development activities. The USTR also expressed concern that in India serious deficiencies remain in its legal framework and
enforcement system for intellectual property rights. Algeria, Argentina, Chile, Indonesia, Kuwait, Russia, Thailand, Ukraine, and
Venezuela were also identified because of problems in intellectual property enforcement. The absence of harmonized intellectual
property protection laws and effective enforcement makes it difficult to ensure consistent respect for patent, trade secret, and other
intellectual property rights on a worldwide basis. As a result, it is possible that we will not be able to enforce our rights against
third parties that misappropriate our proprietary technology in those countries.
The success of our business is highly dependent on maintenance of intellectual property rights.
The unauthorized use of our IP rights may increase the cost of protecting these rights or reduce our revenues. We seek to protect
trade secrets and our other proprietary technology, in part, by requiring each of our employees to enter into non-disclosure and IP
assignment agreements. In these agreements, the employee agrees to maintain the confidentiality of all of our proprietary
information and, subject to certain exceptions, to assign to us all rights in any proprietary information or technology made, or
contributed, by the employee during his or her employment. Generally, we do not enter into non-compete arrangements with our
employees, with the exception of certain executives and, in some cases, one or more of the principals of the businesses that we
acquire.
All of these types of agreements may be breached or be found unenforceable, and we may not have an adequate remedy for any
such breach of, or inability to enforce, these agreements. We may initiate, or be subject to, claims or litigation for infringement of
proprietary rights, or to establish the validity of our proprietary rights, which could result in significant expense to us, cause product
shipment delays, require us to enter royalty or licensing agreements, and divert the efforts of our technical and management
personnel from productive tasks, whether or not such litigation were determined in our favor.
We may be exposed to product liability claims.
While our agreements with our customers and distributors typically contain provisions designed to limit our exposure to potential
material product liability claims, including appropriate warranty, indemnification, damages waiver, and limitation of liability
provisions, it is possible that such provisions may not be effective under the laws of some jurisdictions, thus exposing us to
substantial liability. Moreover, defending a suit, regardless of its merits, could entail substantial expense, and require the time and
attention of key management personnel. If product liability claims are brought against us, the costs associated with defending such
claims may adversely affect our results of operations and future cash flows.
We must expend significant resources to obtain design wins without assurance that we will be successful.
In many cases, we must initiate communication with our customers, and convince the customer that our products and systems will
offer solutions for its business that are technically superior and more cost effective compared to their existing arrangements. To
do so, we must often expend significant financial and human resources to develop technologically compelling products or systems
with no guarantee that they will be adopted by our customers. The non-recurring engineering (“NRE”) costs for product development
in these cases could be substantial, and may adversely affect our profitability if we are unable to recover these costs.
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Also, customers will often require a lengthy period of on-site testing before committing to purchase a product or system, during
which period we will not receive material revenue from the customer. While a design win for our products and systems may result
in a long period of recurring revenue during which we hope to recover our costs, we must often internally finance our development
costs over significant time periods. If our products or systems fail to gain acceptance with our customers, we will be forced to
absorb any NRE costs, which could adversely affect our business if these costs are substantial.
The long development times for certain of our products and systems may result in unpredictable fluctuations in revenue and results
of operations.
Our force sensor products, and weighing and control systems, often involve long product development cycles, both to develop the
product or system and to secure customer acceptance following what may be a lengthy on-site testing period. During product
development and testing, we may incur substantial costs without corresponding revenues. If our custom product or system is
ultimately accepted by the customer, we may then begin to realize substantial revenues from our development efforts.
In particular, our weighing and control systems can be priced for several hundred thousand dollars per unit, so that a contract to
acquire one or more units can materially contribute to our revenues during the period or periods that we are permitted to recognize
the contract revenues for accounting purposes. The nature of our weighing and control products and systems, and in particular,
the products and systems manufactured by the steel business, may therefore result in substantial fluctuations in our operating
results, including revenues and profitability, from period to period, even though there has been no fundamental change in our
business or its prospects. Further, customers may request a delay in shipping a product they have ordered due to changes in their
business needs, which may delay the revenue recognition for the product until shipment occurs. This may make it difficult for
investors to undertake period-to-period comparisons of our performance. Also, the fluctuating nature of key components of our
revenues may limit the visibility of our management regarding performance in future periods, and make it more difficult for our
management to provide guidance to our investors.
We may not have adequate facilities to satisfy future increases in demand for our products.
Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. During such
periods, we may have difficulty expanding our manufacturing capacity to satisfy demand. Factors which could limit such expansion
include delays in procurement of manufacturing equipment, shortages of skilled personnel, and physical constraints on expansion
at our facilities. If we are unable to meet our customers’ requirements and our competitors sufficiently expand production, we
could lose customers and/or market share. These losses could have an adverse effect on our financial condition and results of
operations. Also, capacity that we add during upturns in the business cycle may result in excess capacity during periods when
demand for our products recedes, resulting in inefficient use of capital, adversely affecting our business.
The nature of the market for our products may render them particularly susceptible to downturns in the economic environment.
Our products are designed to replace and provide superior functionality over existing product infrastructure utilized by our
customers. Often, it is only after introductory demonstrations by our sales and engineering teams that our customers come to
appreciate the advantages of our products and systems, and the long-term benefits of their adoption. An economic downturn or
extended period of economic uncertainty may make customers less receptive to adopting new technological solutions at our
suggestion - even ones with demonstrated operational and financial advantages. During these periods, customers may defer, or
even cancel, orders for products and systems for which they have previously contracted, or given indications of interest.
Also, because our business is concentrated largely in the industrial sector, we do not benefit from countervailing fluctuations in
consumer demand. As a result, our business may be more significantly affected by the consequences of a general economic
slowdown than other segments of our industry, and may also take longer to recover from the effects of a slowdown.
Our backlog is subject to customer cancellation.
Many of the orders that comprise our backlog may be canceled by our customers without penalty. Our customers, particularly for
our foil technology products, often cancel orders when business is weak and inventories are excessive, a situation that we have
experienced during periods of economic slowdown. Therefore, we cannot be certain that the amount of our backlog accurately
forecasts the level of orders that will ultimately be delivered. Our results of operations could be adversely impacted if customers
cancel a material portion of orders in our backlog.
The complexity of our sophisticated weighing and control systems may require costly corrections if design flaws are found.
Our weighing and control systems combine sophisticated electronic hardware and computer software. We believe that the
sophistication of our systems contributes to their competitive advantage over similar products offered by other system integrators.
We go to substantial lengths to assure that our systems are free of design flaws when they are delivered to our customers for
installation and testing. However, due to the systems’ complexity, design flaws may occur and require correction. If the requisite
corrections are substantial, or difficult to implement due to the systems’ complexity, we may not be able to recover the costs of
correction and retesting, with the result that our profit margins on these systems could be substantially reduced, or even negated
by losses, and our results of operations could be materially and adversely affected.
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Our results are sensitive to raw material availability, quality, and cost.
Although most materials incorporated in our products are available from a number of sources, certain materials are available only
from a relatively limited number of suppliers. We generally maintain a supply of strategic raw materials for continuity and risk
management. Our customers would need significant advance notification to qualify alternative materials, if we had to use them.
Alternative suppliers are available worldwide for most of our raw materials, but significant time (up to 12 months) would be
required to qualify new suppliers and establish efficient production scheduling.
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price
volatility.
Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, if the quality
of available raw materials deteriorates, if there are significant price changes for these raw materials, or if compliance with the laws
and regulations described below proves costly and time-consuming. For periods in which the prices of these raw materials are
rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products
in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying
cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the difference
between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings. We also
may need to record losses for adverse purchase commitments for these materials in periods of declining prices.
Pursuant to the SEC’s “conflict minerals” rules, reporting companies that determine that certain metals, dubbed “conflict minerals”
by the SEC (which include tantalum, gold, tin, and tungsten sourced from the Democratic Republic of the Congo or adjoining
countries), are necessary to the functionality or production of a product they manufacture, or contract to have manufactured, must
file a specialized disclosure form with the SEC. We use raw materials that are subject to conflict minerals rules. The compliance
with the SEC's related disclosure requirements may affect the sourcing and availability of minerals used in the manufacture of our
products. Also, because our supply chain is complex, we may face reputational challenges with our customers and other stakeholders
if we are unable to materially verify the origins of all "in scope" metals used in our products.
Our product sales may be adversely affected by changes in product classification levels under various qualification and specification
standards.
Certain of our products must be qualified or approved under various military and aerospace specifications and other standards.
We have qualified certain of our foil resistor products under various military specifications approved and monitored by the DLA,
and under certain European military specifications, and various aerospace standards approved by NASA and the ESA.
Qualification and specification levels are based in part upon product failure rate. We must continuously perform tests on our
products, and for products that are qualified, the results of these tests must be reported to the qualifying organization.
Certain of our force sensor products are approved by the NTEP and OIML. Our on-board weighing systems must meet approved
standards to make them legal-for-trade.
If a product fails to meet the requirements for the applicable classification level or other approval, the product’s classification or
approval may be suspended or reduced to a lower level. During the time that the classification is suspended or reduced to a lower
level, net revenues and earnings attributable to that product may be adversely affected.
Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing,
finance, and administrative personnel.
The competitive environment of our business requires us to attract and retain highly qualified personnel to develop technological
innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified
administrative personnel in functions such as legal, tax, accounting, business development, financial reporting, and treasury. The
market for personnel with such qualifications is highly competitive. We have not entered into employment or non-competition
agreements with many of our key personnel.
The loss of the services of, or the failure to effectively recruit, qualified personnel, including for key executive positions, could
have a material adverse effect on our business.
Failure to maintain effective internal control over financial reporting could adversely affect our ability to meet our reporting
requirements.
Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial
reports, and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because
of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore,
even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and
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fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and
effectively prevent fraud, our operating results could be harmed. Our acquisition of new businesses requires the integration and
harmonization of the acquired business’ controls with our existing controls in order to properly account for the acquired business’
assets and operations. If we fail to maintain the effectiveness of our internal control over financial reporting, including any failure
to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating
results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our stock
price.
As described in "Item 9A. Controls and Procedures", we have identified a material weaknesses in our internal controls over
financial reporting that, if not properly corrected, could materially adversely affect our operations and result in material
misstatements in our financial statements.
If we are unable to remediate the material weakness in a timely manner, we may be unable to provide holders of our securities
with the required financial information in a timely and reliable manner and we may incorrectly report financial information. Either
of these events could have a material adverse effect on our operations, investor, supplier and customer confidence in our reported
financial information and/or the trading price of our common stock.
We are exposed to, and may be adversely affected by, interruptions to our computer and information technology systems and
sophisticated cyber-attacks.
We rely on our information technology systems and networks in connection with many of our business activities. Some of these
networks and systems are managed by third party service providers and are not under our direct control. Our operations routinely
involve receiving, storing, processing, and transmitting sensitive information pertaining to our business, customers, suppliers,
employees, and other sensitive matters. Any cyber incidents could materially disrupt operational systems; result in loss of trade
secrets or other proprietary or competitively sensitive information; compromise personally identifiable information regarding
customers or employees; and jeopardize the security of our facilities. Because techniques used to obtain unauthorized access, or
to sabotage systems, change frequently and generally are not recognized until they are launched against a target, we may be unable
to anticipate these techniques, or to implement adequate preventative measures. Information technology security threats, including
security breaches, computer malware, and other cyber-attacks are increasing in both frequency and sophistication, and could create
financial liability, subject us to legal or regulatory sanctions, or damage our reputation with customers, suppliers, and other
stakeholders. We continuously seek to maintain a robust program of information security and controls, but the impact of a material
information technology event could have a material adverse effect on our competitive position, reputation, results of operations,
financial condition, and cash flows.
Future changes in our environmental liability and compliance obligations may harm our ability to operate or increase costs.
Our manufacturing operations, products and/or packaging are subject to environmental laws and regulations governing air
emissions, wastewater discharges, the handling, disposal, and remediation of hazardous substances, wastes, and certain chemicals
used or generated in our manufacturing processes, workplace health and safety labeling, or other notifications with respect to the
content, or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects
of our products or packaging, and responsibility for disposal of products or packaging. New liabilities could arise, and we may
have unavoidably inherited certain pre-existing environmental liabilities, generally based on successor liability doctrines. Although
we have never been involved in any environmental matter that has had a material adverse impact on our overall operations, there
can be no assurance that in connection with any past or future operation, acquisition or otherwise, we will not be obligated to
address environmental matters that could have a material adverse impact on our operations. In addition, more stringent
environmental regulations may be enacted in the future, and we cannot presently determine the modifications, if any, in our
operations that any such future regulations might require, or the cost of compliance with these regulations.
Our credit facilities subject us to financial and operating restrictions.
We maintain revolving credit agreements and term loans with banks that we use, or may use, for working capital, acquisition
financing, and other purposes. These credit facilities subject us to certain restrictions which may affect, and in some cases
significantly limit or prohibit, among other things, our ability to:
borrow additional funds;
pay dividends or make other distributions;
repurchase our common stock;
•
•
•
• make investments, including capital expenditures;
•
•
•
complete acquisitions;
engage in transactions with affiliates or subsidiaries; or
create liens on our assets.
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Our primary credit facility requires us to maintain certain financial ratios. If we fail to comply with the covenant restrictions
contained in the credit facility, that failure could result in termination of the facility, and all amounts outstanding could become
immediately payable.
Unexpected events, such as a natural disaster, could disrupt our operations and adversely affect our results of operations.
We have manufacturing and other facilities in countries around the world. Unexpected events, including fires or explosions at
facilities; natural disasters, such as flooding, hurricanes, and earthquakes; war or terrorist activities; unplanned outages; supply
disruptions; and failures of equipment or systems at any of our facilities could adversely affect our results of operation. If adverse
conditions were to arise with respect to any of our facilities as a result of a natural disaster or other unexpected event, they may
result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key
operating facilities, the temporary disruptions of information systems, and/or an adverse effect on our results of operations.
A significant portion of our cash and cash equivalents and short-term investments balances were held by our non-U.S. subsidiaries.
We generate a significant amount of cash and profits from our non-U.S. subsidiaries. As of December 31, 2017, $69.0 million of
our cash and cash equivalents and short-term investments were held by subsidiaries outside of the United States.
The Tax Cuts and Jobs Act (“2017 Tax Act”), enacted on December 22, 2017, transitions the U.S. from a worldwide tax system
to a modified territorial tax system. Under previous law, companies could indefinitely defer U.S. income taxation on unremitted
foreign earnings. The 2017 Tax Act imposes a one-time transition tax on deferred foreign earnings of 15.5% for liquid assets and
8% for illiquid assets, payable in defined increments over eight years. As a result of this requirement, we provisionally expect to
pay approximately $0.2 million, net of estimated applicable foreign tax credits, and after utilization of net operating loss and
various carryforwards. We expect that we will not need to repatriate amounts from our non-U.S. subsidiaries to the United States
to satisfy this tax obligation.
These previously deferred foreign earnings may now be repatriated to the United States with little to no additional U.S. federal
taxation. However, any such repatriation could incur local withholding tax in the source and intervening foreign jurisdictions.
These amounts could also be subject to certain U.S. state taxes.
Changes in our tax rate or exposure to additional income tax liabilities could affect our profitability. In addition, audits by tax
authorities could result in additional tax payments for prior periods.
We are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject
to the allocation of income among various tax jurisdictions. Our effective tax rate can be affected by changes in the mix of earnings
in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the
valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities, the results of audits and examinations
of previously filed tax returns, and changes in tax laws.
Any of these factors may adversely affect our tax rate and decrease our profitability. The amount of income taxes we pay is subject
to audit by U.S. federal, state, local, and foreign tax authorities. If these tax audits result in assessments, our future results may
be unfavorably impacted.
As a global business, we have a complex tax structure, and there is a risk that the tax authorities will disagree with our transfer
pricing.
We are subject to complex transfer pricing regulations in the U.S. and foreign countries in which we operate. Transfer pricing
regulations generally require that transactions between related companies be determined comparable to transactions on an arm’s
length basis and that contemporaneous documentation be maintained to support the pricing used. Although transfer pricing standards
are generally similar in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent
subjectivity in complying with these requirements. This topic has received additional scrutiny in recent years, including the
Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. To the extent that any tax
authority disagrees with our transfer pricing practices, we could incur significant costs to defend our position and could be subject
to significant additional tax liabilities, interest, and penalties.
We may not be able to realize our deferred tax assets which would adversely impact tax expense in future periods.
We regularly assess the ability to realize deferred tax assets in each jurisdiction in which we operate based on a number of factors,
including historic operating results, estimates of future earnings, the economic environment, the nature and character of the income,
and the existence of cost effective tax planning strategies. This assessment requires significant judgment. If we determine that
deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to
a level that is expected to be realized. If we subsequently determine that realization becomes "more likely than not", a valuation
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allowance will be reversed. Any increase or decrease in our valuation allowances could have a significant impact on our financial
results.
We use the mark Vishay under license from Vishay Intertechnology, which could result in product and market confusion.
We use the mark Vishay as part of our name and in connection with many of our products. Our use of the Vishay mark is governed
by an agreement between us and Vishay Intertechnology, giving us a perpetual, royalty-free, worldwide license for the use of the
mark. We believe that it is important that we continue the use of the Vishay name, to a certain extent, in order to benefit from the
reputation of the Vishay brand, which was first used in connection with our foil resistors and strain gages when Vishay
Intertechnology was founded over 50 years ago.
There are risks associated with our use of the Vishay mark, however, both for us and for Vishay Intertechnology. Because both
we, and Vishay Intertechnology, use the Vishay mark, confusion could arise in the market regarding the products offered by the
two companies, and there could be a misplaced perception of our continuing to be associated with Vishay Intertechnology. Also,
any negative publicity associated with one of the two companies in the future could adversely affect the public image of the other.
Finally, Vishay Intertechnology will have the right to terminate the license agreement, in certain extreme circumstances, if we are
in material and repeated breach of the terms of the agreement, which would likely have an adverse effect on us and our business.
Risks relating to our operations outside the United States
We attempt to improve profitability by operating in countries in which manufacturing efficiencies may be achieved, but the shift
of operations to these regions may entail considerable expense.
Our strategy is aimed at achieving significant production cost savings through the transfer and expansion of manufacturing
operations to and in countries in which we have existing capacity, as well as countries with lower production costs or other benefits,
such as India. During this process, we may experience under-utilization of certain plants and factories in higher-cost regions, and
capacity constraints in plants and factories located in lower-cost regions. Also, we may experience delays in the expected transition
from a higher-cost location to a lower-cost one that results in greater than expected use of the higher-cost facility. This transitional
utilization may result initially in production inefficiencies and higher costs. These costs include those associated with compensation
in connection with workforce reductions and plant closings in the higher-cost regions, start-up expenses, manufacturing and
construction delays, and increased depreciation costs in connection with the initiation or expansion of production in lower-cost
regions. In addition, as we implement transfers of certain of our operations, we may experience strikes or other types of labor
unrest as a result of layoffs or termination of our employees in higher-cost countries.
In connection with the transfer of manufacturing operations to lower-cost countries, and upgrading of existing facilities in higher-
cost countries, we are also increasing the level of automation in our plants to optimize our capital and labor resources in production,
inventory management, quality control, and warehousing. Although we have substantial experience with automation in several of
our plants in higher-cost countries, there are risks in automating plants which previously did not use a significant amount of
automation, including the possibility of inefficiencies and higher operating costs in the transition from manual to automated
operations. If the transition extends longer than anticipated, we could suffer product yield inefficiencies, contributing to higher
product costs and increasing the time it will take for us to achieve a return on our investment in the capital equipment involved in
the automation process. Furthermore, any layoffs or termination of our employees as a result of increased automation may lead
to strikes or other types of labor unrest. If we experience these types of inefficiencies, they could have an adverse effect on our
operating results, customer relationships, and financial condition.
We conduct a significant amount of business in the European Union, including in England, and our operations may be affected
by the results of the referendum vote by the United Kingdom to leave the European Union.
On June 23, 2016, the citizens of the United Kingdom approved a referendum to leave the European Union (“Brexit”), which led
to significant market volatility around the world, as well as political, economic and legal uncertainty. [In addition, the Brexit vote
triggered a devaluing of the pound sterling relative to the euro and the U.S. dollar, and in Europe we generally sell our products
and incur expense in local currencies including the pound sterling and the euro, but incur exchange rate gains and losses for U.S.
dollar denominated assets and liabilities including intercompany and third-party accounts receivables and payables.] This exposure
to movements in foreign currency exchange rates relative to some of these U.S. dollar denominated balances may result in an
adverse impact on our results of operations.
The long-term nature of the United Kingdom’s relationship with the European Union is unclear and there is considerable uncertainty
when any relationship will be agreed and implemented. During this time, negotiations will take place to unravel all of the existing
legal, political and financial frameworks and obligations, and put new structures in place. At this stage, it is uncertain what the
final results of these negotiations will be and, given the lack of comparable precedent, it is unclear how Brexit will affect economic
conditions in the United Kingdom, the European Union, or globally. Because we have sales throughout the European Union and
offices in England and throughout the EU, it is possible that Brexit may require us to restructure our European operations, and
depending on what is negotiated, could impair our ability to transact business in other countries in the European Union.
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We are subject to the risks of political, economic, and military instability in countries outside the United States in which we operate.
Some of our products are produced in Israel, India, China, and other countries which are particularly subject to risks of political,
economic, and military instability. This instability could result in wars, riots, nationalization of industry, currency fluctuations,
and labor unrest. These conditions could have an adverse impact on our ability to operate in these regions and, depending on the
extent and severity of these conditions, could materially and adversely affect our overall financial condition and operating results.
Our business has been in operation in Israel for over 40 years. We have never experienced any material interruption in our operations
attributable to these factors, in spite of several Middle East crises, including wars. However, we might be adversely affected if
events were to occur in the Middle East that interfered with our operations in Israel.
We are subject to foreign currency exchange rate risks which may impact our results of operations.
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than
the functional currencies of certain subsidiaries.
Our significant foreign subsidiaries are located in the United Kingdom, Canada, Germany, Israel, Japan, and India. Our operations
in Europe, Canada and certain locations in Asia primarily generate and expend cash in local currencies. Our operations in Israel
and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant transactions in
local currencies. Our exposure to foreign currency exchange rate risk is more pronounced in situations such as our operations in
Canada, India, Israel, and China - where costs, such as production labor costs are predominantly paid in local currencies while the
sales revenue for those products is predominantly denominated in U.S. dollars.
As of December 31, 2017, we did not have in place any arrangements to mitigate or hedge against exposures relating to fluctuations
in foreign currency exchange rate.
A change in the mix of the currencies in which we transact our business could have a material effect on results of operations.
Furthermore, the timing of cash receipts and disbursements could have a material effect on our results of operations, particularly
if there are significant changes in exchange rates in a short period of time.
Risks Relating to Our Common Stock
Our smaller size may affect the trading market for our shares.
We are considered a “microcap” company and our trading volume is likely to fluctuate. Also, it is possible that there will be less
market and institutional interest in our shares, and that we will not attract substantial coverage in the analyst community. As a
result, the trading market for our shares may be less liquid, making it more difficult for investors to dispose of their shares at
favorable prices, and investors may have less independent information and analysis available to them concerning our company.
Our stock price could become more volatile and investments could lose value.
The market price of our common stock, and the number of shares traded each day, has experienced significant fluctuations and
may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including,
but not limited to:
•
•
•
•
•
•
•
•
shortfalls in our expected net revenue, earnings or key performance metrics;
changes in recommendations or estimates by securities analysts;
the announcement of new products by us or our competitors;
quarterly variations in our or our competitors’ results of operations;
a change in our dividend or stock repurchase activities;
developments in our industry or changes in the market for technology stocks;
changes in rules or regulations applicable to our business; and
other factors, including economic instability and changes in political or market conditions.
A significant drop in our stock price could expose us to costly and time consuming litigation, which could result in substantial
costs, and divert management’s attention and resources, resulting in an adverse effect on our business.
The holders of Class B convertible common stock have effective voting control of our company.
We have two classes of common stock: common stock and Class B convertible common stock. The holders of common stock are
entitled to one vote for each share held, while the holders of Class B convertible common stock are entitled to 10 votes for each
share held. The ownership of Class B convertible common stock is highly concentrated, and holders of Class B convertible
common stock effectively can cause the election of directors and the approval/or disapproval of other matters requiring stockholder
approval. Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of,
the voting of approximately 76.8% of our Class B convertible common stock, representing 34.8% of the total voting power of our
capital stock as of December 31, 2017.
- 20 -
Your percentage ownership of our common stock may be diluted in the future.
Your percentage ownership of our common stock may be diluted in the future because of equity awards that we expect will be
granted to our directors, officers, and employees, as well as due to certain convertible or exchangeable debt instruments. The
Vishay Precision Group, Inc. 2010 Stock Incentive Program provides for the grant of equity-based awards, including restricted
stock, restricted stock units, stock options, and other equity-based awards to our directors, officers, and other employees, advisors
and consultants.
Certain provisions of our certificate of incorporation and bylaws may reduce the likelihood of any unsolicited acquisition proposal
or potential change of control that you might consider favorable.
Our bylaws contain provisions that could be considered “anti-takeover” provisions because they make it harder for a third party
to acquire us without the consent of our incumbent board of directors. Under these by-law provisions:
•
•
•
•
stockholders may not change the size of the board of directors or, except in limited circumstances, fill vacancies on the
board of directors;
stockholders may not call special meetings of stockholders;
stockholders must comply with advance notice provisions for nominating directors or presenting other proposals at
stockholder meetings; and
our Board of Directors, may without stockholder approval, issue preferred shares and determine their rights and terms,
including voting rights, or adopt a stockholder rights plan.
These provisions could have the effect of discouraging an unsolicited acquisition proposal or delaying, deferring, or preventing
a change of control transaction that might involve a premium price or otherwise be considered favorable by our stockholders.
- 21 -
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our business has approximately 18 principal locations. Our facilities include owned locations and locations leased from third
parties. The principal locations, along with available space including administrative offices, are listed below:
Owned Locations
Wendell, North Carolina USA
Chennai, India (a)
Holon, Israel
Reporting segment
Foil Technology Products
Force Sensors
Foil Technology Products
Bradford, United Kingdom
Weighing and Control Systems
Kent, Washington
Akita, Japan (b)
Chartres, France
Weighing and Control Systems
Foil Technology Products
Force Sensors
Basingstoke, United Kingdom
Force Sensors/Foil Technology Products
Third-Party Leased Locations
Toronto, Canada
Weighing and Control Systems
Tianjin, People’s Republic of China
Force Sensors
Karmiel, Israel
Omer, Israel
Holon, Israel
Concord, California USA
Force Sensors
Foil Technology Products
Foil Technology Products
Foil Technology Products
Taipei, Republic of China (Taiwan)
Force Sensors/Weighing and Control Systems
Degerfors, Sweden
Weighing and Control Systems
Malvern, Pennsylvania USA
Corporate
Teltow, Germany
Foil Technology Products
Approx. Available
Space (square feet)
147,000
129,000
97,000
75,000
47,000
46,000
11,000
11,000
65,000
34,000
26,000
24,000
18,000
16,000
13,000
8,000
8,000
6,000
(a) The Chennai building is owned and the land is held under a 99 year lease (which began in 2012).
(b) A facility on the campus is leased to Vishay Intertechnology. Approximate available space reported above excludes the area leased.
In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our
present needs. We do not anticipate difficulty in renewing leases as they expire, or in finding alternative facilities.
Our corporate headquarters are located at 3 Great Valley Parkway, Suite 150, Malvern, PA 19355.
Item 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings that constitute ordinary, routine litigation incidental to our business. In our opinion,
the disposition of these proceedings will not have a material adverse effect on our business or our financial condition, results of
operations, and cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
- 22 -
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol VPG. The following table sets forth the high and
low sales prices for our common stock as reported on the New York Stock Exchange composite tape for the indicated fiscal quarters.
The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible
common stock if it grants such dividends or distributions in the same amount, per share, with respect to the other class of stock.
Stock dividends or distributions, on any class of stock, are payable only in shares of stock of that class. Shares of either common
stock or Class B convertible common stock cannot be split, divided, or combined unless the other is also split, divided, or combined
equally. Holders of record of our common stock totaled approximately 810 at March 15, 2018.
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2017
2016
High
Low
High
Low
$
$
$
$
28.60
24.45
18.00
19.15
$
$
$
$
20.50
16.55
15.35
15.10
$
$
$
$
19.45
16.32
15.48
14.67
$
$
$
$
15.47
11.75
12.83
10.27
We have two classes of common stock: common stock and Class B convertible common stock. The holders of common stock are
entitled to one vote for each share held, while the holders of Class B convertible common stock are entitled to 10 votes for each
share held. At March 15, 2018 we had outstanding 1,025,158 shares of Class B convertible common stock, par value $0.10 per
share. Currently, the holders of VPG’s Class B convertible common stock hold approximately 45.3% of the voting power of our
Company. Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of,
the voting of approximately 76.8% of our Class B convertible common stock, representing 34.8% of the total voting power of our
capital stock as of December 31, 2017.
- 23 -
Stock Performance Graph
The graph and table below compare the cumulative total stockholder return on the Company’s common stock over a sixty month
period, with the returns on the Russell 2000 Stock Index, and a peer group of companies selected by our management. The peer
group is made up of six publicly held manufacturers of sensors, sensor-based equipment, and sensor-based systems. Management
believes that the product offerings of the peer group companies are more similar to our product offerings than those of the companies
contained in any published industry index. The return of each peer issuer has been weighted according to the respective issuer’s
stock market capitalization. The graph and table assume that $100 had been invested at December 31, 2012, and that all dividends
were reinvested. The graph and table are not necessarily indicative of future investment performance.
Vishay Precision Group, Inc.
Cumulative $
Russell 2000 Index
Peer Group *
Cumulative $
Cumulative $
100.00
100.00
100.00
112.63
138.82
126.09
129.80
145.62
146.07
85.63
139.19
141.80
142.97
168.85
150.77
190.24
193.58
204.62
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
*The management selected peer group includes: MTS Systems, Kyowa Electronic Instruments, Mettler – Toledo, Spectris, Sensata Technologies, CTS Corp.
- 24 -
Item 6. SELECTED FINANCIAL DATA
The following table presents our selected historical financial data. The statements of operations data for each of the five years
ended December 31, 2017 and the balance sheet data as of December 31, 2017, 2016, 2015, 2014, and 2013 have been derived
from our audited consolidated financial statements.
The data should be read in conjunction with our historical financial statements and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included elsewhere in this document.
(in thousands, except per share amounts)
2017
As of and for the years ended December 31,
2015
2016
2014
2013
Statement of Operations Data:
Net revenues
Costs of products sold
Gross profit
$ 254,350
156,067
98,283
$ 224,929
142,120
82,809
$ 232,178
147,949
84,229
$ 250,028
159,254
90,774
$ 238,589
155,134
83,455
Selling, general, and administrative expenses
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Restructuring costs
Operating income
74,614
—
—
2,044
21,625
68,938
494
—
2,666
10,711
71,282
185
4,942
4,461
3,359
77,034
—
5,579
668
7,493
74,059
794
—
538
8,064
Other income (expense):
Interest expense
Other
Other (expense) income - net
Income before taxes
Income tax expense
Net earnings (loss)
Less: net earnings attributable to noncontrolling interests
Net earnings (loss) attributable to VPG stockholders
Earnings (loss) per share data:
Basic
Diluted
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Balance Sheet Data:
Cash and cash equivalents
Total assets
Long-term debt, less current portion
Working capital
Total VPG stockholders' equity
(1,842)
780
(1,062)
(1,486)
382
(1,104)
(771)
(2,082)
(2,853)
(882)
(740)
(1,622)
(967)
(1,354)
(2,321)
20,563
9,607
506
5,871
5,743
6,169
3,199
13,500
2,613
1,251
6,408
4
6,404
(12,994)
14
$ (13,008) $
3,258
178
3,080
0.49
0.48
$
$
(0.96) $
(0.96) $
0.22
0.22
13,187
13,419
13,485
13,485
13,755
13,977
58,452
270,510
33,529
118,952
171,383
$
62,641
263,747
31,037
121,065
172,256
$
79,642
286,923
17,713
131,714
199,651
$
$
$
$
4,492
56
4,436
0.33
0.32
13,563
13,944
72,809
294,702
22,936
137,391
206,046
$
$
$
$
$
$
$
$
14,394
49
14,345
1.08
1.07
13,262
13,471
74,292
306,551
28,477
139,400
193,156
- 25 -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
VPG is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as
well as specialty resistors and strain gages based upon our proprietary technology. We provide precision products and solutions,
many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and
current measurements. A significant portion of our products and solutions are primarily based upon our proprietary foil technology
and are produced as part of our vertically integrated structure. We believe this strategy results in higher quality, more cost effective
and focused solutions for our customers. Our products are marketed under a variety of brand names that we believe are characterized
as having a very high level of precision and quality. Our global operations enable us to produce a wide variety of products in
strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and
systems.
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.
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and
Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage
operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing
and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for
weighing, force control and force measurement for a variety of uses such as process control and on-board weighing applications.
Net revenues for the year ended December 31, 2017 were $254.4 million compared to net revenues of $224.9 million for the year
ended December 31, 2016. Net earnings attributable to VPG stockholders for the year ended December 31, 2017 were $14.3
million, or $1.07 per diluted share, compared to $6.4 million, or $0.48 per diluted share, for the year ended December 31, 2016.
The results of operations for the years ended December 31, 2017 and 2016 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
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 profit 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 measures are meaningful because they
provide insight with respect to intrinsic operating results. The reconciling items presented below represent significant charges or
credits which are important to understanding our intrinsic operations.
- 26 -
The items affecting comparability are (dollars in thousands, except per share amounts):
Gross profit
Gross profit margin
Reconciling items affecting gross profit margin
Acquisition purchase accounting adjustments (a)
Adjusted gross profit
Adjusted gross profit margin
Operating income
Operating margin
Reconciling items affecting operating margin
Acquisition purchase accounting adjustments (a)
Acquisition costs
Strategic alternative evaluation costs (b)
Gain on sale of building
Restructuring costs
Adjusted operating income
Adjusted operating margin
Years ended December 31,
2017
2016
$
98,283
$
82,809
38.6%
36.8%
91
586
$
98,374
$
83,395
38.7%
37.1%
Years ended December 31,
2017
$
21,625
2016
10,711
8.5%
4.8%
91
—
—
—
2,044
586
494
1,344
(837)
2,666
$
23,760
$
14,964
9.3%
6.7%
- 27 -
Net earnings attributable to VPG stockholders
Reconciling items affecting operating margin
Acquisition purchase accounting adjustments (a)
Acquisition costs
Strategic alternative evaluation costs (b)
Gain on sale of building
Restructuring costs
Reconciling items affecting other income/expense
Net proceeds from lease termination (c)
Tax rebate
Less reconciling items affecting income tax expense
Tax effect of reconciling items and discrete tax items(d)
Adjusted net earnings attributable to VPG stockholders
Weighted average shares outstanding - diluted
Adjusted net earnings per diluted share
Years ended December 31,
2017
2016
$
14,345
$
6,404
91
—
—
—
2,044
(1,544)
189
586
494
1,344
(837)
2,666
—
—
(174)
15,299
$
719
9,938
13,471
13,419
1.14
$
0.74
$
$
(a) Acquisition purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products
sold.
(b) In 2016, the Company incurred costs associated with the Company's evaluation of strategic alternatives. The evaluation process did not result in the adoption
of any particular strategic alternative other than the Company's continued execution of its business plan.
(c) Net proceeds related to a lease termination payment at the Company's Tianjin, People's Republic of China location.
(d)
Included in the discrete items for 2017 is a $1.6 million tax benefit related to Israel foreign currency and deferred tax rate change, offset by $1.5 million of
income tax expense impact from tax reform. Included in the discrete tax items for 2016 is a $0.9 million tax benefit recorded related to a favorable fourth
quarter 2016 settlement of an Israeli tax audit, offset by a series of correcting adjustments totaling $0.8 million to certain deferred tax accounts in various
tax jurisdictions related to prior period balances.
Financial Metrics
We utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business.
These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and
inventory turnover.
Gross profit margin is gross profit shown as a percentage of net revenues. Gross profit is generally net revenues less costs of
products sold, but could also include certain other period costs. Gross profit margin is clearly a function of net revenues, but also
reflects our cost-cutting programs and our ability to contain fixed costs.
End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released
by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control
their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without
the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered
during a period compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates
that demand is higher than current revenues and manufacturing capacities, and it indicates that we may generate increasing revenues
in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues
and current capacities and may foretell declining sales.
- 28 -
We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for
a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period
divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory
turnover reflects more efficient use of our capital.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business.
The following table shows net revenues, gross profit margin, the end-of-period backlog, the book-to-bill ratio, and the inventory
turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2016 and through the fourth
quarter of 2017 (dollars in thousands):
Net revenues
$
55,814
$
59,787
$
62,319
$
62,805
$
69,439
4th Quarter
2016
1st Quarter
2017
2nd Quarter
2017
3rd Quarter
2017
4th Quarter
2017
Gross profit margin
38.1%
37.7%
39.7%
38.6%
38.5%
End-of-period backlog
$
56,800
$
61,400
$
67,500
$
76,200
$
88,900
Book-to-bill ratio
Inventory turnover
1.16
2.41
1.06
2.64
1.08
2.64
1.12
2.64
1.18
2.85
Foil Technology Products
Net revenues
Gross profit margin
End-of-period backlog
Book-to-bill ratio
Inventory turnover
Force Sensors
Net revenues
Gross profit margin
End-of-period backlog
Book-to-bill ratio
Inventory turnover
Weighing and Control Systems
Net revenues
Gross profit margin
End-of-period backlog
Book-to-bill ratio
Inventory turnover
4th Quarter
2016
1st Quarter
2017
2nd Quarter
2017
3rd Quarter
2017
4th Quarter
2017
$
$
$
$
$
$
$
$
$
$
$
$
25,412
40.6%
28,800
1.26
2.57
14,769
25.3%
13,000
1.08
1.93
15,633
46.5%
15,000
1.05
3.08
$
$
$
$
$
$
27,764
41.4%
31,100
1.06
2.80
15,468
23.9%
14,100
1.06
2.11
16,555
44.3%
16,200
1.06
3.36
$
$
$
$
$
$
29,306
41.9%
34,300
1.09
2.90
15,656
28.9%
14,100
0.99
1.97
17,357
45.8%
19,100
1.14
3.52
$
$
$
$
$
$
29,315
41.7%
35,500
1.03
2.88
16,596
28.6%
18,300
1.25
2.02
16,894
43.1%
22,400
1.15
3.41
29,888
39.3%
46,600
1.36
2.98
17,726
29.5%
21,600
1.18
2.07
21,825
44.8%
20,700
0.92
4.22
Net revenues for the fourth quarter of 2017 increased 10.6% from the net revenues reported in the third quarter of 2017, and
increased 24.4% from $55.8 million for the comparable prior year period.
Net revenues in the Foil Technology Products segment of $29.9 million in the fourth quarter of 2017 increased 2.0% from $29.3
million in the third quarter of 2017, and increased 17.6% from $25.4 million in the fourth quarter of 2016. The sequential increase
in net revenues from the third quarter was attributable to strong demand for advanced sensors products in the force measurement
market sector in Asia. Compared to the fourth quarter of 2016, net revenues increased due to higher revenue related to precision
- 29 -
resistors products in the test and measurement and avionics military and space market sectors in Europe and Asia and higher
revenues from advanced sensors products in the force measurements market sector in Asia.
Net revenues in the Force Sensors segment of $17.7 million in the fourth quarter of 2017 increased 6.8% compared to revenues
of $16.6 million in the third quarter of 2017 due to higher volume attributable to OEM customers in the force measurement market
sector in the Americas. Net revenues in the fourth quarter of 2017 increased 20.0% compared to $14.8 million in the fourth quarter
of 2016 mainly due to higher volume attributable to OEM customers in the force measurement market sector in the Americas and
Europe.
Net revenues in the Weighing and Control Systems segment of $21.8 million in the fourth quarter of 2017 increased 29.2% from
$16.9 million in the third quarter of 2017 and increased 39.6% from $15.6 million in the fourth quarter of 2016. The sequential
and year over year increase in net revenues was attributable primarily to the steel market sector in Asia and the Americas and also,
to a lesser extent, to the precision weighing market sector in Europe and the Americas. The significant increase in net revenues
for the segment in the fourth quarter, which was primarily related to the delivery of certain projects for our steel business, had a
significant impact on the book-to-bill ratio for Weighing and Control Systems segment for the quarter despite a relatively healthy
order intake during the period as exhibited by the segment end-of-period backlog.
The gross profit margin for the fourth quarter of 2017, decreased 0.1% compared to the third quarter of 2017, and increased 0.4%
from the fourth quarter of 2016.
Sequentially, improved gross profit margins in the Force Sensors and Weighing and Control Systems segments, due mainly to
higher volume, were offset by a decline in gross profit margin in the Foil Technology Products segment, due to inventory
adjustments, increases in wages and repairs and maintenance and negative foreign currency impacts.
Compared to the fourth quarter of 2016, improved gross profit margins in the Force Sensors segment, mainly due to higher
volume, were partially offset by lower gross profit margins in the Foil Technology Products and Weighing and Control Systems
segments. The Foil Technology Products segment gross profit margins were negatively impacted by inventory adjustments and
negative foreign currency impacts with the Israeli shekel. The Weighing and Control Systems segment gross profit margins were
negatively impacted by higher fixed manufacturing costs.
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.
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 and Israel, where we can benefit from lower labor costs, improved efficiencies, or available
tax and other government-sponsored incentives. For example, in 2017 we closed two leased facilities in the U.S. and moved to
more cost effective locations. In 2016, we relocated a significant portion of our force sensor manufacturing from leased locations
with higher labor costs, to the owned facility we constructed in India. We closed a facility in Costa Rica and consolidated its
functions to existing operations where significant efficiencies were available. This consolidation was part of our global restructuring
and cost reduction program announced in November 2015 and substantially completed in 2016.
- 30 -
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, continue this strategy. Additionally,
the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific Instruments acquisition
significantly broadened our existing data acquisition offerings and opened new markets for us. Along with our recent 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. The amount charged to expense for research and
development aggregated $11.7 million, $11.1 million, and $9.6 million for the years ended December 31, 2017, 2016, and 2015,
respectively.
Cost Management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we
believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing.
We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more
efficient and cost competitive, and also maintain tighter controls of the operation.
Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant
severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating
expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability
also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk
Factors” of this Annual Report on Form 10-K.
The Company recorded restructuring costs of $2.0 million, $2.7 million, and $4.5 million during the years ended December 31,
2017, 2016, and 2015, 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.
We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require
us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising
caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
Foreign Currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional
currencies of certain subsidiaries. U.S. GAAP requires that entities identify the “functional currency” of each of their subsidiaries
and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency
of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular
country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and
integral component or extension of the parent company’s operations generally would have the parent company’s currency as its
functional currency. We have subsidiaries that fall into each of these categories.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and
accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency
is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as
of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component
of equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average
exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated
- 31 -
statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and
expenses incurred in those foreign currencies.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries
utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency,
all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from
remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While
these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are
incurred in the local currency.
Effects of Foreign Exchange Rate on Operations
For the year ended December 31, 2017, exchange rate impacts reduced net revenues by $0.1 million, and increased costs of products
sold and selling, general, and administrative expenses by $2.8 million, when compared to the prior year. For the year ended
December 31, 2016, exchange rate impacts reduced net revenues by $2.8 million, and costs of products sold and selling, general,
and administrative expenses by $3.1 million, when compared to the prior year. For the year ended December 31, 2015, exchange
rate impacts reduced net revenues by $17.5 million, and costs of products sold and selling, general, and administrative expenses
by $16.4 million, when compared to the prior year.
Off-Balance Sheet Arrangements
As of December 31, 2017 and 2016, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number
of policies that entail significant judgments or estimates by management.
Revenue Recognition
We recognize revenue on product sales during the period when the sales process is complete. This generally occurs when products
are shipped to the customer in accordance with terms of an agreement of sale, title and risk of loss have been transferred, collectability
is reasonably assured, and pricing is fixed or determinable. For a small percentage of sales where title and risk of loss pass at the
point of delivery, we recognize revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met.
Some of our larger systems products have post-shipment obligations, such as customer acceptance, training, or installation. In
such circumstances, a portion of the revenue may be deferred until the obligation has been completed, unless such obligation is
deemed inconsequential and perfunctory.
Given the specialized nature of our products, we generally do not allow product returns.
Inventories
We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based
upon net realizable value. The valuation of our inventories requires management to make market estimates. For work in process
goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products.
For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for
estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments,
and market conditions.
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent
consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on
estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants
are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair
values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows
and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes.
These estimates are based on historical experience and information obtained from the management of the acquired companies,
and are inherently uncertain.
- 32 -
Estimates of Restructuring and Severance Costs
To maintain our cost competitiveness, we are shifting manufacturing emphasis to more advanced automation in higher-cost regions
and relocating production to regions with skilled workforces and relatively lower labor costs. We could also incur similar costs
after we acquire companies.
These production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant
severance and other exit costs. We anticipate that we will realize the benefits of our restructuring efforts through lower labor costs
and other operating efficiencies in future periods.
Restructuring and severance costs are expensed during the period in which we incur those costs and all other requirements for
accrual are met. Because transfers of manufacturing operations sometimes occur incrementally over a period of time, the expense
initially recorded is often based on estimates. Because these costs are recorded based on estimates, our actual expenditures for
restructuring activities may differ from the initially recorded costs. If this happens, we will adjust our estimates in future periods,
either by recording additional expenses in future periods if our initial estimates were too low, or by reversing part of the charges
that we recorded initially if our initial estimates were too high.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in
circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first
assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its
carrying amount as a basis for determining if it is necessary to perform the two-step goodwill impairment test. However, if we
conclude otherwise, then we are required to perform the first step of the two-step impairment test by calculating the fair value of
the reporting unit and comparing it against its carrying amount. We estimate the fair value of our reporting units by considering
both an income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future
cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing
model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is
dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital
requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit
to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting
unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of
the income approach and the market approach to arrive at the estimated fair value of the reporting unit. If the carrying amount of
a reporting unit exceeds its fair value, then we are required to perform the second step of the goodwill impairment test. To measure
the amount of the impairment, we determine the implied fair value of goodwill in the same manner as if we had acquired those
reporting units. Specifically, we must allocate the fair value of the reporting unit to all of the assets of that unit, including any
unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. The impairment
loss is measured as the difference between the book value of the goodwill and the implied fair value of the goodwill computed in
step two.
The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or by
comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from
royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be
recognized in the reporting period in which it has been identified.
In 2015, we estimated the fair value of our in-process research and development ("IPRD") asset using an income approach to
valuation. We estimated the future cash flows associated with the IPRD and discounted those cash flows back to their net present
value using a discount rate determined using the capital asset pricing model, and adjusted for the forecast risk inherent in our
projections of cash flows associated with this asset. Our estimates of cash flows included revenues to be generated by the products
supported by the IPRD and the expected profits on those product sales. As of the date of the 2017 and 2016 impairment tests,
IPRD was subject to amortization and therefore was not included as part of the 2017 or 2016 impairment tests.
Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements,
and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology
are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of
five to eighteen years. Trade names are being amortized over their contractual period ranging from seven to ten years. Non-
competition agreements are being amortized over periods of five to ten years. We review the carrying values of these assets for
possible impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable
based on undiscounted estimated cash flows expected to result from its use and eventual disposition.
- 33 -
Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant
management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units,
assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could
materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with
which we have goodwill associated, could impact our valuation of that goodwill. The reporting unit associated with the Pacific
acquisition is particularly sensitive to the revenue projections used in the income approach valuation to determine the fair value.
In the event the revenue projections are not achieved, we could have a potential impairment of some or all of the goodwill and
indefinite-lived trade name that are associated with Pacific acquisition.
Impairment of Long-Lived Assets
We assess the impairment of our long-lived assets, other than goodwill and indefinite-lived intangible assets, including property
and equipment, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we
consider important, which could trigger an impairment review, include significant changes in the manner of our use of the asset,
changes in historical or projected operating performance, and significant negative economic trends.
Pension and Other Postretirement Benefits
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount
rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical
assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important
assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement
medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent
actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the
actual experience and expectations on a plan-specific basis, as appropriate.
Our defined benefit plans are concentrated in the United States and the United Kingdom. Plans in these countries comprise
approximately 87% of our retirement obligations at December 31, 2017. We utilize published long-term high-quality bond indices
to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to reflect the timing of
expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively
be settled.
For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for
significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate
of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In
establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from
pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan
assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return
on plan assets is deferred.
We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current
economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and
the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance
sheets.
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our annual effective tax rate is based on
pre-tax earnings, statutory tax rates, enacted tax laws and the ability to utilize net operating losses and tax credits. Significant
judgments and estimates must be made in determining our consolidated income tax expense as presented in our financial statements.
We must assess the likelihood that we will realize deferred tax assets which requires significant judgment. If we determine that
deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to
a level that is expected to be realized. If we subsequently determine that realization of a deferred tax asset becomes "more likely
than not", the valuation allowance will be reversed. Any change in valuation allowances could have a significant impact on our
financial results.
The calculation of our tax liabilities involves an assessment of uncertainties in the application of complex tax laws and regulations
in multiple jurisdictions. We record a benefit from an uncertain tax position when it is "more likely than not" that a tax return
position will be sustained upon examination, including resolutions of any related appeals or litigation based on the technical merits
of the position. If the position is not "more likely than not" to be sustained, a liability for the tax return position is established. We
adjust the liability when our judgment changes as a result of the evaluation of new information. The ultimate tax due in a jurisdiction
- 34 -
may result in a payment that is materially different from our most recent estimate of the liability. Further judgment is required in
determining whether an uncertain tax position is effectively settled. Any change in the analysis will impact income tax expense.
We consider the earnings of most of our non-U.S. subsidiaries to be indefinitely invested outside the United States based on our
estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment
of foreign subsidiary earnings. As a result of the Tax Cut and Jobs Act, the Company has recorded a deferred tax liability of
approximately $1.8 million of withholding tax associated with a planned distribution of approximately $25.5 million of previously
unremitted earnings. In addition to the $1.8 million, we estimate that additional withholding taxes of approximately $15.0 million
would be payable upon the distribution of the balance of our previously unremitted earnings at December 31, 2017. If we decide
to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we would adjust
our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the United States.
On July 6, 2010, we entered into a Tax Matters Agreement with Vishay Intertechnology under which Vishay Intertechnology is
responsible for all income taxes for periods before the date of the spin-off other than those taxes for which a liability was recorded
on our books at the time of the spin-off. Vishay Intertechnology is also principally responsible for managing any income tax audits
by the various tax jurisdictions for pre-spin-off periods. See Note 6 to our consolidated financial statements for further discussion
of the Tax Matters Agreement.
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changes U.S.tax
law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-
time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduces
the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and
tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate
expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as
GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. Given the complexity of the
GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy.
At December 31, 2017, because we are still evaluating the GILTI provision and our analysis of future taxable income that is subject
to GILTI, we are unable to make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial
statements.
Additional information about income taxes is included in Note 6 to our consolidated financial statements.
- 35 -
Results of Operations – Years Ended December 31, 2017, 2016, and 2015
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
Costs of products sold
Gross profit
Selling, general, and administrative expenses
Operating income
Income before taxes
Net earnings (loss)
Net earnings (loss) attributable to VPG stockholders
Effective tax rate
Net Revenues
Net revenues were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Changes in net revenues were attributable to the following:
Change attributable to:
Change in volume
Change in average selling prices
Foreign currency effects
Acquisitions
Other
Net change
Years ended December 31,
2016
2015
2017
61.4%
38.6%
29.3%
8.5%
8.1%
5.7%
5.6%
63.2%
36.8%
30.6%
4.8%
4.3%
2.8%
2.8%
63.7 %
36.3 %
30.7 %
1.4 %
0.2 %
(5.6)%
(5.6)%
30.0%
33.3%
2,668.0 %
Years ended December 31,
2016
2015
2017
$
$
254,350
29,421
$
$
13.1%
224,929
$
232,178
(7,249)
(3.1)%
2017 vs. 2016
2016 vs. 2015
13.0 %
(0.2)%
(0.2)%
0.5 %
0.0 %
13.1 %
(7.2)%
0.1 %
(1.1)%
5.2 %
(0.1)%
(3.1)%
During the year ended December 31, 2017, net revenues increased 13.1% over the prior year. The increase in net revenues is
attributable to volume increases in all three reporting segments including the test and measurement and force measurement market
sectors in the Foil Technology Products segment, the force measurement and precision weighing end markets in the Force Sensors
segment, and the steel and precision weighing market sectors in the Weighing and Control Systems segment.
During the year ended December 31, 2016, revenues decreased 3.1% over the prior year. The increase in revenues attributable to
the acquisitions of Stress-Tek and Pacific was offset by volume decreases in the Foil Technology Products segment, predominantly
in the test and measurement market sector, and the Weighing and Control Systems segments, predominantly in the steel market
sector.
- 36 -
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
Gross profit margin
Years ended December 31,
2017
2016
2015
38.6%
36.8%
36.3%
The gross profit margin for the year ended December 31, 2017 increased 1.8% over the prior year mainly due to higher volume,
in all three reporting segments. Volume increased 13.0% in 2017 as compared to 2016.
The gross profit margin for the year ended December 31, 2016 increased slightly over the prior year mainly due to improved gross
profit margins in the Force Sensors segment. Favorable impacts from the cost reduction programs implemented in this segment
offset the decreased gross profit margins in the Foil Technology Products segment and the Weighing and Control Systems segment.
Segments
Analysis of revenues and gross profit margins for our reportable segments is provided below.
Foil Technology Products
Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Years ended December 31,
2016
2015
2017
$
$
116,272
15,330
$
$
15.2%
100,942
$
104,460
(3,518)
(3.4)%
Changes in Foil Technology Products segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Change in average selling prices
Foreign currency effects
Acquisitions
Net change
2017 vs. 2016
2016 vs. 2015
14.6 %
(0.2)%
(0.3)%
1.1 %
15.2 %
(7.9)%
0.3 %
0.4 %
3.8 %
(3.4)%
For the year ended December 31, 2017, net revenues increased 15.2% as compared to the prior year due to higher volume from
precision resistor OEM customers in the test and measurement market sector in Asia and Europe and the avionics military and
aerospace market sector in the U.S.. Additionally, higher volume from advanced sensors products in the force measurement market
sector in Asia and additional revenues from the acquisition of Pacific contributed to the improvements in net revenues. Negative
foreign currency effects from the Japanese yen and the British pound were partially offset by positive foreign currency impacts
from the Euro.
For the year ended December 31, 2016, net revenues decreased 3.4% as compared to the prior year. Revenues added from the
acquisition of Pacific were offset by lower volume. This reduced volume was primarily attributable to a downturn in the foil strain
gage business, resulting from overstocking of inventory by our distributors as well as a decline in demand from the oil and gas
sector.
- 37 -
Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:
Gross profit margin
Years ended December 31,
2016
2015
2017
41.1%
39.0%
39.9%
For the year ended December 31, 2017, the gross profit margin increased 2.1% as compared to the prior year mainly due to higher
volume and labor efficiencies, partially offset by negative foreign currency impacts relating to the Israeli shekel and higher fixed
manufacturing costs including headcount and wage increases.
For the year ended December 31, 2016, the gross profit margin decreased slightly as compared to the prior year mainly due to
lower volume and labor inefficiencies related to the expansion of our advanced sensors platform.
Force Sensors
Net revenues of the Force Sensors segment were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Years ended December 31,
2017
$
$
65,446
5,212
$
$
2016
60,234
(814)
8.7%
(1.3)%
2015
$
61,048
Changes in Force Sensors segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Change in average selling prices
Foreign currency effects
Net change
2017 vs. 2016
2016 vs. 2015
9.4 %
(0.9)%
0.2 %
8.7 %
0.8 %
(0.6)%
(1.5)%
(1.3)%
For the year ended December 31, 2017, net revenues increased 8.7% from the prior year mainly due to higher volume with OEM
customers in the force measurement and precision weighing end markets in all regions. Positive foreign currency effects from
the Euro offset the negative foreign currency effects with the British pound to add to the improvement in net revenues.
For the year ended December 31, 2016, net revenues decreased 1.3% from the prior year. The slight improvement in volume was
offset by negative foreign currency effects, primarily relating to the British pound.
Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:
Gross profit margin
Years ended December 31,
2017
2016
2015
27.8%
26.0%
20.5%
For the year ended December 31, 2017, the gross profit margin increased 1.8% when compared to the prior year primarily due to
higher volume and cost savings measures, including headcount reductions from plant closures and relocations.
For the year ended December 31, 2016, the gross profit margin increased when compared to the prior year primarily due to cost
savings realized from the movement of production from a leased facility in China to an owned facility in India and positive foreign
currency impacts.
- 38 -
Weighing and Control Systems
Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Years ended December 31,
2017
2016
2015
$
$
72,632
8,879
$
$
13.9%
63,753
$
66,670
(2,917)
(4.4)%
Changes in Weighing and Control Systems segment net revenues were attributable to the following:
Change attributable to:
Change in volume
Change in average selling prices
Foreign currency effects
Acquisitions
Other
Net change
2017 vs. 2016
2016 vs. 2015
13.7 %
0.3 %
(0.1)%
0.0 %
0.0 %
13.9 %
(13.7)%
0.4 %
(3.5)%
12.5 %
(0.1)%
(4.4)%
For the year ended December 31, 2017, net revenues increased 13.9% when compared to the prior year mainly due to improvements
in the steel business in Asia and the on-board weighing products in Europe and the Americas. Negative foreign currency effects
with the British pound were almost completely offset by positive foreign currency impacts from the Euro and Canadian dollar.
For the year ended December 31, 2016, net revenues decreased 4.4% when compared to the prior year. The increase in volume
from the acquisition of Stress-Tek was offset by declines in volume from reduced demand in the steel industry (particularly in
China), the oil and gas downturn in the Norwegian offshore market and uncertainty in capital spending following the Brexit
announcement. Foreign currency effects also negatively impacted net revenues.
Gross profit as a percentage of net revenues for the Weighing and Control Systems segment was as follows:
Gross profit margin
Years ended December 31,
2017
2016
2015
44.5%
43.6%
45.1%
For the year ended December 31, 2017, the gross profit margin increased from the prior year mainly driven by the improved
volume in the steel business and on-board weighing business.
For the year ended December 31, 2016, the gross profit margin decreased from the prior year mainly due to lower volume in the
process weighing and steel businesses and also the negative effect of foreign currencies, primarily the British pound, Euro and
the Canadian dollar.
- 39 -
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses were as follows (dollars in thousands):
Total SG&A expenses
as a percentage of net revenues
Years ended December 31,
2016
2015
2017
$
74,614
$
68,938
$
71,282
29.3%
30.6%
30.7%
SG&A expenses for the year ended December 31, 2017 increased $5.7 million versus the prior year mainly due to higher personnel
costs, including wage increases, higher bonuses and incentive compensation and additional SG&A expenses of $0.6 million
associated with the operation of Pacific, which was acquired on April 6, 2016. Additionally, SG&A expenses for the year ended
December 31, 2016 included $1.3 million of strategic evaluation costs.
SG&A expenses for the year ended December 31, 2016 decreased $2.3 million versus the prior year. These decreases were related
to reductions in personnel costs including headcount reductions, bonus accrual adjustments, adjustments to share-based
compensation expense, and reductions in both travel and professional fees. The decrease was partially offset by an increase of
$1.3 million in costs associated with our evaluation of strategic alternatives to enhance stockholder value and $4.3 million associated
with our two acquisitions, Stress-Tek, which was acquired on December 30, 2015, and Pacific, which was acquired on April 6,
2016. Foreign currency exchange rates had the effect of reducing SG&A expenses by $0.8 million and the gain on the sale of a
building in Karmiel, Israel had the effect of reducing SG&A expenses by $0.8 million.
Acquisition Costs
No acquisition costs were incurred for the year ended December 31, 2017. For the year ended December 31, 2016, we recorded
acquisition costs in our consolidated statements of operations of $0.5 million in connection with the acquisitions of Stress-Tek
and Pacific. For the year ended December 31, 2015, we recorded acquisition costs of $0.2 million in connection with the acquisition
of Stress-Tek.
Impairment of Goodwill and Indefinite-lived Intangible Assets
For the years ended, December 31, 2017 and December 31, 2016, there was no impairment in the carrying value of our goodwill
and indefinite-lived intangible assets.
For the year ended December 31, 2015, we recorded a $4.9 million pre-tax, non-cash impairment charge which reduced the carrying
value of our goodwill and indefinite-lived intangible assets, as a result of an interim impairment test performed on goodwill and
indefinite-lived intangible assets. See our critical accounting policies and Note 4 for further discussion.
Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during
the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs
are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs.
If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods,
or to reverse part of the previously recorded charges.
The Company recorded restructuring costs of $2.0 million, $2.7 million, and $4.5 million during the years ended December 31,
2017, 2016, and 2015, 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.
On March 23, 2016, the Company announced, in connection with the November 16, 2015 global cost reduction program, the
decision to close its facility in Alajuela, Costa Rica. Approximately $0.1 million and $0.4 million of restructuring costs were
recorded during the year ended December, 31, 2017 and 2016, respectively, related to this closure. This closure was substantially
complete as of December 31, 2016.
On November 16, 2015, the Company announced a cost reduction program as part of its efforts to improve efficiency and operating
performance. Approximately $0.6 million, $0.4 million, and $4.5 million of restructuring costs, excluding the cost associated
with the Costa Rica closure, were recorded during the years ended December 31, 2017, 2016 and 2015, respectively, related to
this program. The Company exceeded its anticipated annual savings of at least $6.0 million in 2016. Implementation of this
program was completed in 2017.
- 40 -
During the years ended December 31, 2017 and 2016, the Company initiated other cost reduction plans at locations in Europe,
the U.S. and Canada. Approximately $1.3 million and $1.9 million of restructuring costs, primarily severance, were recorded
during the year ended December 31, 2017 and 2016, respectively, related to these plans.
Other Income (Expense)
Interest Expense
The Company recorded interest expense of $1.8 million, $1.5 million, and $0.8 million for the years ended, December 31, 2017,
2016, and 2015, respectively. Interest expense was higher in 2017 compared to 2016 due higher interim borrowings and higher
interest rates. Interest expense was higher in 2016, as compared to 2015, due to higher debt associated with funding the acquisitions
of Stress-Tek and Pacific, which were completed on December 30, 2015 and April 6, 2016, respectively.
Other
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Foreign exchange gain/(loss)
Interest income
Other
Years ended December 31,
2017
2016
Change
$
$
(724) $
167
1,337
780
$
449
$
179
$
(246) $
$
382
(1,173)
(12)
1,583
398
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in
foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the
British pound and Israeli shekel.
Included within Other, for the year ended December 31, 2017, is net proceeds of $1.5 million related to a lease termination payment
at the Company's Tianjin, People's Republic of China location. The relocation of operation in Tianjin has been completed and the
majority of the expenses associated with the move have been incurred.
Foreign exchange loss
Interest income
Other
Years ended December 31,
2016
2015
Change
$
$
449
$
179
(246)
382
$
(2,146) $
225
(161)
(2,082) $
2,595
(46)
(85)
2,464
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in
foreign exchange losses during the period, as compared to the prior year period is primarily due to fluctuations in the Canadian
dollar and Israeli shekel.
Income Taxes
Our effective tax rate for the year ended December 31, 2017 was 30.0%, compared to 33.3% for the year ended December 31,
2016, and 2,668.0% for the year ended December 31, 2015. Our effective tax rate is lower in 2017 compared to 2016 primarily
due to the effects of statutory rate changes, foreign exchange movements and changes in valuation allowance off-set by an increase
related to the 2017 Tax Act (discussed below).
- 41 -
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changes U.S.
tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a
one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently
reduces the U.S. tax rate from a maximum of 35% to a flat 21% , effective January 1, 2018. Under U.S. GAAP, changes in tax
rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted
tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
Guidance issued by the Securities Exchange Commission ("SEC"), provides for a measurement period of one year from the
enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company provisionally
determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. This amount
includes the tax benefit from the net operating loss of approximately $3.9 million because the Company intends to elect to utilize
its net operating loss to reduce its provisional tax. As a result of the implementation of a modified territorial tax system, the
Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely
reinvested and recorded a deferred tax liability of $1.8 million of withholding tax associated with the planned cash distribution
of approximately $25.5 million of previously unremitted earnings. We have recognized the provisional tax impact related to the
transition tax, the benefit of revaluation of deferred tax assets and liabilities, and included these amounts in the consolidated
financial statements for the year ended December 31, 2017. The final impact may differ from the provisional amount recognized,
primarily due to the need for additional analysis, changes in our interpretation of the 2017 Tax Act, or issuance of additional
regulatory guidance. In accordance with SAB 118 the financial reporting impact of the 2017 Tax Act will be completed in the
fourth quarter of 2018.
We reassessed our ability to realize our U.S. deferred tax assets during 2017 and have concluded that realization of those deferred
tax assets is still not "more likely than not". The valuation allowance on U.S. deferred tax assets was reduced in 2017 as a result
of the expected utilization of net operating losses and foreign tax credits. In addition, our tax rate is affected by recurring items,
such as tax rates in foreign jurisdictions as compared to the U.S. federal statutory tax rate, and the relative amount of income
earned in each jurisdiction. The tax rate is also impacted by discrete items that vary from year to year and may not be indicative
of the tax rate on continuing operations. The following items had the most significant impact on the difference between the statutory
U.S. federal income tax rate and our effective tax rate:
2017
•
•
•
•
10.8% increase as a result of the enactment of the 2017 Tax Act in the U.S., as described above, on December 22, 2017,
which significantly changed U.S. corporate income tax laws.
5.5% rate reduction related to the effects of foreign operations primarily related to the difference between the U.S. statutory
rate and foreign tax rates primarily attributable to our operations in Israel.
6.3% rate reduction related to foreign currency primarily attributable to our operations in Israel and India.
1.9% rate reduction related to decrease in valuation allowance primarily by our non-US entities
2016
•
•
•
•
13.2% rate increase relating to the current year impact of establishing valuation allowances on deferred tax assets,
primarily with respect to U.S. federal and state deferred tax assets.
8.5% rate increase related to the adjustment of deferred tax assets established in various foreign jurisdictions in prior
years.
14.8% rate reduction related to the effects of foreign operations primarily related to the difference between the U.S.
statutory rate and foreign tax rates primarily attributable to our operations in Israel.
9.4% rate reduction attributable to changes in our liability for uncertain tax positions, primarily attributable to the
settlement of a tax examination in Israel.
2015
•
•
•
2,432.6% rate increase resulting primarily from the establishment of valuation allowances with respect to substantially
all of the U.S. federal and state deferred tax assets.
131.2% rate reduction related to the effects of foreign operations primarily related to the differences between U.S. and
non-U.S. statutory tax rates which is primarily attributable to our operations in Israel. No tax provision has been recorded
for additional U.S. tax attributable to these foreign earnings since our intention is to indefinitely reinvest these earnings
outside the U.S.
71.2% rate increase primarily resulting from the non-deductible portion of the goodwill impairment associated with the
Weighing and Control Systems segment.
Additional information about income taxes is included in Note 6 to our consolidated financial statements.
- 42 -
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 December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit
Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National
Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”),
pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for
the following facilities: (1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0
million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S. and
Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of
which was used to fund the Stress-Tek and Pacific acquisitions; (2) a secured closing date term facility for the Company (the “2015
U.S. Closing Date Term Facility”) in an aggregate principal amount of $4.5 million, the proceeds of which were used by the
Company to refinance indebtedness under its existing term loan; (3) a secured delayed draw term facility for the Company (the
"2015 U.S. Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million, the proceeds of which were used to
fund a portion of the Stress-Tek acquisition; and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”)
in an aggregate principal amount of $9.5 million, the proceeds of which were used by VPG Canada to refinance indebtedness
under its existing term loan. The aggregate principal amount of the 2015 Revolving Facility may be increased by a maximum of
$15.0 million upon the request of the Company, subject to the terms of the 2015 Credit Agreement. The 2015 Credit Agreement
terminates on December 30, 2020. The term loans are being repaid in quarterly installments.
Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S. Closing Date Term Facility, the 2015
U.S. Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the
Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2)
LIBOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage
ratio, an interest rate margin ranging from 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the
interest payable on the Facilities. The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per
annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each
quarter. Additional customary fees apply with respect to letters of credit. The total interest rates at December 31, 2017 and December
31, 2016, were 4.19% and 4.00%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 4.19% and
4.00%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.
The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain
domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the
Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015
Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015
Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and
its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company
to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios.
The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The
Company was in compliance with its financial maintenance covenants at December 31, 2017. 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.
The 2015 Credit Agreement replaced our previous credit agreement, entered into on January 30, 2013 in connection with our
acquisition of KELK, among the Company, VPG Canada, the lenders, RBS Citizens, National Association as joint book-runner
and JPMorgan Chase Bank, National Association as agent for such lenders (the “Prior Credit Agreement"). Interest payable on
amounts borrowed under the facilities provided for in the Prior Credit Agreement was based upon LIBOR plus a specified margin.
The Company was required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per annum on the unused portion
of the revolving facility.
By reason of the spin-off, VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes
effective July 6, 2010. The maturity date of the notes is December 13, 2102.
Effective August 28, 2013, a holder of the Company's exchangeable notes exercised its option to exchange approximately $5.9
million principal amount of the notes for 259,687 shares of VPG common stock. Effective May 12, 2017, a holder of the Company's
exchangeable notes exercised its option to exchange approximately $1.3 million principal amount of the notes for 57,729 shares
of VPG common stock at the contractual put/call rate of $22.57 per share. Following these transactions, VPG has outstanding
- 43 -
exchangeable unsecured notes with a principal amount of approximately $2.8 million, which are exchangeable for an aggregate
of 123,808 shares of VPG common stock. The total interest rate was 1.69% at December 31, 2017.
Our other long-term debt is not significant and consists of debt held by one of our Japanese subsidiaries of approximately $0.4
million at December 31, 2017 and $0.5 million at December 31, 2016. The debt is payable monthly over the next 4 years at a zero
percent interest rate.
See Note 7 to our consolidated financial statements for additional details.
Our business has historically generated significant cash flow. Our cash provided by operating activities for the year ended December
31, 2017 was $22.7 million as compared to $11.5 million for the year ended December 31, 2016, and $14.3 million for the year
ended December 31, 2015. Cash provided by operating activities for the year ended December 31, 2017 was driven by an increase
in net earnings and a receipt of a lease termination payment of $1.5 million. Cash provided by operating activities for the year
ended December 31, 2016 was impacted by cash payments of $4.2 million related to restructuring and $1.1 million related to the
strategic alternative evaluation process. Cash provided by operating activities for the year ended December 31, 2015 was impacted
by a decrease in net earnings.
Approximately 93% and 83% of our cash and cash equivalents balance at December 31, 2017 and 2016, respectively, was held
by our non-U.S. subsidiaries. See the following table for the percentage of cash and cash equivalents, by region, at December 31,
2017 and December 31, 2016:
Asia
United States
Israel
Europe
United Kingdom
Canada
Total
December 31,
2017
2016
28%
7%
37%
15%
5%
8%
27%
17%
16%
19%
12%
9%
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. As a result of the 2017 Tax Act, the Company reassessed its assertion with respect to the indefinite
reinvestment for certain of Company’s foreign subsidiaries and recorded a deferred tax liability of approximately $1.8 million of
withholding tax associated with the planned cash distribution of approximately $25.5 million. 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 the $25.5
million, that could be subject to local tax or local withholding tax. The Company will evaluate the possibility of repatriating future
cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash,
short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and
cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12
months and thereafter for the foreseeable future.
If we should require more capital in the United States than is generated by our domestic operations, and the planned dividend
noted above, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate
future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives
could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the
undistributed earnings of our foreign subsidiaries, as of December 31, 2017, to be indefinitely reinvested and, accordingly, no
provision has been made for taxes in excess of the $1.8 million noted above. As of December 31, 2017, the amount of cash
associated with indefinitely reinvested foreign earnings was approximately $43.5 million.
For the year ended December 31, 2017, we generated free cash of $16.3 million. We refer to “free cash,” a measure which
management uses to evaluate our ability to fund acquisitions, as the amount of cash generated from operations ($22.7 million) in
excess of our capital expenditures ($7.0 million) and net of proceeds from the sale of assets ($0.5 million).
- 44 -
The following table summarizes the components of net cash (debt) at December 31, 2017 and at December 31, 2016 (in thousands):
Cash and cash equivalents
Third-party debt, including current and long-term
Term loans
Revolving debt
Third-party debt held by Japanese subsidiary
Exchangeable notes, due 2102
Deferred financing costs
Total third-party debt
Net cash
$
$
December 31,
2017
2016
74,292
$
58,452
20,500
$
9,000
401
2,794
(340)
32,355
$
41,937
$
23,000
9,000
509
4,097
(454)
36,152
22,300
Measurements such as “free cash” and “net cash (debt)” 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 “free cash” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash
(debt)” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not
be comparable to similarly titled measures used by other companies.
Our financial condition as of December 31, 2017 is strong, with a current ratio (current assets to current liabilities) of 3.7 to 1.0,
as compared to a current ratio of 4.2 to 1.0 at December 31, 2016.
Cash paid for property and equipment for the year ended December 31, 2017 and December 31, 2016 was $7.0 million and $10.4
million, respectively. Capital spending for 2017 was comprised of projects related to the normal maintenance of business, cost
reduction programs, and some carryover projects from 2016. Capital expenditures for 2018 are expected to be approximately
$15.0 million to $17.0 million. The majority of these capital expenditures will be incurred outside the United States.
Contractual Commitments
As of December 31, 2017, we had contractual obligations as follows (in thousands):
Total
Less than
1 year
1-3
years
4-5
years
After 5
years
Payments due by period
Long-term debt
$
32,695
$
3,878
$
26,006
$
17
$
Interest payments on long-term debt
Operating leases
Unrecognized tax benefits, including interest
and penalties
Expected pension and postretirement plan
benefit payments from unfunded plans (a)
Expected pension and postretirement plan
contributions to funded plans (b)
Total contractual cash obligations
6,160
7,563
915
4,648
1,030
953
3,113
95
437
1,030
1,324
3,888
—
889
—
95
562
—
978
—
$
53,011
$
9,506
$
32,107
$
1,652
$
2,794
3,788
—
820
2,344
—
9,746
(a) Due to the nature of unfunded plans, benefit payments are considered to be funded when paid.
(b) Due to the uncertainty of future cash outflows, contributions to the pension and other postretirement benefit plans subsequent to 2018 have been excluded
from the table above.
Our consolidated balance sheet at December 31, 2017 includes approximately $0.9 million of liabilities associated with uncertain
tax positions relating to multiple taxing jurisdictions. There are certain guarantees and indemnifications extended among Vishay
Intertechnology and us in accordance with the terms of the Master Separation and Distribution Agreement and the Tax Matters
- 45 -
Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Matters Agreement. See Note
6 to our consolidated financial statements for further discussion of the Tax Matters Agreement.
Of the $0.9 million of unrecognized tax benefits, $0.8 million are associated with our post spin-off operation, and thus are not
covered under the terms of the Tax Matters Agreement. Due to the uncertainty and complexity relating to the settlement of tax
matters, including the difficulty in predicting the conclusion of tax audits around the world, we are unable to make reliable estimates
of the timing and amount of the remaining cash outflows, if any, relating to these liabilities. Accordingly, the remaining uncertain
tax positions are classified as payments due after five years, although actual timing of payments may be sooner. See Note 6 to
our consolidated financial statements for additional information.
Inflation
Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term
contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused
by inflation.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
- 46 -
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates, interest rates, and commodity
prices. We manage our exposure to these market risks through internally established policies and procedures and, when deemed
appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments
for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial
instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk
exposures on an ongoing basis and believe that we can modify or adapt our strategies as needed.
Interest Rate Risk
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances.
At December 31, 2017, we have $2.8 million outstanding on our exchangeable notes, which bear interest at LIBOR.
The Company entered into a second amended and restated revolving credit facility on December 30, 2015. Interest payable on
the facility is based upon the Agent’s prime rate, the Federal Funds rate or LIBOR, plus a spread. At December 31, 2017, the
Company has $9.0 million borrowings outstanding under the revolving credit facility and $20.5 million in outstanding term loans.
At December 31, 2017, we have $74.3 million of cash and cash equivalents, which accrue interest at various variable rates.
Based on the debt and cash positions at December 31, 2017 and 2016, we would expect a 50 basis point increase or decrease in
interest rates to increase or decrease our annualized net earnings by $0.1 million in 2017 and to have an immaterial impact to
annualized net earnings in 2016.
See Note 7 to our consolidated financial statements for additional information about our long-term debt.
Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than
the functional currencies of certain subsidiaries. Our significant foreign currency exposures are to the British pound, Canadian
dollar, Chinese renminbi, euro, Indian rupee, Israeli shekel, Japanese yen, Swedish krona, and Taiwanese dollar.
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash in local currencies. Our
operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant
transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the
revenues earned in a particular currency offset one another. Our exposure to foreign currency risk, with respect to expenses, is
more pronounced in Israel and India because the percentage of expenses denominated in Israeli shekels and Indian rupee to total
expenses is much greater than the percentage of sales denominated in Israeli shekels and Indian rupee to total sales. Therefore, if
the Israeli shekel and Indian rupee strengthen against all or most of our other major currencies, our operating profit is reduced.
We also have a higher percentage of British pound-denominated sales than expenses. Therefore, when the British pound strengthens
against all or most of our other major currencies, our operating profit is increased. VPG Canada has a secured term facility
denominated in U.S. dollars. Therefore, we are exposed to potentially significant foreign exchange risk based on the valuation
of this long-term debt related to the exchange rate between the U.S. dollar and the Canadian dollar.
We have performed a sensitivity analysis as of December 31, 2017 and 2016, respectively, using a model that measures the change
in the values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar,
with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at December
31, 2017 and 2016, respectively. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency
exchange rates would impact our net earnings by approximately $2.5 million and $1.7 million for the years ended December 31,
2017 and December 31, 2016, respectively, although individual line items in our consolidated statements of operations could be
materially affected. For example, a 10% weakening in all foreign currencies would increase the U.S. dollar equivalent of operating
income generated in foreign currencies, which would be offset by foreign exchange losses of our foreign subsidiaries that have
significant transactions in U.S. dollars or have the U.S. dollar as their functional currency.
A change in the mix of the currencies in which we transact our business could have a material effect on the estimated impact of
the hypothetical 10% movement in the value of the U.S. dollar. Furthermore, the timing of cash receipts and disbursements could
result in materially different actual results versus the hypothetical 10% movement in the value of the U.S. dollar, particularly if
there are significant changes in exchange rates in a short period of time.
- 47 -
Commodity Price Risk
Although most materials incorporated in our products are available from a number of sources, certain materials are available only
from a relatively limited number of suppliers.
Some of the most highly specialized materials for our sensors are sourced from a single vendor. We maintain a safety stock inventory
of certain critical materials at our facilities.
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility.
Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality
of available raw materials deteriorates, or there are significant price changes for these raw materials. For periods in which the
prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in
decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to
write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market.
Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material
adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in
periods of declining prices.
We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk would decrease or
increase our net earnings by $1.2 million and $1.0 million for the years ended December 31, 2017 and December 31, 2016,
respectively, assuming that such changes in our costs have no impact on the selling prices of our products, and that we have no
pending commitments to purchase metals at fixed prices.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included herein, commencing on page F-1 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness
of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended, or the "Exchange Act," as of the end of the period covered by this Form 10-K.
Based on this evaluation, our management, including the chief executive officer and chief financial officer evaluated the structure
and effectiveness of our worldwide organization and the design and operating effectiveness of control structure. Management
determined that certain controls and procedures did not operate effectively and resulted in the material weakness discussed below.
After giving full consideration to the material weakness, and the additional analyses and other procedures that we performed to
ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with
U.S. GAAP, our management has concluded that our consolidated financial statements present fairly, in all material respects, our
financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) under the Exchange Act. Management conducted an assessment of the effectiveness of our internal control over
financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). A “material weakness” is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
our annual or interim financial statements will not be prevented or detected on a timely basis.
Based on our assessment as of December 31, 2017, our management believes that our internal control over financial reporting
was not effective due to the aggregation of certain internal control deficiencies related to the design, operating effectiveness and
- 48 -
monitoring of various transaction and monitoring controls. The Company has undergone significant changes in size, complexity
and structure of the organization due to multiple restructurings and multiple acquisitions. These activities caused operations to
be moved and consolidated, a reduction in personnel in certain locations while adding personnel from acquisitions in other locations,
and a general change in operating structure. We did not update the control activities documentation for numerous locations and,
in some cases, did not change control processes to reflect the changes from the restructurings, acquisition activities or general
changes in operating structure. This contributed to design and operating deficiencies in our internal controls. Further, we found
our monitoring of the design and effectiveness of controls either did not occur or failed to identify various control design and
operating deficiencies amidst such significant changes. The absence of a robust monitoring function allowed deficiencies present
in the internal control structure to remain undetected by our monitoring processes.
Remediation Plan with Respect to Material Weakness
Our management has developed a plan to remediate the material weakness in our internal control over financial reporting by
expanding the internal audit function at the Company to examine and update our internal control processes, to update the control
activities documentation, to perform expanded risk assessment activities, to implement controls to mitigate the risks identified
and to redesign our monitoring program to improve the identification, reporting and remediation of control deficiencies.
Our management expects the remediation plan to extend over multiple financial reporting periods throughout 2018. As we continue
to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address the
material weakness or modify certain of the remediation measures.
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated
in their report which is set forth on the next page.
- 49 -
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Vishay Precision Group, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described
below on the achievement of the objectives of the control criteria, Vishay Precision Group, Inc. (the Company) has not maintained
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented
or detected on a timely basis. The following material weakness has been identified and included in management’s assessment.
Management has identified a material weakness in their ability to identify relevant risks within their financial processes and
properly design controls to mitigate the identified risks, and also their ability to adequately monitor and identify operating
deficiencies in existing control activities. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company. This material weakness
was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2017 consolidated financial
statements, and this report does not affect our report dated March 15, 2018, which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 15, 2018
- 50 -
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Certain information required under this Item with respect to our Executive Officers is contained under the heading “Executive
Officers” in Item 1 hereof. Other information required under this Item will be contained under the heading “Nominees for Election
as Directors” in our definitive proxy statement for the Company’s 2018 Annual Meeting of Stockholders, which will be filed
within 120 days of December 31, 2017, our most recent fiscal year end, and is incorporated herein by reference.
The Company has adopted codes of conduct that constitute “codes of ethics” as that term is defined in paragraph (b) of Item 406
of Regulation S-K and that apply to the Company’s principal executive officer, principal financial officer, principal accounting
officer or controller, and to any persons performing similar functions. Such codes of conduct are posted on the Company’s internet
website, the address of which is www.vpgsensors.com.
Item 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2018 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2017, our most recent fiscal year end, and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2018 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2017, our most recent fiscal year end, and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2018 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2017, our most recent fiscal year end, and is incorporated
herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2018 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2017, our most recent fiscal year end, and is incorporated
herein by reference.
- 51 -
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as part of Form 10-K
1) Financial Statements
The Consolidated Financial Statements for the year ended December 31, 2017 are filed herewith. See index
to the Consolidated Financial Statements on page F-1 of this report.
2) Financial Statement Schedules
All financial statement schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions or are inapplicable and
therefore have been omitted.
3) Exhibits
Description
Asset Purchase Agreement, dated December 18, 2012, by and among Vishay Precision Group, Inc., Vishay Precision
Group Canada ULC, George Kelk Corporation, Endevor Corporation and Peter Kelk (previously filed as an exhibit
to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012 and incorporated herein
by reference).
Amended and Restated Certificate of Incorporation of Vishay Precision Group, Inc., effective June 25, 2010
(previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 1, 2010
and incorporated herein by reference).
Amendment no. 1 to Amended and Restated Certificate of Incorporation of Vishay Precision Group, Inc., effective
June 2, 2011 (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on
June 6, 2011 and incorporated herein by reference).
Second Amended and Restated Bylaws of Vishay Precision Group, Inc., adopted as of June 2, 2011 (previously filed
as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 6, 2011 and incorporated
herein by reference).
Master Separation and Distribution Agreement, dated June 22, 2010, between Vishay Precision Group, Inc. and
Vishay Intertechnology, Inc. (previously filed as an exhibit to the Registrant’s Form 10 Registration Statement of
Vishay Precision Group, Inc., filed with the Securities and Exchange Commission on June 22, 2010 and incorporated
herein by reference).
Employee Matters Agreement, dated June 22, 2010, by and among Vishay Intertechnology, Inc. and Vishay Precision
Group, Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on
June 23, 2010 and incorporated herein by reference).
Tax Matters Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Intertechnology, Inc.
(previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010
and incorporated herein by reference).
Trademark License Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Intertechnology,
Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7,
2010 and incorporated herein by reference).
Supply Agreement, dated July 6, 2010, between Vishay Advanced Technology, Ltd. and Vishay Dale Electronics,
Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7,
2010 and incorporated herein by reference).
Patent License Agreement, dated July 6, 2010, between Vishay Precision Group, Inc. and Vishay Dale Electronics,
Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7,
2010 and incorporated herein by reference).
Supply Agreement, dated July 6, 2010, between Vishay Dale Electronics, Inc. and Vishay Advanced Technology,
Ltd. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7,
2010 and incorporated herein by reference).
Lease Agreement, dated July 4, 2010, between Vishay Advanced Technology, Ltd. and V.I.E.C. Ltd. (previously filed
as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated
herein by reference).
Exhibit
No.
2.1
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
10.8*
- 52 -
Exhibit
No.
10.9*
10.10*
10.11
10.12*
10.13
10.14
10.15†
10.16
10.17
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26
10.27
Description
Supply Agreement, dated July 6, 2010, between Vishay Measurements Group, Inc. and Vishay S.A. (previously filed
as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated
herein by reference).
Manufacturing Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Precision Foil GmbH (previously
filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated
herein by reference).
Intellectual Property License Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Precision Foil GmbH
(previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010
and incorporated herein by reference).
Supply Agreement, dated July 6, 2010, between Vishay Precision Foil GmbH and Vishay S.A. (previously filed as
an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein
by reference).
Intellectual Property License Agreement, dated July 6, 2010, between Vishay S.A. and Vishay Measurements Group,
Inc. (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7,
2010 and incorporated herein by reference).
Lease Agreement, between Alpha Electronics Corp. and Vishay Japan Co., Ltd. (previously filed as an exhibit to the
Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2010 and incorporated herein by reference).
Amended and Restated 2010 Vishay Stock Incentive Program, adopted as of June 2, 2011 (previously filed as an
exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 6, 2011 and incorporated herein
by reference).
Note Instrument, dated July 21, 2010, by Vishay Precision Group, Inc. (previously filed as an exhibit to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference).
Put and Call Agreement, dated July 21, 2010, by and among Vishay Precision Group, Inc., American Stock Transfer
& Trust Co. and the noteholders whose signatures are set forth on the signature pages thereto (previously filed as an
exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated
herein by reference).
Form of Stock Option Award Agreement (previously filed as an exhibit to the Registrant’s Quarterly Report on Form
10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement for Director Grants (previously filed as an exhibit to the Registrant’s
Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement for Employee Grants (previously filed as an exhibit to the Registrant’s
Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010 and incorporated herein by reference).
Employment Agreement, dated November 17, 2010, by and among Vishay Advanced Technology and Ziv Shoshani
(previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November 23,
2010 and incorporated herein by reference).
Employment Agreement, dated November 17, 2010, by and among Vishay Precision Group, Inc. and William M.
Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on November
23, 2010 and incorporated herein by reference).
Amendment to Employment Agreement, dated December 8, 2011 by and among Vishay Advanced Technologies,
Ltd. and Ziv Shoshani (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the
SEC on December 13, 2011 and incorporated herein by reference).
Amendment to Employment Agreement, dated December 8, 2011 by and among Vishay Precision Group, Inc. and
William M. Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC
on December 13, 2011 and incorporated herein by reference).
Form of Performance Restricted Stock Unit Award Agreement for Employee Grants (previously filed as an exhibit
to the Registrant’s Current Report on Form 10-K filed with the SEC on March 12, 2013 and incorporated herein by
reference).
Lease Agreement, between George Kelk Corporation and Anndale Properties Limited (and its successors), dated
January 30, 1996 and as amended as of January 17, 2011 (previously filed as an exhibit to the Registrant’s Quarterly
Report on Form 10-Q filed with SEC on May 8, 2013 and incorporated herein by reference).
Vishay Precision Group, Inc. 2010 Stock Incentive Program, as Amended and Restated Effective May 21, 2013
(previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on May 22, 2013
and incorporated herein by reference).
- 53 -
Exhibit
No.
10.28†
10.29†
10.30†
10.31
10.32†
10.33
10.34
10.35†
10.36†
10.37
10.38
10.39†
10.40†
10.41
10.42†
21.1
23.1
31.1
31.2
32.1
32.2
Description
Amendment to Employment Agreement, dated November 7, 2013 by and among Vishay Advanced Technologies,
Ltd. and Ziv Shoshani (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the
SEC on November 12, 2013 and incorporated herein by reference).
Amendment to Employment Agreement, dated November 7, 2013 by and among Vishay Precision Group, Inc. and
William Clancy (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC
on November 12, 2013 and incorporated herein by reference).
Lease agreement, dated January 26, 2014, by and among between Vishay Advanced Technologies, Inc. and Tefen
Enterprises Ltd. (previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the
SEC on May 7, 2014 and incorporated herein by reference).
Stock Purchase Agreement, dated December 14, 2015, by and among VPG Systems U.S., Inc., Stress-Tek, Inc., the
shareholders of Stress-Tek, Inc., and Keith Reichow, as Representative (previously filed as an exhibit to the
Registrant’s Current Report on Form 8-K filed with the SEC on December 15, 2015 and incorporated herein by
reference).
Amended and Restated Employment Agreement, dated December 23, 2015, by and among the Company and Thomas
Kieffer (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December
29, 2015 and incorporated herein by reference).
Second Amended and Restated Credit Agreement, dated December 30, 2015, by and among Vishay Precision Group,
Inc., Vishay Precision Group Canada ULC, JPMorgan Chase Bank, National Association, as agent, and lenders party
thereto (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on January
4, 2016 and incorporated herein by reference).
Stock Purchase Agreement, dated March 30, 2016, by and among Vishay Precision Group, Inc., Pacific Instruments,
Inc., the shareholders of Pacific Instruments, Inc., John Hueckel and Norman Hueckel as Owners, and John Hueckel,
as Representative (previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC
on April 5, 2016 and incorporated herein by reference).
Form of Indemnification Agreement with directors (previously filed as an exhibit to the Registrant's Quarterly Report
on Form 10-Q filed with the SEC on May 11, 2016 and incorporated herein by reference).
Employment agreement, dated January 1, 2016, by and among Vishay Precision Group, Inc. and Roland Desilets
( previously filed as an exhibit to the Registrants' Quarterly Report on Form 10-Q filed with the SEC on August 10,
2016 and incorporated herein by reference).
Lease agreement, dated July 7, 2016, by and among between Vishay Advanced Technologies, Ltd. and Marshee
Estates & Investments Ltd. (previously filed as an exhibit to the Registrant's Current Report on Form 10-K filed
with the SEC on March 16, 2016 and incorporated herein by reference).
Agreement, dated March 24, 2017, between the Company and Nokomis Capital, L.L.C. (previously filed as Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
Amendment to Employment Agreement, dated May 8, 2017, by and among Vishay Precision Group, Inc. and William
M. Clancy (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC
on May 9, 2017 and incorporated herein by reference).
Amendment to Employment Agreement, dated May 8, 2017, by and among Vishay Precision Group, Inc. and Roland
Desilets (previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on
May 9, 2017 and incorporated herein by reference).
Amendment, dated July 26, 2017, to that certain letter agreement, dated March 24, 2017, by and among Vishay
Precision Group, Inc. and Nokomis Capital, L.L.C. (previously filed as Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed with the SEC on July 27, 2017).
Amendment to Employment Agreement, dated August 7, 2017, by and among Vishay Advanced Technologies, Ltd.
and Ziv Shoshani (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the
SEC on August 8, 2017 and incorporated herein by reference).
List of Subsidiaries.
Consent of Ernst & Young LLP relating to the Registrant’s financial statements.
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.
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.
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.
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.
- 54 -
Exhibit
No.
101
Description
Interactive Data File (Annual Report on Form 10-K, for the year ended December 31, 2017, furnished in XBRL
(eXtensible Business Reporting Language)).
* Confidential treatment has been accorded to certain portions of this Exhibit. Omitted portions have been filed separately with
the Securities and Exchange Commission.
† Denotes a management contract or compensatory plan, contract or arrangement.
Item 16. FORM 10-K SUMMARY
None.
- 55 -
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 15, 2018
VISHAY PRECISION GROUP, INC.
By: /s/ Ziv Shoshani
Ziv Shoshani
President and Chief Executive Officer
POWER OF ATTORNEY
Vishay Precision Group, Inc., a Delaware corporation, and each person whose signature appears below constitutes and appoints
each of Ziv Shoshani and William M. Clancy, and either of them, such person’s true and lawful attorney-in-fact, with full power
of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign on
such person’s behalf, individually and in each capacity stated below, any and all amendments to this Annual Report on Form 10-
K and other documents in connection therewith, and to file the same and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and
authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact,
or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed by the following
persons on behalf of the Registrant in the capacities and on the date indicated below.
Signature
/s/ Ziv Shoshani
Ziv Shoshani
Title
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ William M. Clancy
William M. Clancy
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marc Zandman
Marc Zandman
/s/ Saul V. Reibstein
Saul V. Reibstein
/s/ Timothy V. Talbert
Timothy V. Talbert
/s/ Cary Wood
Cary Wood
/s/ Janet Clarke
Janet Clarke
/s/ Bruce Lerner
Bruce Lerner
/s/ Wesley Cummins
Wesley Cummins
Director
Director
Director
Director
Director
Director
Director
- 56 -
Date
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
[THIS PAGE INTENTIONALLY LEFT BLANK]
Vishay Precision Group, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-1
To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vishay Precision Group, Inc. (the Company) as of December
31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for
each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated March 15, 2018 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009
Philadelphia, Pennsylvania
March 15, 2018
F-2
VISHAY PRECISION GROUP, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
Assets
Current assets:
December 31,
2017
December 31,
2016
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of $578 and $523,
respectively
Inventories:
$
74,292
$
58,452
46,789
34,270
Raw materials
Work in process
Finished goods
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, at cost:
Land
Buildings and improvements
Machinery and equipment
Software
Construction in progress
Accumulated depreciation
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
16,601
23,160
20,174
59,935
10,299
191,315
3,434
50,276
95,158
7,955
2,252
(103,401)
55,674
15,647
21,115
19,559
56,321
6,831
155,874
3,344
48,454
89,080
7,441
4,340
(97,374)
55,285
19,181
18,717
20,475
21,585
19,906
306,551
$
19,049
270,510
$
Continues on the following page.
F-3
VISHAY PRECISION GROUP, INC.
Consolidated Balance Sheets (continued)
(In thousands, except share amounts)
Liabilities and equity
Current liabilities:
Trade accounts payable
Payroll and related expenses
Other accrued expenses
Income taxes
Current portion of long-term debt
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Other liabilities
Accrued pension and other postretirement costs
Total liabilities
Commitments and contingencies
Equity:
Preferred stock, par value $1.00 per share: authorized - 1,000,000 shares; none issued
Common stock, par value $0.10 per share: authorized - 25,000,000 shares; 12,266,407
shares outstanding as of December 31, 2017 and 12,167,356 shares outstanding as of
December 31, 2016
Class B convertible common stock, par value $0.10 per share: authorized - 3,000,000
shares; 1,025,158 shares outstanding as of December 31, 2017 and December 31,
2016
Treasury stock, at cost - 619,667 shares held at December 31, 2017 and December 31,
2016
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total Vishay Precision Group, Inc. stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
December 31,
2017
December 31,
2016
$
$
$
13,678
15,892
15,952
2,515
3,878
51,915
28,477
2,300
14,131
16,424
113,247
8,264
11,978
13,285
772
2,623
36,922
33,529
735
13,054
14,713
98,953
—
—
1,288
1,278
103
103
(8,765)
192,904
43,076
(35,450)
193,156
148
193,304
306,551
$
(8,765)
190,373
28,731
(40,337)
171,383
174
171,557
270,510
See accompanying notes.
F-4
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Net revenues
Costs of products sold
Gross profit
Selling, general, and administrative expenses
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Restructuring costs
Operating income
Other income (expense):
Interest expense
Other
Other (expense) income - net
Income before taxes
Income tax expense
Net earnings (loss)
Less: net earnings attributable to noncontrolling interests
Net earnings (loss) attributable to VPG stockholders
Basic earnings (loss) per share attributable to VPG stockholders
Diluted earnings (loss) per share attributable to VPG stockholders
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
$
$
$
$
Years ended December 31,
2016
2015
2017
254,350
156,067
98,283
74,614
—
—
2,044
21,625
$
224,929
$
142,120
82,809
68,938
494
—
2,666
10,711
232,178
147,949
84,229
71,282
185
4,942
4,461
3,359
(1,842)
780
(1,062)
(1,486)
382
(1,104)
(771)
(2,082)
(2,853)
20,563
9,607
506
6,169
3,199
13,500
$
$
$
14,394
49
14,345
1.08
1.07
13,262
13,471
$
$
$
6,408
4
6,404
0.49
0.48
13,187
13,419
(12,994)
14
(13,008)
(0.96)
(0.96)
13,485
13,485
See accompanying notes.
F-5
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net earnings (loss)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment
Pension and other postretirement actuarial items
Other comprehensive income (loss)
Years ended December 31,
2016
2015
2017
$
14,394
$
6,408
$
(12,994)
5,802
(915)
4,887
(4,488)
(2,728)
(7,216)
(6,947)
386
(6,561)
Comprehensive income (loss)
19,281
(808)
(19,555)
Less: comprehensive income attributable to noncontrolling interests
49
4
14
Comprehensive income (loss) attributable to VPG stockholders
$
19,232
$
(812) $
(19,569)
See accompanying notes.
F-6
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net earnings (loss)
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Impairment of goodwill and indefinite-lived intangibles
Depreciation and amortization
(Gain) loss on disposal of property and equipment
Share-based compensation expense
Inventory write-offs for obsolescence
Deferred income taxes
Other
Net changes in operating assets and liabilities, net of acquisition:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Trade accounts payable
Other current liabilities
Net cash provided by operating activities
Investing activities
Capital expenditures
Proceeds from sale of property and equipment
Purchase of business
Net cash used in investing activities
Financing activities
Proceeds from long-term debt
Repayments of principal upon termination of long-term debt
Principal payments on long-term debt
Debt issuance costs
Proceeds from revolving facility
Payments on revolving facility
Purchase of treasury stock
Distributions to noncontrolling interests
Payments of employee taxes on certain share-based arrangements
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of investing transactions:
Capital expenditures purchased
Supplemental disclosure of non-cash financing transactions:
Conversion of exchangeable notes to common stock
See accompanying notes.
F-7
$
$
$
Years ended December 31,
2016
2015
2017
$
14,394
$
6,408
$
(12,994)
—
10,626
(195)
1,499
2,065
1,890
893
(10,537)
(4,307)
(3,260)
2,009
7,652
22,729
(6,960)
541
—
(6,419)
—
—
(2,628)
—
41,000
(41,000)
—
(75)
(303)
(3,006)
2,536
15,840
58,452
—
11,149
(823)
37
1,755
301
(2,044)
1,322
(1,968)
955
237
(5,824)
11,505
(10,425)
4,203
(10,626)
(16,848)
—
—
(2,133)
—
25,000
(20,000)
—
(15)
(85)
2,767
(1,613)
(4,189)
62,641
74,292
$
58,452
$
4,942
11,097
15
1,083
1,354
10,013
2,521
982
(3,961)
2,799
(2,550)
(1,034)
14,267
(9,978)
117
(20,022)
(29,883)
29,000
(14,000)
(4,119)
(453)
—
—
(8,733)
(63)
(339)
1,293
(2,678)
(17,001)
79,642
62,641
(10,092) $
(10,425) $
(9,978)
(1,303) $
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S
Vishay Precision Group, Inc.
Notes to Consolidated Financial Statements
Note 1 – Background and Summary of Significant Accounting Policies
Background
Vishay Precision Group, Inc. (“VPG” or the “Company”) is an internationally recognized designer, manufacturer and marketer
of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon the Company's
proprietary technology. The Company provides precision products and solutions, many of which are “designed-in” by its customers,
specializing in the growing markets of stress, force, weight, pressure, and current measurements.
Principles of Consolidation
The consolidated financial statements include the accounts of the individual entities in which the Company maintained a controlling
financial interest. For those subsidiaries in which the Company’s ownership is less than 100 percent, the outside stockholders’
interests are shown as noncontrolling interests in the accompanying consolidated balance sheets.
All transactions, accounts, and profits between individual members comprising the Company have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from those estimates.
Revenue Recognition
The Company recognizes revenue on product sales during the period when the sales process is complete. This generally occurs
when products are shipped to the customer in accordance with terms of an agreement of sale, title and risk of loss have been
transferred, collectability is reasonably assured, and pricing is fixed or determinable. For sales where title and risk of loss pass at
the point of delivery, the Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue
recognition are met.
The Company has post-shipment obligations, such as customer acceptance, training, or installation, with respect to some of its
larger systems products. In such circumstances, a portion of the revenue may be deferred until the obligation has been completed,
unless such obligation is deemed inconsequential or perfunctory.
Given the specialized nature of the Company’s products, it generally does not allow product returns.
Shipping and Handling Costs
Shipping and handling costs are included in costs of products sold.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to expense for research and development was
$11.7 million, $11.1 million, and $9.6 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment
date.
The Company records net deferred tax assets to the extent it believes such assets will "more likely than not" be realized. In making
this determination, the Company considers all positive and negative evidence, including historic earnings, projected future income,
and cost-effective tax-planning strategies. When the Company determines that its ability to realize deferred tax assets is not "more
likely than not", the Company adjusts its deferred tax asset valuation allowance, which increases income tax expense.
F-9
Note 1 – Background and Summary of Significant Accounting Policies (continued)
The Company records uncertain tax positions on the basis of a two-step process in which the Company first determines whether
it is "more likely than not" that the tax positions will be sustained based on the technical merits of the position and then measures
those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax
benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying
consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the
consolidated balance sheets.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant
does not have all the necessary information available to prepare and analyze the accounting treatment for the proper recognition
of the tax impact of the 2017 Tax Act. In accordance with SAB 118 guidance, the Company has recorded the provisional tax
impacts related to the deemed distribution of foreign earnings and the expense for the revaluation of deferred tax assets and
liabilities in its consolidated financial statements for the year ended December 31, 2017. The final impact may differ from the
provisional amount recognized, primarily due to the need for additional analysis, changes in the Company's interpretation of the
2017 Tax Act, or issuance of additional regulatory guidance. In accordance with SAB 118, the financial reporting impact of the
2017 Tax Act will be completed in the fourth quarter of 2018.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less
when purchased. Highly liquid investments with maturities greater than three months are classified as short-term investments.
There were no investments classified as short-term investments at December 31, 2017 or 2016.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments
of risk that are based on historical trends and an evaluation of the impact of current and projected economic conditions. The
Company evaluates the past-due status of its trade receivables based on contractual terms of sale. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances
may be required. The allowance for doubtful accounts was $0.6 million and $0.5 million at December 31, 2017 and 2016,
respectively. Bad debt expense was $0.1 million, $0.2 million, and $0.1 million for the years ended December 31, 2017, 2016,
and 2015, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market based on net realizable value.
Inventories are adjusted for estimated excess and obsolescence and written down to net realizable value based upon estimates of
future demand, technology developments, and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the straight-line method based upon the estimated useful
lives of the assets. Machinery and equipment are being depreciated over useful lives of seven to ten years. Buildings and building
improvements are being depreciated over useful lives of twenty to forty years or the lease term. Software is being depreciated
over useful lives of three to five years. Construction in progress is not depreciated until the assets are placed in service. Depreciation
expense was $8.7 million, $9.3 million, and $9.0 million for the years ended December 31, 2017, 2016, and 2015, respectively,
which included software depreciation expense of $0.5 million, $0.6 million, and $0.8 million for the years ended December 31,
2017, 2016, and 2015, respectively.
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent
consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on
estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants
are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair
values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows
and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes.
These estimates are based on historical experience and information obtained from the management of the acquired companies,
and are inherently uncertain.
F-10
Note 1 – Background and Summary of Significant Accounting Policies (continued)
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in
circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first
assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its
carrying amount as a basis for determining if it is necessary to perform the two-step goodwill impairment test. However, if we
conclude otherwise, then we are required to perform the first step of the two-step impairment test by calculating the fair value of
the reporting unit and comparing it against its carrying amount. We estimate the fair value of our reporting units by considering
both an income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future
cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing
model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is
dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital
requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit
to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting
unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of
the income approach and the market approach to arrive at the estimated fair value of the reporting unit. If the carrying amount of
a reporting unit exceeds its fair value, then we are required to perform the second step of the goodwill impairment test. To measure
the amount of the impairment, we determine the implied fair value of goodwill in the same manner as if we had acquired those
reporting units. Specifically, we must allocate the fair value of the reporting unit to all of the assets of that unit, including any
unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. The impairment
loss is measured as the difference between the book value of the goodwill and the implied fair value of the goodwill computed in
step two.
In 2015, the Company estimated the fair value of its IPRD asset using an income approach to valuation. The Company estimated
the future cash flows associated with the IPRD and discounted those cash flows back to their net present value using a discount
rate determined using the capital asset pricing model, and adjusted for the forecast risk inherent in the projections of cash flows
associated with this asset. The estimates of cash flows included revenues to be generated by the products supported by the IPRD
and the expected profits on those product sales. As of the date of the 2016 and 2017 impairment test, IPRD was subject to
amortization and therefore was not included as part of the 2016 and 2017 impairment test.
The Company's required goodwill annual impairment test is completed as of the first day of the fourth fiscal quarter each year.
As more fully described in Note 4, the 2017 and 2016 annual impairment tests resulted in no impairment. The interim impairment
test for 2015 resulted in the Company recording an impairment charge in the third quarter of 2015.
The indefinite-lived trade names are tested for impairment by comparing the carrying value to the fair value based on current
revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable
fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified.
As more fully described in Note 4, the 2017 and 2016 annual impairment tests resulted in no impairment. The annual impairment
test for 2015 resulted in the Company recording an impairment charge in the third quarter of 2015.
Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements,
and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology
are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of
five to fifteen years. Trade names are being amortized over useful lives of seven to ten years. Non-competition agreements are
being amortized over periods of five to ten years. The Company continually evaluates the reasonableness of the useful lives of
these assets. Additionally, the Company reviews the carrying values of these assets for possible impairment whenever events or
changes in circumstances indicate that the carrying value of the asset may not be recoverable based on undiscounted estimated
cash flows expected to result from its use and eventual disposition.
Impairment of Long-Lived Assets
The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when
events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset
group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable
and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based
on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived
intangible assets, are determined in a similar manner, except that fair market values are reduced for disposal costs.
F-1 1
Note 1 – Background and Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
The Company has significant operations outside of the United States. The Company's operations in Europe, Canada, and certain
locations in Asia primarily generate and expend cash in local currencies, and accordingly, these subsidiaries utilize the local
currency as their functional currency. The Company’s operations in Israel and certain locations in Asia primarily generate cash in
U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency.
For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets
have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average
exchange rate for the year. Translation adjustments do not impact the consolidated statements of operations and are reported as a
separate component of accumulated other comprehensive loss within the statement of comprehensive income. Foreign currency
transaction gains and losses are included in the results of operations.
For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts
are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary
assets and liabilities are included in the consolidated statements of operations.
Share-Based Compensation
Compensation costs related to share-based payments are recognized in the consolidated financial statements. The amount of
compensation cost is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized
over the period that an officer, employee, or non-employee director provides service in exchange for the award. The Company
recognizes forfeitures as they occur. For performance based awards, the Company recognizes compensation cost for awards that
are expected to vest based on whether performance criteria are expected to be met. For options and restricted stock units subject
to graded vesting, the Company recognizes expense over the service period for each separately vesting portion of the award as if
the award was comprised of multiple awards.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current financial statement presentation.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when
it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
Recently Adopted Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU")
No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. This
ASU requires the service cost component of net periodic benefit cost to be presented in the same income statement line item as
other employee compensation costs. All other components of the net periodic benefit cost will be presented outside of operating
income. The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2017
and early adoption is permitted. The ASU will result in the reclassification of non-service costs components from Cost of products
sold and Selling, general and administrative expenses to Other income (expense) - other for all periods presented. For the years
ended December 31, 2017 and December 31, 2016, the Company estimates the new standard would have increased Operating
income by approximately $0.9 million and $0.5 million, respectively, with an offsetting increase in Other income (expense).
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU
simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company
prospectively adopted this ASU effective January 1, 2017. For the year ended December 31, 2017, the tax benefit within income
tax expense for the tax effect of share-based payment transactions was not material. Prior to adoption, this amount would have
been recorded as a component of Capital in excess of par value. The Company elected to change its accounting policy to recognize
forfeitures as they occur. As a result of this change, there was no cumulative-effect adjustment to retained earnings. For the year
ended December 31, 2017, the Company excluded excess tax benefits from the assumed proceeds available to repurchase shares
in the computation of its diluted earnings per share and the related increase in the Company’s diluted weighted average commons
shares outstanding was not significant.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory (Topic 330)," which simplifies the
subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
F-12
Note 1 – Background and Summary of Significant Accounting Policies (continued)
disposal and transportation. The Company prospectively adopted this ASU effective January 1, 2017 and the adoption did not
have a significant impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”. This ASU clarifies which changes to the
terms or conditions of a share-based payment award will require modification accounting. The amendments in this ASU are
effective for interim and annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The
adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017 04, “Simplifying the Test for Goodwill Impairment.” This ASU eliminates the
requirement to calculate the implied fair value of goodwill (second step) to measure a goodwill impairment charge. Under the
guidance, an impairment charge will be measured based on the excess of the reporting unit’s carrying amount over its fair value
(first step). The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2019
and early adoption is permitted. The Company is evaluating the new standard to determine the impact on the Company’s consolidated
financial statements.
In January 2017, FASB issued ASU No. 2017 01, “Clarifying the Definition of a Business.” This ASU provides a more robust
framework to determine when a set of assets and activities constitutes a business. The amendments in this ASU are effective for
interim and annual reporting periods beginning after December 15, 2017 and will be applied prospectively to any transactions
occurring within the period of adoption and early adoption is permitted. The adoption of this standard is not expected to have a
material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU
is intended to clarify the presentation of certain cash receipts and payments within the statement of cash flows. The amendments
in this ASU are effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The
adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” a comprehensive new lease standard that amends
various aspects of existing accounting guidance for leases. The core principle of this ASU will require lessees to present the assets
and liabilities that arise from leases on their balance sheets. The ASU is effective for public companies for annual periods beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating
the new standard to determine the impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," and modified the standard thereafter.
The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers that will supersede most current revenue recognition guidance. The basis of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services.
The Company adopted the requirements of the new standard on January 1, 2018 and applied the modified retrospective transition
method. The modified retrospective method recognizes the cumulative effect of initially applying the new revenue standard as
an adjustment to the opening balance of retained earnings. This adjustment had an immaterial impact to retained earnings. Results
for reporting periods beginning after January 1, 2018 will be presented under ASC 606, while prior periods amounts are not
adjusted and reported in accordance with ASC 605. The process utilized for the adoption of the new standard was as follows:
• Reviewed our current accounting policies to identify potential differences that would result from the application of the
standard and updating accordingly.
• Customer contracts were identified and reviewed.
• Evaluation of the contract provisions and the comparison of historical accounting policies to the requirements of the new
standard have been completed.
The Company determined that no significant changes were required to the business processes, systems and controls to effectively
report revenue under the new standard.
F-13
Note 2 – Related Party Transactions
Until July 6, 2010, VPG was part of Vishay Intertechnology, and the assets and liabilities consisted of those that Vishay
Intertechnology attributed to its precision measurement and foil resistor businesses. Following the spin-off on July 6, 2010, VPG
is an independent, publicly-traded company, and Vishay Intertechnology does not retain any ownership interest in VPG, although
a common group of stockholders control a significant portion of the voting power of each company and the companies have three
common board members.
Subsequent to the spin-off, VPG and Vishay Intertechnology continue to share certain manufacturing locations. VPG owns one
location in Japan at which it leases space to Vishay Intertechnology. Vishay Intertechnology owns one location in the United States,
at which it leases space to VPG. Lease receipts and payments related to the shared facilities are immaterial.
Note 3 – Acquisition Activity
Pacific Instruments, Inc.
On April 6, 2016, the Company completed the acquisition of Pacific Instruments, Inc. ("Pacific") for an aggregate purchase price
of $10.6 million. Pacific is a designer and manufacturer of high-performance data acquisition systems and has extensive experience
integrating these systems. Pacific sells primarily to the aerospace, commercial aviation and defense markets in the United States.
Pacific provides installation, facility integration, training, and on-going technical support for their manufactured products. Pacific
products expanded the offerings of our Foil Technology Products reporting segment, which already offered data acquisition systems,
primarily instruments in the field of strain measurement. The following table summarizes the fair values assigned to the assets
and liabilities of Pacific as of April 6, 2016 (in thousands):
Working capital (a)
Property and equipment
Long-term deferred income tax liability
Intangible assets:
Patents and acquired technology
Non-competition agreements
Customer relationships
Trade names
Total intangible assets
Fair value of acquired identifiable assets and liabilities
Purchase price
Goodwill
$
$
$
921
26
(1,903)
1,300
40
3,500
700
5,540
4,584
10,626
6,042
(a) Working capital accounts include accounts receivable, inventory, prepaid expenses and other current assets, trade accounts payable, accrued payroll, income
taxes payable, and other accrued expenses.
The weighted average useful lives for the patents and acquired technology, non-competition agreements, and customer
relationships are 20 years, 6.5 years, and 15 years, respectively. None of the goodwill associated with this transaction is
deductible for income tax purposes.
F-14
Note 3 – Acquisition Activity (continued)
The Company recorded acquisition costs associated with this transaction in its consolidated statements of operation as follows
(in thousands):
Accounting and legal fees
Appraisal fees
Other
Stress-Tek, Inc.
Year ended
December 31,
2016
$
$
369
41
21
431
On December 30, 2015, the Company completed the acquisition of Stress-Tek, Inc. ("Stress-Tek"), based in Kent, Washington,
for an aggregate purchase price of $20.1 million. Stress-Tek is a designer and manufacturer of state-of-the-art, rugged and reliable
strain gage-based load cells and force measurement systems primarily servicing the North American market. Their sensors and
display systems are used in a wide range of industries, predominantly in transportation and trucking, for timber, refuse, aggregate,
mining, and general trucking applications. Stress-Tek adds new products to the Company's Weighing and Control Systems reporting
segment which enhances and broadens the Company's on-board weighing offerings with products that are recognized for high
quality in their markets.
The following table summarizes the fair values assigned to the assets and liabilities as of the December 30, 2015 acquisition date
(in thousands):
Working capital (a)
Property and equipment
Intangible assets:
Patents and acquired technology
Non-competition agreements
Customer relationships
Trade names
Total intangible assets
Fair value of acquired identifiable assets
Purchase price
Goodwill
$
$
$
2,564
6,338
1,600
60
2,500
700
4,860
13,762
20,073
6,311
(a) Working capital accounts include cash, accounts receivable, inventory, prepaid expenses and other current assets, trade accounts payable, accrued payroll,
and other accrued expenses.
The weighted average useful lives for the patents and acquired technology, non-competition agreements, and customer relationships
are 20, 5, and 15 years, respectively. Most of the goodwill associated with this transaction will be deductible for income tax
purposes.
The Company recorded acquisition costs associated with this transaction in its consolidated statements of operations as follows
(in thousands):
F-15
Note 3 – Acquisition Activity (continued)
Accounting and legal fees
Appraisal fees
Other
Years ended December 31,
2016
2015
$
$
51
12
—
63
$
$
70
62
53
185
F-16
Note 4 – Goodwill and Other Intangible Assets
The Company performed the first step of the two-step impairment test as of the first day of the fiscal 2017 fourth quarter by
calculating the fair value of the reporting units and comparing it against its carrying amount. The Company estimated the fair
value of its reporting units by considering both an income approach and a market approach to valuation. The income approach to
valuation used the Company’s estimates of the future cash flows of the reporting unit discounted to their net present value applying
a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in the Company’s
projections of future cash flows. The income approach to valuation is dependent on inputs from management such as expected
revenue growth, profitability, capital expenditures and working capital requirements. The market approach to valuation used the
market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple. The Company
applied that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting
unit. Both of these approaches to estimating the fair value of the unit use inputs that are considered “Level 3” inputs to the fair
value estimate (see Note 15 for a definition of Level 3 valuation inputs within the fair value hierarchy). The Company equally
weighted the results of the income approach and the market approach to arrive at the estimated fair value of the reporting units.
After completing step one, the Company determined that the fair value of each of the reporting units exceeded its carrying value
resulting in passing step one. The Company's analysis in 2016 also resulted in all units passing step one. As a result of the 2015
goodwill impairment test for the KELK business, the Company recorded impairment charges of $4.8 million in 2015.
The determination of the fair value of the reporting unit and the allocation of that value to individual assets and liabilities within
the reporting unit requires the Company to make significant estimates and assumptions. These estimates and assumptions include
the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the
Company competes, the discount rate, terminal growth rates, and forecasts of revenue, operating income, depreciation and
amortization, and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates.
Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on
either the fair value of the reporting unit or the amount of the goodwill impairment charges.
The change in the carrying amount of goodwill by segment is as follows (in thousands):
Balance at January 1, 2016
Goodwill acquired
Adjustment to goodwill acquired
Foreign currency translation adjustment
Balance at December 31, 2016
Foreign currency translation adjustment
Balance at December 31, 2017
Total
Weighing and Control
Systems Segment
KELK
Acquisition
Stress-Tek
Acquisition
Foil Technology
Products Segment
Pacific
Instruments
$
12,603
$
6,179
$
6,424
$
6,042
(113)
185
18,717
464
19,181
—
—
185
6,364
464
6,828
—
(113)
—
6,311
—
6,311
—
6,042
—
—
6,042
—
6,042
F-17
Note 4 – Goodwill and Other Intangible Assets (continued)
Intangible assets were as follows (in thousands):
Intangible assets subject to amortization
(Definite-lived):
Patents and acquired technology
Customer relationships
Trade names
Non-competition agreements
Accumulated amortization:
Patents and acquired technology
Customer relationships
Trade names
Non-competition agreements
December 31,
2017
2016
$
9,439
$
21,810
1,693
12,084
45,026
(3,839)
(9,657)
(1,688)
(11,850)
(27,034)
17,992
$
9,669
20,934
1,621
11,348
43,572
(3,865)
(8,162)
(1,609)
(10,761)
(24,397)
19,175
Net intangible assets subject to amortization
$
Intangible assets not subject to amortization
(Indefinite-lived):
Trade names
2,483
$
20,475
$
2,410
21,585
Certain intangible assets are subject to foreign currency translation.
The Company performed an impairment test on the indefinite-lived trade names as of the first day of the fiscal 2017 fourth quarter
and determined there was no impairment. The Company's analysis in 2016 also resulted in no impairment. As a result of the
2015 indefinite-lived trade names impairment test, the Company recorded an impairment charge of $0.2 million related to the
KELK trade name.
Amortization expense was $1.9 million, $1.8 million, and $2.1 million, for the years ended December 31, 2017, 2016, and 2015,
respectively.
Estimated annual amortization expense for each of the next five years is as follows (in thousands):
2018
2019
2020
2021
2022
$
1,762
1,575
1,572
1,525
1,524
Note 5 – Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during
the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs
are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs.
If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods
or to reverse part of the previously recorded charges.
F-18
Note 5 – Restructuring Costs (continued)
On March 23, 2016, the Company announced, in connection with the November 16, 2015 global cost reduction program, the
decision to close its facility in Alajuela, Costa Rica. Approximately $0.1 million and $0.4 million of restructuring costs were
recorded during the year ended December, 31, 2017 and 2016, respectively, related to this closure. This closure was substantially
complete as of December 31, 2016.
On November 16, 2015, the Company announced a cost reduction program as part of its efforts to improve efficiency and operating
performance. Approximately $0.6 million and $0.4 million of restructuring costs, excluding the cost associated with the Costa
Rica closure, were recorded during the year ended December 31, 2017 and 2016, respectively, related to this program.
Implementation of this program was completed in 2017.
During the year ended December 31, 2017 and 2016, the Company initiated other cost reduction plans at locations in Europe, the
U.S. and Canada. Approximately $1.3 million and $1.9 million of restructuring costs, primarily severance, were recorded during
the years ended December 31, 2017 and 2016, respectively, related to these plans.
The Company recorded restructuring costs of $2.0 million, $2.7 million, and $4.5 million during the years ended December 31,
2017, 2016, and 2015, 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.
The following table summarizes the activity to date related to these programs. The accrued restructuring liability balance as of
December 31, 2017 and 2016, respectively, is included in other accrued expenses in the accompanying consolidated balance sheets
(in thousands):
Balance at January 1, 2015
Restructuring charges in 2015
Cash payments
Foreign currency translation
Balance at December 31, 2015
Restructuring charges in 2016
Cash payments
Foreign currency translation
Balance at December 31, 2016
Restructuring charges in 2017
Cash payments
Foreign currency translation
Balance at December 31, 2017
$
$
$
$
351
4,461
(1,964)
(21)
2,827
2,666
(4,152)
(8)
1,333
2,044
(3,122)
(1)
254
F-19
Note 6 – Income Taxes
For financial reporting purposes, income before taxes includes the following components (in thousands):
$
$
$
Domestic
Foreign
The expense (benefit) for income taxes is comprised of (in thousands):
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Years ended December 31,
2016
2015
2017
(3,552) $
24,115
20,563
$
(5,285) $
14,892
9,607
$
(4,874)
5,380
506
Years ended December 31,
2016
2015
2017
(425) $
89
4,615
4,279
(257)
(1)
2,148
1,890
(18) $
30
2,886
2,898
(1,176)
(9)
1,486
301
Total income tax expense
$
6,169
$
3,199
$
A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision
is as follows (in thousands):
Years ended December 31,
2016
2015
2017
Tax at statutory rate
State income taxes, net of U.S. federal tax benefit
Effect of foreign operations
Change in valuation allowance
Change in unrecognized tax benefits, net
Impairment of goodwill and indefinite-lived intangibles
Specialty tax credits
Statutory rate changes
Effect of foreign exchange
Prior period deferred tax adjustments
2017 Tax Act:
Effects of U.S. tax reform
Change in valuation allowance
Other
Total income tax expense
$
3,362
(15)
(1,418)
1,266
(899)
—
(78)
(180)
88
817
—
—
256
$
3,199
$
$
7,197
$
93
(1,137)
(397)
105
—
(139)
(470)
(1,292)
—
11,311
(9,093)
(9)
6,169
$
F-20
492
(12)
3,007
3,487
10,039
630
(656)
10,013
13,500
177
383
664
12,309
12
360
(216)
114
139
—
—
—
(442)
13,500
Note 6 – Income Taxes (continued)
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changes U.S.
tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a
one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently
reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax
rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted
tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
Guidance issued by the Securities Exchange Commission ("SEC"), provides for a measurement period of one year from the
enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company provisionally
determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. This amount
includes the tax benefit from the net operating loss of approximately $3.9 million because the Company intends to elect to utilize
its net operating loss to reduce its provisional tax. As a result of the implementation of a modified territorial tax system, the
Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely
reinvested and recorded a deferred tax liability of $1.8 million withholding tax associated with the planned cash distribution of
approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million is included in the
provisional tax of $2.2 million.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant
does not have all the necessary information available to prepare and analyze the accounting treatment for the proper recognition
of the tax impact of the 2017 Tax Act. In accordance with SAB 118 guidance, the Company has recorded the provisional tax
impacts related to the deemed distribution of foreign earnings and the expense for the revaluation of deferred tax assets and
liabilities in its consolidated financial statements for the year ended December 31, 2017. The final impact may differ from the
provisional amount recognized, primarily due to the need for additional analysis, changes in our interpretation of the 2017 Tax
Act, or issuance of additional regulatory guidance. In accordance with SAB 118, the financial reporting impact of the 2017 Tax
Act will be completed in the fourth quarter of 2018.
The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as
GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. Given the complexity of the
GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy.
At December 31, 2017, because we are still evaluating the GILTI provision and our analysis of future taxable income that is subject
to GILTI, we are unable to make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial
statements.
Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts for income tax purposes. During the fourth quarter of 2016, the Company wrote
off deferred tax assets that had been recorded in periods prior to 2016, but which the Company determined did not meet the
recognition criteria required by ASC 740 "Income Taxes". The deferred tax assets were recognized over a period of years. Of the
amount written-off, $0.1 million was initially recognized in 2014 and the remaining $0.7 million was initially recognized in
periods prior to 2014.
F-21
Note 6 – Income Taxes (continued)
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Pension and other postretirement costs
Inventories
Net operating/capital loss carryforwards
Tax credit carryforwards
Deferred compensation
Other accruals and reserves
Total gross deferred tax assets
Less: valuation allowance
Deferred tax liabilities:
Tax over book depreciation
Investment in subsidiary
Intangible assets, including tax deductible goodwill
Total gross deferred tax liabilities
$
December 31,
2017
2016
$
4,295
1,800
9,523
—
2,142
3,192
20,952
(12,434)
8,518
(125)
(2,214)
(713)
(3,052)
4,714
2,466
11,825
5,077
2,468
3,229
29,779
(20,741)
9,038
(189)
(350)
(1,361)
(1,900)
Net deferred tax assets
$
5,466
$
7,138
In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to
uncertainty regarding the realization of these assets. Throughout 2016 and 2017, the Company reassessed its ability to realize its
U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant
negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek and Pacific
was also considered in determining the realization of the U.S. deferred tax assets. The Pacific acquisition resulted in the
establishment of deferred tax liabilities which allowed the Company to adjust its previously established valuation allowance by
$1.6 million. Other aspects, such as operating results, additional interest expense and additional tax deductions related to the
Stress-Tek acquisition, were also considered. The Company also considered positive evidence such as tax planning strategies and
the projected benefits of our restructuring efforts. However, there was insufficient positive evidence to overcome the negative
evidence.
Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains
uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable.
We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient
positive evidence of realization exists. At December 31, 2017 and 2016, the valuation allowance on U.S. deferred tax assets was
approximately $10.1 million and $18.1 million, respectively. The decrease in the valuation allowance is primarily driven by the
utilization of net operating losses, tax credits and changes in tax rates.
The Company also has valuation allowances of $2.3 million and $2.6 million at December 31, 2017 and 2016, respectively, with
respect to certain foreign net operating loss and capital loss carryforwards. The valuation allowance related to state tax expense
was $2.1 million and $1.1 million for the years ended December 31, 2017 and 2016, respectively. Of the total $2.1 million, $1.0
million related to the 2017 Tax Act. The valuation allowance related to Israel capital losses was reduced during 2016 as a result
of the sale of the Karmiel facility because the sale triggered a capital gain. Significant valuation allowances are as follows (in
thousands):
Jurisdiction
U.S. federal
U.S. state (net of U.S. federal tax benefit)
Israel - capital losses
F-22
December 31,
2017
2016
$
3,040
$
7,092
1,622
13,101
5,022
1,486
Note 6 – Income Taxes (continued)
The following table summarizes significant net operating losses and credit carryforwards as of December 31, 2017 (in thousands):
Jurisdiction
U.S state net operating losses
Israel net operating losses
December 31,
2017
Expiring
12,083
2023 - 2036
11,677 No expiration
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $120.0 million at December 31, 2017
compared to $96.5 million at December 31, 2016. As a result of the 2017 Tax Act the Company has recorded a deferred tax liability
of approximately $1.8 million of withholding tax associated with the planned cash distribution of approximately $25.5 million.
Other than the planned cash distribution of $25.5 million, substantially all of the remaining undistributed earnings are considered
to be indefinitely reinvested and accordingly, no provision has been made for incremental foreign income taxes, state income taxes
or foreign withholding taxes. If those earnings were distributed to the U.S., the Company could be subject to incremental foreign
income taxes, state income taxes, and withholding taxes. Determination of the amount of unrecognized deferred tax liability is
not practicable because of the uncertainty regarding the timing of any such distribution and the impact on existing valuation
allowances. In addition to the $1.8 million noted above, additional withholding taxes of approximately $15.0 million are estimated
to be payable upon remittance of the remaining previously unremitted earnings as of December 31, 2017.
Net income taxes paid were $4.1 million, $3.9 million, and $4.5 million for the years ended December 31, 2017, 2016, and 2015,
respectively.
The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in
which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities.
While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be
challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-
related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective
jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of
an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable
determination could increase tax expense and could require a cash payment, including interest and penalties.
Since the Company and its affiliates have been included in tax returns filed by Vishay Intertechnology, our former parent, for
periods prior to, and including, July 6, 2010, the Company has joint and several liability in multiple tax jurisdictions with respect
to those tax returns. Under the terms of the Tax Matters Agreement entered into with Vishay Intertechnology, they have agreed to
indemnify us for any such liability including interest and penalties, and any similar liability related to U.S. federal, state, local,
and foreign income taxes whether determined on a separate company, consolidated, combined, unitary, or similar basis for each
tax period during which the Company or its subsidiaries were part of Vishay Intertechnology’s affiliated group.
As of December 31, 2017 and 2016, the Company recorded immaterial gross tax liabilities related to these uncertain tax positions.
The Company has also recorded a corresponding receivable from Vishay Intertechnology.
F-23
Note 6 – Income Taxes (continued)
The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with
unrecognized tax benefits (in thousands):
Balance at beginning of year
Addition based on tax positions related to current year
(Reduction) addition based on tax positions related to prior years
Addition related to acquired company
Currency translation adjustments
Reduction for settled tax examinations
Reduction for payments made
Reduction for lapses of statute of limitations
Balance before indemnification receivable
Receivable from Vishay Intertechnology for indemnification
Balance at end of year
December 31,
2017
2016
2015
$
$
772
163
(12)
—
14
—
—
(114)
823
(12)
811
$
1,506
$
63
66
297
16
(906)
—
(270)
772
(57)
715
$
$
1,704
109
13
—
(29)
—
(241)
(50)
1,506
(107)
1,399
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Related to the unrecognized tax benefits noted above, the Company accrued total penalties and interest of $0.1 million as of
December 31, 2017, none of which was included in the indemnification receivable. As of December 31, 2016 and December 31,
2015, the Company accrued total penalties and interest of $0.3 million and $0.3 million, respectively.
Included in the balance of unrecognized tax benefits as of December 31, 2017, 2016, and 2015 is $0.8 million, $0.8 million, and
$1.5 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is
reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2
million may be necessary in 2018. As of December 31, 2017, the Company anticipates that it is reasonably possible that it will
reverse up to $0.2 million of its current unrecognized tax benefits within the calendar year due to the expiration of the statute of
limitations in certain jurisdictions. In addition, the Company believes it is reasonably possible that it may pay up to $0.1 million
to tax authorities to settle current unrecognized tax benefits. None of the unrecognized tax benefits the Company expects to reverse
in 2017 due to statute lapses are covered by the Tax Matters Agreement.
The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and
foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis.
The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries
file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally
range from 3 to 10 years.
During the fourth quarter of 2017, the Company concluded a tax examination in Japan for one of its subsidiaries, covering the
years 2014 through 2016.
During 2016, the Company concluded a tax examination in Israel for the years 2012-2014. The Company is subject to ongoing
income tax audits, administrative appeals and judicial proceedings in India spanning a number of years.
F-24
Note 7 – Long-Term Debt
Long-term debt consists of the following (in thousands):
2015 Credit Agreement - Revolving Facility
2015 Credit Agreement - U.S. Closing Date Term Facility
2015 Credit Agreement - U.S. Delayed Draw Term Facility
2015 Credit Agreement - Canadian Term Facility
Exchangeable Unsecured Notes, due 2102
Other debt
Deferred financing costs
Less: current portion
2015 Credit Agreement
December 31,
2017
2016
$
9,000
$
3,664
8,956
7,880
2,794
401
(340)
32,355
3,878
$
28,477
$
9,000
4,128
10,092
8,780
4,097
509
(454)
36,152
2,623
33,529
On December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit
Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National
Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”),
pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for
the following facilities: (1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0
million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S. and
Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of
which was used to fund the Stress-Tek and Pacific acquisitions; (2) a secured closing date term facility for the Company (the “2015
U.S. Closing Date Term Facility”) in an aggregate principal amount of $4.5 million, the proceeds of which were used by the
Company to refinance indebtedness under its existing term loan; (3) a secured delayed draw term facility for the Company (the
"2015 U.S. Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million, the proceeds of which were used to
fund a portion of the Stress-Tek acquisition; and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”)
in an aggregate principal amount of $9.5 million, the proceeds of which were used by VPG Canada to refinance indebtedness
under its existing term loan. The aggregate principal amount of the 2015 Revolving Facility may be increased by a maximum of
$15.0 million upon the request of the Company, subject to the terms of the 2015 Credit Agreement. The 2015 Credit Agreement
terminates on December 30, 2020. The term loans are being repaid in quarterly installments.
Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S. Closing Date Term Facility, the 2015
U.S. Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the
Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2)
LIBOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage
ratio, an interest rate margin ranging from 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the
interest payable on the Facilities. The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per
annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each
quarter. Additional customary fees apply with respect to letters of credit. The total interest rates at December 31, 2017 and December
31, 2016, were 4.19% and 4.00%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 4.19% and
4.00%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.
The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain
domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the
Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015
Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015
Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and
its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company
to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios.
The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The
Company was in compliance with its financial maintenance covenants at December 31, 2017. If the Company is not in compliance
F-25
Note 7 – Long-Term Debt (continued)
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.
2013 Credit Agreement
On January 29, 2013, the Company entered into an Amended and Restated Credit Agreement (the “2013 Credit Agreement”)
among the Company, VPG Canada, the lenders, RBS Citizens, National Association as joint book-runner and JPMorgan Chase
Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency,
secured credit facility were revised and expanded to provide for the following facilities: (1) a secured revolving facility (the “2013
Revolving Facility”) in an aggregate principal amount of $15.0 million; (2) a secured term facility for the Company (the “2013
U.S. Term Facility”) in an aggregate principal amount of $10.0 million; and (3) a secured term facility for VPG Canada (the “2013
Canadian Term Facility”) in an aggregate principal amount of $15.0 million. The 2013 Credit Agreement was terminated on
December 30, 2015.
Interest payable on amounts borrowed under the 2013 Revolving Facility, the 2013 U.S. Term Facility and the 2013 Canadian
Term Facility (collectively, the “Facilities”) was based upon LIBOR plus a specified margin. The Company was required to pay
a quarterly commitment fee of 0.30% per annum to 0.50% per annum on the unused portion of the 2013 Revolving Facility.
Other Lines of Credit
In addition to the 2015 and 2013 Revolving Facilities discussed above, certain subsidiaries of the Company had committed short-
term lines of credit with a foreign bank aggregating approximately $3.0 million and $3.0 million at December 31, 2017 and 2016,
respectively. The Company had outstanding letters of credit under these short-term lines of credit of $1.2 million and $0.5 million
at December 31, 2017 and 2016, respectively.
Exchangeable Unsecured Notes, due 2102
By reason of the spin-off, Vishay Intertechnology was required to take action so that the existing exchangeable notes of Vishay
Intertechnology were deemed exchanged as of the date of the spin-off, for a combination of new notes of Vishay Intertechnology
and notes issued by VPG. VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes
effective July 6, 2010. The maturity date of the notes is December 13, 2102.
The notes are subject to a put and call agreement under which the holders may at any time put the notes to the Company in exchange
for shares of the Company’s common stock, and the Company may call the notes in exchange for cash or for shares of its common
stock at any time after January 1, 2018. The put/call rate of the VPG notes is $22.57 per share of common stock.
Effective August 28, 2013, a holder of the Company's exchangeable notes exercised its option to exchange approximately $5.9
million principal amount of the notes for 259,687 shares of VPG common stock. Effective May 12, 2017, a holder of the Company's
exchangeable notes exercised its option to exchange approximately $1.3 million principal amount of the notes for 57,729 shares
of VPG common stock at the contractual put/call rate of $22.57 per share. Following these transactions, VPG has outstanding
exchangeable unsecured notes with a principal amount of approximately $2.8 million, which are exchangeable for an aggregate
of 123,808 shares of VPG common stock. (See also Note 13).
The notes bear interest at LIBOR. Interest is payable quarterly on March 31, June 30, September 30, and December 31 of each
calendar year. The total interest rate was 1.69% at December 31, 2017.
Other Debt
Other debt consists of debt held by VPG’s Japanese subsidiary and is payable monthly over the next 4 years at a zero percent
interest rate.
Aggregate annual maturities of long-term debt are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
$
3,878
5,128
20,878
17
—
2,794
F-26
Note 7 – Long-Term Debt (continued)
Interest paid on third-party debt was $1.7 million, $1.3 million, and $0.6 million during the years ended December 31, 2017, 2016,
and 2015, respectively.
Note 8 – Stockholders’ Equity
The Company’s Class B convertible common stock carries ten votes per share. The common stock carries one vote per share.
Class B shares are transferable only to certain permitted transferees while the common stock is freely transferable. Class B shares
are convertible on a one-for-one basis at any time into shares of common stock. Transfers of Class B shares other than to permitted
transferees result in the automatic conversion of the Class B shares into common stock.
The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible
common stock if it grants such dividends or distributions in the same amount per share with respect to the other class of stock. As
discussed in Note 7, the Company is restricted from paying cash dividends. Stock dividends or distributions, on any class of stock,
are payable only in shares of stock of that class. Shares of either common stock or Class B convertible common stock cannot be
split, divided, or combined unless the other is also split, divided, or combined equally.
The Board of Directors is authorized, without further stockholder approval, to issue from time to time up to an aggregate of
1,000,000 shares of preferred stock in one or more series. The Board of Directors may fix or alter the designation, preferences,
rights and any qualification, limitations, restrictions of the shares of any series, including the dividend rights, dividend rates,
conversion rights, voting rights, redemption terms and prices, liquidation preferences and the number of shares constituting any
series. No shares of the Company’s preferred stock are currently outstanding.
On September 23, 2014, the Board of Directors approved a stock repurchase plan, authorizing the Company to repurchase, in the
aggregate, up to 500,000 shares of its outstanding common stock. On May 21, 2015, the Board of Directors approved an increase
in the shares of the Company's outstanding common stock available for repurchase, in the aggregate, from 500,000 shares to
2,000,000 shares. The stock repurchase plan expired in May 2016. The Company repurchased 617,667 and 2,000 shares of its
common stock during the fiscal years ended December 31, 2015 and 2014, respectively. The Company did not repurchase shares
in 2016.
Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each
component are as follows (in thousands):
December 31, 2015
Pension and other postretirement actuarial items
$
(4,803) $
141
$
(21) $
120
$
(4,683)
Beginning
Balance
Before-
Tax
Amount
Tax
Effect
Net-of-
Tax
Amount
Ending
Balance
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
December 31, 2016
Pension and other postretirement actuarial items
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
December 31, 2017
Pension and other postretirement actuarial items
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
(21,757)
$ (26,560) $
304
(6,947)
(6,502) $
(38)
—
(59) $
266
266
(28,704)
(6,947)
(6,561) $ (33,121)
$
(4,417) $
(3,505) $
544
$
(2,961) $
(7,378)
(28,704)
$ (33,121) $
271
(4,488)
(7,722) $
(38)
—
506
$
(7,145) $
(1,465) $
112
(33,192)
$ (40,337) $
583
5,654
4,772
$
(145)
148
115
233
233
(4,488)
(33,192)
(7,216) $ (40,337)
(1,353) $
(8,498)
438
5,802
4,887
438
(27,390)
$ (35,450)
$
$
$
F-27
Note 8 – Stockholders’ Equity (continued)
Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are
included in the computation of net periodic benefit cost (see Note 9).
Note 9 – Pensions and Other Postretirement Benefits
Defined Benefit Plans
Employees of the Company participate in various defined benefit pension and other postretirement benefit plans.
U.S. Pension Plan
The Vishay Precision Group Non-Qualified Retirement Plan, like all nonqualified plans, is considered to be unfunded. The Company
maintains a nonqualified trust, referred to as a “rabbi” trust, to fund benefits under this plan. Rabbi trust assets are subject to
creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent
assets within the consolidated balance sheets. The assets held in the rabbi trust are invested in money market funds and company-
owned life insurance policies. The consolidated balance sheets include assets held in trust related to the nonqualified pension plan
of $1.7 million at December 31, 2017 and $1.6 million at December 31, 2016, and the related liabilities of $2.3 million and $2.0
million at December 31, 2017 and 2016, respectively.
The Vishay Precision Group Non-Qualified Retirement Plan is frozen. Accordingly, no new employees may participate in the
plan, no further participant contributions are permitted, and no further benefits accrue. Benefits accumulated prior to the freezing
of the U.S. pension plan will be paid to employees upon retirement, and the Company will likely need to make additional cash
contributions to the rabbi trust to fund this accumulated benefit obligation.
Non-U.S. Pension Plans
The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries consistent with local practices.
Pension benefits earned are generally based on years of service and compensation during active employment.
Other Postretirement Benefit Plans
In the U.S., the Company maintains two unfunded non-pension other postretirement benefit plans (“OPEB”) which are funded as
costs are incurred. These plans provide medical and death benefits to retirees.
F-28
Note 9 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth a reconciliation of the benefit obligation, plan assets, and funded status related to pension and other
postretirement benefit plans (in thousands):
Change in benefit obligation:
Benefit obligation at beginning of year
$
25,187
$
3,833
$
23,348
$
3,373
December 31, 2017
December 31, 2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Service cost (adjusted for actual employee contributions)
Interest cost
Contributions by participants
Actuarial (gains) losses
Benefits paid
Curtailments and settlements
Currency translation
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Contributions by participants
Benefits paid
Currency translation
Fair value of plan assets at end of year
Funded status at end of year
513
674
35
673
(564)
—
2,099
96
142
—
900
(245)
—
—
28,617
$
4,726
$
14,553
$
957
1,013
35
(564)
1,460
17,454
$
— $
—
245
—
(245)
—
— $
403
784
42
4,809
(732)
(20)
(3,447)
25,187
15,122
1,441
1,240
42
(732)
(2,560)
14,553
$
$
$
100
130
—
525
(295)
—
—
3,833
—
—
295
—
(295)
—
—
(11,163) $
(4,726) $
(10,634) $
(3,833)
$
$
$
$
Amounts recognized in the consolidated balance sheets consist of the following pre-tax amounts (in thousands):
December 31, 2017
December 31, 2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Accrued pension and other postretirement costs
$
(11,163) $
(4,726) $
(10,634) $
(3,833)
Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes with respect to
the obligations and from the difference between expected returns and actual returns on plan assets. Actuarial items consist of the
following (in thousands):
Unrecognized net actuarial loss
Unrecognized prior service cost
Unamortized transition obligation
December 31, 2017
December 31, 2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
$
$
8,169
$
2,370
$
2
3
8,174
$
—
—
2,370
$
7,763
2
3
7,768
$
$
1,588
—
—
1,588
F-29
Note 9 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth additional information regarding the projected and accumulated benefit obligations for the pension
plans (in thousands):
Accumulated benefit obligation, all plans
Plans for which the accumulated benefit obligation exceeds plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
$
December 31,
2017
2016
$
$
26,907
27,317
26,074
16,274
23,633
24,102
22,963
13,491
Unrecognized gains and losses are amortized into future net periodic pension cost using the 10% corridor method over the expected
remaining service life of the employee group. The following table sets forth the components of net periodic cost of pension and
other postretirement benefit plans (in thousands):
2017
Years ended December 31,
2016
2015
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Annual service cost
$
548
$
Less: employee contributions
Net service cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses
Amortization of transition obligation
Curtailment and settlement losses
35
513
674
(536)
463
1
—
$
96
—
96
142
—
119
—
—
$
445
42
403
784
(630)
192
5
—
$
100
—
100
130
—
75
—
—
$
457
44
413
857
(656)
232
1
1
88
—
88
126
—
72
—
—
Net periodic benefit cost
$
1,115
$
357
$
754
$
305
$
848
$
286
See Note 8 for the pre-tax, tax effect, and after tax amounts included in other comprehensive income during the years ended
December 31, 2017, 2016, and 2015. The estimated actuarial items that will be amortized from accumulated other comprehensive
loss into net periodic pension cost during 2018 is $0.7 million.
The following weighted-average assumptions were used to determine benefit obligations at December 31 of the respective years:
Discount rate
Rate of compensation increase
Expected return on plan assets
2017
2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
2.42%
2.66%
3.46%
3.33%
N/A
N/A
2.59%
2.63%
4.49%
3.77%
N/A
N/A
The following weighted-average assumptions were used to determine the net periodic pension costs for the years ended December
31, 2017 and 2016:
Discount rate
Rate of compensation increase
Expected return on plan assets
Health care trend rate
2017
2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
2.59%
2.63%
4.49%
N/A
3.77%
N/A
N/A
6.36%
3.65%
2.82%
4.47%
N/A
3.98%
N/A
N/A
4.81%
F-30
Note 9 – Pensions and Other Postretirement Benefits (continued)
The health care trend ultimate rate is 4.00% per the terms of the plan. The impact of a one-percentage-point change in assumed
health care cost trend rates on the net periodic benefit cost and postretirement benefit obligation is not material.
The plans’ expected return on assets is based on management’s expectation of long-term average rates of return to be achieved by
the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for
the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic
and capital market conditions.
The investment mix between equity securities and fixed income securities is based upon achieving a desired return, balancing
higher return, more volatile equity securities, and lower return, less volatile fixed income securities. The target allocation of plan
assets approximates the actual allocation of plan assets at December 31, 2017 and 2016.
Plan assets are comprised of:
Equity securities
Fixed income securities
Cash and cash equivalents
Total
December 31, 2017
December 31, 2016
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
53%
38%
9%
100%
—
—
—
—
55%
36%
9%
100%
—
—
—
—
The Company maintains defined benefit retirement plans in certain of its subsidiaries. The assets of the plans are measured at fair
value.
Equity securities held by the defined benefit retirement plans consist of equity securities that are valued based on quoted market
prices on the last business day of the year. The fair value measurement of the equity securities is considered a Level 1 measurement
within the fair value hierarchy.
Fixed income securities held by the defined benefit retirement plans consist of government bonds and corporate notes that are
valued based on quoted market prices on the last business day of the year. The fair value measurement of the fixed income securities
is considered a Level 1 measurement within the fair value hierarchy.
Cash held by the defined benefit retirement plans consists of deposits on account in various financial institutions. The carrying
amount of the cash approximates its fair value. A summary of the Company’s pension plan assets for each fair value hierarchy
level are as follows for the periods presented (see Note 15 for further description of the levels within the fair value hierarchy (in
thousands)):
F-31
Note 9 – Pensions and Other Postretirement Benefits (continued)
As of December 31, 2017
Defined benefit pension plan assets
Equity securities
Fixed income securities
Cash and cash equivalents
As of December 31, 2016
Defined benefit pension plan assets
Equity securities
Fixed income securities
Cash and cash equivalents
$
$
$
$
Estimated future benefit payments are as follows (in thousands):
2018
2019
2020
2021
2022
2023 - 2027
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
9,271
$
9,271
$
— $
6,629
1,554
6,629
1,554
—
—
17,454
$
17,454
$
— $
—
—
—
—
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
8,047
$
8,047
$
5,203
1,303
14,553
$
5,203
1,303
14,553
$
$
— $
—
—
— $
—
—
—
—
Pension
Plans
OPEB
Plans
$
659
595
599
761
783
4,464
346
337
366
412
368
1,643
The Company anticipates making contributions to its funded and unfunded pension and postretirement benefit plans of
approximately $1.5 million during 2018.
Other Retirement Obligations
The Company participates in various other defined contribution and government-mandated retirement plans based on local law
or custom. The Company periodically makes required contributions for certain of these plans. At December 31, 2017 and 2016,
the consolidated balance sheets include $1.2 million and $0.8 million, respectively, within accrued pension and other postretirement
costs related to these plans.
Most of the Company’s U.S. employees are eligible to participate in 401(k) savings plans which provide company matching under
various formulas. The Company’s matching expense for the plans was $0.7 million, $0.7 million, and $0.6 million for the years
ended December 31, 2017, 2016, and 2015, respectively. No material amounts are included in the consolidated balance sheets
related to unfunded 401(k) contributions.
Certain key employees participate in a nonqualified deferred compensation plan, which allows these employees to defer a portion
of their compensation until retirement, or elect shorter deferral periods. The accompanying consolidated balance sheets include a
liability within other noncurrent liabilities related to these deferrals. The Company maintains a nonqualified trust, referred to as
a “rabbi” trust, to fund payments under this plan. Rabbi trust assets are subject to creditor claims under certain conditions and are
not the property of employees. Therefore, they are accounted for as other noncurrent assets within the consolidated balance sheets.
The assets held in the rabbi trust are invested in money market funds and company-owned life insurance policies. The consolidated
balance sheets include assets held in trust related to the nonqualified deferred compensation plan of $3.3 million at December 31,
2017 and $3.2 million at December 31, 2016, and the related liabilities of $4.4 million and $4.1 million at December 31, 2017
and 2016, respectively.
F-32
Note 10 – Share-Based Compensation
The Amended and Restated Vishay Precision Group, Inc. Stock Incentive Plan (as amended and restated, the “Plan”) permits the
issuance of up to 1,000,000 shares of common stock. At December 31, 2017, the Company had reserved 256,730 shares of common
stock for future grant of equity awards (restricted stock, unrestricted stock, restricted stock units (“RSUs”), or stock options). If
any outstanding awards are forfeited by the holder, the underlying shares would be available for future grants under the Plan.
Stock Options
In connection with the spin-off, VPG agreed to issue certain replacement awards to VPG employees holding equity-based awards
of Vishay Intertechnology based on VPG’s common stock. The vesting schedule, expiration date, and other terms of these awards
are generally the same as those of the Vishay Intertechnology equity-based awards they replaced.
The following table summarizes the Company’s stock option activity (number of options in thousands):
2017
Years ended December 31,
2016
2015
Number
of
Options
Weighted
Average
Exercise
Price
Number
of
Options
Weighted
Average
Exercise
Price
Number
of
Options
Weighted
Average
Exercise
Price
Outstanding:
Beginning of year
Granted
Exercised
Expired
End of year
Vested and expected to vest
Exercisable:
End of year
$
18.92
—
—
18.92
—
18
—
—
(18)
— $
—
—
18.92
—
—
—
18.92
$
$
18
—
—
—
18
18
18
18.92
—
—
—
18.92
$
$
18
—
—
—
18
18
18
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. There were
no options granted in 2017, 2016, or 2015.
Options outstanding at the beginning of 2017 expired during 2017. No options were exercised during the year ended December
31, 2017.
Restricted Stock Units
Pursuant to the Plan, the Company issued RSUs to board members, executive officers, and certain employees of the Company
during 2017. 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. Compensation cost is recognized over the period that the participant provides service in exchange for
the award. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria
are expected to be met.
On February 9, 2017, VPG’s three executive officers were granted annual equity awards in the form of RSUs, of which 75% are
performance-based. The awards were comprised of 53,913 RSUs and have an aggregate target grant-date fair value of $0.9 million.
Twenty-five percent of these awards will vest on January 1, 2020, subject to the executives' continued employment. The
performance-based portion of the RSUs will also vest on January 1, 2020, subject to the satisfaction of certain performance
objectives relating to three-year cumulative “free cash” and net earnings goals, each weighted equally, and the executives' continued
employment. The awards issued in 2015 and 2016 have similar allocations and vesting criteria.
On March 23, 2017, certain VPG employees 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 $0.4 million and were comprised of 23,921 RSUs. Twenty-
five percent of these awards will vest on January 1, 2020 subject to the employees' continued employment. The performance-
based portion of the RSUs will also vest on January 1, 2020, subject to the satisfaction of certain performance objectives relating
to three-year cumulative earnings goals and cash flow goals, and the employee's continued employment.
F-33
On May 25, 2017, the Board of Directors approved the issuance of an aggregate of 15,495 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 $0.3 million and will vest on the earlier of the Annual Stockholders meeting or May 25, 2018, subject to the directors'
continued service on the Board of Directors.
On July 26, 2017, the Board of Directors approved the issuance of an aggregate of 5,176 RSUs to newly appointed independent
board members of the Board of Directors. These awards represented a pro-rated portion of the annual equity grant made to non-
executive directors pursuant to the Plan. The aggregate grant-date fair value of these awards was $0.1 million and these awards
will vest on the earlier of the next Annual Stockholders meeting or May 25, 2018.
RSU activity is presented below (number of RSUs in thousands):
2017
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
Years ended December 31,
2016
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
2015
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
377
$
98
(58)
417
$
14.04
16.75
14.78
14.57
278
$
129
(30)
377
$
15.04
11.69
13.15
14.04
236
$
94
(52)
278
$
14.89
15.90
15.93
15.04
Outstanding:
Beginning of year
Granted
Vested
End of year
The fair value of the RSUs vested during 2017 is $1.0 million.
RSUs with performance-based vesting criteria are expected to vest as follows (number of RSUs in thousands):
Vesting Date
Expected to Vest
January 1, 2018
January 1, 2019
January 1, 2020
Share-Based Compensation Expense
45
2
55
Not Expected to Vest
16
82
3
Total
61
84
58
The following table summarizes pre-tax share-based compensation expense recognized (in thousands):
Restricted stock units
Years ended December 31,
2017
2016
2015
$
1,499
$
37
$
1,083
Share-based compensation expense is recognized ratably over the vesting period of the awards and for RSUs with performance
criteria, is recognized for RSU's that are expected to vest and for which performance criteria are expected to be met.
During 2017, it was determined that certain performance objectives associated with awards granted in 2015 were likely to be met,
when share based compensation expense related to these performance objectives had been reduced in prior years. This necessitated
an increase to share-based compensation expense associated with those awards in 2017. However, it was also determined that
certain performance objectives associated with awards granted in 2016 and 2017 were not likely to be fully met, necessitating a
reversal of certain compensations expense associated with those awards. As a net result, adjustments increasing share based
compensation expense totaling $0.4 million were recorded during the year based on anticipated performance levels..
During 2016, it was determined that certain performance objectives associated with awards granted in 2014, 2015, and 2016 to
executives and certain other employees were not likely to be fully met. As a result, adjustments reducing share-based compensation
expense totaling $1.4 million were recorded during the year based on anticipated performance levels. A similar adjustment was
made in 2015 reducing share-based compensation expense by $0.2 million.
The deferred tax benefit on share-based compensation expense was $0.1 million, $0.0 million, and $0.0 million for the years ended
December 31, 2017, 2016, and 2015, respectively.
F-34
As of December 31, 2017, the Company had $1.1 million of unrecognized share-based compensation expense related to share-
based awards that will be recognized over a weighted-average period of approximately 1.7 years.
Note 11 – Commitments, Contingencies, and Concentrations
Leases
The Company uses various leased facilities and equipment in its operations. In the normal course of business, operating leases
are generally renewed or replaced by other leases. Certain operating leases include escalation clauses.
Total rental expense under operating leases was $3.6 million, $3.6 million, and $3.9 million for the years ended December 31,
2017, 2016, and 2015, respectively.
Future minimum lease payments for operating leases (excluding related party leases as described in Note 2) with initial or remaining
noncancellable lease terms in excess of one year are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Litigation
$
3,113
2,380
1,508
390
172
—
The Company is subject to various legal proceedings that constitute ordinary, routine litigation incidental to its business. The
Company is of the opinion that the disposition of these proceedings will not have a material adverse effect on its business or its
financial condition, results of operations, and cash flows.
Executive Employment Agreements
The Company has employment agreements with its executive officers which outline base salary, incentive compensation, and
equity-based compensation. The employment agreements with the Company's executive officers also provide for incremental
compensation in the event of termination without cause or resignation for good reason.
On May 8, 2017, the Company amended the employment agreements of its chief financial officer and its general counsel to modify
the severance amounts payable to the executives in the event of termination without cause or resignation for good cause. In one
case, the executive’s cash bonus opportunity was increased beginning with the 2017 fiscal year.
On August 7, 2017, the Company amended the employment agreement of the chief executive officer primarily to document as
part of his U.S. employment agreement certain employee consents, obligations, and benefits applicable to the executive as an
employee of the Company’s Israeli subsidiary.
Sources of Supplies
Although most materials incorporated in the Company’s products are available from a number of sources, certain materials are
available only from a relatively limited number of suppliers.
Some of the most highly specialized materials for the Company’s sensors are sourced from a single vendor. The Company maintains
a safety stock inventory of certain critical materials at its facilities.
Certain metals used in the manufacture of the Company’s products are traded on active markets, and can be subject to significant
price volatility.
Market Concentrations
No single customer comprises greater than 5% of net revenues.
The vast majority of the Company’s products are used in the broad industrial market, with selected uses in military and aerospace,
medical, agriculture, and construction. Within the broad industrial segment, the Company’s products serve wide applications in
the waste management, bulk hauling, logging, scale manufacturing, engineering systems, pharmaceutical, oil, chemical, steel,
paper, and food industries.
F-35
Note 11 – Commitments, Contingencies, and Concentrations (continued)
Credit Risk Concentrations
Financial instruments with potential credit risk consist principally of cash and cash equivalents, accounts receivable, and notes
receivable. The Company maintains cash and cash equivalents with various major financial institutions. Concentrations of credit
risk with respect to receivables are generally limited due to the Company’s large number of customers and their dispersion across
many countries and industries. At December 31, 2017 and 2016, the Company had no significant concentrations of credit risk.
Geographic Concentrations
At December 31, 2017 and 2016, a significant percentage of the Company’s cash and cash equivalents are held outside the United
States. See the following table for the percentage of cash and cash equivalents by region at December 31, 2017 and December 31,
2016:
Asia
United States
Israel
Europe
United Kingdom
Canada
Total
December 31,
2017
2016
28%
7%
37%
15%
5%
8%
27%
17%
16%
19%
12%
9%
100%
100%
Note 12 – Segment and Geographic Data
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and
Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage
operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing
and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for
weighing, force control and force measurement for a variety of uses such as process control and on-board weighing applications.
VPG evaluates reporting segment performance 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, and other items is meaningful because it provides insight with respect to the intrinsic operating
results of VPG. The accounting policies of the segments are the same as those described in the summary of significant accounting
policies (see Note 1). Reporting segment assets are the owned or allocated assets used by each segment. Products are transferred
between segments on a basis intended to reflect, as nearly as practicable, the market value of the products.
F-36
Note 12 – Segment and Geographic Data (continued)
The following table sets forth reporting segment information (in thousands):
2017
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
2016
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Acquisition costs
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
2015
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
Foil
Technology
Products
Force
Sensors
Weighing
and
Control
Systems
Corporate/
Other
Total
$ 116,272
$
65,446
$
72,632
$
— $ 254,350
2,316
47,755
26,426
85
4,946
4,519
119,175
1,346
18,192
9,274
849
2,537
4,297
77,756
911
32,336
14,770
602
2,133
823
97,007
(4,573)
—
(28,845)
508
1,010
453
12,613
—
98,283
21,625
2,044
10,626
10,092
306,551
$ 100,942
$
60,234
$
63,753
$
— $ 224,929
2,340
39,368
20,391
427
1,137
4,894
6,516
99,411
1,954
15,632
7,056
—
413
2,924
2,179
64,934
818
27,809
10,221
67
837
2,323
1,551
90,447
(5,112)
—
(26,957)
—
279
1,008
179
—
82,809
10,711
494
2,666
11,149
10,425
15,718
270,510
$ 104,460
$
61,048
$
66,670
$
— $ 232,178
2,400
41,640
24,285
—
—
613
5,098
7,585
86,709
2,105
12,510
3,459
—
—
2,932
3,080
1,486
65,445
760
30,079
11,289
185
4,942
517
1,956
467
99,935
(5,265)
—
(35,674)
—
—
399
963
—
84,229
3,359
185
4,942
4,461
11,097
440
11,658
9,978
263,747
The “Corporate/Other” column for segment operating income (loss) includes unallocated selling, general, and administrative
expenses and certain items which management excludes from segment results when evaluating segment performance, as follows
(in thousands):
Unallocated selling, general, and administrative expenses
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Restructuring costs
F-37
Years ended December 31,
2016
2015
2017
$
$
(26,801) $
—
—
(2,044)
(28,845) $
(23,797) $
(494)
—
(2,666)
(26,957) $
(26,086)
(185)
(4,942)
(4,461)
(35,674)
Note 12 – Segment and Geographic Data (continued)
The following geographic data include net revenues based on revenues generated by subsidiaries located within that geographic
area, and property and equipment based on physical location (in thousands):
Net Revenues
United States
United Kingdom
Other Europe
Israel
Asia
Canada
Property and Equipment - Net
United States
United Kingdom
Other Europe
Israel
Asia
Canada and Other
Note 13 – Earnings Per Share
Years ended December 31,
2016
2015
2017
$
105,664
26,487
52,427
7,308
45,084
17,380
$
95,919
$
26,845
46,401
5,497
34,883
15,384
92,332
30,684
50,857
3,435
34,893
19,977
$
254,350
$
224,929
$
232,178
December 31,
2017
2016
$
11,932
$
4,385
1,427
18,895
18,100
935
55,674
$
$
12,132
4,110
1,255
19,894
16,904
990
55,285
Basic earnings per share are computed using the weighted average number of common shares outstanding during the periods
presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding, adjusted
to include the potentially dilutive effect of stock options and restricted stock units (see Note 10), and other potentially dilutive
securities.
F-38
Note 13 – Earnings Per Share (continued)
The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands,
except earnings per share):
Years ended December 31,
2016
2015
2017
Numerator:
Numerator for basic earnings per share:
Net earnings (loss) attributable to VPG stockholders
$
14,345
$
6,404
$
(13,008)
Adjustment to the numerator for net earnings:
Interest savings assuming conversion of dilutive exchangeable notes,
net of tax
24
18
—
Numerator for diluted earnings per share:
Net earnings (loss) attributable to VPG stockholders
Denominator:
Denominator for basic earnings per share:
Weighted average shares
Effect of dilutive securities:
Exchangeable notes
Restricted stock units
Dilutive potential common shares
Denominator for diluted earnings per share:
Adjusted weighted average shares
$
14,369
$
6,422
$
(13,008)
13,262
13,187
13,485
145
64
209
181
51
232
—
—
—
13,471
13,419
13,485
Basic earnings (loss) per share attributable to VPG stockholders
Diluted earnings (loss) per share attributable to VPG stockholders
$
$
1.08
1.07
$
$
0.49
0.48
$
$
(0.96)
(0.96)
Diluted earnings per share for the periods presented do not reflect the following weighted average potential common shares, as
the effect would be antidilutive (in thousands):
Weighted average employee stock options
Weighted average exchangeable notes
Weighted average restricted stock units
Note 14 – Additional Financial Statement Information
Years ended December 31,
2016
2015
2017
—
—
—
18
—
—
18
181
36
The caption “Other” on the consolidated statements of operations consists of the following (in thousands):
Foreign exchange gain (loss)
Interest income
Other
Years ended December 31,
2016
2015
2017
$
$
(724) $
167
1,337
780
$
449
$
179
(246)
382
$
(2,146)
225
(161)
(2,082)
F-39
Note 14 – Additional Financial Statement Information (continued)
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in
foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the
British pound and Israeli shekel.
Included within Other, for the year ended December 31, 2017, is net proceeds of $1.5 million related to a lease termination payment
at the Company's Tianjin, People's Republic of China location. The relocation of operation in Tianjin has been completed and the
majority of the expenses associated with the move have been incurred.
Other accrued expenses consist of the following (in thousands):
Customer advance payments
Accrued restructuring
Goods received, not yet invoiced
Accrued taxes, other than income taxes
Accrued commissions
Accrued professional fees
Other
Israeli Severance Pay
December 31,
2017
2016
$
3,229
$
254
4,060
1,680
1,694
1,731
3,304
2,468
1,333
1,618
1,379
1,460
2,155
2,872
$
15,952
$
13,285
The Israeli Severance Pay Law, 1963 ("Severance Pay Law"), specifies that employees of our Israeli subsidiary are entitled to
severance payment, following the termination of their employment. Under the Severance Pay Law, the severance payment is
calculated as one month salary for each year of employment, or a portion thereof.
Part of the subsidiary's liability for severance pay is covered by the provisions of Section 14 of the Severance Pay Law ("Section
14"). Under Section 14 employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, contributed on their
behalf to their insurance funds. Payments in accordance with Section 14 release the subsidiary from any future severance payments
in respect of those employees. As a result, the Company does not recognize any liability for severance pay due to these employees
and the deposits under Section 14 are not recorded as an asset in the Company's balance sheet.
For the subsidiary's employees in Israel who are not subject to Section 14, the Company calculated the liability for severance pay
pursuant to the Severance Pay Law based on the most recent salary of these employees multiplied by the number of years of
employment as of the balance sheet date. The Company recorded as expenses the increase in the severance liability, net of earnings
(losses) from the related investment fund. The subsidiary's liability was partially funded by monthly payments deposited with
insurers and the value of these deposits is recorded as an asset on the Company's balance sheet. Any unfunded amounts would
be paid from operating funds and are covered by a provision established by the subsidiary. The accompanying consolidated
balance sheets at December 31, 2017 and December 31, 2016 include a $7.8 million and $6.6 million liability, respectively,
associated with Israeli severance requirements in other liabilities.
Sale Leaseback
In the fourth quarter of 2016, the Company sold its Karmiel, Israel facility for $3.7 million and entered into a five year lease for
a portion of the building. The Company recorded a $1.7 million gain on the sale of the facility, of which $0.8 million was recognized
immediately in earnings, with the remaining $0.9 million ratably recognized in earnings over the five year lease term.
Note 15 – Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, 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.
F-40
Note 15 – Fair Value Measurements (continued)
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 tables provide the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands):
As of December 31, 2017
Assets:
Assets held in rabbi trusts
As of December 31, 2016
Assets:
Assets held in rabbi trusts
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
$
4,988
$
364
$
4,624
$
—
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
$
4,772
$
537
$
4,235
$
—
The Company maintains nonqualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and
nonqualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money
market funds at December 31, 2017 and December 31, 2016, 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 year. 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.
The fair value of the long-term debt at December 31, 2017 and December 31, 2016 is approximately $33.4 million and $36.0
million, respectively, compared to its carrying value of $32.4 million and $36.2 million, respectively. The Company estimates the
fair value of its long-term debt using a combination of quoted market prices for similar financing arrangements and expected
future payments discounted at risk-adjusted rates. The fair value measurement of long-term debt is considered a Level 2
measurement.
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 balance sheets approximate
their fair values.
Note 16 – Subsequent Events
Executive RSU grant
On February16, 2018, 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 $1.3 million and were comprised of
52,166 RSUs. Twenty-five percent of these awards will vest on January 1, 2021, subject to the executives continued employment.
The performance-based portion of the RSUs will also vest on January 1, 2021, subject to the executives continued employment
and the satisfaction of certain performance objectives relating to three-year cumulative “free cash” and net earnings goals.
Exchangeable Notes
Effective February 26, 2018, the holder of the Company's exchangeable notes exercised its option to exchange the remaining $2.8
million principal amount of the notes for 123,808 shares of VPG common stock at the contractual put/call rate of $22.57 per share.
Following this transaction, all exchangeable notes have been canceled and VPG has no further obligations pursuant to such notes.
F-41
Note 17 – Summary of Quarterly Financial Information (Unaudited)
(in thousands, except per share amounts)
2017
2016
Statement of Operations data:
Net revenues
Gross profit
Operating income
Net earnings
Less: net earnings attributable to
noncontrolling interests
Net earnings attributable to VPG stockholders
Per Share Data: (b)
Basic earnings per share
Diluted earnings per share
Certain Items Recorded during the
Quarters:
Acquisition purchase accounting adjustments
$
$
$
Acquisition costs
Strategic alternative evaluation costs
Gain on sale of building
Net proceeds from lease termination
Tax rebate
Restructuring costs
Tax effect of reconciling items and discrete
tax items
First
Second
Third
Fourth
First
Second
Third
Fourth
$
59,787
$
62,319
$
62,805
$
69,439
$
56,629
$
57,996
$
54,490
$
55,814
22,517
3,737
2,003
24,759
5,644
3,616
24,267
5,319
4,325
26,740
6,925
4,450
8
(3)
70
(26)
1,995
3,619
4,255
4,476
19,775
990
496
16
480
21,495
1,688
1,849
20,265
2,639
1,083
21,274
5,394
2,980
(19)
32
(25)
1,868
1,051
3,005
0.15
0.15
$
$
0.27
0.27
$
$
0.32
0.32
— $
— $
—
—
—
—
—
554
42
—
—
—
—
—
315
13
42
—
—
—
(1,544)
—
423
(394)
$
$
$
$
$
$
0.34
0.33
49
—
—
—
—
189
752
165
$
$
$
0.04
0.04
$
$
0.14
0.14
296
$
62
—
—
—
—
195
352
—
—
—
—
675
1,011
(179)
1,468
$
$
$
0.08
0.08
46
—
1,079
—
—
—
709
27
0.23
0.22
49
80
265
(837)
—
—
271
(597)
(a) The Company reports interim financial information for the 13-week periods beginning on a Sunday and ending on a Saturday, except for the first fiscal
quarter, which always begins on January 1, and the fourth fiscal quarter, which always ends on December 31. The first, second, third, and fourth quarters of
2017 ended on April 1, July 1, September 30, and December 31, respectively. The first, second, third, and fourth quarters of 2016 ended on April 2, July 2,
October 1, and December 31, respectively.
(b) Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.
F-42
Note: Name of Subsidiaries are indented under name of its parent. Subsidiaries are wholly owned unless otherwise noted. (Director's
or other share required by statute in foreign jurisdictions and totaling less than 1% of equity are omitted).
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
Vishay Precision Foil, Inc.
Vishay Precision Foil GmbH
Vishay Measurements Group GmbH
Powertron GmbH
Vishay Measurements Group, Inc.
Vishay Transducers, Ltd. (a)
Vishay Transducers India Private Limited
Pharos de Costa Rica, S.A.
Vishay Celtron Technologies, Inc.
Vishay Precision España S.L.
Vishay Precision Asia Investments Pte., Ltd.
Vishay Precision Measurement Trading (Shanghai) Co., Ltd.
Vishay Celtron (Tianjin) Technologies Co., Ltd.
Vishay Tedea-Huntleigh (Beijing) Electronics Co., Ltd.
Vishay Precision Foil K.K.
Alpha Electronics Corp.
Stress-Tek, Inc.
Pacific Instruments, Inc.
Vishay Precision Israel Ltd.
Vishay Measurements Group UK Ltd.
Vishay Advanced Technologies Ltd.
Tedea Huntleigh B.V.
Vishay Precision Transducers India Private Limited
Vishay Measurements Group France S.A.S.
SCI Vijafranc
VPG Systems UK, Ltd.
Vishay Precision Group Canada ULC (b)
Vishay PM Onboard (Ireland) Limited
Vishay MD Technik GmbH
Vishay Waste Collections Systems B.V.
Vishay Waste Collections Systems NV
Vishay PME France SARL
Vishay PM Onboard Limited
Vishay Nobel AB
Vishay Nobel AS
(a)
(b)
Registrant has a direct ownership interest of 62% in Vishay Transducers, Ltd.
VPG Systems UK, Ltd. owns 80% and Vishay Transducers, Ltd. owns 20% of Vishay Precision Group Canada ULC
Delaware
Germany
Germany
Germany
Delaware
Delaware
India
Costa Rica
Taiwan
Spain
Singapore
China
China
China
Japan
Japan
Washington
California
Israel
England and Wales
Israel
Netherlands
India
France
France
England and Wales
Canada
Ireland
Germany
Netherlands
Belgium
France
England and Wales
Sweden
Norway
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
1) Registration Statement (Form S-3 No. 333-173461) of Vishay Precision Group, Inc.,
2) Registration Statement (Form S-8 No. 333-168256) pertaining to the Vishay Precision Group, Inc. 2010 Stock Incentive
Program,
3) Registration Statement (Form S-8 No. 333-187211) pertaining to the Vishay Precision Group, Inc. Deferred Compensation
Plan, and
4) Registration Statement (Form S-8 No. 333-196245) pertaining to the Vishay Precision Group, Inc. 2010 Stock Incentive
Program (as amended);
of our reports dated March 15, 2018, with respect to the consolidated financial statements of Vishay Precision Group, Inc. and the
effectiveness of internal control over financial reporting of Vishay Precision Group, Inc., included in this Annual Report (Form
10-K) of Vishay Precision Group, Inc. for the year ended December 31, 2017.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
March 15, 2018
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Ziv Shoshani, certify that:
1. I have reviewed this Form 10-K of Vishay Precision Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Dated: March 15, 2018
/s/ Ziv Shoshani
Ziv Shoshani
Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, William M. Clancy, certify that:
1.
I have reviewed this Form 10-K of Vishay Precision Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Dated: March 15, 2018
/s/ William M. Clancy
William M. Clancy
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Vishay Precision Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ziv Shoshani,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 15, 2018
/s/ Ziv Shoshani
Ziv Shoshani
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Vishay Precision Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William M. Clancy,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 15, 2018
/s/ William M. Clancy
William M. Clancy
Chief Financial Officer
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Board of Directors
Corporate Information
Shareholder Information
Marc Zandman
Chairman of the Board
Executive Chairman of the Board
Vishay Intertechnology, Inc.
Corporate Office
Vishay Precision Group, Inc.
3 Great Valley Parkway, Suite 150
Malvern, PA 19355
Ziv Shoshani
President
Chief Executive Officer
Janet Morrison Clarke
President and Founder
Clarke Littlefield LLC
Wesley Cummins
Analyst
Nokomis Capital, LLC
Bruce Lerner
President and CEO
PeroxyChem, LLC
Saul Reibstein
Retired Executive Vice President
and Chief Financial Officer
Penn National Gaming, Inc.
Timothy V. Talbert
President
LCA Bank Corporation
Senior Vice President
Credit and Originations
Lease Corporation of America
Cary Wood
President and CEO
Angelica
Executive Officers
Ziv Shoshani
President
Chief Executive Officer
William M. Clancy
Executive Vice President
Chief Financial Officer
Roland B. Desilets
Vice President
General Counsel,
and Secretary
Phone: +1-484-321-5300
Fax: +1-484-321-5301
Website: vpgsensors.com
Independent Auditors
Ernst & Young LLP
2005 Market Street, Suite 700
Philadelphia, PA 19103
Counsel
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Corporate Vice Presidents
Amir Tal
Senior Vice President
Finance
Yaron Kadim
Vice President
VPG Foil Resistors
Steven Klausner
Vice President
Treasurer
Benny Shaya
Vice President
Micro-Measurements Instruments and
Pacific Instruments
Rafi Uzan
Vice President
Force Sensors
Gilad Yaron
Vice President
Advanced Sensors
Dubi Zandman
Vice President
Weighing and Control Systems
Annual Meeting
May 17, 2018 at 9:00 a.m.
The Desmond Hotel
1 Liberty Boulevard
Malvern, PA 19355
Shareholder Assistance
For information about stock transfers,
address changes, account
consolidation, registration changes,
and Form 1099, contact the company’s
Transfer Agent and Registrar.
Transfer Agent and Registrar
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Phone: +1-800-937-5449
Email: info@amstock.com
Common Stock
Ticker Symbol: VPG
The company’s common
stock is listed and principally
traded on the New York Stock
Exchange.
The company’s class B common stock
is not traded publicly.
Additional Information
The company’s Annual Report on
Form 10-K filed with the Securities and
Exchange Commission is part of this
annual report to shareholders.
An electronic copy of VPG’s Annual
Report and Proxy Statement, and other
filings are available online at:
vpgsensors.com
Copies of the company’s news releases
and other investor information may be
obtained by contacting:
Investor Relations
Vishay Precision Group
Phone: +1-484-321-5300
Fax: +1-484-321-5301
Email: investors@vpgsensors.com
CONTENTS
2017 Market Overview
Transforming Partnerships
Letter from the Chairman
Letter from the CEO
Foil Technology Products
Force Sensors
Weighing & Control Systems
Major Manufacturing Locations
2
3
4
5
6
8
10
12
vpgsensors.com
VISHAY PRECISION GROUP, INC
Corporate Headquarters
3 Great Valley Parkway, Suite 150
Malvern, PA 19355, USA
Phone: +1.484.321.5300
Fax: +1.484.321.5301
vpgsensors.com
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ANNUAL
REPORT
TRANSFORMING
MARKETS.
TRANSFORMING
MARKETS.
vpgsensors.com