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, 2019
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)
Common Stock, $0.10 par value
(Title of class)
Securities registered pursuant to Section 12(b) of the Act:
VPG
(Trading Symbol)
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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller
reporting company”, and "emerging growth company" in Rule 12b-2 of the Act. (Check one):
Large accelerated filer
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 ($40.63 on June 29,
2019), assuming conversion of all of its Class B convertible common stock held by non-affiliates into common stock of the
registrant, was $515,849,000. There is no non-voting stock outstanding.
As of March 11, 2020, the registrant had 12,511,392 shares of its common stock and 1,022,887 shares of its Class B convertible
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, which will be filed within 120 days of December 31, 2019, are incorporated
by reference into Part III of this Annual Report on Form 10-K.
Dear Shareholders:
From the Chairman of the Board
I am pleased to report that VPG delivered yet another good year in 2019. VPG’s technology leadership,
customer-focused business model, and operating discipline enabled the company to achieve solid
financial results and cash flow as we navigated the complex market trends throughout 2019.
The strength of our cash generation and our balance sheet is the force driving our strategy to create
stockholder value. We are deploying our capital to leverage our unique technology in new products and
markets,
to realign our manufacturing and costs to improve our margins and better serve our
customers, and to act on opportunities for additional accretive businesses. We made significant
accomplishments in all three areas in 2019 and expect to accomplish even more this year.
Our newest addition to the VPG family, Dynamic Systems, Inc. (DSI), which we acquired in
November 2019, demonstrates the core qualities that typify a VPG business: a high-quality, high-value
that uses innovative technology to solve real-world problems for its
niche-solutions provider,
customers. DSI was accretive for us in the fourth quarter and is performing to our expectations.
As we enter 2020, which marks the 10th year of VPG as a stand-alone, public company, I am confident
that not only are we well positioned in winning markets, we have the strategy in place for continued
success. Our sensors and sensors based products and systems are used in a wide array of industrial and
non-industrial equipment and processes that touch our lives every day and are making key elements of
the 4th Industrial Revolution possible. I take great pride in the role we at VPG play to make our
customers’ equipment and processes more efficient, safer, and better.
Thank you to all members of the VPG family for their hard work and dedication and to our customers,
vendors, strategic business partners and stockholders for their constant and tireless support.
Sincerely,
Marc Zandman
Chairman of the Board
Dear Shareholders:
From the President and CEO
VPG achieved another solid year as we successfully executed on our multi-year growth and cost-
savings strategies. Reflecting a challenging year for some of our end-markets, 2019 began with strong
trends that weakened through the second half of the year. In spite of this, we delivered the second best
year in VPG’s history in terms of revenue and profits.
For the full year of 2019, we achieved sales of $284.0 million, operating income of $28.6 million, or
10.1% of revenue, and diluted EPS of $1.63. On an adjusted basis, we recorded an operating margin of
11.7%, EBITDA of $44.2 million, diluted EPS of $1.69, and $20.4 million of adjusted free cash flow.
We achieved this solid operating performance while executing on our multi-year strategy and making
the investments to create long-term value in the future. This multi-year strategy is intended to drive
organic growth through innovation and customer focus, while improving our operating margin through
better alignment of our manufacturing footprint and cost structure, and augmenting that organic growth
with accretive, value-creating acquisitions. I am pleased to report that we achieved key milestones in
all three elements of our strategy.
For example, in our Foil Technology Segment we grew revenue of our new advanced sensor products
by 20% in 2019. The unique design capabilities and cost-effective manufacturing platform of the
advanced sensor business are enabling us to pursue higher volume opportunities for sensing
technologies that we were not previously able to address. In the Weighing and Control Systems
segment, our TruckWeigh and VanWeigh overload protection products for trucks and vans grew 30%
from the prior year. We anticipate demand for these products to be driven further by new regulations in
Europe that are expected to go into effect in 2021.
In terms of our manufacturing and cost alignment
initiatives, we completed the transfer of
manufacturing of force sensors to Asia, which we expect will provide us with a competitive footprint
and give us significant cost savings. In addition, our manufacturing consolidation project for Foil
Technology Products is on track and we expect to complete the transition to our new facility in Israel
as we enter 2021. This initiative gives us a cost effective platform with the additional capacity we will
need to support future growth.
On the acquisition front, I am especially pleased to report that in November 2019 we completed the
acquisition of Dynamic Systems Inc. DSI is an established, profitable company with industry-leading
technology that complements our existing footprint in the steel industry. This adds to our steel
business, which achieved another successful year in terms of revenue and profits in 2019.
Our progress with the strategic initiatives gave us the confidence this past year to increase our three-
year target model that raises our gross margin objective to 45% and our adjusted operating margin
objective to 15%. I believe that with favorable market and economic trends, we have the strategy and
the passion for execution to deliver these targets.
I want to express my appreciation for the hard work, dedication, and customer-focus of our employees
around the world as we continue to execute our multi-year strategies in 2020 to create value for our
customers and our stockholders.
Sincerely,
Ziv Shoshani
President and Chief Executive Officer
Note: See our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for a reconciliation of financial
measures presented under accounting principles generally accepted in the United States of America (“GAAP”) to non-GAAP
financial measures.
Vishay Precision Group, Inc.
Form 10-K for the year ended December 31, 2019
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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, 2017
Consolidated Statements of Equity for the years ended December 31, 2019, 2018, 2017
Notes to Consolidated Financial Statements
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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.
Beginning in the 1960’s, Vishay Intertechnology established itself as a technical and market leader in precision foil resistors, and
foil strain gages. These innovations were the genesis of the foil technology that is a unique strategic competitive advantage of
VPG. The subsequent innovations and advancement of foil resistance and strain gage technology opened the door to numerous
commercial applications, such as force sensors and control systems on a vertical market basis.
On July 6, 2010, Vishay Intertechnology spun off its precision measurement and foil technology businesses through a tax-free
stock dividend of VPG stock to Vishay Intertechnology’s stockholders, and we became a publicly-traded company. In the decade
prior to the spin-off, Vishay Intertechnology expanded our sensor and measurement business through acquisitions, extending our
business from its initial focus on precision foil resistors and foil strain gages to include an array of sensor-based solutions. These
solutions include transducers/load cells, which are force sensors combining strain gages and the metallic structures to which they
are bonded; load cell modules that utilize electronic instrumentation and software for measuring the load cell output; and
measurement instrumentation and complete systems for process control and on-board weighing.
In 2013, we completed our first acquisition as an independent public company when we acquired substantially all of the assets of
the George Kelk Corporation ("KELK"). KELK engineers, designs and manufactures highly accurate optical and electronic roll
force measurement and control equipment primarily used by metals rolling mills and mining applications throughout the world.
As a part of our acquisition, we acquired a leased manufacturing, engineering, sales, and administrative facility in Toronto, Canada.
On December 30, 2015, we completed the acquisition of Stress-Tek, Inc. ("Stress-Tek") based in Kent, Washington. Stress-Tek
designs and manufactures state-of-the-art, rugged and reliable strain gage-based load cells and force measurement systems. Stress-
Tek primarily operates in North America, where their sensors and display systems are used in a wide range of industries,
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predominantly in transportation and trucking, for timber, refuse, aggregate, mining, and general trucking applications. Stress-Tek
products are marketed under the Vulcan brand as part of the VPG Onboard Weighing offerings for our Weighing and Control
Systems reporting segment. As a part of the Stress-Tek acquisition, we acquired ownership of a manufacturing, engineering, sales,
administrative, and warehouse facility in Kent, Washington.
On April 6, 2016, we completed the acquisition of Pacific Instruments, Inc. ("Pacific") based in Concord, California. Pacific
designs and manufactures high-performance signal conditioning, data acquisition and control systems and has extensive experience
integrating these systems. Pacific sells primarily to the aerospace, commercial aviation and defense markets in the United States.
Pacific products expanded the offerings of our Foil Technology Products reporting segment, which already offered data acquisition
systems, primarily in the field of strain measurement. As a result of our acquisition, we acquired a leased manufacturing,
engineering, sales and administrative facility in Concord, California.
On November 1, 2019, we completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized
dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes.
DSI is an established, high margin business, with a strong brand and has the largest installed base of products of its type in the
world, according to market estimates. DSI expands our position in the steel market and offers opportunities for growth by leveraging
our sales capabilities and market presence, and by expanding DSI’s product line to address new opportunities. DSI will report
into the Company's Weighing and Control Systems segment.
While our acquisitions provided us an array of strong brand names, in addition to our historical resistor and strain gage brands,
we believe the continued success of our strategy is best served by the establishment of a strong overall global brand. In 2014, we
launched the “VPG” brand, which is intended to leverage the strength of these historical brands under the umbrella of a more
unified, globally recognizable VPG name. We continue to broaden and emphasize the VPG brand in the markets we serve under
the following brands for each of our business segments:
Foil Technology Products
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
Gleeble (DSI)
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.
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Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve
productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality
foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved
quality and increased margins. As a sign of our commitment to these businesses, we recently signed a long term lease for a state
of the art facility to be constructed in Israel to move forward with our advanced sensors business.
We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing
operations in countries such as India, China, and Israel, where we can benefit from lower labor costs, improved efficiencies, or
available tax and other government-sponsored incentives. For example, in 2018 we incurred restructuring expense related to closing
and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities in India and China,
which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. In 2017,
we closed two leased facilities in the United States and moved to more cost effective locations.
Organic Growth
Our product portfolio is focused, to a significant extent, on specialty products serving niche markets. The development of specialty
products requires us to form long-term relationships with our customers. Our specialty products are usually designed, or engineered,
to meet unique specifications for OEMs. This often results in our customers creating a non-standard part number used solely to
designate our product on their bill of materials. We call this customer activity a “design win.” This activity may create organic
growth as the OEM customer begins to order increasing quantities to meet their production requirements, with little or no opportunity
to purchase a similar part from competing suppliers. The “design in” time for these initiatives is typically 12 to 24 months.
We expect to continue to use our research and development, engineering, and product marketing resources to introduce new and
innovative specialty products. An example of our success in this regard is the recent acceptance and growth of our on-board vehicle
weighing solution incorporating microelectromechanical systems ("MEMS") technology. Our ability to react to changing customer
needs, emerging markets, and industry trends will continue to be a key to our success.
Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations
to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products
within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing
customer needs and industry trends in terms of form, fit, and function.
Growth from Acquisitions
We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments. Historically,
our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our
force sensor products, and incorporating those products into our weighing and control systems. The acquisitions of Stress-Tek and
KELK, each of which employ our foil strain gages to manufacture load cells for their systems, continued this strategy. Additionally,
the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific acquisition significantly
broadened our existing data acquisition offerings and opened new markets for us. Our most recent acquisition, of DSI, expands
our position in the steel market. Along with our success in MEMS technology for on-board weighing, we expect to expand our
expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of
measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from
improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Product Segments
Foil Technology Products
The Foil Technology Products ("FTP") segment includes our foil resistor and strain gage operating segments. Foil resistor products
offer superior precision, stability, and reliability. Our resistor portfolio encompasses a wide variety of configurations and packages
designed to meet the requirements of even the most demanding applications. Typical applications for foil resistors include high
end test equipment and electronics for the aviation, military and space, semiconductor, process control, oil and gas, and medical
markets. Typical applications for strain gages, which include advanced sensor gages, are stress analysis for structural testing in
the aviation, military and space, infrastructure, and construction markets, along with force measurement and weighing markets.
Our innovative advanced sensors product line enhances the capability and performance of our strain gages, while simultaneously
reducing their size and power consumption. This segment also includes our data acquisition systems business.
The products in these segments are primarily based on our resistive foil technology, which continues to evolve and enables many
products in both segments to be suited for new and varied applications.
The manufacturing of the foil material is a critical and common component of the Company’s strain gage and precision foil resistor
operating segments, and as a result, we experience synergies between our foil resistor and strain gage operating segments. The
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production cycles for foil resistors and strain gages are similar and many of the same raw materials are utilized in the manufacturing
processes for both operating segments. The foil resistor and strain gage products require a similar level of labor and capital.
However, the advanced sensors’ manufacturing technology offers us the capability to produce high-quality foil strain gages in a
highly automated environment, which we believe results in reduced manufacturing costs and lead times, higher quality, and
increased margins.
Our Pacific business offers a broad range of high performance signal conditioning, data acquisition and control systems, many of
which reach customers outside our traditional commercial customer base, such as U.S. government related customers.
A significant portion of products from the strain gage operating segment are sold to third parties as “standard catalog items”; the
remainder of this operating segment's products are sold as non-standard and/or custom products to third parties and to our Force
Sensors segment.
Force Sensors
The Force Sensors segment includes a broad line of load cells and force measurement transducers that are offered as precision
sensors for industrial and commercial use. Typical applications for force sensors are in construction machinery(for stability control,
overload protection), agricultural equipment (for precision force measurement), and medical devices (such as hospital beds and
medication dosing). The truck and heavy equipment market has begun to adopt force sensors technology as process control and
equipment control features for their products. These sensors use our foil technology products, which serve as sensing elements
and components within each unit. Further integration of our load cells technology is also offered as part of our weighing module
products, which provide customers with a complete sensor assembly that may be used within a wide variety of digital transducers.
A majority of products from the Force Sensors segment are sold to third parties as “standard catalog items,” but a growing sector
of this segment’s products are sold as non-standard and/or custom products to third parties. In addition, we sell products from
this segment to our Weighing and Control Systems segment as well as to OEM manufacturers, which often involve "design-in"
features. Direct sales channels (field application engineers (“FAEs”)) are utilized as the primary customer interface relating to
initial design specifications, development of prototypes, and pricing/delivery of this segment’s products. Distributors are also used
for those customers that desire standard products.
Weighing and Control Systems
The Weighing and Control Systems segment designs and manufactures complete systems comprised of load cells and
instrumentation for weighing and force control/measurement for a variety of uses, including on-board weighing and overload
monitor systems. Typical applications for our weighing and control systems products are: process weighing of chemicals, food
and pharmaceuticals; aircraft and truck weighing and overload protections; weight, force and process optimization in steel and
paper mills; and force measurement for offshore oil and gas exploration.
Other major components that comprise our systems are: load cells, electronic displays; optical gages; signal processors; MEMS
sensors; cabling; system software; and communication software/hardware. The end use for the majority of these products is the
precision measurement of force, weight, pressure, torque, tilt, motion, and acceleration. FAEs are utilized as the primary customer
interface relating to initial design specifications, development of prototypes, and pricing/delivery of this segment’s products.
Distributors and sales agents are also used, as appropriate, to market, sell, and support certain products in this segment.
Products
Our precision sensor and sensor-based systems include products such as load cells, transducers, weighing modules, and complete
systems for process control and on-board weighing applications. Our precision foil resistors and strain gages are based on our
proprietary foil technology, which we invented. We manufacture and sell high precision foil resistors, foil strain gages, and data
acquisition systems.
Our product portfolio includes:
•
Foil resistors – Foil resistors are the most precise and stable type of resistors currently available. Resistors are basic
components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. Our current sense
resistors were developed with a low absolute TCR and Kelvin connections to meet the demand of stable resistive products
Our foil resistors are used in applications requiring a high degree of precision and stability, such as in the following
market segments: Avionics/Military/Aerospace applications, Precision Weighing, Medical applications, Test &
Measurements/ Semiconductors, Oil & Gas and Process Control. We sell our foil resistors under the Vishay Foil Resistors,
Alpha Electronics, and Powertron brands, including under our well-known Bulk Metal® trademark. The ultra-precision
technology also provides extremely low temperature coefficient resistance and exceptional long term stability through
temperature extremes. To complement our extensive portfolio of high-performance foil resistors, we also offer decade
boxes, standard resistors, exceptional precision thin film and power resistors including special construction configurations
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•
•
•
to meet the requirements of high temperature applications. We have a road map of new technology products to meet the
required needs of our customers.
Foil strain gages – Strain gages, including our advanced sensors, are resistive sensors that are attached to the surface of
an object to determine the surface strain caused by an applied force. Typical uses of strain gages include test and
measurement applications where the strength of the object is the main consideration and the object under test is a structural
component in a machine or device, such as an automobile, an aircraft, or a highway bridge. Strain gages are also used
inside precision transducers where the magnitude of an applied force is the focus of the measurement. A variety of
physical measurements can be made using strain gages attached to metal components including force, weight, pressure,
displacement, and acceleration. We sell our strain gages under the well-known Micro-Measurements brand.
Transducers, load cells, and modules – A transducer is mounted on a structure that is subjected to weight or other forces,
such as the platform of an industrial scale. The term “load cell” is primarily used to describe transducers used in weighing
applications. Strain-gage based transducers consist of one or more strain gages bonded to a metallic support. The change
in resistance of the strain gages in response to deformation of the transducer by the applied load is detected by electronic
instrumentation. Transducers are manufactured with different designs and configurations depending on their application
and the type of stress or strain to be measured; for example, weight or tension. We produce both analog and digital
transducers. Modules are transducers combined with a mounting and with external features, such as instruments and
cables, and are used for weighing and control applications. We sell our load cells and modules under the overall VPG
Transducers name as we continue to transition from the previously used Celtron, Revere, Sensortronics, and Tedea-
Huntleigh brands.
Data acquisition systems – Data acquisition systems, which include instruments to measure, process, digitize, display,
and record the output of our strain gages, transducers, and other sensor or sensor-based systems as well as deliver
information to control systems. Our acquisition of Pacific significantly expanded our previous instruments offerings.
• Weighing and control systems – Weighing and control systems are integrated systems for the detection and measurement
of weight and other types of force, primarily for use in industrial applications. These include systems to control process
weighing in food, chemical, and pharmaceutical plants; force measurement systems used to control web tension in paper
mills, roller force in steel mills, and cable tension in winch controls; on-board weighing systems installed in logging and
waste-handling trucks; and special scale systems used for aircraft weighing and portable truck weighing. Our mechanical
and thermal simulators are used for testing and developing various types of metals. With our acquisition of Stress-Tek,
we enhanced and broadened our on-board weighing offerings with products that are recognized for high quality in their
markets. With our acquisition of KELK, we added certain optical gages for control systems and enhanced our other
product offerings for process control in the steel mill industry. With the acquisition of DSI, we broadened our offerings
to the steel mill industry and to materials testing labs. We sell our systems under a variety of brand names including
BLH Nobel, KELK, Gleeble, and VPG Onboard Weighing.
Qualifications and Specifications
Certain of our products must be qualified or approved under various military and aerospace specifications and other standards.
We have qualified certain of our foil resistor and sensor products under various military specifications approved and monitored
by the United States Defense Logistics Agency (“DLA”), under certain European military specifications, and various aerospace
standards approved by the U.S. National Aeronautics and Space Administration (“NASA”) and the European Space Agency
(“ESA”).
Qualification and specification levels are based in part upon the rate of failure of products. We must continuously perform tests
on our products, and report the results for qualified products to the qualifying organization. If a product fails to meet the requirements
for the applicable classification level, the product’s classification may be suspended or reduced to a lower level. During the time
that the classification is suspended or reduced, net revenues and earnings attributable to that product may be adversely affected.
Certain of our load cell and instrumentation products are approved by the National Type Evaluation Program (“NTEP”) and
International Organization of Legal Metrology (“OIML”). Many of our weighing systems must also meet these standards to make
them usable for legal-for-trade weighing applications. Products and systems that are to be used in hazardous areas, where explosive
atmospheres might exist, must comply with special safety standards, such as the European Atmosphère Explosible (“ATEX”)
Standard and the U.S. Factory Mutual (“FM”) Standard. Our load cell manufacturing sites undergo periodic audits by regulatory
authorities in order to verify compliance with standard requirements and to extend product approvals.
Manufacturing Operations
Our principal manufacturing facilities are located in Israel, the United States, Canada, India, the People’s Republic of China,
Germany, and Japan. We also have manufacturing facilities in Sweden, the United Kingdom, the Republic of China (Taiwan), and
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France. Over the past several years, we have invested substantial resources to increase capacity and to enhance automation in our
plants, which we believe will further reduce production costs.
We have quality management systems at all of our major manufacturing facilities approved under the ISO 9001 Quality Management
Systems Standard. ISO 9001 is a comprehensive set of quality program standards developed by the International Organization
for Standardization ("ISO"). The quality management system in our major foil resistors manufacturing site is certified against
Aerospace Standard AS9100.
To maintain our cost competitiveness, we are pursuing our strategic initiatives to shift manufacturing emphasis to more advanced
automation in higher-labor-cost regions and to relocate production to regions with skilled workforces and relatively lower labor
costs. See additional information in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Cost Management” related to our restructuring efforts.
Sources of Supplies
Although most materials incorporated in our products are available from a number of sources, certain materials are available only
from a relatively limited number of suppliers. The principal materials used in our products include various metallic foil alloys,
aluminum, stainless steel, tool steel, plastics, and for a few products, gold. Some of the most highly specialized materials for our
sensors are sourced from a single vendor. We maintain a safety stock inventory of certain critical materials at our facilities. We
are taking steps to determine the use, source, and origin of any tin, tantalum, tungsten, or gold in our global product portfolio and,
if appropriate, would work with our suppliers to remediate issues and source more responsibly.
A significant portion of our Force Sensors and Weighing and Control Systems segment products are based on strain gages produced
by our Foil Technology Products segment.
Inventory and Backlog
We manufacture both standardized products and those designed and produced to meet customer specifications. We maintain an
inventory of standardized components, and monitor the backlog of outstanding orders for our products.
We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. Many
of our customers for strain gages, load cells, and foil resistors encounter uncertain and changing demand for their products. They
typically order products from us based on their forecasts. If the customers' business needs change, they may cancel or reschedule
the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog at
any point in time is not necessarily indicative of the results to be expected for future periods.
Customers and Marketing
Our customer base is diversified in terms of industry, geographic region, and range of product needs. No single customer comprises
greater than 5% of net revenues. The vast majority of our products are used in the broad industrial market, with selected uses in
the military and aerospace, medical, agricultural, steel, and construction sectors. Within the broad industrial market, our products
serve a wide variety of applications in waste management, bulk hauling, logging, scales manufacturing, engineering systems,
pharmaceutical, oil, chemical, steel, paper, and food industries.
Many of our products have historically been sold by dedicated sales forces, consisting mainly of FAEs focusing on specific market
segments or specific customers. The FAEs help identify the products in our portfolio that best meet the needs of our customers
and provide technical and applications support. Their in-depth knowledge of customer needs is a key factor in new product design
and future research and development initiatives.
Competition
Our competitive success depends on our ability to maintain a competitive advantage on the basis of superior product capability
and performance, product quality, know-how, proprietary data, market knowledge, service capability, and business reputation.
Price competitiveness can be an important factor, especially within our Force Sensors segment. Our sales and marketing programs
offer our customers a broad range of world-class precision technologies, and superior global sales and support.
Competition in the markets where we sell the bulk of our products is extremely fragmented, both geographically and by application.
To our knowledge, there are no competitors with the same product mix and proprietary technology as ours. Our competitors range
from very small, local companies to large, international companies with greater financial resources than us.
Our foil resistors and our foil strain gages are based on our proprietary technology. Competitors try to compete in this market
using different technology to offer functionally equivalent products. Examples of competition in our Foil Technology Products
segment includes TT Electronics, Susumu, Isabellenhute, Caddock and Flat Dashi for foil resistors, and HBK, an operating company
of Spectris, Tokyo Sokki Kenkyujo Co., Ltd (TML), Kyowa and Zemic for foil strain gages. Competitors in our Force Sensors
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segment include HBK, Zemic, Utilcell, and Flintec. Competitors in our Weighing and Control Systems segment include Hardy
Instruments and Mettler-Toledo for process weighing; ABB, Siemens, Haehne, Dalian, IMS and Fuji for steel mill systems; and
Air-Weigh, Vehicle Weighing Systems, MOBA, and AMCS for onboard weighing.
Research and Development
Many of our products, manufacturing techniques, and technologies have been invented, designed, and developed by our engineers
and scientists. Special proprietary resistive metal foil is the most important material in both our foil resistors and our foil strain
gages, and our research and development activities related to foil materials are an important linkage between these two products.
We maintain strategically placed design centers for each of our business segments where proximity to customers enables us to
more easily monitor and satisfy the needs of local markets. These design centers are located in the United States, Israel, Canada,
Sweden, Japan, the United Kingdom, and Germany.
We also maintain research and development staff, and promote programs at a number of our production facilities to develop new
products and new applications of existing products, and to improve manufacturing techniques. This decentralized system
encourages individualized product development at specific manufacturing facilities that occasionally has applications at other
facilities.
Our research and development staff and our sales force are closely linked. Our sales force is comprised of individuals with an
engineering background who can help meet the needs of our customers for technical and applications support. This in-depth
knowledge of customer needs and specifications is a key factor in future research and development initiatives.
Research and development will continue to play a key role in our efforts to introduce innovative products for new sales, and to
improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products.
We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our
manufacturing base and, ultimately, our financial performance. To that end, we expect to sustain or increase our R&D expenditures
in order to fill the product development pipeline and lay the foundation for future sales growth.
Patents and Licenses
We have made a significant investment in securing intellectual property protection for our technology and products. We seek to
protect our technology by, among other things, filing patent applications for technology considered important to the development
of our business. Although we have numerous United States and foreign patents covering certain of our products and manufacturing
processes, no particular patent is considered individually material to our business. We also rely upon trade secrets, unpatented
know-how, and continuing technological innovation.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our
technology. Although we have been awarded, have filed applications for, or have obtained numerous patents in the United States
and other countries, there can be no assurance concerning the degree of protection afforded by these patents, or the likelihood that
pending patents will be issued.
We require all of our technical, research and development, sales and marketing, and management employees, and most consultants
and other advisors to execute confidentiality agreements upon the commencement of employment, or consulting relationships
with us. These agreements provide that all confidential information developed, or made known to the entity or individual during
the course of the entity’s or individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in
specific circumstances. Substantially all of our technical, research and development, sales and marketing, and management
employees have entered into agreements providing for the assignment to us of rights to inventions made by them while employed
by us.
Environmental, Health and Safety
We have an Environmental, Health and Safety Policy that commits us to achieve health and safety for employees and protection
of the environment, to maintain compliance with applicable environmental, health and safety laws, to promote proper management
of hazardous materials, and to minimize the hazardous materials generated in the course of our operations. In addition, our
manufacturing operations are subject to various regional, federal, state, and local laws restricting discharge of materials into the
environment. We are not involved in any pending or threatened proceedings that would require curtailment of our operations.
Employees
As of December 31, 2019, we employed approximately 2,400 total employees, substantially all of which were full-time employees.
Approximately 85% of the employees were located outside the United States. Our future success is substantially dependent on
our ability to attract and retain highly qualified technical and administrative personnel. Some of our employees outside the United
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States are members of trade unions. Our relationship with our employees is generally good. However, no assurance can be given
that labor unrest or strikes will not occur.
Executive Officers
The following table sets forth certain information regarding our executive officers as of March 11, 2020:
Name
Ziv Shoshani
William M. Clancy
Amir Tal
Age
53
57
50
Positions
Chief Executive Officer, President, and Director
Executive Vice President and Chief Financial Officer
Senior Vice President and Chief Accounting Officer
Ziv Shoshani is our Chief Executive Officer and President, and also serves on the board of directors. Mr. Shoshani was Chief
Operating Officer of Vishay Intertechnology from January 1, 2007 to November 1, 2009. During 2006, he was Deputy Chief
Operating Officer of Vishay Intertechnology. Mr. Shoshani was Executive Vice President of Vishay Intertechnology from 2000
to 2009 with various areas of responsibility, including Executive Vice President of the Capacitors and the Resistors businesses,
as well as heading the Measurements Group and Foil Divisions. Mr. Shoshani had been employed by Vishay Intertechnology since
1995. He continues to serve on the Vishay Intertechnology board of directors. Mr. Shoshani is a nephew of the late Dr. Felix
Zandman, the founder of Vishay Intertechnology.
William M. Clancy is our Executive Vice President and Chief Financial Officer. Mr. Clancy was Corporate Controller of Vishay
Intertechnology from 1993 until November 1, 2009. He became a Vice President of Vishay Intertechnology in 2001 and a Senior
Vice President of Vishay Intertechnology in 2005. Mr. Clancy served as Corporate Secretary of Vishay Intertechnology from 2006
to 2009. From June 16, 2000 until May 16, 2005 (the date Vishay Intertechnology acquired the noncontrolling interest in Siliconix
incorporated), Mr. Clancy served as the principal accounting officer of Siliconix. Mr. Clancy had been employed by Vishay
Intertechnology since 1988. Mr. Clancy is a licensed CPA in Pennsylvania.
Amir Tal is our Senior Vice President and Chief Accounting Officer. Mr. Tal was appointed by the board of directors to such
position effective February 5, 2020. He served as the Company’s Senior Vice President, Finance from March 2017 until February
2020. From July 2010 to February 2017, Mr. Tal served as the Company’s Vice President Operational Controller and Regional
Controller Israel. Mr. Tal holds a bachelor’s degree in economics and business administration from the University of Haifa and
an MBA from Bar Ilan University.
Company Information and Website
We began filing annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange
Commission (“SEC”) under the Securities Exchange Act of 1934 after our spin-off from Vishay Intertechnology on July 6, 2010.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding
issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at
www.sec.gov.
In addition, our company website can be found on the Internet at www.vpgsensors.com. The website contains information about
us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments
to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments
are electronically filed with or furnished to the SEC. To view the reports, access http://ir.vpgsensors.com and click on “SEC
Filings”/ “Documents.”
The following corporate governance related documents are also available on our website:
•
•
•
•
•
•
Compensation Committee Charter
Nominating and Corporate Governance Committee Charter
Audit Committee Charter
Code of Business Conduct and Ethics
Code of Ethics Applicable to the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer or
Controller
Corporate Governance Principles
To view these documents, access http://ir.vpgsensors.com and click on “Corporate Governance.”
To view our Ethics Program Reporting Procedures, access http:/www.vpgsensors.com/company and click on “Ethics.”
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We are not incorporating by reference into this Annual Report on Form 10-K any material from our website.
Any of the above documents can also be obtained in print by any stockholder, upon request to our Investor Relations Department
at the following address:
Corporate Investor Relations
Vishay Precision Group, Inc.
3 Great Valley Parkway, Suite 150
Malvern, PA 19355
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Item 1A. RISK FACTORS
You should carefully consider the following risks and other information in this Form 10-K in evaluating our company and common
stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem
immaterial, could materially and adversely affect our business, results of operations or financial condition, and could also adversely
affect the trading price of our common stock.
Risks Related to Our Business
We face intense competition in our business.
We face various degrees and types of competition throughout the world in our different businesses. In some cases our products
compete directly with those of third party competitors. In other cases, competition in one segment, such as in our Weighing and
Control Systems segment, may affect not only the sales of our systems within that segment, but also sales of products that we
incorporate in those systems from other segments, such as load cells and strain gages.
We are a leading supplier of foil resistors and foil strain gages. Foil resistors and foil strain gages are also produced by competitors,
principally located in China. We believe that our foil technology products provide superior performance relative to our competitors,
but that could change if our competitors succeed in developing and introducing innovative competitive offerings. Also, our foil
strain gages compete with other types of strain gages, such as semiconductor strain gages, which we do not manufacture. We
believe that other types of strain gages are not as reliable or stable as our foil strain gages, but that could change as the technology
for these other products continues to evolve. If our competitors are able to improve the quality, performance, or pricing of their
products relative to our offerings, our results of operations could be adversely affected.
The market for transducer/load cell products is highly fragmented and very competitive. Our load cell modules and systems face
competition from numerous other load cell module and systems manufacturers. Competition for modules and systems is most
often based on customer relationships, product reliability, technical performance, and the ability to anticipate and satisfy customer
needs for specific design configurations. Many other manufacturers have more experience in particular geographic markets and
specific applications than we do, and may be better positioned to compete in these areas. We cannot assure you that we will be
able to successfully grow our business in the face of these competitive challenges.
Our vertical product integration exposes us to certain risks.
Our business structure emphasizes vertical product integration. For example our force sensor business is significant customer (by
volume) for our strain gages. While we believe this has been, and will continue to be, a sound business structure, vertical product
integration and the resulting interdependencies of our divisions exposes us to certain risks. As a consequence of our vertical
integration, our force sensors business may compete with certain of our customers and potential customers for strain gages while
our systems business may compete with certain of our customers and potential customers for force sensors, who, for that reason,
may elect not to do business with us.
To remain successful, we must continue to innovate, and our investments in new technologies may not prove successful.
Our future operating results depend on our ability to continually develop, introduce, and market new and innovative products, to
modify existing products, to respond to technological change, and to customize certain products to meet customer requirements.
There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological
change, that customers may be unwilling, or unable, to adopt the new products or methods of using them, that we will be unable
to develop and market new products and applications in a timely fashion to satisfy customer demands, or that such products will
experience quality or other qualification issues with our customers as they, and we, gain experience with qualifying them and using
them. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of operations.
We may not be successful in future acquisitions or other strategic transaction endeavors, if any, which could have an adverse effect
on our business and results of operations.
Historically, we expanded our business in part by completing acquisitions, and an important element of our business strategy
continues to be expansion through acquisition. We cannot assure that we will identify, have the financial capabilities to execute,
and/or successfully complete strategic transactions with suitable partners in the future. We also cannot assure that any such
transactions that we do complete in the future will be successful.
Such transactions, including our recent acquisition of DSI, involve a number of risks, including the following:
•
•
•
we may incur substantial costs, including advisory fees and diversion of management attention, in evaluating a potential
transaction;
we may be unable to achieve the anticipated benefits from the transaction;
we may have difficulty integrating the operations, personnel and culture of an acquired business, and may have difficulty
retaining the key personnel of the acquired business;
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•
•
•
•
we may have difficulty enforcing restrictive covenants against the seller of the acquired business or former employees or
other personnel of the acquired business;
we may have difficulty incorporating acquired technologies or products into our existing solutions;
our ongoing business and management's attention may be disrupted or diverted by transition or integration issues, and the
complexity of managing geographically and culturally diverse locations; and
we may lose customers of those companies, or may lose our customers due to the change in control or for other reasons.
The factors noted above could have a material adverse effect on our business, results of operations, and financial condition or cash
flows, particularly in the case of a larger acquisition. From time to time, we may enter into negotiations for acquisitions or
investments that are not ultimately consummated. These negotiations could result in significant diversion of management time, as
well as out-of-pocket costs.
Future acquisitions may require us to incur or issue additional indebtedness or issue additional equity.
If we were to undertake future substantial acquisitions for cash, these acquisitions would likely need to be financed in part through
bank borrowings, or the issuance of public or private debt. This acquisition financing would likely decrease our ratio of earnings
to fixed charges and adversely affect other credit metrics. Our revolving credit facilities require us to obtain the lenders’ consent
for certain additional debt financing and to comply with other covenants, including the application of specific financial ratios. We
cannot assure that the necessary acquisition financing would be available to us on acceptable terms, if and when, required. If we
were to make an acquisition with equity, the acquisition may have a dilutive effect on the interests of the holders of our common
stock.
We may experience difficulties, delays, or unexpected costs in completing our cost reduction programs.
To remain competitive, particularly when business conditions are difficult, we sometimes take steps to reduce our cost structure
by restructuring our existing businesses to achieve efficiencies, eliminate redundant functions, facilities and staff positions, and
move operations, where possible, to reduce labor or other costs.
We may not realize, in full or in part, the anticipated benefits of these programs without encountering difficulties, which may
include complications in the transfer of production knowledge, loss of key employees and/or customers, and the disruption of
ongoing business. Any of these difficulties could delay and/or undermine our ability to realize the benefits of these cost reduction
programs, as well as potentially adversely affecting our customer relationships and operations.
Our business is cyclical, and in periods of increased economic strength, we may experience intense demand for our products. If
our cost reduction programs and related restructuring result in us not being able to satisfy our customer’s demand for products
during a rising economy, and our competitors sufficiently expand production, we could lose customers and/or market share. These
losses could have an adverse effect on our operations, financial condition, and results of operations.
We might require additional capital to support business growth and this capital might not be available.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business
challenges or opportunities, including the need to develop new offerings or enhance our existing offerings, enhance our operating
infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt
financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities,
our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences,
and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve
additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may
make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and
to respond to business challenges could be significantly limited.
We may encounter difficulties in the implementation or operation of new enterprise resource planning systems.
We have implemented, and continue to implement, new enterprise resource planning (“ERP”) systems in different parts of our
business. ERP systems are integral to our ability to accurately and efficiently manage our manufacturing and sales activities, and
provide critical business information to management. The implementation of an ERP system may cause us to incur additional
costs, shipment delays, and related customer dissatisfaction; expend employee (including Company management) time and
attention; and otherwise burden our internal resources. Any difficulties we encounter with the implementation or successful
operation of an ERP system could damage the effectiveness of our business processes and could adversely impact our ability to
accurately and effectively forecast and manage sales demand, manage our supply chain, and report management information on
an accurate and timely basis, any of which could have a material adverse effect on our business and results of operations.
Our success is dependent upon our ability to protect our proprietary technology and other intellectual property.
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We rely on a combination of the protections provided by applicable patent, trademark, copyright, and trade secret laws, as well as
on confidentiality procedures and other contractual arrangements, to establish and protect our rights in our technology, and related
materials and information. We enter into agreements with our customers and distributors. These agreements contain confidentiality
and non-disclosure provisions, a limited warranty covering our products, and indemnification for the customer from infringement
actions related to our products.
Despite our efforts, it may be possible for others to copy portions of our products, reverse engineer them, or obtain and use
information that we regard as proprietary, all of which could adversely affect our competitive position. Furthermore, there can be
no assurance that our competitors will not independently develop technology similar to ours. The laws of certain countries in which
we manufacture do not protect our intellectual property ("IP") rights to the same extent as the laws of the United States. In the
Office of the United States Trade Representative (“USTR”) annual "Special 301" Report released in April 2018, the adequacy and
effectiveness of intellectual property protection in a number of foreign countries were analyzed.
A number of countries in which we manufacture are identified in the report as being on the Priority Watch List. In China, for
instance, the USTR is concerned about the urgent need to remediate a range of IP-related concerns, including trade secret theft,
online piracy and counterfeiting, the high-volume manufacture and export of counterfeit goods, technology transfer requirements
imposed as a condition to access the Chinese market, the mandatory application of adverse terms to foreign IP licensors, and IP
ownership and research and development localization requirements. Structural impediments to administrative, civil, and criminal
IP enforcement are also problematic. The USTR also expressed concern that in India there is a lack of sufficient measurable
improvements to its IP framework on long standing and new challenges that have negatively affected U.S. right holders over the
past year. Other countries in which we do business were also identified because of problems in intellectual property enforcement.
The absence of harmonized intellectual property protection laws and effective enforcement makes it difficult to ensure consistent
respect for patent, trade secret, and other intellectual property rights on a worldwide basis. As a result, it is possible that we will
not be able to enforce our rights against third parties that misappropriate our proprietary technology in those countries.
The success of our business is highly dependent on maintenance of intellectual property rights.
The unauthorized use of our IP rights may increase the cost of protecting these rights or reduce our revenues. We seek to protect
trade secrets and our other proprietary technology, in part, by requiring each of our employees to enter into non-disclosure and IP
assignment agreements. In these agreements, the employee agrees to maintain the confidentiality of all of our proprietary information
and, subject to certain exceptions, to assign to us all rights in any proprietary information or technology made, or contributed, by
the employee during his or her employment. Generally, we do not enter into non-compete arrangements with our employees, with
the exception of certain executives and, in some cases, one or more of the principals of the businesses that we acquire.
All of these types of agreements may be breached or be found unenforceable, and we may not have an adequate remedy for any
such breach of, or inability to enforce, these agreements. We may initiate, or be subject to, claims or litigation for infringement of
proprietary rights, or to establish the validity of our proprietary rights, which could result in significant expense to us, cause product
shipment delays, require us to enter royalty or licensing agreements, and divert the efforts of our technical and management
personnel from productive tasks, whether or not such litigation were determined in our favor.
We may be exposed to product liability claims.
While our agreements with our customers and distributors typically contain provisions designed to limit our exposure to potential
material product liability claims, including appropriate warranty, indemnification, damages waiver, and limitation of liability
provisions, it is possible that such provisions may not be effective under the laws of some jurisdictions, thus exposing us to
substantial liability. Moreover, defending a suit, regardless of its merits, could entail substantial expense, and require the time and
attention of key management personnel. If product liability claims are brought against us, the costs associated with defending such
claims may adversely affect our results of operations and future cash flows.
We must expend significant resources to obtain design wins without assurance that we will be successful.
In many cases, we must initiate communication with our customers, and convince the customer that our products and systems will
offer solutions for its business that are technically superior and more cost effective compared to their existing arrangements. To
do so, we must often expend significant financial and human resources to develop technologically compelling products or systems
with no guarantee that they will be adopted by our customers. The non-recurring engineering (“NRE”) costs for product development
in these cases could be substantial, and may adversely affect our profitability if we are unable to recover these costs.
Also, customers will often require a lengthy period of on-site testing before committing to purchase a product or system, during
which period we will not receive material revenue from the customer. While a design win for our products and systems may result
in a long period of recurring revenue during which we hope to recover our costs, we must often internally finance our development
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.
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The long development times for certain of our products and systems may result in unpredictable fluctuations in revenue and results
of operations.
Our force sensor products, and weighing and control systems, often have long product development cycles, both to develop the
product or system and to secure customer acceptance following what may be a lengthy on-site testing period. During product
development and testing, we may incur substantial costs without corresponding revenues. If our custom product or system is
ultimately accepted by the customer, we may then begin to realize substantial revenues from our development efforts.
In particular, our weighing and control systems can be priced for several hundred thousand dollars per unit, so that a contract to
acquire one or more units can materially contribute to our revenues during the period or periods that we are permitted to recognize
the contract revenues for accounting purposes. The nature of our weighing and control products and systems, and in particular,
the products and systems manufactured by the steel business, may therefore result in substantial fluctuations in our operating
results, including revenues and profitability, from period to period, even though there has been no fundamental change in our
business or its prospects. Further, customers may request a delay in shipping a product they have ordered due to changes in their
business needs, which may delay the revenue recognition for the product until shipment occurs. This may make it difficult for
investors to undertake period-to-period comparisons of our performance. Also, the fluctuating nature of key components of our
revenues may limit the visibility of our management regarding performance in future periods, and make it more difficult for our
management to provide guidance to our investors.
We may not have adequate facilities to satisfy future increases in demand for our products.
Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. During such
periods, we may have difficulty expanding our manufacturing capacity to satisfy demand. Factors which could limit such expansion
include delays in procurement of manufacturing equipment, shortages of skilled personnel, and physical constraints on expansion
at our facilities. If we are unable to meet our customers’ requirements and our competitors sufficiently expand production, we
could lose customers and/or market share. These losses could have an adverse effect on our financial condition and results of
operations. Also, capacity that we add during upturns in the business cycle may result in excess capacity during periods when
demand for our products recedes, resulting in inefficient use of capital, adversely affecting our business.
The nature of the market for our products may render them particularly susceptible to downturns in the economic environment.
Our products are designed to replace and provide superior functionality over existing product infrastructure utilized by our
customers. Often, it is only after introductory demonstrations by our sales and engineering teams that our customers come to
appreciate the advantages of our products and systems, and the long-term benefits of their adoption. An economic downturn or
extended period of economic uncertainty may make customers less receptive to adopting new technological solutions at our
suggestion - even ones with demonstrated operational and financial advantages. During these periods, customers may defer, or
even cancel, orders for products and systems for which they have previously contracted, or given indications of interest.
Also, because our business is concentrated largely in the industrial sector, we do not benefit from countervailing fluctuations in
consumer demand. As a result, our business may be more significantly affected by the consequences of a general economic
slowdown than other segments of our industry, and may also take longer to recover from the effects of a slowdown.
Our backlog is subject to customer cancellation.
Many of the orders that comprise our backlog may be canceled by our customers without penalty. Our customers, particularly for
our foil technology products, often cancel orders when business is weak and inventories are excessive, a situation that we have
previously experienced during periods of economic slowdown. Therefore, we cannot be certain that the amount of our backlog
accurately forecasts the level of orders that will ultimately be delivered. Our results of operations could be adversely impacted if
customers cancel a material portion of orders in our backlog.
The complexity of our sophisticated weighing and control systems may require costly corrections if design flaws are found.
Our weighing and control systems combine sophisticated electronic hardware and computer software. We believe that the
sophistication of our systems contributes to their competitive advantage over similar products offered by other system integrators.
We go to substantial lengths to assure that our systems are free of design flaws when they are delivered to our customers for
installation and testing. However, due to the systems’ complexity, design flaws may occur and require correction. If the requisite
corrections are substantial, or difficult to implement due to the systems’ complexity, we may not be able to recover the costs of
correction and retesting, with the result that our profit margins on these systems could be substantially reduced, or even negated
by losses, and our results of operations could be materially and adversely affected.
Our results are sensitive to raw material availability, quality, and cost.
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.
- 15 -
Alternative suppliers are available worldwide for most of our raw materials, but significant time (up to 12 months) would be
required to qualify new suppliers and establish efficient production scheduling.
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price
volatility.
Our results of operations may be materially and adversely affected if we have difficulty obtaining certain raw materials, if the
quality of available raw materials deteriorates, if there are significant price changes for these raw materials, or if compliance with
the laws and regulations described below proves costly and time-consuming. For periods in which the prices of these raw materials
are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the
products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory
carrying cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the
difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings.
We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.
Pursuant to the SEC’s “conflict minerals” rules, reporting companies that determine that certain metals, dubbed “conflict minerals”
by the SEC (which include tantalum, gold, tin, and tungsten sourced from the Democratic Republic of the Congo or adjoining
countries), are necessary to the functionality or production of a product they manufacture, or contract to have manufactured, must
file a specialized disclosure form with the SEC. We use raw materials that are subject to conflict minerals rules. The compliance
with the SEC's related disclosure requirements may affect the sourcing and availability of minerals used in the manufacture of our
products. Also, because our supply chain is complex, we may face reputational challenges with our customers and other stakeholders
if we are unable to materially verify the origins of all "in scope" metals used in our products.
Our product sales may be adversely affected by changes in product classification levels under various qualification and specification
standards.
Certain of our products must be qualified or approved under various military and aerospace specifications and other standards.
We have qualified certain of our foil resistor products under various military specifications approved and monitored by the DLA,
and under certain European military specifications, and various aerospace standards approved by NASAand the ESA. Qualification
and specification levels are based in part upon product failure rate. We must continuously perform tests on our products, and for
products that are qualified, the results of these tests must be reported to the qualifying organization. Certain of our force sensor
products are approved by the NTEP and OIML. Our on-board weighing systems must meet approved standards to make them
legal-for-trade. If a product fails to meet the requirements for the applicable classification level or other approval, the product’s
classification or approval may be suspended or reduced to a lower level. During the time that the classification is suspended or
reduced to a lower level, net revenues and earnings attributable to that product may be adversely affected.
Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing,
finance, and administrative personnel.
The competitive environment of our business requires us to attract and retain highly qualified personnel to develop technological
innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified
administrative personnel in functions such as legal, tax, accounting, business development, financial reporting, and treasury. The
market for personnel with such qualifications is highly competitive. We have not entered into employment or non-competition
agreements with many of our key personnel.
The loss of the services of, or the failure to effectively recruit, qualified personnel, including for key executive positions, could
have a material adverse effect on our business.
Failure to maintain effective internal control over financial reporting could adversely affect our ability to meet our reporting
requirements.
Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial
reports, and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because
of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore,
even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and
fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and
effectively prevent fraud, our operating results could be harmed. In the past, we experienced a material weakness in our internal
control over financial reporting related to deficiencies in our internal control structure arising out of our significant change in size,
complexity and structure due to multiple restructurings and acquisitions. We have since remediated the material weakness through
updates to our control activities documentation and process in numerous locations and improved processes related to monitoring
of the design and effectiveness of internal controls. If we fail to maintain the effectiveness of our internal control over financial
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.
- 16 -
We are exposed to, and may be adversely affected by, interruptions to our computer and information technology systems and
sophisticated cyber-attacks.
We rely on our information technology systems and networks in connection with many of our business activities. Some of these
networks and systems are managed by third party service providers and are not under our direct control. Our operations routinely
involve receiving, storing, processing, and transmitting sensitive information pertaining to our business, customers, suppliers,
employees, and other sensitive matters. Any cyber incidents could materially disrupt operational systems; result in loss of trade
secrets or other proprietary or competitively sensitive information; compromise personally identifiable information regarding
customers or employees; and jeopardize the security of our facilities. Because techniques used to obtain unauthorized access, or
to sabotage systems, change frequently and generally are not recognized until they are launched against a target, we may be unable
to anticipate these techniques, or to implement adequate preventative measures. Information technology security threats, including
security breaches, computer malware, and other cyber-attacks are increasing in both frequency and sophistication, and could create
financial liability, subject us to legal or regulatory sanctions, or damage our reputation with customers, suppliers, and other
stakeholders. We continuously seek to maintain a robust program of information security and controls, but the impact of a material
information technology event could have a material adverse effect on our competitive position, reputation, results of operations,
financial condition, and cash flows.
Interruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our
business. Any significant system or network disruption, including, but not limited to, new system implementations, computer
viruses, security breaches, facility issues or energy blackouts could have a material adverse impact on our operations and results
of operations. Such network disruption could result in a loss of the confidentiality of our intellectual property or the release of
sensitive competitive information or customer or employee personal data. Any loss of such information could harm our competitive
position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the
disruptions or security breaches. We have implemented protective measures to prevent against and limit the effects of system or
network disruptions, but there can be no assurance that such measures will be sufficient to prevent or limit the damage from any
future disruptions and any such disruption could have a material adverse impact on our business and results of operations.
Third-party service providers, such as subcontractors, distributors and vendors have access to certain portions of our sensitive
data. In the event that these service providers do not properly safeguard our data that they hold, security breaches and loss of our
data could result. Any such loss of data by our third-party service providers could have a material adverse impact on our business
and results of operations.
Future changes in our environmental liability and compliance obligations may harm our ability to operate or increase costs.
Our manufacturing operations, products and/or packaging are subject to environmental laws and regulations governing air
emissions, wastewater discharges, the handling, disposal, and remediation of hazardous substances, wastes, and certain chemicals
used or generated in our manufacturing processes, workplace health and safety labeling, or other notifications with respect to the
content, or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects
of our products or packaging, and responsibility for disposal of products or packaging. New liabilities could arise, and we may
have unavoidably inherited certain pre-existing environmental liabilities, generally based on successor liability doctrines. Although
we have never been involved in any environmental matter that has had a material adverse impact on our overall operations, there
can be no assurance that in connection with any past or future operation, acquisition or otherwise, we will not be obligated to
address environmental matters that could have a material adverse impact on our operations. In addition, more stringent
environmental regulations may be enacted in the future, and we cannot presently determine the modifications, if any, in our
operations that any such future regulations might require, or the cost of compliance with these regulations.
Our credit facilities subject us to financial and operating restrictions.
We maintain revolving credit agreements and term loans with banks that we use, or may use, for working capital, acquisition
financing, and other purposes. These credit facilities subject us to certain restrictions which may affect, and in some cases
significantly limit or prohibit, among other things, our ability to:
borrow additional funds;
pay dividends or make other distributions;
repurchase our common stock;
•
•
•
• make investments, including capital expenditures;
•
•
complete acquisitions;
engage in transactions with affiliates or subsidiaries; or
- 17 -
•
create liens on our assets.
Our primary credit facility requires us to maintain certain financial ratios. If we fail to comply with the covenant restrictions
contained in the credit facility, that failure could result in termination of the facility, and all amounts outstanding could become
immediately payable.
Unexpected events, such as a natural disaster, could disrupt our operations and adversely affect our results of operations.
We have manufacturing and other facilities in countries around the world. Unexpected events, including fires or explosions at
facilities; natural disasters, such as flooding, hurricanes, and earthquakes; war or terrorist activities; civil unrest; unplanned outages;
supply or labor disruptions; and failures of equipment or systems at any of our facilities could adversely affect our results of
operation. If adverse conditions were to arise with respect to any of our facilities as a result of a natural disaster or other unexpected
event, they may result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of
one or more key operating facilities, the temporary disruptions of information systems, and/or an adverse effect on our results of
operations.
A significant portion of our cash and cash equivalents and short-term investments balances were held by our non-U.S. subsidiaries.
We generate a significant amount of cash and profits from our non-U.S. subsidiaries. As of December 31, 2019, $80.5 million of
our cash and cash equivalents and short-term investments were held by subsidiaries outside of the United States.
The Tax Cuts and Jobs Act (“2017 Tax Act”), enacted on December 22, 2017, transitioned the U.S. from a worldwide tax system
to a modified territorial tax system. Under previous law, companies could indefinitely defer U.S. income taxation on unremitted
foreign earnings. The 2017 Tax Act imposes a one-time transition tax on deferred foreign earnings of 15.5% for liquid assets and
8% for illiquid assets, payable in defined increments over eight years. In 2017, we provided a provisional amount of $0.2 million.
After finalizing the amount of earnings and profits subject to the transition tax and our foreign tax credit calculation in 2018, we
determined the final current portion of transition tax to be immaterial. We did not need to repatriate amounts from our non-U.S.
subsidiaries to the United States to satisfy this tax obligation.
These previously deferred foreign earnings may now be repatriated to the United States with little to no additional U.S. federal
taxation. However, any such repatriation could incur local withholding tax in the source and intervening foreign jurisdictions.
These amounts could also be subject to certain U.S. state taxes.
Changes in our tax rate or exposure to additional income tax liabilities could affect our profitability. In addition, audits by tax
authorities could result in additional tax payments for prior periods.
We are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject
to the allocation of income among various tax jurisdictions. Our effective tax rate can be affected by changes in the mix of earnings
in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the
valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities, the results of audits and examinations
of previously filed tax returns, and changes in tax laws.
Any of these factors may adversely affect our tax rate and decrease our profitability. The amount of income taxes we pay is subject
to audit by U.S. federal, state, local, and foreign tax authorities. If these tax audits result in assessments, our future results may
be unfavorably impacted.
As a global business, we have a complex tax structure, and there is a risk that the tax authorities will disagree with our transfer
pricing.
We are subject to complex transfer pricing regulations in the U.S. and foreign countries in which we operate. Transfer pricing
regulations generally require that transactions between related companies be determined comparable to transactions on an arm’s
length basis and that contemporaneous documentation be maintained to support the pricing used. Although transfer pricing standards
are generally similar in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent
subjectivity in complying with these requirements. This topic has received additional scrutiny in recent years, including the
Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. To the extent that any tax
authority disagrees with our transfer pricing practices, we could incur significant costs to defend our position and could be subject
to significant additional tax liabilities, interest, and penalties.
We may not be able to realize our deferred tax assets which would adversely impact tax expense in future periods.
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
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deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to
a level that is expected to be realized. If we subsequently determine that realization becomes "more likely than not", a valuation
allowance will be reversed. Any increase or decrease in our valuation allowances could have a significant impact on our financial
results.
We use the mark Vishay under license from Vishay Intertechnology, which could result in product and market confusion.
We use the mark Vishay as part of our name and in connection with many of our products. Our use of the Vishay mark is governed
by an agreement between us and Vishay Intertechnology, giving us a perpetual, royalty-free, worldwide license for the use of the
mark. We believe that it is important that we continue the use of the Vishay name, to a certain extent, in order to benefit from the
reputation of the Vishay brand, which was first used in connection with our foil resistors and strain gages when Vishay
Intertechnology was founded over 50 years ago.
There are risks associated with our use of the Vishay mark, however, both for us and for Vishay Intertechnology. Because both we,
and Vishay Intertechnology, use the Vishay mark, confusion could arise in the market regarding the products offered by the two
companies, and there could be a misplaced perception of our continuing to be associated with Vishay Intertechnology. Also, any
negative publicity associated with one of the two companies in the future could adversely affect the public image of the other.
Finally, Vishay Intertechnology will have the right to terminate the license agreement, in certain extreme circumstances, if we are
in material and repeated breach of the terms of the agreement, which would likely have an adverse effect on us and our business.
Risks relating to our operations outside the United States
We attempt to improve profitability by operating in countries in which manufacturing efficiencies may be achieved, but the shift
of operations to these regions may entail considerable expense.
Our strategy is aimed at achieving significant production cost savings through the transfer and expansion of manufacturing
operations to and in countries in which we have existing capacity, as well as countries with lower production costs or other benefits,
such as India. During this process, we may experience under-utilization of certain plants and factories in higher-cost regions, and
capacity constraints in plants and factories located in lower-cost regions. Also, we may experience delays in the expected transition
from a higher-cost location to a lower-cost one that results in greater than expected use of the higher-cost facility. This transitional
utilization may result initially in production inefficiencies and higher costs. These costs include those associated with compensation
in connection with workforce reductions and plant closings in the higher-cost regions, start-up expenses, manufacturing and
construction delays, and increased depreciation costs in connection with the initiation or expansion of production in lower-cost
regions. In addition, as we implement transfers of certain of our operations, we may experience strikes or other types of labor
unrest as a result of layoffs or termination of our employees in higher-cost countries.
In connection with the transfer of manufacturing operations to lower-cost countries, and upgrading of existing facilities in higher-
cost countries, we are also increasing the level of automation in our plants to optimize our capital and labor resources in production,
inventory management, quality control, and warehousing. Although we have substantial experience with automation in several of
our plants in higher-cost countries, there are risks in automating plants which previously did not use a significant amount of
automation, including the possibility of inefficiencies and higher operating costs in the transition from manual to automated
operations. If the transition extends longer than anticipated, we could suffer product yield inefficiencies, contributing to higher
product costs and increasing the time it will take for us to achieve a return on our investment in the capital equipment involved in
the automation process. Furthermore, any layoffs or termination of our employees as a result of increased automation may lead
to strikes or other types of labor unrest. If we experience these types of inefficiencies, they could have an adverse effect on our
operating results, customer relationships, and financial condition.
We conduct a significant amount of business in the European Union, including in England, and our operations may be affected
by the departure of the United Kingdom from the European Union.
On June 23, 2016, the citizens of the United Kingdom approved a referendum to leave the European Union (“Brexit”), which led
to significant market volatility around the world, as well as political, economic and legal uncertainty. In addition, the Brexit vote
triggered a devaluing of the pound sterling relative to the euro and the U.S. dollar, and in Europe we generally sell our products
and incur expense in local currencies including the pound sterling and the euro, but incur exchange rate gains and losses for U.S.
dollar denominated assets and liabilities including intercompany and third-party accounts receivables and payables. This exposure
to movements in foreign currency exchange rates relative to some of these U.S. dollar denominated balances may result in an
adverse impact on our results of operations.
The long-term nature of the United Kingdom’s relationship with the European Union is unclear and there is considerable uncertainty
when any relationship will be agreed and established. Withdrawal from the European Union is controversial in the United Kingdom
notwithstanding the 2016 vote.In January 2020, the United Kingdom and the European Union approved of an agreement between
the United Kingdom and the European Union, and the United Kingdom officially departed from the European Union. On February
1, 2020, the United Kingdom entered into a transition and implementation period, during which all European Union laws regulations,
- 19 -
court decisions, trading agreements and other obligations continue to apply to the United Kingdom. During this period, which is
set to expire on December 31, 2020, the United Kingdom and the European Union will negotiate additional terms. At this stage,
it is uncertain what the final results of these negotiations will be and, given the lack of comparable precedent, it is unclear how
Brexit, will affect economic conditions in the United Kingdom, the European Union, or globally. Because we have sales throughout
the European Union and offices in England and throughout the European Union, it is possible that Brexit may require us to
restructure our European operations, and depending on what is negotiated, could impair our ability to transact business in other
countries in the European Union.
Significant developments from the recent and potential changes in tariffs, trade regulation or other restrictions may adversely
impact our business, financial condition and results of operations.
We have manufacturing operations in China, Europe, Canada, Israel and the United States, as well as in other countries. Significant
tariffs or other restrictions which are placed on Chinese, European, Canadian or Israeli imports to the United States, or any related
counter-measures which are taken by the countries involved, may materially harm our revenues and results of operations. Examples
of recent actions are Section 232 tariffs on steel and aluminum product imports announced by the U.S. Department of Commerce
in March 2018, and Section 301 tariffs on certain products that originate in China announced by the United States Trade
Representative that first started in June 2018 and now are in four separate lists with varying tariff increases.
Despite recent progress on the first-phase of an agreement with China, the current U.S. administration continues to signal that it
may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose
additional tariffs on imports from China. We are implementing operational changes that we intend to mitigate these recent tariff
increase actions.
These new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign
governments have instituted or are considering imposing trade sanctions on certain U.S. goods. We cannot predict future trade
policy or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade
restrictions, the occurrence of a trade war, or other governmental actions related to tariffs, quotas, duties, taxes or trade agreements
or policies has the potential to adversely impact demand for our products, our costs, our customers, and our suppliers, which in
turn could adversely impact our business, financial condition and results of operations.
We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which
we operate.
Some of our products are produced in Israel, India, China, and other countries which are particularly subject to risks of political,
economic, health (including the COVID-19 "coronavirus")and military instability. This instability could result in wars, riots,
nationalization of industry, currency fluctuations, and labor unrest or unavailability. These conditions could have an adverse impact
on our ability to manufacture, ship and operate in these regions and, depending on the extent and severity of these conditions,
could result in a reduction in customer orders and sales to certain regions and end-markets and materially and adversely affect our
overall financial condition and operating results.
We have principal manufacturing facilities and operations located in Israel. Accordingly, our business will be directly influenced
by the political, economic and military conditions affecting Israel at any given time. Since the establishment of the State of Israel in
1948, a number of armed conflicts have occurred between Israel and its neighboring countries. We have never experienced any
material interruption in our operations attributable to these factors, in spite of several Middle East crises, including wars. A change
in the security and political situation in Israel and in the economy could have a material adverse effect on our business, operating
results and financial condition.
We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and/or business.
Our business could be adversely impacted by the effects of the COVID-19 “coronavirus” outbreak originating in China, or by
other health epidemics or pandemics. We currently rely on our Chinese facility to manufacture load cells. Accordingly, there is a
risk that supplies of our product and services may be significantly delayed by or may become unavailable as a result of COVID-19
or other health epidemic. Although currently there has been no material impact on our operations and we have mitigation plans in
place, there can be no assurance that operations would not be negatively impacted in the future. Such impacts might include
disruptions in our ability to manufacture products and disruptions in the operations of our business, resulting in negative impacts
on our financial condition and results of operations.
Operational difficulties, including those associated with a planned new facility in Israel, could adversely impact our business.
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We have entered into a long term lease for property in Israel on which a new approximately 121,400 square foot facility will be
constructed. We intend to consolidate certain of our operations in Israel in this facility, including expanding the capability of our
advance sensors product line. Any delay in constructing and opening this new facility and in consolidating our operations could
adversely affect our future business and results of operations. We cannot guarantee that this facility will be completed in a timely
manner or that the consolidation of operations in Israel will be completed successfully.
We are subject to foreign currency exchange rate risks which may impact our results of operations.
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than
the functional currencies of certain subsidiaries.
Our significant foreign subsidiaries are located in the United Kingdom, Canada, Germany, Israel, Japan, and India. Our operations
in Europe, Canada and certain locations in Asia primarily generate and expend cash in local currencies. Our operations in Israel
and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant transactions in
local currencies. Our exposure to foreign currency exchange rate risk is more pronounced in situations such as our operations in
Canada, India, Israel, and China - where costs, such as production labor costs are predominantly paid in local currencies while the
sales revenue for those products is predominantly denominated in U.S. dollars.
As of December 31, 2019, we did not have in place any arrangements to mitigate or hedge against exposures relating to fluctuations
in foreign currency exchange rate.
A change in the mix of the currencies in which we transact our business could have a material effect on results of operations.
Furthermore, the timing of cash receipts and disbursements could have a material effect on our results of operations, particularly
if there are significant changes in exchange rates in a short period of time.
Our global operations are subject to extensive anti-corruption laws and other regulations.
The U.S. Foreign Corrupt Practices and similar foreign anti-corruption laws generally prohibit companies and their intermediaries
from making improper payments or providing anything of value to improperly influence foreign government officials for the
purpose of obtaining or retaining business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the
global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in
developing countries, could increase the risk of such violations under other regulations relating to limitations on or licenses required
for sales made to customers located in certain countries. Violations of these laws may result in severe criminal or civil sanctions,
could disrupt our business, and result in a material adverse effect on our reputation, business and results of operations or financial
condition.
Risks Relating to Our Common Stock
Our stock price could become more volatile and investments could lose value.
The market price of our common stock, and the number of shares traded each day, has experienced significant fluctuations and
may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including,
but not limited to:
•
•
•
•
•
•
•
•
shortfalls in our expected net revenue, earnings or key performance metrics;
changes in recommendations or estimates by securities analysts;
the announcement of new products by us or our competitors;
quarterly variations in our or our competitors’ results of operations;
a change in our dividend or stock repurchase activities;
developments in our industry or changes in the market for technology stocks;
changes in rules or regulations applicable to our business; and
other factors, including economic instability and changes in political or market conditions.
A significant drop in our stock price could expose us to costly and time consuming litigation, which could result in substantial
costs, and divert management’s attention and resources, resulting in an adverse effect on our business.
Also, given our market capitalization and trading volume fluctuations, it is possible that there will be less market and institutional
interest in our shares, and that we will not attract substantial coverage in the analyst community. As a result, the trading market
for our shares may be less liquid, making it more difficult for investors to dispose of their shares at favorable prices, and investors
may have less independent information and analysis available to them concerning our company.
The holders of Class B convertible common stock have effective voting control of our company.
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
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share held. The ownership of Class B convertible common stock is highly concentrated, and holders of Class B convertible common
stock effectively can cause the election of directors and the approval/or disapproval of other matters requiring stockholder approval.
Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of, the voting
of approximately 76.9% of our Class B convertible common stock, representing 34.6% of the total voting power of our capital
stock as of December 31, 2019.
Your percentage ownership of our common stock may be diluted in the future.
Your percentage ownership of our common stock may be diluted in the future because of equity awards that we expect will be
granted to our directors, officers, and employees. The Vishay Precision Group, Inc. 2010 Stock Incentive Program provides for
the grant of equity-based awards, including restricted stock, restricted stock units, stock options, and other equity-based awards
to our directors, officers, and other employees, advisors and consultants.
Certain provisions of our certificate of incorporation and bylaws may reduce the likelihood of any unsolicited acquisition proposal
or potential change of control that you might consider favorable.
Our bylaws contain provisions that could be considered “anti-takeover” provisions because they make it harder for a third party
to acquire us without the consent of our incumbent board of directors. Under these by-law provisions:
•
•
•
•
stockholders may not change the size of the board of directors or, except in limited circumstances, fill vacancies on the
board of directors;
stockholders may not call special meetings of stockholders;
stockholders must comply with advance notice provisions for nominating directors or presenting other proposals at
stockholder meetings; and
our Board of Directors, may without stockholder approval, issue preferred shares and determine their rights and terms,
including voting rights, or adopt a stockholder rights plan.
These provisions could have the effect of discouraging an unsolicited acquisition proposal or delaying, deferring, or preventing
a change of control transaction that might involve a premium price or otherwise be considered favorable by our stockholders.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our business has approximately 19 principal locations. Our facilities include owned locations and locations leased from third
parties. The principal locations, along with available space including administrative offices, are listed below:
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)
Poestenkill, New York
Chartres, France
Weighing and Control Systems
Foil Technology Products
Weighing and Control Systems
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
Teltow, Germany
Degerfors, Sweden
Foil Technology Products
Weighing and Control Systems
Malvern, Pennsylvania USA
Corporate
Approx. Available
Space (square feet)
147,000
129,000
97,000
75,000
47,000
46,000
32,000
11,000
11,000
65,000
34,000
26,000
24,000
18,000
16,000
13,000
11,000
10,000
8,000
(a) The Chennai building is owned and the land is held under a 99 year lease (which began in 2012).
(b) A facility on the campus is leased to Vishay Intertechnology. Approximate available space reported above excludes the area leased.
In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our
present needs. We do not anticipate difficulty in renewing leases as they expire, or in finding alternative facilities.
On February 17, 2019, one of our indirect wholly-owned subsidiaries entered into a lease agreement as tenant related to a property
in Israel. Such lease agreement provides that we will lease a new building containing approximately 121,400 square feet that will
be built by the landlord.
Our corporate headquarters are located at 3 Great Valley Parkway, Suite 150, Malvern, PA 19355.
Item 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings that constitute ordinary, routine litigation incidental to our business. In our opinion,
the disposition of these proceedings will not have a material adverse effect on our business or our financial condition, results of
operations, and cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
- 23 -
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol VPG. The Board of Directors may only declare
dividends or other distributions with respect to the common stock or the Class B convertible common stock if it grants such
dividends or distributions in the same amount, per share, with respect to the other class of stock. Stock dividends or distributions,
on any class of stock, are payable only in shares of stock of that class. Shares of either common stock or Class B convertible
common stock cannot be split, divided, or combined unless the other is also split, divided, or combined equally. Holders of record
of our common stock totaled approximately 733 at March 11, 2020.
We have two classes of common stock: common stock and Class B convertible common stock. The holders of common stock are
entitled to one vote for each share held, while the holders of Class B convertible common stock are entitled to 10 votes for each
share held. At March 11, 2020 we had outstanding 1,022,887 shares of Class B convertible common stock, par value $0.10 per
share. Currently, the holders of VPG’s Class B convertible common stock hold approximately 45.0% of the voting power of our
Company. Mrs. Ruta Zandman, the wife of the late founder of our technology, Dr. Felix Zandman, controls, or shares control of,
the voting of approximately 76.9% of our Class B convertible common stock, representing 34.6% of the total voting power of our
capital stock as of December 31, 2019.
- 24 -
Stock Performance Graph
The graph and table below compare the cumulative total stockholder return on the Company’s common stock over a sixty month
period, with the returns on the Russell 2000 Stock Index, and a peer group of companies selected by our management. The peer
group is made up of six publicly held manufacturers of sensors, sensor-based equipment, and sensor-based systems. Management
believes that the product offerings of the peer group companies are more similar to our product offerings than those of the companies
contained in any published industry index. The return of each peer issuer has been weighted according to the respective issuer’s
stock market capitalization. The graph and table assume that $100 had been invested at December 31, 2014, and that all dividends
were reinvested. The graph and table are not necessarily indicative of future investment performance.
Vishay Precision Group, Inc.
Cumulative $
Russell 2000 Index
Peer Group *
Cumulative $
Cumulative $
100.00
100.00
100.00
65.97
95.59
97.08
110.14
115.95
103.21
146.56
132.94
140.08
176.17
118.30
125.61
198.14
148.49
166.88
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
*The management selected peer group includes: MTS Systems, Kyowa Electronic Instruments, Mettler – Toledo, Spectris, Sensata Technologies, CTS Corp.
- 25 -
Item 6. SELECTED FINANCIAL DATA
The following table presents our selected historical financial data. The statements of operations data for each of the five years
ended December 31, 2019 and the balance sheet data as of December 31, 2019, 2018, 2017, 2016, and 2015 have been derived
from our audited consolidated financial statements.
The data should be read in conjunction with our historical financial statements and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included elsewhere in this document.
(in thousands, except per share amounts)
2019
As of and for the years ended December 31,
2017
2016
2018
2015
Statement of Operations Data:
Net revenues
Costs of products sold
Gross profit
$ 283,958
172,341
111,617
$ 299,794
178,527
121,267
$ 254,350
156,067
98,283
$ 224,929
142,120
82,809
$ 232,178
147,949
84,229
Selling, general, and administrative expenses
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Executive severance costs
Restructuring costs
Operating income
79,622
443
—
611
2,293
28,648
80,935
—
2,820
—
289
37,223
73,751
—
—
—
2,044
22,488
68,382
494
—
—
2,666
11,267
71,282
185
4,942
—
4,461
3,359
Other income (expense):
Interest expense
Other
Other expenses - net
Income before taxes
Income tax expense
Net earnings (loss)
Less: net earnings (loss) 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
(1,507)
(701)
(2,208)
(1,738)
(1,496)
(3,234)
(1,842)
(83)
(1,925)
(1,486)
(174)
(1,660)
(771)
(2,082)
(2,853)
26,440
33,989
20,563
9,607
506
4,145
10,344
6,169
3,199
13,500
22,295
23,645
14,394
6,408
(12,994)
$
$
$
$
107
22,188
1.64
1.63
13,515
13,597
86,910
370,413
17
123,650
241,360
$
$
$
$
(1)
23,646
1.76
1.75
13,439
13,535
90,159
326,383
22,421
160,088
218,415
$
$
$
$
49
14,345
1.08
1.07
13,262
13,471
74,292
306,551
28,477
139,400
193,156
$
$
$
$
4
6,404
14
$ (13,008)
0.49
0.48
$
$
(0.96)
(0.96)
13,187
13,419
13,485
13,485
58,452
270,510
33,529
118,952
171,383
$
62,641
263,747
31,037
121,065
172,256
- 26 -
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, 2019 were $284.0 million compared to net revenues of $299.8 million for the year
ended December 31, 2018. Net earnings attributable to VPG stockholders for the year ended December 31, 2019 were $22.2
million, or $1.63 per diluted share, compared to $23.6 million, or $1.75 per diluted share, for the year ended December 31, 2018.
The results of operations for the years ended December 31, 2019 and 2018 include items affecting comparability as listed in the
reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance with
U.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted
operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share. These non-GAAP
measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross
profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted
net earnings per diluted share do not have uniform definitions. These measures, as calculated by VPG, may not be comparable
to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors
because each presents what management views as our core operating performance for the relevant period. The adjustments to the
applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that
the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends
across comparable periods.
In addition, the Company has historically provided these or similar non-GAAP measures and
understands that some investors and financial analysts find this information helpful in analyzing the Company’s performance and
in comparing the Company’s financial performance to that of its peer companies and competitors. Management believes that the
Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results.
- 27 -
The items affecting comparability are (dollars in thousands, except per share amounts):
Gross Profit
Operating Income
Net Earnings
Attributable to VPG
Stockholders
Diluted Earnings Per
share
Fiscal Year Ended December 31,
2019
2018
2019
2018
2019
2018
2019
2018
As reported - GAAP
111,617
121,267
28,648
37,223
$
22,188
$
23,646
$
1.63
$
1.75
As reported - GAAP Margins
39.3%
40.5%
10.1%
12.4%
Acquisition purchase accounting
adjustments (a)
Acquisition costs (b)
Executive Severance costs (c)
Impairment of goodwill and indefinite-lived
intangibles
Restructuring costs
UK pension settlement (d)
Less: Tax effect of reconciling items and
discrete tax items (e)
1,254
—
1,254
443
611
—
2,293
—
—
—
2,820
289
1,254
443
611
—
2,293
—
3,743
—
—
—
2,820
289
673
(333)
As Adjusted - Non GAAP
$ 112,871
$ 121,267
$ 33,249
$ 40,332
$
23,046
$
27,761
$
As Adjusted - Non GAAP Margins
39.7%
40.5%
11.7%
13.5%
0.09
0.03
0.04
—
0.17
—
0.27
1.69
—
—
—
0.21
0.02
0.05
(0.02)
2.05
$
(a) Acquisition purchase accounting adjustments in 2019 include fair market value adjustments associated with inventory recorded as a component of costs of
products sold.
(b) Acquisition costs associated with the acquisition of DSI in 2019.
(c)
Severance costs associated with the resignation of an executive officer of the Company in 2019.
(d)
In 2018, the Company incurred one-time settlement costs in connection with the de-risking of the pension plan in our UK location (see Note 9 to our
consolidated financial statements).
(e)
Included in the discrete items for 2019 is a $3.4 million tax benefit primarily related to the acquisition of DSI.
Financial Metrics
We utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business.
These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and
inventory turnover.
Gross profit margin is gross profit shown as a percentage of net revenues. Gross profit is generally net revenues less costs of
products sold, but could also include certain other period costs. Gross profit margin is clearly a function of net revenues, but also
reflects our cost-cutting programs and our ability to contain fixed costs.
End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released
by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control
their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without
the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered
during a period compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates
that demand is higher than current revenues and manufacturing capacities, and it indicates that we may generate increasing revenues
in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues
and current capacities and may foretell declining sales.
We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for
a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period
divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory
turnover reflects more efficient use of our capital.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business.
The following table shows net revenues, gross profit margin, the end-of-period backlog, the book-to-bill ratio, and the inventory
turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2018 and through the fourth
quarter of 2019 (dollars in thousands):
- 28 -
Net revenues
$
76,982
$
76,525
$
70,870
$
67,421
$
69,142
4th Quarter
2018
1st Quarter
2019
2nd Quarter
2019
3rd Quarter
2019
4th Quarter
2019
Gross profit margin
40.0%
43.2%
40.4%
38.3%
35.0%
End-of-period backlog
$
93,400
$
87,100
$
83,400
$
79,300
$
90,900
Book-to-bill ratio
Inventory turnover
0.93
2.89
0.92
2.77
0.94
2.66
0.96
2.60
1.15
2.72
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
2018
1st Quarter
2019
2nd Quarter
2019
3rd Quarter
2019
4th Quarter
2019
$
$
$
$
$
$
$
$
$
$
$
$
36,741
42.0%
48,700
0.88
3.07
16,998
26.6%
17,700
1.05
2.34
23,243
46.8%
27,000
0.92
3.36
$
$
$
$
$
$
37,049
44.7%
44,000
0.88
2.97
16,732
30.2%
17,400
0.98
2.29
22,744
50.2%
25,700
0.93
3.07
$
$
$
$
$
$
32,999
43.6%
42,100
0.93
2.65
16,349
26.9%
16,400
0.95
2.39
21,522
45.6%
24,900
0.95
3.03
$
$
$
$
$
$
32,119
37.3%
38,900
0.91
2.79
16,217
30.4%
15,200
0.94
2.30
19,085
46.6%
25,200
1.04
2.61
29,636
34.9%
44,600
1.18
2.66
15,059
24.2%
17,100
1.11
2.43
24,447
41.6%
29,200
1.15
3.10
Net revenues for the fourth quarter of 2019 increased 2.6% from the net revenues of $67.4 million reported in the third quarter of
2019, and decreased 10.2% from $77.0 million for the comparable prior year period.
Net revenues in the Foil Technology Products segment of $29.6 million in the fourth quarter of 2019 decreased 7.7% from $32.1
million in the third quarter of 2019, and decreased 19.3% from $36.7 million in the fourth quarter of 2018. The sequential decline
in revenue was attributable to precision resistor products in the test and measurement market. Compared to the fourth quarter of
2018, the decline in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and
EMS customers, primarily in the test and measurement and avionics, military and space markets.
Net revenues in the Force Sensors segment of $15.1 million in the fourth quarter of 2019 decreased 7.1% compared to revenues
of $16.2 million in the third quarter of 2019 due to lower volume attributable to OEM customers in the precision weighing and
force measurement markets in the Americas and Europe. Net revenues in the fourth quarter of 2019 decreased 11.4% compared
to $17.0 million in the fourth quarter of 2018 mainly due to lower volume attributable to distribution customers in the precision
weighing market across all regions.
- 29 -
Net revenues in the Weighing and Control Systems segment of $24.4 million in the fourth quarter of 2019 increased 28.1% from
$19.1 million in the third quarter of 2019 and increased 5.2% from $23.2 million in the fourth quarter of 2018. The sequential
increase in revenues was primarily attributable to the addition of DSI, with an increase in our European process weighing product
line along with an increase in the steel product line. Compared to the fourth quarter of 2018, the increase in net revenues was
primarily attributable to the addition of DSI in November 2019, which offset lower sales of steel, process weighing, and U.S.-
based onboard weighing products.
The gross profit margin for the fourth quarter of 2019 decreased 3.3% compared to the third quarter of 2019, and decreased 5%
from the fourth quarter of 2018.
Sequentially, gross profit margins declined in all reporting segments. In the Foil Technology Products segment, the decline in
gross profit margin was primarily due to lower volume, product mix, and one-time inventory reductions. In the Force Sensors
segment, the decline in gross profit margin was due to lower volume and a reduction in inventory. In the Weighing and Control
System segment, gross profit margin decreased due to recording $1.3 million of purchase accounting adjustments related to the
DSI acquisition. Excluding the purchase accounting adjustments of $1.3 million related to the DSI acquisition, the gross profit
margin would have been 46.8%, and increase of 0.2%, reflecting the higher volume attributable to the DSI acquisition.
Compared to the fourth quarter of 2018, gross profit margins declined in all reporting segments. In the Foil Technology Products
segment, the decline in gross profit margin was primarily due to lower volume and the negative impact of foreign exchange rates.
In the Force Sensors segment the lower gross profit margin was primarily due to lower volume and one-time inventory reductions,
which was partially offset by higher export grants. In the Weighing and Control Systems segment, gross profit margin decreased
due to recording $1.3 million of purchase accounting adjustments related to the DSI acquisition. Excluding the purchase accounting
adjustments of $1.3 million related to the DSI acquisition the gross profit margin would have been 46.8% which is the same as
the prior year period.
Optimize Core Competence
The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and
precision measurement sensors and sensor-based systems. Our foil technology resistors and strain gages are recognized as global
market leading products that provide high precision and high stability over extreme temperature ranges, and long life. Our force
sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision
measurements of force, weight, pressure, torque, tilt, motion, and acceleration. We continue to optimize all aspects of our
development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in
product performance and design; and refining our manufacturing processes.
Our foil technology research group developed innovations that enhance the capability and performance of our strain gages, while
simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique
foil technology will create new markets as customers “design in” these next generation products in existing and new applications.
Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve
productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality
foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved
quality and increased margins. As a sign of our commitment to these businesses, we recently signed a long term lease for a state
of the art facility to be constructed in Israel to move forward with our advanced sensors business.
Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations
to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products
within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing
customer needs and industry trends in terms of form, fit, and function.
We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing
operations in countries such as India, China, and Israel, where we can benefit from lower labor costs, improved efficiencies, or
available tax and other government-sponsored incentives. For example, in 2018 we incurred restructuring expense related to closing
and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities in India and China,
which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. In 2017,
we closed two leased facilities in the United States and moved to more cost effective locations.
- 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, continued this strategy. Additionally,
the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific acquisition significantly
broadened our existing data acquisition offerings and opened new markets for us. Our most recent acquisition, of DSI, expands
our position in the steel market. Along with our success in MEMS technology for on-board weighing, we expect to expand our
expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of
measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from
improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Research and Development
Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales
and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology
products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our
manufacturing base in order to ultimately improve our financial performance. The amount charged to expense for research and
development aggregated $12.1 million, $11.8 million, and $11.7 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
Cost Management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we
believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing.
We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient
and cost competitive, and also maintain tighter controls of the operation.
Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant
severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating
expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability
also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk
Factors” of this Annual Report on Form 10-K.
The Company recorded restructuring costs of $2.3 million, $0.3 million, and $2.0 million during the years ended December 31,
2019, 2018, and 2017, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including
severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of
other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's
force sensors products to facilities in India and China. In 2018 and 2017, restructuring costs were comprised primarily of employee
termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost
reduction programs.
We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require
us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising
caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
Foreign Currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional
currencies of certain subsidiaries. U.S. GAAP requires that entities identify the “functional currency” of each of their subsidiaries
and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency
of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular
country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and
integral component or extension of the parent company’s operations generally would have the parent company’s currency as its
functional currency. We have subsidiaries that fall into each of these categories.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and
accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency
is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as
- 31 -
of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component
of equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average
exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated
statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and
expenses incurred in those foreign currencies.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries
utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency,
all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from
remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While
these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are
incurred in the local currency.
Effects of Foreign Exchange Rate on Operations
For the year ended December 31, 2019, exchange rate impacts decreased net revenues by $5.7 million, decreased costs of products
sold and selling, general, and administrative expenses by $5.2 million, and decreased net earnings by $1.3 million or $0.10 per
diluted share, when compared to the prior year. Refer to Item 7. “Overview” in our Annual Report on Form 10-K for the year
ended December 31, 2018 for a comparison of the year ended December 31, 2018 and the year ended December 31, 2017.
Off-Balance Sheet Arrangements
As of December 31, 2019 and 2018, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number
of policies that entail significant judgments or estimates by management.
Revenue Recognition
The Company derives substantially all of its revenue from product sales. The Company recognizes the vast majority of its sales
at a point-in-time. It utilizes the core principle of recognizing revenue when the Company satisfies performance obligations as
evidenced by the transfer of control of its products to the customer.
Such revenues are derived from purchase orders and/or contracts with customers. Each contract has the promise to transfer the
control of the products, each of which is individually distinct and is considered the identified performance obligation. As part of
the decision to enter into each contract, the Company evaluates the customer’s credit risk, but its contracts do not have any
significant financing components, as payment is generally due net 30 to 60 days after delivery. In accordance with contract terms,
revenue from the Company’s product sales is recognized at the time of product shipment from its facilities or delivery to the
customer location, as determined by the agreed upon shipping terms.
Under the terms of some of its contracts, the Company may be required to perform certain installation services. These installation
services are performed at the time of product delivery or at some point thereafter. The installation services do not significantly
modify the product provided, and although the Company may be required contractually to provide these services, the installation
services could be performed by a third party or the customer. Thus, these installation services are a distinct performance obligation.
In most of the applicable contracts, this installation service element is immaterial in the context of the agreement. When the
installation services are accounted for as a separate performance obligation, the Company allocates the transaction price to this
element based on its relative standalone selling price.
Given the specialized nature of the Company's products, the Company generally does not allow product returns. Shipping and
handling costs are recorded to Costs of product sold when control of the product has transferred to the customer. The Company
offers standard product warranties. Warranty related costs continue to be recognized as expense when the products are sold. Sales,
value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
- 32 -
Inventories
We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based
upon net realizable value. The valuation of our inventories requires management to make market estimates. For work in process
goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products.
For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for
estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments,
and market conditions.
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent
consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on
estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants
are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair
values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows
and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes.
These estimates are based on historical experience and information obtained from the management of the acquired companies,
and are inherently uncertain.
Estimates of Restructuring and Severance Costs
To maintain our cost competitiveness, we are shifting manufacturing emphasis to more advanced automation in higher-cost regions
and relocating production to regions with skilled workforces and relatively lower labor costs. We could also incur similar costs
after we acquire companies.
These production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant
severance and other exit costs. We anticipate that we will realize the benefits of our restructuring efforts through lower labor costs
and other operating efficiencies in future periods.
Restructuring and severance costs are expensed during the period in which we incur those costs and all other requirements for
accrual are met. Because transfers of manufacturing operations sometimes occur incrementally over a period of time, the expense
initially recorded is often based on estimates. Because these costs are recorded based on estimates, our actual expenditures for
restructuring activities may differ from the initially recorded costs. If this happens, we will adjust our estimates in future periods,
either by recording additional expenses in future periods if our initial estimates were too low, or by reversing part of the charges
that we recorded initially if our initial estimates were too high.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in
circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first
assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its
carrying amount as a basis for determining if it is necessary to perform the quantitative goodwill impairment test. However, if
we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting
unit and comparing it against its carrying amount. We estimate the fair value of our steel and on-board weighing reporting units
using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future
cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing
model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is
dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital
requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit
to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting
unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of
the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value
of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation
is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount
of goodwill exceeds the reporting unit fair value.
During 2018, we recognized an impairment loss associated with the goodwill and indefinite lived intangible assets in the
instrumentation reporting unit, which holds goodwill related to our 2016 Pacific acquisition, which was recognized in the fourth
quarter of fiscal 2018. The impairment was primarily from lower margins on the forecasted projections due to product mix. After
considering the impact of the impairment charges, the carrying amount of goodwill and indefinite-lived trade names as of December
31, 2018 was $3.5 million and $0.4 million, respectively.
- 33 -
In 2019, we did not recognize an impairment for the instrumentation reporting unit, as the fair value exceeded its carrying value
by approximately 12%. The instrumentation reporting unit is particularly sensitive to the revenue projections used in the income
approach valuation to determine the fair value and its related impact on gross margin.
Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant
management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units,
assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could
materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with
which we have goodwill associated, could impact our valuation of that goodwill.
The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or by
comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from
royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be
recognized in the reporting period in which it has been identified.
Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements,
and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology
are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of
five to eighteen years. Trade names are being amortized over their contractual period ranging from seven to ten years. Non-
competition agreements are being amortized over periods of five to ten years. We review the carrying values of these assets for
possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets, when combined
with the broader asset group in which they belong, may not be recoverable based on undiscounted estimated cash flows expected
to result from its use and eventual disposition.
Impairment of Long-Lived Assets
We assess the impairment of our long-lived assets, other than goodwill and indefinite-lived intangible assets, including property
and equipment, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we
consider important, which could trigger an impairment review, include significant changes in the manner of our use of the asset,
changes in historical or projected operating performance, and significant negative economic trends.
Pension and Other Postretirement Benefits
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount
rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical
assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important
assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement
medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent
actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the
actual experience and expectations on a plan-specific basis, as appropriate.
Our defined benefit plans are concentrated in the United States and the United Kingdom. Plans in these countries comprise
approximately 79% of our retirement obligations at December 31, 2019. We utilize published long-term high-quality bond indices
to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to reflect the timing of
expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively
be settled.
For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for
significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate
of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In
establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from
pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan
assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return
on plan assets is deferred.
We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current
economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and
the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance
sheets.
- 34 -
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our annual effective tax rate is based on
pre-tax earnings, statutory tax rates and enacted tax laws. Significant judgments and estimates must be made in determining our
consolidated income tax expense as presented in our financial statements.
We must assess the likelihood that we will realize deferred tax assets which requires significant judgment. If we determine that
deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to
a level that is expected to be realized. If we subsequently determine that realization of a deferred tax asset becomes "more likely
than not", the valuation allowance will be reversed. Any change in valuation allowances could have a significant impact on our
financial results.
The calculation of our tax liabilities involves an assessment of uncertainties in the application of complex tax laws and regulations
in multiple jurisdictions. We record a benefit from an uncertain tax position when it is "more likely than not" that a tax return
position will be sustained upon examination, including resolutions of any related appeals or litigation based on the technical merits
of the position. If the position is not "more likely than not" to be sustained, a liability for the tax return position is established. We
adjust the liability when our judgment changes as a result of the evaluation of new information. The ultimate tax due in a jurisdiction
may result in a payment that is materially different from our most recent estimate of the liability. Further judgment is required in
determining whether an uncertain tax position is effectively settled. Any change in the analysis will impact income tax expense.
We consider the earnings of most of our non-U.S. subsidiaries to be indefinitely invested outside the United States based on our
estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment
of foreign subsidiary earnings. As a result of the Tax Cut and Jobs Act, in 2017 the Company had recorded a deferred tax liability
of approximately $1.8 million of withholding tax associated with a planned distribution of approximately $25.5 million of previously
unremitted earnings. As of December 31, 2019, the planned distribution amount is approximately $14.1 million with a remaining
deferred tax liability of approximately $1.5 million. In addition, we estimate that additional withholding taxes of approximately
$17.5 million would be payable upon the distribution of the balance of our previously unremitted earnings at December 31, 2019.
If we decide to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we
would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the
United States.
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act permanently reduces the U.S.
tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law
are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected
to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as
GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company elects to recognize
tax expense related to GILTI in the year the tax is incurred.
Additional information about income taxes is included in Note 6 to our consolidated financial statements.
- 35 -
Results of Operations – Years Ended December 31, 2019, and 2018
Refer to Item 7. “Results of Operations - Years Ended December 31, 2018, 2017, and 2016” in our Annual Report on Form 10-
K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December
31, 2017.
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
Costs of products sold
Gross profit
Selling, general, and administrative expenses
Operating income
Income before taxes
Net earnings
Net earnings 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
Net change
Years ended December 31,
2019
2018
60.7%
39.3%
28.0%
10.1%
9.3%
7.9%
7.8%
59.5%
40.5%
27.0%
12.4%
11.3%
7.9%
7.9%
15.7%
30.4%
Years ended December 31,
2019
2018
$
299,794
$
$
283,958
(15,836)
(5.3)%
2019 vs. 2018
(5.6)%
0.9 %
(2.0)%
1.4 %
(5.3)%
During the year ended December 31, 2019, net revenues decreased 5.3% over the prior year. The decrease in net revenues is
attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and Electronic Manufacturing
Services ("EMS") customers, primarily in the test and measurement, and avionics, military and space market sectors in the Foil
Technology Products segment, and to the distribution customers in the precision weighing markets across all regions in the Force
Sensors segment. This was partially offset by an increase in revenues for the Weighing and Control System segment, which was
primarily attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for
process weighing market and the US on board weighing product lines.
- 36 -
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
Gross profit margin
Years ended December 31,
2019
2018
39.3%
40.5%
The gross profit margin for the year ended December 31, 2019 decreased 1.2% over the prior year. The reduction in gross profit
margin was primarily due to lower volume in the Foil Technology Products and Force Sensors reporting segments, partially offset
by an increase in volume in the Weighing and Controls System segment. The gross profit margin was also impacted by $1.3 million
relating to the purchase accounting adjustment for the DSI acquisition. Excluding the $1.3 million purchase accounting adjustment,
the gross profit margin would have been 39.7%. The gross profit margin was also negatively impacted by $1.8 million related to
foreign currency exchange rates.
Segments
Analysis of revenues and gross profit margins for our reportable segments is provided below.
Foil Technology Products
Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Years ended December 31,
2019
2018
$
141,009
$
$
131,803
(9,206)
(6.5)%
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
Net change
2019 vs. 2018
(6.2)%
0.8 %
(1.1)%
(6.5)%
For the year ended December 31, 2019, net revenues decreased 6.5% as compared to the prior year. The decrease in net revenues
is attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and EMS customers,
primarily in the test and measurement, and avionics, military and space market sectors in the Foil Technology Products segment.
Negative exchange rate impacts, mainly from the Euro, also impacted net revenues for the year ended December 31, 2019 as
compared to the comparable prior year period.
Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:
Gross profit margin
Years ended December 31,
2019
2018
40.4%
43.7%
For the year ended December 31, 2019, the gross profit margin decreased 3.3% as compared to the prior year primarily due to
lower volume and negative exchange rate impacts relating to the Euro.
- 37 -
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
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
Years ended December 31,
2019
2018
$
73,186
$
$
64,357
(8,829)
(12.1)%
2019 vs. 2018
(11.3)%
1.0 %
(1.8)%
(12.1)%
For the year ended December 31, 2019, net revenues decreased 12.1% from the prior year mainly due to lower volume to the
distribution customers in the precision weighing markets across all regions. Negative exchange rate impacts from the Euro, British
pound, India rupee and the China Renminbi lowered net revenues.
Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:
Gross profit margin
Years ended December 31,
2019
2018
28.0%
27.3%
For the year ended December 31, 2019, the gross profit margin increased 0.7% when compared to the prior year. Lower net
revenues were more than offset by labor and manufacturing efficiencies, increase in export grants and a favorable exchange rate
impact with the India rupee.
Weighing and Control Systems
Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):
Net revenues
Change versus prior year
Percentage change versus prior year
Years ended December 31,
2019
2018
87,798
$
85,599
2,199
2.6%
$
$
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
Net change
- 38 -
2019 vs. 2018
0.5 %
0.9 %
(3.5)%
4.7 %
2.6 %
For the year ended December 31, 2019, net revenues increased 2.6% when compared to the prior year which was primarily
attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for process weighing
market and the US on board weighing product lines. This was partially offset by unfavorable exchange rate impacts with the Euro,
British pound, Swedish Krona and the Canadian Dollar compared to the prior year.
Gross profit as a percentage of net revenues for the Weighing and Control Systems segment was as follows:
Gross profit margin
Years ended December 31,
2019
2018
45.9%
46.4%
For the year ended December 31, 2019, the gross profit margin decreased 0.5% from the prior year mainly due to the recording
of $1.3 million of purchase accounting adjustments related to the DSI acquisition. Excluding the $1.3 million purchase accounting
adjustment, the gross profit margin would have been 47.3% as compared to 46.4% in the prior year.
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses were as follows (dollars in thousands):
Total SG&A expenses
as a percentage of net revenues
Years ended December 31,
2019
2018
$
79,622
$
80,935
28.0%
27.0%
SG&A expenses for the year ended December 31, 2019 decreased $1.3 million versus the prior year mainly due to a reduction in
bonus accruals and $1.4 million related to favorable exchange rate impacts partially offset by higher personnel costs, including
wage increases, and headcount, and SG&A expenses related to the acquisition of DSI, which was completed in November of 2019.
Impairment of Goodwill and Indefinite-lived Intangible Assets
For the year ended December 31, 2019, there were no impairment charges recorded, as a result of our annual impairment test. For
the year ended December 31, 2018, as a result of our required annual impairment test performed on goodwill and indefinite-lived
intangible assets, we recorded a $2.5 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill
and a $0.3 million net of tax, non-cash impairment charge which reduced the carrying value of indefinite-lived intangible assets.
See our critical accounting policies and Note 4 for further discussion.
Executive Severance Costs
During 2019, the Company recorded $0.6 million of severance costs associated with the resignation of an executive officer of the
Company. The severance costs consisted of payments and other benefits as specified in the executive officers resignation agreement.
Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during
the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs
are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs.
If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods,
or to reverse part of the previously recorded charges.
The Company recorded restructuring costs of $2.3 million and $0.3 million during the years ended December 31, 2019 and 2018,
respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory
retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs associated
with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to
facilities in India and China. In 2018, restructuring costs were comprised primarily of employee termination costs, including
severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.
- 39 -
Acquisition Costs
For the year ended December 31, 2019, we recorded acquisition costs in our consolidated statements of operations of $0.4 million
in connection with the acquisitions of DSI. There were no acquisition costs recorded in our consolidated statements of operations
for the years ended December 31, 2018 and December 31, 2017.
Other Income (Expense)
Interest Expense
The Company recorded interest expense of $1.5 million and $1.7 million for the years ended December 31, 2019 and 2018,
respectively. Interest expense was lower in 2019 compared to 2018, with lower debt balances and lower interim borrowings, prior
to the acquisition of DSI in November of 2019.
Other
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
Foreign exchange gain/(loss)
Interest income
Pension expense
Other
Years ended December 31,
2019
2018
Change
$
$
(1,638) $
622
(643)
958
(701) $
(279) $
506
(1,682)
(41)
(1,496) $
(1,359)
116
1,039
999
795
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in
foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the
Israeli shekel, the Euro, India Rupee and the Canadian dollar.
Included in the pension expense for 2018 is $0.7 million associated with the de-risking of the pension plan in our UK location.
Included within Other, for the year ended December 31, 2019, is net proceeds of $0.8 million related to a liquidation of a foreign
subsidiary.
Income Taxes
Our effective tax rate for the year ended December 31, 2019 was 15.7%, compared to 30.4% for the year ended December 31,
2018. Our effective tax rate was lower in 2019 compared to 2018 primarily due to foreign exchange, a net reduction in valuation
allowance on deferred tax assets as a result of our acquisition of Dynamic Systems, Inc., and changes in the geographical mix of
income.
On December 22, 2017, the 2017 Tax Act was enacted. The 2017 Tax Act significantly changed U.S. tax law by, among other
things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on
post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduced the U.S. tax rate from
a maximum of 35% to a flat 21% , effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted
for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate expected to apply to
taxable income in the years in which the temporary differences are expected to recover or be settled.
Guidance issued by the Securities Exchange Commission ("SEC"), provides for a measurement period of one year from the
enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company had
provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million for
2017. This amount included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the
implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that
the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million of
withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings.
The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017. In accordance with SAB
118 the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 which resulted in a net increase
in tax expense of approximately $0.8 million caused by a decrease in the transition tax and an increase in the valuation allowance.
- 40 -
We reassessed our ability to realize our U.S. deferred tax assets during 2019 and have concluded that realization of those deferred
tax assets is still not "more likely than not". Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions
as compared to the U.S. federal statutory tax rate, and the relative amount of income earned in each jurisdiction. The tax rate is
also impacted by discrete items that vary from year to year and may not be indicative of the tax rate on continuing operations. The
following items had the most significant impact on the difference between the statutory U.S. federal income tax rate and our
effective tax rate:
2019
•
•
•
•
•
4.4% decrease related to foreign currency primarily attributable to our operations in Israel and India.
2.4% decrease related to a reduction in valuation allowance. This reduction was primarily a result of the acquisition of
Dynamic Systems, Inc.
1.4% decrease related to stock compensation.
2.5% increase related to changes in reserves for uncertain tax positions.
3.7% increase related to the loss of the benefit of current year U.S. net operating loss as a result of the 2017 Tax Act and
the effects of GILTI.
2018
•
•
•
•
•
2.4% increase as a result of the enactment of the 2017 Tax Act in the U.S., as described above.
1.8% increase related to the effects of foreign operations primarily related to the difference between the U.S. statutory
rate and foreign tax rates.
1.5% increase related to increase in valuation allowance primarily related to our US entities.
1.5% increase related to impairment of goodwill.
0.9% increase related to foreign currency primarily attributable to our operations in Israel and India.
Additional information about income taxes is included in Note 6 to our consolidated financial statements.
Financial Condition, Liquidity, and Capital Resources
Refer to Item 7. “Financial Condition, Liquidity, and Capital Resources” in our Annual Report on Form 10-K for the year ended
December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December 31, 2017.
We believe that our current cash and cash equivalents, credit facilities, and projected cash from operations will be sufficient to
meet our liquidity needs for at least the next 12 months.
On December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit
Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National
Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”),
pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for
the following facilities: (1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0
million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S. and
Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of
which was used to fund the Stress-Tek and Pacific acquisitions; (2) a secured closing date term facility for the Company (the “2015
U.S. Closing Date Term Facility”) in an aggregate principal amount of $4.5 million, the proceeds of which were used by the
Company to refinance indebtedness under its existing term loan; (3) a secured delayed draw term facility for the Company (the
"2015 U.S. Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million, the proceeds of which were used to
fund a portion of the Stress-Tek acquisition; and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”)
in an aggregate principal amount of $9.5 million, the proceeds of which were used by VPG Canada to refinance indebtedness
under its existing term loan. The aggregate principal amount of the 2015 Revolving Facility may be increased by a maximum of
$15.0 million upon the request of the Company, subject to the terms of the 2015 Credit Agreement. The 2015 Credit Agreement
terminates on December 30, 2020. The term loans are being repaid in quarterly installments.
Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S. Closing Date Term Facility, the 2015
U.S. Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the
Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2)
LIBOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage
ratio, an interest rate margin ranging from 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the
interest payable on the Facilities. The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per
annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each
- 41 -
quarter. Additional customary fees apply with respect to letters of credit. The total interest rates at December 31, 2019 and December
31, 2018, were 3.97% and 4.82%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 3.97% and
4.82%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.
The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain
domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the
Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015
Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015
Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and
its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company
to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios.
The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The
Company was in compliance with its financial maintenance covenants at December 31, 2019. If the Company is not in compliance
with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant
to the credit facility could become immediately payable.
On October 23, 2019, the Company exercised all of the $15.0 million accordion feature (the “Accordion”) of the 2015 Revolving
Facility. The exercise of the Accordion increases the aggregate principal amount available under the 2015 Revolving Facility to
$45.0 million.
By reason of the spin-off, VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes
effective July 6, 2010. The maturity date of the notes was December 13, 2102.
Effective February 26, 2018, the holder of the Company's exchangeable notes exercised its option to exchange the remaining $2.8
million principal amount of the notes for 123,808 shares of VPG common stock at the contractual put/call rate of $22.57 per share.
Following these transactions, all exchangeable notes have been canceled and VPG has no further obligations pursuant to such
notes.
Our other long-term debt is not significant and consists of debt held by one of our Japanese subsidiaries of approximately $0.1
million at December 31, 2019 and $0.3 million at December 31, 2018. The debt is payable monthly over the next 2 years at a zero
percent interest rate.
See Note 7 to our consolidated financial statements for additional details.
Our business has historically generated significant cash flow. Our cash provided by operating activities for the year ended December
31, 2019 was $30.9 million as compared to $35.4 million for the year ended December 31, 2018. Cash provided by operating
activities for the year ended December 31, 2019 was lower than the cash provided by operating activities for the year ended
December 31, 2018 due to a decrease in net earnings. Our net cash used in investing activities for the year ended December 31,
2019 was $51.1 million as compared to $14.4 million for the year ended December 31, 2018. This increase was primarily due to
the purchase of DSI. Our net cash provided by financing activities for the year ended December 31, 2019 was $16.5 million as
compared to net cash used for financing activities of $3.5 million for the year ended December 31, 2018. This reflects the higher
borrowings on the revolving credit facility which were used to fund the purchase of DSI.
Approximately 93% of our cash and cash equivalents balance at December 31, 2019 and 2018, respectively, was held by our non-
U.S. subsidiaries. See the following table for the percentage of cash and cash equivalents, by region, at December 31, 2019 and
December 31, 2018:
Asia
United States
Israel
Europe
United Kingdom
Canada
Total
December 31,
2019
2018
23%
7%
28%
14%
17%
11%
28%
7%
35%
13%
12%
5%
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
- 42 -
are held by foreign subsidiaries. As a result of the 2017 Tax Act, the Company reassessed its assertion with respect to the indefinite
reinvestment for certain of Company’s foreign subsidiaries and recorded a deferred tax liability of approximately $1.8 million of
withholding tax associated with the planned cash distribution of approximately $25.5 million. As of December 31, 2019, the
remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately
$1.5 million. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need,
to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash
provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-
term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash
commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months
and thereafter for the foreseeable future.
If we should require more capital in the United States than is generated by our domestic operations, and the planned dividend
noted above, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate
future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives
could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the
undistributed earnings of our foreign subsidiaries, as of December 31, 2019, to be indefinitely reinvested and, accordingly, no
provision has been made for taxes in excess of the $1.5 million noted above.
For the year ended December 31, 2019, we generated adjusted free cash flow of $20.4 million. We refer to “adjusted free cash
flow,” a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating
activities ($30.9 million) in excess of our capital expenditures ($11.2 million) and net of proceeds from the sale of assets ($0.6
million).
The following table summarizes the components of net cash at December 31, 2019 and at December 31, 2018 (in thousands):
Cash and cash equivalents
Third-party debt, including current and long-term
Term loans
Revolving debt
Third-party debt held by Japanese subsidiary
Deferred financing costs
Total third-party debt
Net cash
$
$
December 31,
2019
2018
86,910
$
90,159
10,496
$
34,000
149
(112)
44,533
$
42,377
$
15,018
12,000
279
(222)
27,075
63,084
Measurements such as “adjusted free cash flow” and “net cash " do not have uniform definitions and are not recognized in
accordance with U.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity.
However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund acquisitions, and
that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management. These measures, as
calculated by us, may not be comparable to similarly titled measures used by other companies.
Our financial condition as of December 31, 2019 is strong, with a current ratio (current assets to current liabilities) of 2.4 to 1.0,
as compared to a current ratio of 3.9 to 1.0 at December 31, 2018.
Cash paid for property and equipment for the year ended December 31, 2019 and December 31, 2018 was $11.2 million and $14.5
million, respectively. Capital spending for 2019 was comprised of projects related to the normal maintenance of business, cost
reduction programs, and some carryover projects from 2018. Capital expenditures for 2020 are expected to be approximately $33
million, which includes expected building projects of approximately $20 million for capacity expansion in Israel and Asia.
- 43 -
Contractual Commitments
As of December 31, 2019, 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
$
44,645
$
44,628
$
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
376
10,038
1,473
7,915
974
376
3,349
116
550
974
$
17
—
4,143
53
— $
—
1,970
—
1,589
1,633
—
—
—
—
576
1,304
4,143
—
6,023
$
65,421
$
49,993
$
5,802
$
3,603
$
(a) Due to the nature of unfunded plans, benefit payments are considered to be funded when paid.
(b) Due to the uncertainty of future cash outflows, contributions to the pension and other postretirement benefit plans subsequent to 2019 have been excluded
from the table above.
Our consolidated balance sheet at December 31, 2019 includes approximately $1.5 million of liabilities associated with uncertain
tax positions relating to multiple taxing jurisdictions. There are certain guarantees and indemnifications extended among Vishay
Intertechnology and us in accordance with the terms of the Master Separation and Distribution Agreement and the Tax Matters
Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Matters Agreement. However,
of the $1.5 million of unrecognized tax benefits, none are covered under the terms of the Tax Matters Agreement.
Due to the uncertainty and complexity relating to the settlement of tax matters, including the difficulty in predicting the conclusion
of tax audits around the world, we are unable to make reliable estimates of the timing and amount of the remaining cash outflows,
if any, relating to these liabilities. Accordingly, the remaining uncertain tax positions are classified as payments due after five
years, although actual timing of payments may be sooner. See Note 6 to our consolidated financial statements for additional
information.
Inflation
Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term
contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused
by inflation.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
- 44 -
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates, interest rates, and commodity
prices. We manage our exposure to these market risks through internally established policies and procedures. Our policies do not
allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no
underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives.
We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our strategies as
needed.
Interest Rate Risk
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances.
The Company entered into a second amended and restated revolving credit facility on December 30, 2015. Interest payable on
the facility is based upon the Agent’s prime rate, the Federal Funds rate or LIBOR, plus a spread. At December 31, 2019, the
Company has $34.0 million borrowings outstanding under the revolving credit facility and $10.5 million in outstanding term loans.
At December 31, 2019, we have $86.9 million of cash and cash equivalents, which accrue interest at various variable rates.
Based on the debt and cash positions at December 31, 2019 and 2018, we would expect a 50 basis point increase or decrease in
interest rates to increase or decrease our annualized net earnings by $0.1 million and $0.2 million in 2019 and 2018, respectively.
See Note 7 to our consolidated financial statements for additional information about our long-term debt.
Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than
the functional currencies of certain subsidiaries. Our significant foreign currency exposures are to the British pound, Canadian
dollar, Chinese renminbi, euro, Indian rupee, Israeli shekel, Japanese yen, Swedish krona, and Taiwanese dollar.
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash in local currencies. Our
operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, but these subsidiaries also have significant
transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the
revenues earned in a particular currency offset one another. Our exposure to foreign currency risk, with respect to expenses, is
more pronounced in Israel and India because the percentage of expenses denominated in Israeli shekels and Indian rupee to total
expenses is much greater than the percentage of sales denominated in Israeli shekels and Indian rupee to total sales. Therefore, if
the Israeli shekel and Indian rupee strengthen against all or most of our other major currencies, our operating profit is reduced.
We also have a higher percentage of British pound-denominated sales than expenses. Therefore, when the British pound strengthens
against all or most of our other major currencies, our operating profit is increased. VPG Canada has a secured term facility
denominated in U.S. dollars. Therefore, we are exposed to potentially significant foreign exchange risk based on the valuation
of this long-term debt related to the exchange rate between the U.S. dollar and the Canadian dollar.
We have performed a sensitivity analysis as of December 31, 2019 and 2018, respectively, using a model that measures the change
in the values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar,
with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at December
31, 2019 and 2018, respectively. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency
exchange rates would impact our net earnings by approximately $2.7 million and $2.8 million for the years ended December 31,
2019 and December 31, 2018, respectively, although individual line items in our consolidated statements of operations could be
materially affected. For example, a 10% weakening in all foreign currencies would increase the U.S. dollar equivalent of operating
income generated in foreign currencies, which would be offset by foreign exchange losses of our foreign subsidiaries that have
significant transactions in U.S. dollars or have the U.S. dollar as their functional currency.
A change in the mix of the currencies in which we transact our business could have a material effect on the estimated impact of
the hypothetical 10% movement in the value of the U.S. dollar. Furthermore, the timing of cash receipts and disbursements could
result in materially different actual results versus the hypothetical 10% movement in the value of the U.S. dollar, particularly if
there are significant changes in exchange rates in a short period of time.
- 45 -
Commodity Price Risk
Although most materials incorporated in our products are available from a number of sources, certain materials are available only
from a relatively limited number of suppliers.
Some of the most highly specialized materials for our sensors are sourced from a single vendor. We maintain a safety stock inventory
of certain critical materials at our facilities.
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility.
Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality
of available raw materials deteriorates, or there are significant price changes for these raw materials. For periods in which the
prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in
decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to
write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market.
Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material
adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in
periods of declining prices.
We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk would decrease or
increase our net earnings by $1.2 million and $1.5 million for the years ended December 31, 2019 and December 31, 2018,
respectively, assuming that such changes in our costs have no impact on the selling prices of our products, and that we have no
pending commitments to purchase metals at fixed prices.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included herein, commencing on page F-1 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls
and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this annual report to ensure that information required to be
disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within
the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including
our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our CEO and CFO, believes that any disclosure controls and procedures or internal controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must consider the benefits of controls relative to their costs.
Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by unauthorized override of the control. While the design of any system of
controls is to provide reasonable assurance of the effectiveness of disclosure controls, such design is also based in part upon certain
assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential
future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error
or fraud may occur and may not be prevented or detected.
- 46 -
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as
of December 31, 2018 based on the 2013 framework set forth in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2019.
Our evaluation of internal control over financial reporting did not include the internal controls of the business acquired upon the
purchase of Dynamic Systems, Inc., which is included in our 2019 consolidated financial statements beginning November 1, 2019
and constituted 4.3% of our total assets at December 31, 2019 and 1.4% of our net revenues for the year ended December 31,
2019. We are currently in the process of integrating Dynamic Systems, Inc. into our internal control over financial reporting
process.
Brightman Almagor Zohar & Co., a firm in the Deloitte Global Network, has issued an attestation report on the effectiveness of
our internal control over financial reporting, as stated in their report which is set forth on the next page.
- 47 -
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Vishay Precision Group, Inc. (the “Company”) as of December
31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated
Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2019 consolidated financial statements of the Company and our report dated March 11, 2020 expressed an unqualified
opinion thereon.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment
the internal control over financial reporting at Dynamic Systems, Inc., which was acquired on November 1, 2019. And whose
financial statements constitute 4.3% of total assets and 1.4% of revenues as of and for the year ended December 31, 2019.
Accordingly, our audit did not include the internal control over financial reporting at Dynamic Systems, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Brightman Almagor Zohar & Co,
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 11,2020
- 48 -
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Certain information required under this Item with respect to our Executive Officers is contained under the heading “Executive
Officers” in Item 1 hereof. Other information required under this Item will be contained under the heading “Nominees for Election
as Directors” in our definitive proxy statement for the Company’s 2020 Annual Meeting of Stockholders, which will be filed
within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated herein by reference.
The Company has adopted codes of conduct that constitute “codes of ethics” as that term is defined in paragraph (b) of Item 406
of Regulation S-K and that apply to the Company’s principal executive officer, principal financial officer, principal accounting
officer or controller, and to any persons performing similar functions. Such codes of conduct are posted on the Company’s internet
website, the address of which is www.vpgsensors.com.
Item 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2020 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2020 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTYTRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2020 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated
herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this Item will be contained in our definitive proxy statement for the Company’s 2020 Annual Meeting
of Stockholders, which will be filed within 120 days of December 31, 2019, our most recent fiscal year end, and is incorporated
herein by reference.
- 49 -
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as part of Form 10-K
1) Financial Statements
The Consolidated Financial Statements for the year ended December 31, 2019 are filed herewith. See index
to the Consolidated Financial Statements on page F-1 of this report.
2) Financial Statement Schedules
All financial statement schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions or are inapplicable and
therefore have been omitted.
3) Exhibits
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).
Stock Purchase Agreement, dated November 1, 2019, by and among Vishay Precision Group, Inc., DSI Holdings
DE Inc., the sellers identified therein, and HCI Equity Partners III, L.P., not individually but solely in its capacity
as the representative of the Sellers (previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on November 4, 2019 and incorporated herein by reference).
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).
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
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).
- 50 -
Exhibit
No.
2.1
2.2
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
Exhibit
No.
10.8*
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
Description
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).
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).
Lease Agreement between Vishay Advanced Technologies Ltd and Mega Or Holdings Ltd, dated February 17,
2019 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
January 19, 2019 and incorporated herein by reference).
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 UnitAward 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).
- 51 -
Exhibit
No.
10.27†
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†
10.43†
10.44
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).
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).
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 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).
Vishay Precision Group, Inc. 2017 Non-Employee Director Compensation Plan (previously filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 9, 2018 and incorporated herein by
reference).
Amendment to Employment Agreement, dated May 4, 2018, by and between Vishay Precision Group, Inc. and Roland
Desilets (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on
May 9, 2018 and incorporated herein by reference).
Amendment to Employment Agreement,dated March 10, 2019, by and among Vishay Advanced Technologies Ltd.
and Ziv Shoshani.
Amendment to Employment Agreement, dated March 11, 2019, by and among Vishay Precision Group, Inc. and
William Clancy.
Separation and Release Agreement, dated April 26, 2019, by and between Vishay Precision Group and Roland B.
Desilets (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May
1, 2019 and incorporated herein by reference).
Amendment No. 2 to Seconded Amended & Restated Credit Agreement, dated October 23, 2019, by and among
Vishay Precision Group, Inc., Vishay Precision Group Canada ULC and JPMorgan Chase Bank, National Association,
as agent (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on
November 5, 2019 and incorporated herein by reference).
16.1
Letter of Ernst & Young LLP, dated May 31, 2019 (previously filed as Exhibit 16.1 to the Registrant’s Current Report
on Form 8-K filed with the SEC on May 31, 2019 and incorporated herein by reference).
- 52 -
Exhibit
No.
21.1
Description
List of Subsidiaries.
23.1
23.2
31.1
31.2
32.1
32.2
101
Consent of Brightman Almagor Zohar & Co, a Firm in the Deloitte Global Network, relating to the Registrant’s
financial statements.
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.
Interactive Data File (Annual Report on Form 10-K, for the year ended December 31, 2019, furnished in XBRL
(eXtensible Business Reporting Language)).
* Confidential treatment has been accorded to certain portions of this Exhibit. Omitted portions have been filed separately with
the Securities and Exchange Commission.
† Denotes a management contract or compensatory plan, contract or arrangement.
Item 16. FORM 10-K SUMMARY
None.
- 53 -
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 11, 2020
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/ Janet Clarke
Janet Clarke
/s/ Bruce Lerner
Bruce Lerner
/s/ Wesley Cummins
Wesley Cummins
Director
Director
Director
Director
Director
Director
- 54 -
Date
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
Vishay Precision Group, Inc.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
F-2
F-4
F-6
F-7
F-8
F-9
F-10
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 sheet of Vishay Precision Group, Inc. (the "Company") as of December
31, 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year ended
December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 11, 2020 expressed an unqualified opinion thereon.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to
the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2019.
/s/ Brightman Almagor Zohar & Co,
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 11, 2020
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Vishay Precision Group, Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Vishay Precision Group, Inc. (the Company) as of December 31, 2018, the
related consolidated statements of operations, comprehensive income, equity and cash flows for each of the two years in the period
ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December
31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2009 to 2019.
Philadelphia, Pennsylvania
March 14, 2019
F-3
VISHAY PRECISION GROUP, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
Assets
Current assets:
December 31,
2019
December 31,
2018
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of $555 and $517,
respectively
Inventories:
$
86,910
$
90,159
43,198
53,156
Raw materials
Work in process
Finished goods
Inventories
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
21,701
23,128
22,066
66,895
15,558
212,561
4,243
52,708
111,492
9,384
2,485
(119,042)
61,270
18,052
22,007
22,182
62,241
9,314
214,870
3,390
51,055
105,840
8,532
2,157
(111,555)
59,419
35,018
16,141
34,198
17,656
27,366
370,413
$
18,297
326,383
$
Continues on the following page.
F-4
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; 12,500,006
shares outstanding as of December 31, 2019 and 12,449,253 shares outstanding as of
December 31, 2018
Class B convertible common stock, par value $0.10 per share: authorized - 3,000,000
shares; 1,022,887 shares outstanding as of December 31, 2019 and 1,025,158 shares
outstanding December 31, 2018
Treasury stock, at cost - 619,667 shares held at December 31, 2019 and December 31,
2018
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,
2019
December 31,
2018
$
$
$
8,869
16,312
18,953
261
44,516
88,911
17
3,478
20,586
15,669
128,661
11,461
17,757
17,031
3,879
4,654
54,782
22,421
2,200
13,545
14,982
107,930
—
—
1,312
1,307
103
103
(8,765)
197,125
89,288
(37,703)
241,360
392
241,752
370,413
$
(8,765)
196,666
66,569
(37,465)
218,415
38
218,453
326,383
See accompanying notes.
F-5
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years ended December 31,
2018
2017
2019
Net revenues
Costs of products sold
Gross profit
$
283,958
$
299,794
$
172,341
111,617
178,527
121,267
254,350
156,067
98,283
73,751
—
—
—
2,044
22,488
(1,842)
(83)
(1,925)
79,622
443
—
611
2,293
28,648
(1,507)
(701)
(2,208)
80,935
—
2,820
—
289
37,223
(1,738)
(1,496)
(3,234)
26,440
33,989
20,563
4,145
10,344
6,169
$
$
$
22,295
107
22,188
1.64
1.63
13,515
13,597
$
$
$
23,645
(1)
23,646
1.76
1.75
13,439
13,535
14,394
49
14,345
1.08
1.07
13,262
13,471
Selling, general, and administrative expenses
Acquisition costs
Impairment of goodwill and indefinite-lived intangibles
Executive severance costs
Restructuring costs
Operating income
Other income (expense):
Interest expense
Other
Other expenses - net
Income before taxes
Income tax expense
Net earnings
Less: net earnings (loss) attributable to noncontrolling interests
Net earnings attributable to VPG stockholders
Basic earnings per share attributable to VPG stockholders
Diluted earnings per share attributable to VPG stockholders
$
$
$
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
See accompanying notes.
F-6
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
Pension and other postretirement actuarial items
Other comprehensive income (loss)
Years ended December 31,
2018
2017
2019
$
22,295
$
23,645
$
14,394
558
(796)
(238)
(3,929)
1,914
(2,015)
5,802
(915)
4,887
Comprehensive income
22,057
21,630
19,281
Less: comprehensive income (loss) attributable to noncontrolling interests
107
(1)
49
Comprehensive income attributable to VPG stockholders
$
21,950
$
21,631
$
19,232
See accompanying notes.
F-7
VISHAY PRECISION GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net earnings
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
Reclassification of foreign currency translation adjustment related to
disposal of subsidiary
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
Principal payments on long-term debt
Proceeds from revolving facility
Payments on revolving facility
Distributions to noncontrolling interests
Payments of employee taxes on certain share-based arrangements
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase 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
$
$
$
Capital expenditures accrued but not yet paid as of December 31, 2019 were $1,183
See accompanying notes.
F-8
Years ended December 31,
2018
2017
2019
$
22,295
$
23,645
$
14,394
—
11,795
34
(827)
1,336
2,588
(2,556)
358
11,369
(619)
(5,087)
(2,273)
(7,481)
30,932
(11,196)
615
(40,481)
(51,062)
(4,618)
22,000
—
(52)
(854)
16,476
405
(3,249)
2,820
10,631
(120)
—
1,799
1,876
1,011
819
(7,757)
(5,095)
588
(819)
5,981
35,379
(14,521)
132
—
(14,389)
(5,603)
22,000
(19,000)
(109)
(801)
(3,513)
(1,610)
15,867
90,159
86,910
$
74,292
90,159
$
—
10,626
(195)
—
1,499
2,065
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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 derives substantially all of its revenue from product sales. The Company recognizes the vast majority of its sales
at a point-in-time. It utilizes the core principle of recognizing revenue when the Company satisfies performance obligations as
evidenced by the transfer of control of its products to the customer.
Such revenues are derived from purchase orders and/or contracts with customers. Each contract has the promise to transfer the
control of the products, each of which is individually distinct and is considered the identified performance obligation. As part of
the decision to enter into each contract, the Company evaluates the customer’s credit risk, but its contracts do not have any
significant financing components, as payment is generally due net 30 to 60 days after delivery. In accordance with contract terms,
revenue from the Company’s product sales is recognized at the time of product shipment from its facilities or delivery to the
customer location, as determined by the agreed upon shipping terms.
Under the terms of some of its contracts, the Company may be required to perform certain installation services. These installation
services are performed at the time of product delivery or at some point thereafter. The installation services do not significantly
modify the product provided, and although the Company may be required contractually to provide these services, the installation
services could be performed by a third party or the customer. Thus, these installation services are a distinct performance obligation.
In most of the applicable contracts, this installation service element is immaterial in the context of the agreement. When the
installation services are accounted for as a separate performance obligation, the Company allocates the transaction price to this
element based on its relative standalone selling price.
Given the specialized nature of the Company's products, the Company generally does not allow product returns. Shipping and
handling costs are recorded to Costs of product sold when control of the product has transferred to the customer. The Company
offers standard product warranties. Warranty related costs continue to be recognized as expense when the products are sold. Sales,
value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue. See Note 2 for further
details on Revenues.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to expense for research and development was
$12.1 million, $11.8 million, and $11.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
F-10
Note 1 – Background and Summary of Significant Accounting Policies (continued)
method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment
date.
The Company records net deferred tax assets to the extent it believes such assets will "more likely than not" be realized. In making
this determination, the Company considers all positive and negative evidence, including historic earnings, projected future income,
and cost-effective tax-planning strategies. When the Company determines that its ability to realize deferred tax assets is not "more
likely than not", the Company adjusts its deferred tax asset valuation allowance, which increases income tax expense.
The Company records uncertain tax positions on the basis of a two-step process in which the Company first determines whether
it is "more likely than not" that the tax positions will be sustained based on the technical merits of the position and then measures
those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax
benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying
consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the
consolidated balance sheets.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant
does not have all the necessary information available to prepare and analyze the accounting treatment for the proper recognition
of the tax impact of the 2017 Tax Act. In accordance with SAB 118 guidance, the Company had recorded the provisional tax
impacts related to the deemed distribution of foreign earnings and the expense for the revaluation of deferred tax assets and
liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, the financial
reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net increase in tax expense of $0.8
million.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less
when purchased. Highly liquid investments with maturities greater than three months are classified as short-term investments.
There were no investments classified as short-term investments at December 31, 2019 or 2018.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments
of risk that are based on historical trends and an evaluation of the impact of current and projected economic conditions. The
Company evaluates the past-due status of its trade receivables based on contractual terms of sale. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances
may be required. The allowance for doubtful accounts was $0.6 million and $0.5 million at December 31, 2019 and 2018,
respectively. Bad debt expense was $0.1 million, $0.0 million, and $0.1 million for the years ended December 31, 2019, 2018,
and 2017, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market based on net realizable value.
Inventories are adjusted for estimated excess and obsolescence and written down to net realizable value based upon estimates of
future demand, technology developments, and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the straight-line method based upon the estimated useful
lives of the assets. Machinery and equipment are being depreciated over useful lives of seven to ten years. Buildings and building
improvements are being depreciated over useful lives of twenty to forty years or the lease term. Software is being depreciated
over useful lives of three to five years. Construction in progress is not depreciated until the assets are placed in service. Depreciation
expense was $10.1 million, $8.9 million, and $8.7 million for the years ended December 31, 2019, 2018, and 2017, respectively,
which included software depreciation expense of $0.6 million, $0.5 million, and $0.5 million for the years ended December 31,
2019, 2018, and 2017, respectively.
F-11
Note 1 – Background and Summary of Significant Accounting Policies (continued)
Business Combinations
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.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in
circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first
assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its
carrying amount as a basis for determining if it is necessary to perform the quantitative goodwill impairment test. However, if
we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting
unit and comparing it against its carrying amount. We estimate the fair value of our steel and on-board weighing reporting units
using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future
cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing
model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is
dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital
requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit
to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting
unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of
the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value
of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation
is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount
of goodwill exceeds the reporting unit fair value.
The Company's required goodwill annual impairment test is completed as of the first day of the fourth fiscal quarter each year.
As more fully described in Note 4 to the consolidated financial statements, the 2019 annual impairment test resulted in no
impairment. The 2018 annual impairment test resulted in an impairment charge in the fourth quarter of 2018. The 2017 annual
impairment test resulted in no impairment.
The indefinite-lived trade names are tested for impairment by comparing the carrying value to the fair value based on current
revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable
fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified.
As more fully described in Note 4, the annual impairment test for 2019 resulted in no impairment. The 2018 annual impairment
test resulted in the Company recording an impairment charge in the fourth quarter of 2018. The 2017 annual impairment test
resulted in no impairment.
Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements,
and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology
are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of
five to fifteen years. Trade names are being amortized over useful lives of seven to ten years. Non-competition agreements are
being amortized over periods of five to ten years. The Company continually evaluates the reasonableness of the useful lives of
these assets. Additionally, the Company reviews the carrying values of these assets for possible impairment whenever events or
changes in circumstances indicate that the carrying value of the asset may not be recoverable based on undiscounted estimated
cash flows expected to result from its use and eventual disposition.
Impairment of Long-Lived Assets
The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when
events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset
group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable
and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based
F-12
Note 1 – Background and Summary of Significant Accounting Policies (continued)
on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived
intangible assets, are determined in a similar manner, except that fair market values are reduced for disposal costs.
Foreign Currency Translation
The Company has significant operations outside of the United States. The Company's operations in Europe, Canada, and certain
locations in Asia primarily generate and expend cash in local currencies, and accordingly, these subsidiaries utilize the local
currency as their functional currency. The Company’s operations in Israel and certain locations in Asia primarily generate cash in
U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency.
For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets
have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average
exchange rate for the year. Translation adjustments do not impact the consolidated statements of operations and are reported as a
separate component of accumulated other comprehensive loss within the statement of comprehensive income. Foreign currency
transaction gains and losses are included in the results of operations.
For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts
are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary
assets and liabilities are included in the consolidated statements of operations.
Share-Based Compensation
Compensation costs related to share-based payments are recognized in the consolidated financial statements. The amount of
compensation cost is measured based on the grant-date fair value of the equity instruments issued. For service-based awards,
compensation cost is recognized over the period that an officer, employee, or non-employee director provides service in exchange
for the award. The Company recognizes forfeitures as they occur. For performance based awards, the Company recognizes
compensation cost for awards that are expected to vest based on whether performance criteria are expected to be met. For options
and restricted stock units subject to graded vesting, the Company recognizes expense over the service period for each separately
vesting portion of the award as if the award was comprised of multiple awards.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when
it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
“Leases (Topic 842),” a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases.
The core principle of this ASU requires lessees to present the assets and liabilities that arise from leases on their balance sheets.
The Company adopted this ASU effective January 1, 2019 using a modified retrospective approach through a cumulative-effect
adjustment to retained earnings as of the beginning of the period of adoption. See Note 12- Leases.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU gives entities the option to
reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Act") related to items in
accumulated other comprehensive income ("AOCI") that the FASB refers to as having been stranded in AOCI. The Company
adopted ASU 2018-02 effective January 1, 2019, and elected not to reclassify the income tax effects from AOCI to retained
earnings.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for
financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing
incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate
credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to
available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized
cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments in this ASU are
effective for annual periods beginning after December 15, 2019 and early adoption is permitted. The effect on the Company's
consolidated financial statements and related disclosures is not expected to be material.
F-13
Note 1 – Background and Summary of Significant Accounting Policies (continued)
In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined
Benefit Plans." This ASU amends Accounting Standards Codification ("ASC") 715 to add, remove and clarify disclosure
requirements related to defined benefit and pension and other postretirement plans. The amendments in this ASU are effective
for annual periods beginning after December 15, 2020 and early adoption is permitted. The Company is evaluating the standard
to determine the impact on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements (Topic 820)." This ASU modifies the disclosures
on fair value measurements by removing the requirements to disclose the amount and reasons for transfers between Level 1 and
Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for
Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive
income. The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2019
and early adoption is permitted. The Company is evaluating the standard to determine the impact on the consolidated financial
statements.
Note 2 – Revenues
The following table disaggregates net revenue by geographic region from contracts with customers based on net revenues generated
by subsidiaries within that geographic location (in thousands):
Foil Technology
Products
Year Ended December 31, 2019
Force
Sensors
Weighing and
Control Systems
$
56,393
3,181
32,328
12,401
27,500
—
$
33,695
10,450
10,811
415
8,986
—
24,227
15,576
16,860
—
8,331
22,804
Total
$
131,803
$
64,357
$
87,798
$
Foil Technology
Products
Year Ended December 31, 2018
Force
Sensors
Weighing and
Control Systems
Total
61,132
$
39,955
$
23,818
$
3,666
31,431
11,028
33,752
—
141,009
$
11,787
10,678
517
10,249
—
73,186
$
14,296
18,741
—
7,442
21,302
85,599
$
114,315
29,207
59,999
12,816
44,817
22,804
283,958
124,905
29,749
60,850
11,545
51,443
21,302
299,794
United States
United Kingdom
Other Europe
Israel
Asia
Canada
United States
United Kingdom
Other Europe
Israel
Asia
Canada
$
$
$
$
F-14
105,663
26,487
52,427
7,308
45,084
17,381
254,350
64,798
22,378
8,769
81,439
53,503
23,463
Note 2 – Revenues (continued)
Foil Technology
Products
Year Ended December 31, 2017
Force
Sensors
Weighing and
Control Systems
Total
United States
United Kingdom
Other Europe
Israel
Asia
Canada
$
$
52,032
$
3,173
26,322
6,673
28,073
—
34,108
$
12,187
8,793
635
9,723
—
19,523
$
11,127
17,312
—
7,288
17,381
116,273
$
65,446
$
72,631
$
The following table disaggregates net revenue by market sector(in thousands):
Test & Measurement
Avionics, Military & Space
Medical
Precision Weighing
Force Measurement
Steel
Contract Assets & Liabilities
$
$
Years Ended December 31,
2019
2018
2017
69,594
$
76,735
$
23,975
10,863
91,001
55,648
32,877
26,743
9,868
93,734
66,551
26,163
283,958
$
299,794
$
254,350
Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a
payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract
liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations.
Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due
is not significant.
The outstanding contract assets and liability accounts were as follows (in thousands):
December 31, 2018
December 31, 2019
Increase ( decrease)
$
$
$
964
3,937
2,973
$
$
$
5,328
4,561
(767)
Contract Asset
Unbilled Revenue
Contract Liability
Accrued Customer Advances
Included in the contract asset at December 31, 2019 is $2.1 million attributable to the acquisition of DSI. The amount of revenue
recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018
was $5.1 million.
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for contracts that have a duration of one year or
less and for contracts that are substantially complete. The Company treats shipping and handling activities as fulfillment costs.
F-15
Note 3 – Acquisition Activity
Dynamic Systems Inc.
On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized
dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes,
for a purchase price of $40.5 million, subject to customary adjustments, plus a potential earn out of up to an additional $3.0 million.
DSI reports into the Company's Weighing and Control Systems segment. The following table summarizes the preliminary fair
values assigned to the assets and liabilities of DSI as of November 1, 2019 (in thousands):
Working capital (a)
Property and equipment
Long-term deferred income tax liability
Non-Controlling interest
Intangible assets:
Patents and acquired technology
Customer relationships
Trade names
Total intangible assets
Fair value of acquired identifiable assets and liabilities
Purchase price
Goodwill
$
$
6,874
1,727
(4,321)
(299)
10,250
4,344
3,300
17,894
21,875
40,481
18,606
(a) Working capital accounts include accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, and accrued payroll.
The fair value of the contingent consideration is zero. The weighted average useful lives for the patents and acquired technology
and customer relationships are 16 years, and 15 years, respectively. Most of the goodwill associated with DSI will be deductible
for income tax purposes.
The Company recorded acquisition costs of associated with this transaction in its consolidated statements of operation as
follows (in thousands):
Accounting and legal fees
Appraisal fees
Other
Year ended
December 31, 2019
$
$
214
13
216
443
Following are the supplemental consolidated financial results for the Company on a unaudited pro forma basis, as if the DSI
acquisition had been consummated on January 1, 2018 (unaudited):
Pro forma net revenues
Pro forma net earnings attributable to VPG stockholders
Pro forma basic earnings per share attributable to VPG stockholders
Pro forma diluted earnings per share attributable to VPG stockholders
Year ended December 31,
2019
2018
298,085
22,775
1.69
1.68
$
$
$
$
314,437
23,821
1.77
1.76
$
$
$
$
F-16
Note 4 – Goodwill and Other Intangible Assets
The Company performed the first step of the impairment test as of the first day of the fiscal 2019 fourth quarter by calculating the
fair value of the reporting units and comparing it against its carrying amount. The Company estimated the fair value of our steel
and on-board weighing reporting units using the income approach and a market approach to valuation. The income approach to
valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount
rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash
flows. The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability,
capital expenditures, and working capital requirements. The market approach to valuation uses the market capitalization of public
companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple
to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate
control premiums. We weigh the results of the income approach and the market approach to arrive at the estimated fair value of
the reporting unit. We estimate the fair value of our instrumentation reporting unit using the income approach. If the fair value
exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would
be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.After completing the impairment
test, the Company determined the fair value exceeded the carrying value for all reporting units.
For the year ended December 31, 2018, the carrying value of the instrumentation reporting unit exceeded the fair value and the
Company recorded an impairment charge of $2.5 million. The impairment was primarily from lower margins on the forecasted
projections due to product mix related to the Pacific acquisition. The impairment test for the remaining reporting units resulted
in the fair value exceeding the carrying value, passing the quantitative impairment test.
The Company's analysis in 2017 resulted in the fair value exceeding the carrying value for all reporting units.
The determination of the fair value of the reporting unit and the allocation of that value to individual assets and liabilities within
the reporting unit requires the Company to make significant estimates and assumptions. These estimates and assumptions include
the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the
Company competes, the discount rate, terminal growth rates, and forecasts of revenue, operating income, depreciation and
amortization, and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates.
Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on
either the fair value of the reporting unit or the amount of the goodwill impairment charges.
The change in the carrying amount of goodwill by segment is as follows (in thousands):
Total
Weighing and Control Systems Segment
Stress-Tek
DSI
Acquisition
Acquisition
KELK
Acquisition
Foil Technology
Products
Segment
Pacific
Instruments
Balance at January 1, 2018
$
19,181
$
6,828
$
— $
6,311
$
Impairment charges
Foreign currency translation
adjustment
Balance at December 31, 2018
Goodwill acquired
Foreign currency translation
adjustment
(2,500)
(540)
16,141
18,606
—
(540)
6,288
—
—
—
18,606
271
271
—
—
—
6,311
—
—
Balance at December 31, 2019
$
35,018
$
6,559
$
18,606
$
6,311
$
6,042
(2,500)
—
3,542
—
—
3,542
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,
2019
2018
$
19,504
$
25,690
1,690
11,745
58,629
(4,718)
(11,727)
(1,690)
(11,717)
(29,852)
28,777
$
9,067
20,941
1,674
11,820
43,502
(4,103)
(10,399)
(1,674)
(11,748)
(27,924)
15,578
Net intangible assets subject to amortization
$
Intangible assets not subject to amortization
(Indefinite-lived):
Trade names
5,421
$
34,198
$
2,078
17,656
Certain intangible assets are subject to foreign currency translation.
In conjunction with the acquisition of DSI on November 1, 2019 (See Note 3), the Company allocated $14.6 million for the
purchase price to definite-lived intangibles assets and $3.3 million to indefinite-lived intangible assets at December 31, 2019. The
Company has determined that the trade name is an indefinite-lived intangibles asset.
The Company performed an impairment test on the indefinite-lived trade names as of the first day of the fiscal 2019 fourth quarter
and determined there was no impairment. In 2018, the Company recorded an impairment charge of $0.3 million related to the
Pacific acquisition. The impairment was primarily from lower margins on the forecasted projections due to product mix. The
value of the trade names was determined using an income approach, where the Company estimated the future cash flows associated
with the trade names and discounted those cash flows back to their net present value. Due to the decline in cash flows as a result
of the lower margins, the Company reduced the royalty rate, under the relief of royalty method, when performing the income
approach valuation. The Company's annual impairment test on the indefinite-lived trade names in 2017 resulted in no impairment.
Amortization expense was $1.7 million, $1.7 million, and $1.9 million, for the years ended December 31, 2019, 2018, and 2017,
respectively. Amortization expense in 2019 included $0.2 million related to the DSI acquisition.
Estimated annual amortization expense for each of the next five years is as follows (in thousands):
2020
2021
2022
2023
2024
$
2,465
2,416
2,415
2,311
2,279
F-18
Note 5 – Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during
the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs
are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs.
If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods
or to reverse part of the previously recorded charges.
The Company recorded restructuring costs of $2.3 million, $0.3 million, and $2.0 million during the years ended December 31,
2019, 2018, and 2017, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including
severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of
other exit costs, including asset write downs and an impairment of a right of use asset associated with the closure and downsizing
of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China. In
2018 and 2017, restructuring costs were comprised primarily of employee termination costs, including severance and statutory
retirement allowances, and were incurred in connection with various cost reduction programs.
The following table summarizes the activity to date related to these programs in the accrued restructuring liability, which is
comprised of the activity associated primarily with the employee termination costs . The accrued restructuring liability balance
as of December 31, 2019 and 2018, respectively, is included in other accrued expenses in the accompanying consolidated balance
sheets (in thousands):
Balance at beginning of year
Restructuring charges
Adjustment for adoption of ASU 2016-02
Cash payments
Foreign currency translation
Balance at end of year
December 31,
2019
2018
2017
$
$
159
$
1,559
(69)
(1,064)
19
604
$
254
289
—
(384)
—
159
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
Total income tax expense
$
$
$
$
Years ended December 31,
2018
2017
2019
(7,405) $
33,845
26,440
$
(7,897) $
41,886
33,989
$
(3,552)
24,115
20,563
Years ended December 31,
2018
2017
2019
$
453
(130)
6,378
6,701
(2,638)
(123)
205
(2,556)
4,145
$
189
162
8,982
9,333
197
(35)
849
1,011
$
10,344
$
(425)
89
4,615
4,279
(257)
(1)
2,148
1,890
6,169
A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision
is as follows (in thousands):
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
Specialty tax credits
Statutory rate changes
Effect of foreign exchange
Loss of benefit of U.S. net operating loss (a)
Excess tax benefits related to share based compensation (a)
2017 Tax Act:
Effects of U.S. tax reform
Change in valuation allowance
Other
Total income tax expense
F-20
Years ended December 31,
2018
2017
2019
$
$
5,553
(21)
(109)
(646)
650
—
(176)
(249)
(1,152)
967
(357)
—
—
(315)
4,145
$
7,138
$
89
611
498
258
525
(295)
272
321
—
—
(135)
945
117
$
10,344
$
7,197
93
(1,137)
(397)
105
—
(139)
(470)
(1,292)
—
—
11,311
(9,093)
(9)
6,169
Note 6 – Income Taxes (continued)
(a) Amounts for 2017 and 2018 are included in Other and fell below the 5% threshold.
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changed U.S.
tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a
one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently
reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax
rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted
tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
Also on December 22, 2017, the SEC staff issued SAB 118 which provides for a measurement period of one year from the enactment
date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company had provisionally
determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. This amount
included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the implementation of a modified
territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries
are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million withholding tax associated with a planned
cash distribution of approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million was
included in the provisional tax of $2.2 million for 2017. As of December 31, 2019, the remaining planned cash distribution amount
is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million.
In accordance with SAB
118, the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net $0.8 million
increase in tax expense caused by a decrease in the transition tax and an increase in the valuation allowance.
The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as
GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company has elected to
recognize tax expense related to GILTI in the year the tax is incurred.
The Company recognized approximately $12.9 million and $15.6 million of GILTI income for the years ended December 31,
2019 and 2018, respectively. The U.S. tax on the GILTI income was fully offset by foreign tax credits associated with GILTI
and U.S. operating losses exclusive of GILTI. Any excess foreign tax credits associated with GILTI are lost and cannot be
carried forward to future years. The Company would have generated a net operating loss for U.S. federal income tax purposes
but for the effects of the GILTI provision.
Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
F-21
Note 6 – Income Taxes (continued)
Deferred tax assets:
Pension and other postretirement costs
Inventories
Net operating/capital loss and interest carryforwards
Tax credit carryforwards
Deferred compensation
Other accruals and reserves
Book over tax depreciation
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,
2019
2018
$
3,770
$
2,095
11,895
1,431
2,865
3,362
—
25,418
(14,867)
10,551
(290)
(1,845)
(5,745)
(7,880)
3,600
2,103
9,536
748
2,009
3,547
12
21,555
(14,455)
7,100
—
(1,983)
(884)
(2,867)
Net deferred tax assets
$
2,671
$
4,233
In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to
uncertainty regarding the realization of these assets. Throughout 2018 and 2019, the Company reassessed its ability to realize its
U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant
negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek, Pacific and
DSI was also considered in determining the realization of the U.S. deferred tax assets. Other aspects, such as operating results,
additional interest expense and additional tax deductions related to the Stress-Tek acquisition, were also considered. The Company
also considered positive evidence such as tax planning strategies and the projected benefits of our restructuring efforts. However,
there was insufficient positive evidence to overcome the negative evidence.
In November 2019, the Company acquired Dynamic Systems, Inc. ("DSI"), a U.S. company. DSI's opening balance sheet included
$17 million of gross deferred tax liabilities, including $4.1 million of indefinite-lived liabilities. The acquisition contributed to a
$2.5 million net reduction in valuation allowance and current tax benefit for the Company. This reduction in the valuation allowance
will be adjusted going forward.
Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains
uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable.
We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient
positive evidence of realization exists. At December 31, 2019 and 2018, the valuation allowance on U.S. deferred tax assets was
approximately $11.8 million and $12.3 million, respectively. The net change in valuation allowance was approximately $(0.6)
million.
The valuation allowance related to state taxes was $0.8 million and $1.0 million expense for the years ended December 31, 2019
and 2018, respectively.
The Company also has valuation allowances of $3.1 million and $2.2 million at December 31, 2019 and 2018, respectively, with
respect to certain foreign net operating loss and capital loss carryforwards.
F-22
Note 6 – Income Taxes (continued)
Significant valuation allowances are as follows (in thousands):
Jurisdiction
U.S. federal
U.S. state (net of U.S. federal tax benefit)
Israel - capital losses
December 31,
2019
2018
$
3,395
$
8,411
2,457
4,240
8,057
1,457
The following table summarizes significant net operating losses and credit carryforwards as of December 31, 2019 (in thousands):
Jurisdiction
U.S. foreign tax credit
U.S state net operating losses
Israel capital losses
December 31,
2019
Expiring
1,431
2025-2039
92,407
2023-2039
10,684 No expiration
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $159.0 million at December 31, 2019
compared to $143.0 million at December 31, 2018. As a result of the 2017 Tax Act, in 2017 the Company had provided for a
deferred tax liability of approximately $1.8 million of withholding tax associated with a planned cash distribution of approximately
$25.5 million. As of December 31, 2019, other than the planned cash distribution of $14.1 million, substantially all of the remaining
undistributed earnings are considered to be indefinitely reinvested and accordingly no provision has been made with respect to
these earnings for incremental foreign income taxes, state income taxes or foreign withholding taxes. If those earnings were
distributed to the U.S., the Company could be subject to incremental foreign income taxes, state income taxes, and withholding
taxes. Determination of the amount of unrecognized deferred tax liability is not practicable because of the uncertainty regarding
the timing of any such distribution and the impact on existing valuation allowances. In addition to the $1.5 million, additional
withholding taxes of approximately $17.5 million are estimated to be payable upon remittance of the remaining previously
unremitted earnings as of December 31, 2019.
Net income taxes paid were $11.1 million, $7.3 million, and $4.1 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in
which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities.
While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be
challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-
related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective
jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of
an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable
determination could increase tax expense and could require a cash payment, including interest and penalties.
F-23
Note 6 – Income Taxes (continued)
The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with
unrecognized tax benefits (in thousands):
Balance at beginning of year
Addition based on tax positions related to current year
Addition based on tax positions related to prior years
Reduction based on tax positions related to prior years
Currency translation adjustments
Reduction for payments made
Reduction for lapses of statute of limitations
Balance before indemnification receivable
Receivable from Vishay Intertechnology for indemnification
December 31,
2019
2018
2017
$
$
912
144
668
(32)
3
(134)
(206)
1,355
—
$
823
189
182
(98)
(28)
—
(156)
912
—
Balance at end of year
$
1,355
$
912
$
772
163
—
(12)
14
—
(114)
823
(12)
811
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Related to the unrecognized tax benefits noted above, for the years ended December 31, 2019, December 31, 2018 and December
31, 2017, the Company accrued total penalties and interest of $0.0 million, $0.1 million and $0.1 million, respectively, none of
which was included in the indemnification receivable. As of December 31, 2019, December 31, 2018 and December 31, 2017,
accrued penalties and interest were $0.1 million, $0.1 million and $0.1 million, respectively.
Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018, and 2017 is $1.4 million, $0.9 million, and
$0.8 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is
reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2
million may be necessary in 2019. As of December 31, 2019, the Company anticipates that it is reasonably possible that it will
reverse up to $0.1 million of its current unrecognized tax benefits within the calendar year due to the expiration of the statute of
limitations in certain jurisdictions. None of the unrecognized tax benefits the Company expects to reverse in 2020 due to statute
lapses are covered by the Tax Matters Agreement.
The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and
foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis.
The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries
file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally
range from 3 to 10 years.
During the 2nd and 3rd quarters of 2019, the Company concluded tax examinations in Taiwan and Belgium, respectively, for two
of its subsidiaries, covering the years 2016 and 2017. The conclusion of the tax examinations resulted in no significant change in
tax.
During the fourth quarter of 2018, the Company concluded a tax examination in Germany for one of its subsidiaries, covering the
years 2015 and 2016. The conclusion of the tax examination resulted in no significant change in tax.
During the fourth quarter of 2017, the Company concluded a tax examination in Japan for one of its subsidiaries, covering the
years 2014 through 2016. The conclusion of the tax examination resulted in no significant change in tax.
The Company is subject to ongoing income tax audits, administrative appeals and judicial proceedings in India spanning a number
of years.
F-24
Note 7 – Long-Term Debt
Long-term debt consists of the following (in thousands):
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
Other debt
Deferred financing costs
Less: current portion
2015 Credit Agreement
December 31,
2019
2018
$
34,000
$
12,000
2,038
4,982
3,476
149
(112)
44,533
44,516
$
17
$
2,967
7,253
4,798
279
(222)
27,075
4,654
22,421
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, 2019 and December
31, 2018, were 3.97% and 4.82%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 3.97% and
4.82%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.
The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain
domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the
Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015
Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015
Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and
its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company
to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios.
The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The
Company was in compliance with its financial maintenance covenants at December 31, 2019. If the Company is not in compliance
with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant
to the credit facility could become immediately payable.
F-25
Note 7 – Long-Term Debt (continued)
Accordion Exercise
On October 23, 2019, VPG exercised all of the $15.0 million accordion feature (the “Accordion”) of its revolving credit facility
(the “Revolving Credit Facility”). The exercise of the Accordion increases the aggregate principal amount available under the
Revolving Credit Facility to $45.0 million.
Other Lines of Credit
In addition to the 2015 Revolving Facility discussed above, certain subsidiaries of the Company had committed short-term lines
of credit with a foreign bank aggregating approximately $3.0 million and $3.0 million at December 31, 2019 and 2018, respectively.
The Company had outstanding letters of credit under these short-term lines of credit of $0.9 million and $0.9 million at December
31, 2019 and 2018, respectively.
Other Debt
Other debt consists of debt held by VPG’s Japanese subsidiary and is payable monthly over the next 2 years at a zero percent
interest rate.
Aggregate annual maturities of long-term debt are as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
$
44,628
17
—
—
—
—
Interest paid on third-party debt was $1.4 million, $1.6 million, and $1.7 million during the years ended December 31, 2019, 2018,
and 2017, respectively.
Note 8 – Stockholders’ Equity
The Company’s Class B convertible common stock carries ten votes per share. The common stock carries one vote per share.
Class B shares are transferable only to certain permitted transferees while the common stock is freely transferable. Class B shares
are convertible on a one-for-one basis at any time into shares of common stock. Transfers of Class B shares other than to permitted
transferees result in the automatic conversion of the Class B shares into common stock.
The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible
common stock if it grants such dividends or distributions in the same amount per share with respect to the other class of stock. As
discussed in Note 7, the Company is restricted from paying cash dividends. Stock dividends or distributions, on any class of stock,
are payable only in shares of stock of that class. Shares of either common stock or Class B convertible common stock cannot be
split, divided, or combined unless the other is also split, divided, or combined equally.
The Board of Directors is authorized, without further stockholder approval, to issue from time to time up to an aggregate of
1,000,000 shares of preferred stock in one or more series. The Board of Directors may fix or alter the designation, preferences,
rights and any qualification, limitations, restrictions of the shares of any series, including the dividend rights, dividend rates,
conversion rights, voting rights, redemption terms and prices, liquidation preferences and the number of shares constituting any
series. No shares of the Company’s preferred stock are currently outstanding.
F-26
Note 8 – Stockholders’ Equity (continued)
Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each
component are as follows (in thousands):
Beginning
Balance
Before-
Tax
Amount
Tax
Effect
Net-of-
Tax
Amount
Ending
Balance
December 31, 2017
Pension and other postretirement actuarial items
$
(7,145) $
(1,465) $
112
$
(1,353) $
(8,498)
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
(33,192)
$ (40,337) $
583
5,654
4,772
December 31, 2018
Pension and other postretirement actuarial items
$
(8,060) $
1,392
(145)
148
115
$
438
5,802
4,887
438
(27,390)
$ (35,450)
(18) $
1,374
$
(6,686)
$
$
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
December 31, 2019
(27,390)
$ (35,450) $
685
(3,857)
(1,780) $
(145)
(72)
(235) $
540
540
(3,929)
(31,319)
(2,015) $ (37,465)
Pension and other postretirement actuarial items
$
(6,146) $
(1,310) $
194
$
(1,116) $
(7,262)
Reclassification adjustment for recognition of actuarial
items
Foreign currency translation adjustment
Reclassification adjustment for foreign currency
translation
(31,319)
359
(290)
(39)
21
320
(269)
320
(31,588)
$ (37,465) $
827
$
(414) $
—
176
$
827
827
(238) $ (37,703)
Reclassification of foreign currency translation adjustment for gain on liquidation of a subsidiary is included in other income
(expense) other ( See Note 15). Reclassifications of pension and other postretirement actuarial items out of accumulated other
comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9).
Note 9 – Pensions and Other Postretirement Benefits
Defined Benefit Plans
Employees of the Company participate in various defined benefit pension and other postretirement benefit plans.
U.S. Pension Plan
The Vishay Precision Group Non-Qualified Retirement Plan, like all nonqualified plans, is considered to be unfunded. The Company
maintains a nonqualified trust, referred to as a “rabbi” trust, to fund benefits under this plan. Rabbi trust assets are subject to
creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent
assets within the consolidated balance sheets. The assets held in the rabbi trust are invested in money market funds and company-
owned life insurance policies. The consolidated balance sheets include assets held in trust related to the nonqualified pension plan
of $1.7 million at December 31, 2019 and $1.6 million at December 31, 2018, and the related liabilities of $2.4 million and $2.2
million at December 31, 2019 and 2018, respectively.
The Vishay Precision Group Non-Qualified Retirement Plan is frozen. Accordingly, no new employees may participate in the
plan, no further participant contributions are permitted, and no further benefits accrue. Benefits accumulated prior to the freezing
of the U.S. pension plan will be paid to employees upon retirement, and the Company will likely need to make additional cash
contributions to the rabbi trust to fund this accumulated benefit obligation.
F-27
Note 9 – Pensions and Other Postretirement Benefits (continued)
Non-U.S. Pension Plans
The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries consistent with local practices.
Pension benefits earned are generally based on years of service and compensation during active employment.
In 2018, the Company undertook several measures to de-risk the UK pension plan. The first measure was to freeze the plan, with
no new participants permitted and no further benefits accrue. The second measure was to execute an enhanced transfer value
exercise to transfer pension benefits outside of the plan. As s result, the Company incurred $0.7 million of expense related to
these de-risking measures.
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.
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):
December 31, 2019
December 31, 2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost (adjusted for actual employee contributions)
$
$
23,922
336
Interest cost
Contributions by participants
Actuarial (gains) losses
Benefits paid
Curtailments and settlements
Plan amendments and other
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
Curtailments and settlements
Plan amendments and other
Currency translation
Fair value of plan assets at end of year
Funded status at end of year
$
$
$
$
$
4,645
126
180
—21
(131)
(187)
—
—
620
—
2,170
(856)
(25)
573
531
27,271
$
—
4,633
$
14,501
$
1,338
1,032
(856)
(25)
430
16,420
$
— $
—
187
—
(187)
—
—
—
— $
$
28,617
477
686
(1,568)
(1,042)
(3,362)
1,107
(1,014)
23,922
17,454
(343)
1,495
21
(1,042)
(2,429)
202
(857)
14,501
$
$
$
4,726
108
152
—
(97)
(244)
—
—
—
4,645
—
—
244
—
(244)
—
—
—
—
(10,851) $
(4,633) $
(9,421) $
(4,645)
Amounts recognized in the consolidated balance sheets consist of the following pre-tax amounts (in thousands):
Accrued pension and other postretirement costs
$
(10,851) $
(4,633) $
(9,421) $
(4,645)
December 31, 2019
December 31, 2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
F-28
Note 9 – Pensions and Other Postretirement Benefits (continued)
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, 2019
December 31, 2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
6,500
$
1,808
$
5,237
$
2,095
62
1
9
2
—
—
6,563
$
1,808
$
5,248
$
2,095
$
$
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,
2019
2018
$
$
26,100
25,800
25,158
14,983
23,040
22,552
22,155
13,256
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):
2019
Years ended December 31,
2018
2017
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
Annual service cost
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
Net periodic benefit cost
$
$
336
—
336
620
(517)
202
1
—
642
$
$
$
126
—21
126
180
—
156
—
—
462
$
498
$
477
686
(549)
507
1
708
1,830
$
108
—
108
152
—
177
—
—
437
$
$
$
548
35
513
674
(536)
463
1
—
1,115
$
96
—
96
142
—
119
—
—
357
See Note 8 for the pre-tax, tax effect, and after tax amounts included in other comprehensive income during the years ended
December 31, 2019, 2018, and 2017. The estimated actuarial items that will be amortized from accumulated other comprehensive
loss into net periodic pension cost during 2020 is $0.4 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
2019
2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
1.96%
1.20%
3.56%
2.97%
N/A
N/A
2.61%
3.08%
2.70%
3.99%
N/A
N/A
F-29
Note 9 – Pensions and Other Postretirement Benefits (continued)
The following weighted-average assumptions were used to determine the net periodic pension costs for the years ended December
31, 2019 and 2018:
Discount rate
Rate of compensation increase
Expected return on plan assets
Health care trend rate
2019
2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
2.61%
3.08%
2.70%
N/A
3.99%
N/A
N/A
5.27%
2.42%
2.66%
3.46%
N/A
3.33%
N/A
N/A
17.25%
The health care trend ultimate rate is 3.90% 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, 2019 and 2018.
Plan assets are comprised of:
Equity securities
Fixed income securities
Cash and cash equivalents
Total
December 31, 2019
December 31, 2018
Pension
Plans
OPEB
Plans
Pension
Plans
OPEB
Plans
48%
42%
10%
100%
—
—
—
—
50%
37%
13%
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 16 for further description of the levels within the fair value hierarchy (in
thousands)):
F-30
Note 9 – Pensions and Other Postretirement Benefits (continued)
As of December 31, 2019
Defined benefit pension plan assets
Equity securities
Fixed income securities
Cash and cash equivalents
As of December 31, 2018
Defined benefit pension plan assets
Equity securities
Fixed income securities
Cash and cash equivalents
$
$
$
$
Estimated future benefit payments are as follows (in thousands):
2020
2021
2022
2023
2024
2024 - 2027
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
7,796
$
7,796
$
— $
6,975
1,649
6,975
1,649
—
—
16,420
$
16,420
$
— $
—
—
—
—
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Total Fair
Value
7,221
$
7,221
$
5,309
1,971
14,501
$
5,309
1,971
14,501
$
$
— $
—
—
— $
—
—
—
—
Pension
Plans
OPEB
Plans
$
921
1,038
1,005
1,569
1,052
7,205
294
338
353
292
328
1,412
The Company anticipates making contributions to its funded and unfunded pension and postretirement benefit plans of
approximately $1.5 million during 2020.
Other Retirement Obligations
The Company participates in various other defined contribution plans based on local law or custom. The Company periodically
makes contributions to these plans. At December 31, 2019 and 2018, the consolidated balance sheets include $0.9 million and
$1.3 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 $0.7 million for the years
ended December 31, 2019, 2018, and 2017, 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 $3.5 million at December 31,
2019 and $3.1 million at December 31, 2018, and the related liabilities of $4.9 million and $4.2 million at December 31, 2019
and 2018, respectively.
F-31
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, 2019, the Company had reserved 417,602 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.
Restricted Stock Units
Pursuant to the Plan, the Company issued RSUs to board members, executive officers, and certain employees of the Company
during 2019. 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 March 13, 2019, VPG’s three then- 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 $1.8 million were comprised of 51,814
RSUs. Twenty-five percent of these awards will vest on January 1, 2022, subject to the executives' continued employment. The
performance-based portion of the RSUs will also vest on January 1, 2022, subject to the executives' continued employment and
the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and net earnings
goals, each weighted equally. The awards issued in 2018 and 2017 have similar allocations and vesting criteria.
On March 20, 2019, 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 12,445 RSUs. Twenty-
five percent of these awards will vest on January 1, 2022 subject to the employees' continued employment. The performance-
based portion of the RSUs will also vest on January 1, 2022, subject to the employee's continued employment and the satisfaction
of certain performance objectives relating to three-year cumulative earnings goals and cash flow goals.
On May 16, 2019, the Board of Directors approved the issuance of an aggregate of 8,244 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 16, 2020, subject to the directors'
continued service on the Board of Directors.
Vesting of equity awards may be subject to acceleration under certain circumstances.
RSU activity is presented below (number of RSUs in thousands):
2019
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
Years ended December 31,
2018
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
2017
Number
of
RSUs
Weighted
Average
Grant-date
Fair Value
265
$
73
(75)
(51)
212
$
17.64
35.27
15.27
11.49
25.97
417
$
74
(86)
(140)
265
$
14.57
28.20
16.75
14.70
17.64
377
$
98
(58)
—
417
$
14.04
16.75
14.78
—
14.57
Outstanding:
Beginning of year
Granted
Vested
Forfeited
End of year
F-32
Note 10 – Share-Based Compensation (continued)
The fair value of the RSUs vested during 2019 is $2.5 million. Included in the 2019 and 2018 activity are RSU's forfeited as a
result of performance objectives not being met. These awards are therefore available for future grants under the Plan.
RSUs with performance-based vesting criteria are expected to vest as follows (number of RSUs in thousands):
Vesting Date
Expected to Vest
January 1, 2020
January 1, 2021
January 1, 2022
53
35
3
Not Expected to Vest
5
14
45
Total
58
49
48
Share-Based Compensation Expense
The following table summarizes pre-tax share-based compensation expense recognized (in thousands):
Restricted stock units
Years ended December 31,
2019
2018
2017
$
1,336
$
1,799
$
1,499
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 2019, it was also determined that certain performance objectives associated with awards granted in 2017, 2018 and 2019
were not likely to be fully met, necessitating a reversal of certain compensation expense associated with those awards. As a net
result, adjustments decreasing share based compensation expense totaling $0.8 million were recorded during the year based on
anticipated performance levels.
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.
The deferred tax benefit on share-based compensation expense was $0.1 million, $0.0 million, and $0.1 million for the years ended
December 31, 2019, 2018, and 2017, respectively.
As of December 31, 2019, the Company had $1.2 million of unrecognized share-based compensation expense related to share-
based awards that will be recognized over a weighted-average period of approximately 1.4 years.
Note 11 – Commitments, Contingencies, and Concentrations
Litigation
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.
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.
F-33
Note 11 – Commitments, Contingencies, and Concentrations (continued)
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.
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, 2019 and 2018, the Company had no significant concentrations of credit risk.
Geographic Concentrations
At December 31, 2019 and 2018, 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, 2019 and December 31,
2018:
Asia
United States
Israel
Europe
United Kingdom
Canada
Total
December 31,
2019
2018
23%
7%
28%
14%
17%
11%
28%
7%
35%
13%
12%
5%
100%
100%
F-34
Note 12 - Leases
Effective January 1, 2019 the Company adopted the new lease accounting standard using the modified retrospective method of
applying the new standard at the adoption date. The Company determines if an arrangement is or contains a lease at inception or
modification of such agreement. The arrangement is or contains a lease if the contract conveys the right to control the use of the
identified asset for a period in exchange for consideration.
Lease right of use assets and liabilities are recognized based on the present value of future minimum lease payments over the
expected term at commencement date. As the implicit rate is not determinable in most of the Company's leases, the Company's
incremental borrowing rate is used as the basis to determine the present value of future lease payments. Refer to Note 7 for
discussion of the Company's borrowing rate. The expected lease terms include options to extend or terminate. The period which
is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised.
Some of these leases contain variable payment provisions that depend on an index or rate, initially measured using the index or
rate at the lease commencement date and are therefore not included in our future minimum lease payments. Variable payments
are expensed in the periods incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the
expected lease term. Additionally, the Company elected the package of practical expedients permitted under the transition guidance,
which allows the carryforward the historical lease classification. The Company also made an election to exclude from balance
sheet reporting leases with initial terms of 12 months or less and to exclude non-lease components from lease right of use assets
and corresponding liabilities.
The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than
one year to seven years. The Company has no finance leases. The Company recorded a $0.5 million adjustment to opening
retained earnings related to the remaining deferred gain recorded as part of the Karmiel, Israel sale leaseback.
Leases recorded on the balance sheet consist of the following (in thousands):
Leases
Assets
Classification on
Balance Sheet
December 31,
2019
Operating lease right of use asset
Other Assets
Liabilities
Operating lease - current
Operating lease - non-current
Other Accrued
Expenses
Other Liabilities
Other information related to lease term and discount rate is as follows:
Operating leases weighted average remaining lease term (in years)
Operating leases weighted average discount rate
The components of lease expense are as follows (in thousands):
Operating lease cost
Variable lease cost
Short-term lease cost
Total lease cost
$
$
$
8,691
2,827
5,811
December 31, 2019
4.0 years
5.05%
Year Ended
December 31, 2019
$
$
3,376
44
87
3,507
Right of use assets obtained in exchange for new operating lease liability during 2019 were $0.3 million. The cash paid for amounts
included in the measurement of lease liabilities approximates our operating lease cost for the year ended December 31, 2019.
F-35
Note 12 - Leases ( continued)
Undiscounted maturities of operating lease payments as of December 31, 2019 are summarized as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Less: amount representing interest
Present value of future minimum lease payments
$
$
$
3,349
2,563
1,580
1,201
769
576
10,038
(1,400)
8,638
One of the Company's indirect wholly-owned subsidiaries enter into a lease agreement as tenant related to a property in Israel.
Such lease agreement provides that we will lease a new building of approximately 121,400 square feet. The Company expects to
commence occupancy in the second half of 2020.
Rent expense on operating leases prior to adoption of ASC 842 was $3.6 million and $3.6 million for the years ended December
31, 2018 and 2017, respectively.
The following are the future minimum lease payments (excluding related party leases as described in Note 17) with initial or
remaining noncancellable lease terms in excess of one year as of December 31, 2018 ( in thousands):
2019
2020
2021
2022
2023
Thereafter
Total lease payments
$
$
3,580
2,126
997
725
503
336
8,267
Note 13 – 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 13 – Segment and Geographic Data (continued)
The following table sets forth reporting segment information (in thousands):
2019
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Acquisition costs
Executive severance costs
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
2018
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Impairment of goodwill and indefinite-lived intangibles
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
2017
Net third-party revenues
Intersegment revenues
Gross profit
Segment operating income (loss)
Restructuring costs
Depreciation and amortization expense
Capital expenditures
Total assets
Foil
Technology
Products
Force
Sensors
Weighing
and
Control
Systems
Corporate/
Other
Total
$ 131,803
$
64,357
$
87,798
$
— $ 283,958
4,067
53,292
29,873
—
—
86
5,870
7,011
1,068
18,022
8,643
—
—
2,041
2,442
2,237
463
40,303
21,058
443
—
—
2,200
1,243
(5,598)
—
(30,926)
—
611
166
1,283
38
—
111,617
28,648
443
611
2,293
11,795
10,529
116,920
75,885
158,597
19,011
370,413
— $ 299,794
—
(5,820)
—
(32,203)
—
—
1,014
147
(4,573)
—
(27,982)
508
1,010
453
12,613
121,267
37,223
2,820
289
10,631
13,239
98,283
22,488
2,044
10,626
10,092
306,551
14,874
326,383
— $ 254,350
—
$
$
$ 141,009
3,878
$
61,562
38,404
2,820
—
5,173
9,239
132,918
$ 116,272
2,316
$
47,755
26,426
85
4,946
4,519
119,175
73,186
1,365
20,001
10,514
—
289
2,323
2,483
82,637
65,446
1,346
18,192
9,274
849
2,537
4,297
77,756
$
$
85,599
577
39,704
20,508
—
—
2,121
1,370
95,954
72,632
911
32,336
14,770
602
2,133
823
97,007
F-37
Note 13 – Segment and Geographic Data (continued)
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
Executive severance costs
Restructuring costs
Years ended December 31,
2018
2017
2019
$
$
(27,579) $
(443)
—
(611)
(2,293)
(30,926) $
(29,094) $
—
(2,820)
—
(289)
(32,203) $
(25,938)
—
—
—
(2,044)
(27,982)
The following geographic data includes property and equipment based on physical location (in thousands):
Property and Equipment - Net
United States
United Kingdom
Other Europe
Israel
Asia
Canada and Other
Note 14 – Earnings Per Share
December 31,
2019
2018
$
$
12,009
4,011
1,498
22,903
19,118
1,731
$
61,270
$
10,933
3,960
1,430
22,682
19,090
1,324
59,419
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 14 – 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):
Numerator:
Numerator for basic earnings per share:
Net earnings attributable to VPG stockholders
Adjustment to the numerator for net earnings:
Years ended December 31,
2018
2017
2019
$
22,188
$
23,646
$
14,345
Interest savings assuming conversion of dilutive exchangeable notes,
net of tax
—
6
24
Numerator for diluted earnings per share:
Net earnings 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
$
22,188
$
23,652
$
14,369
13,515
13,439
13,262
—
82
82
22
74
96
145
64
209
13,597
13,535
13,471
Basic earnings per share attributable to VPG stockholders
Diluted earnings per share attributable to VPG stockholders
$
$
1.64
1.63
$
$
1.76
1.75
$
$
1.08
1.07
Note 15 – Additional Financial Statement Information
The caption “Other” on the consolidated statements of operations consists of the following (in thousands):
Foreign exchange loss
Interest income
Pension expense
Other
Years ended December 31,
2018
2017
2019
$
$
(1,638) $
622
(643)
958
(701) $
(279) $
506
(1,682)
(41)
(1,496) $
(724)
167
(863)
1,337
(83)
F-39
Note 15 – 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
Israeli shekel, the Euro, India Rupee and the Canadian dollar.
Pension expense represents the net periodic benefit cost excluding the service cost. In 2018, the Company recognized a settlement
loss of $0.7 million related to measures taken to de-risk the UK pension schemes as discussed in Note 9 to the consolidated financial
statements.
Included in Other for the year ended December 31, 2019, is a one-time $0.8 million gain on liquidation of one of the Company's
subsidiaries.
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 was completed in 2018.
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
Lease liability - current
Other
Israeli Severance Pay
December 31,
2019
2018
$
4,561
$
604
1,561
1,167
2,149
1,082
2,827
5,002
5,328
159
1,819
2,293
2,203
1,775
—
3,454
$
18,953
$
17,031
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, 2019 and December 31, 2018 include a $8.0 million and $7.7 million liability, respectively,
associated with Israeli severance requirements in other liabilities.
Executive Severance
During the second fiscal quarter of 2019, the Company recorded $0.6 million of severance costs associated with the resignation
of an executive officer of the Company. The severance costs consisted of payments and other benefits as specified in the executive
officer's separation agreement.
F-40
Note 16 – 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.
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, 2019
Assets:
Assets held in rabbi trusts
As of December 31, 2018
Assets:
Assets held in rabbi trusts
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
Total Fair
Value
$
5,169
$
53
$
5,116
$
—
Fair value measurements at reporting date
using:
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
Total Fair
Value
$
4,641
$
87
$
4,554
$
—
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, 2019 and December 31, 2018, 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, excluding capitalized deferred financing costs at December 31, 2019 and December 31, 2018
approximates its carrying value, as the revolving debt and term loans are reset quarterly based on current market rates, plus a base
rate as specified in the 2015 Credit Agreement. 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.
F-41
Note 17 – 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 18 – Subsequent Events
Executive RSU grant
On March 5, 2020, VPG’s three current executive officers were granted annual equity awards in the form of RSUs, of which 75%
are performance-based. The awards have an aggregate target grant-date fair value of $1.2 million and were comprised of 44,269
RSUs. Twenty-five percent of these awards will vest on January 1, 2023, subject to the executives continued employment. The
performance-based portion of the RSUs will also vest on January 1, 2023, subject to the executives continued employment and
the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and net earnings
goals.
F-42
Note 19 – Summary of Quarterly Financial Information (Unaudited)
(in thousands, except per share amounts)
2019
2018
Statement of Operations data:
Net revenues
Gross profit
Operating income
Net earnings
Less: net earnings attributable to
noncontrolling interests
First
Second
Third
Fourth
First
Second
Third
Fourth
$
76,525
$
70,870
$
67,421
$
69,142
$
73,091
$
74,231
$
75,490
$
76,982
33,051
12,603
8,326
28,609
8,102
5,580
25,790
6,186
4,530
24,167
1,757
3,859
28,505
8,186
4,958
31,366
11,315
7,683
30,580
10,631
7,567
30,816
7,091
3,437
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
Executive severance costs
Impairment of goodwill and indefinite-lived
intangibles
UK pension settlement
Restructuring costs
Tax effect of reconciling items and discrete
tax items
83
15
21
(12)
(30)
(10)
20
19
8,243
5,565
4,509
3,871
4,988
7,693
7,547
3,418
0.61
0.61
$
$
0.41
0.41
$
$
0.33
0.33
$
$
0.29
0.28
$
$
0.37
0.37
$
$
0.57
0.57
$
$
0.56
0.56
$
$
0.25
0.25
— $
— $
— $
1,254
$
— $
— $
— $
—
—
—
—
—
—
—
611
—
—
—
—
—
—
—
—
547
80
443
—
—
1,746
3,663
—
—
—
—
—
—
—
—
—
—
61
9
—
—
—
—
228
35
—
—
—
2,820
673
—
(377)
(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
2019 ended on March 30, June 29, September 28, and December 31, respectively. The first, second, third, and fourth quarters of 2018 ended on March 31,
June 30, September 29, and December 31, respectively.
(b) Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.
F-43
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 Precision Foil K.K.
Alpha Electronics Corp.
Pacific Instruments, Inc.
DSI Holdings DE Inc.
Dynamic Systems Inc.
DSI Europe GmbH (c)
Vishay Precision Israel Ltd.
Vishay Measurements Group UK Ltd.
Vishay Advanced Technologies Ltd.
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 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)
(c)
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
Dynamic Systems, Inc. owns 70% of DSI Europe GmbH
Delaware
Germany
Germany
Germany
Delaware
Delaware
India
Costa Rica
Taiwan
Spain
Singapore
China
China
Japan
Japan
California
Delaware
New York
Germany
Israel
England and Wales
Israel
India
France
France
England and Wales
Canada
Ireland
Netherlands
Belgium
France
England and Wales
Sweden
Norway
CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-168256, 333-187211 and 333-196245 on Form S-8
of our reports dated March 11, 2020, relating to the financial statements of Vishay Precision Group, Inc. (the "Company") and the
effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K for the
year ended December 31, 2019.
Brightman Almagor Zohar & Co.
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 11, 2020
EXHIBIT 23.2
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
1) Registration Statement (Form S-8 No. 333-168256) pertaining to the Vishay Precision Group, Inc. 2010 Stock Incentive
Program,
2) Registration Statement (Form S-8 No. 333-187211) pertaining to the Vishay Precision Group, Inc. Deferred Compensation
Plan, and
3) Registration Statement (Form S-8 No. 333-196245) pertaining to the Vishay Precision Group, Inc. 2010 Stock Incentive
Program (as amended);
of our report dated March 14, 2019, with respect to the consolidated financial statements of Vishay Precision Group, Inc. included
in this Annual Report (Form 10-K) of Vishay Precision Group, Inc. for the year ended December 31, 2019.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 11, 2020
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 11, 2020
/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 11, 2020
/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, 2019 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 11, 2020
/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, 2019 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 11, 2020
/s/ William M. Clancy
William M. Clancy
Chief Financial Officer
Vishay Precision Group, Inc.
Three Great Valley Parkway, Suite 150
Malvern, PA 19355