vpg-20200926

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 26, 2020

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

For the transition period from _____ to _____

Commission File Number 1-34679

VISHAY PRECISION GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

27-0986328

(State or Other Jurisdiction of Incorporation)

(I.R.S. Employer Identification Number)

3 Great Valley Parkway, Suite 150

Malvern, PA, 19355

484-321-5300

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, including area code)

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


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

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of November 3, 2020, the registrant had 12,552,439 shares of its common stock and 1,022,887 shares of its Class B convertible common stock outstanding.

VISHAY PRECISION GROUP, INC.

FORM 10-Q

September 26, 2020

CONTENTS


		Page Number
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets – September 26 , 2020 (Unaudited) and December 31, 2019	3

	Consolidated Condensed Statements of Operations (Unaudited) – Fiscal Quarters Ended September 26 , 2020 and September 28 , 2019	5

	Consolidated Condensed Statements of Operations (Unaudited) – Nine Fiscal Months Ended September 26 , 2020 and September 28 , 2019	6

	Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) – Fiscal Quarters Ended September 26 , 2020 and September 28 , 2019	7

	Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) – Nine Fiscal Months Ended September 26 , 2020 and September 28 , 2019	8

	Consolidated Condensed Statements of Cash Flows (Unaudited) –Fiscal Quarters Ended September 26 , 2020 and September 28 , 2019	9

	Consolidated Condensed Statements of Equity (Unaudited) – Fiscal Quarters Ended September 26 , 2020 and September 28 , 2019	10

	Consolidated Condensed Statements of Equity (Unaudited) – N ine Fiscal Months Ended September 26 , 2020 and September 28 , 2019	11

	Notes to Unaudited Consolidated Condensed Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

	SIGNATURES	44

-2-

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands)
	September 26, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	89,795	$	86,910
Accounts receivable, net	44,966		43,198
Inventories:
Raw materials	22,770		21,701
Work in process	24,627		23,128
Finished goods	19,062		22,066
Inventories, net	66,459		66,895


Prepaid expenses and other current assets	15,613		15,558

Total current assets	216,833		212,561

Property and equipment, at cost:
Land	4,217		4,243
Buildings and improvements	64,586		52,708
Machinery and equipment	113,519		111,492
Software	9,718		9,384
Construction in progress	2,261		2,485
Accumulated depreciation	(125,583)		(119,042)
Property and equipment, net	68,718		61,270

Goodwill	34,724		35,018
Intangible assets, net	32,170		34,198
Operating lease right-of-use assets	21,846		8,691
Other assets	18,415		18,675
Total assets	$	392,706	$	370,413

Continues on the following page.

-3-


VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands)
	September 26, 2020		December 31, 2019
Liabilities and equity
Current liabilities:
Trade accounts payable	$	9,108	$	8,869
Payroll and related expenses	15,945		16,312
Other accrued expenses	16,482		16,126
Income taxes	1,153		261
Current portion of operating lease liabilities	4,179		2,827
Current portion of long-term debt	52		44,516
Total current liabilities	46,919		88,911

Long-term debt, less current portion	40,604		17
Deferred income taxes	3,477		3,478
Operating lease liabilities	18,385		5,811
Other liabilities	14,894		14,775
Accrued pension and other postretirement costs	15,883		15,669
Total liabilities	140,162		128,661

Commitments and contingencies

Equity:
Common stock	1,317		1,312
Class B convertible common stock	103		103
Treasury stock	(8,765)		(8,765)
Capital in excess of par value	197,514		197,125
Retained earnings	99,957		89,288
Accumulated other comprehensive loss	(37,742)		(37,703)
Total Vishay Precision Group, Inc. stockholders' equity	252,384		241,360
Noncontrolling interests	160		392
Total equity	252,544		241,752
Total liabilities and equity	$	392,706	$	370,413

See accompanying notes.

-4-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Operations

(Unaudited - In thousands, except per share amounts)


	Fiscal quarter ended
	September 26, 2020		September 28, 2019
Net revenues	$	67,525	$	67,421
Costs of products sold	40,176		41,631
Gross profit	27,349		25,790

Selling, general, and administrative expenses	19,144		19,057


Executive severance costs	—		—
Restructuring costs	84		547
Operating income	8,121		6,186

Other income (expense):
Interest expense	(309)		(324)
Other	(39)		547
Other income (expense)	(348)		223

Income before taxes	7,773		6,409

Income tax expense	2,109		1,879

Net earnings	5,664		4,530
Less: net earnings attributable to noncontrolling interests	66		21
Net earnings attributable to VPG stockholders	$	5,598	$	4,509

Basic earnings per share attributable to VPG stockholders	$	0.41	$	0.33
Diluted earnings per share attributable to VPG stockholders	$	0.41	$	0.33

Weighted average shares outstanding - basic	13,575		13,523
Weighted average shares outstanding - diluted	13,637		13,607

See accompanying notes.

-5-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Operations

(Unaudited - In thousands, except per share amounts)


	Nine fiscal months ended
	September 26, 2020		September 28, 2019
Net revenues	$	194,367	$	214,816
Costs of products sold	118,843		127,366
Gross profit	75,524		87,450

Selling, general, and administrative expenses	58,075		59,401

Executive severance costs	—		611
Restructuring costs	713		547
Operating income	16,736		26,891
Other income (expense):
Interest expense	(1,037)		(1,071)
Other	(629)		(385)
Other income (expense)	(1,666)		(1,456)

Income before taxes	15,070		25,435

Income tax expense	4,367		6,999

Net earnings	10,703		18,436
Less: net earnings attributable to noncontrolling interests	34		119
Net earnings attributable to VPG stockholders	$	10,669	$	18,317

Basic earnings per share attributable to VPG stockholders	$	0.79	$	1.36

Diluted earnings per share attributable to VPG stockholders	$	0.78	$	1.35

Weighted average shares outstanding - basic	13,562		13,512

Weighted average shares outstanding - diluted	13,611		13,588

See accompanying notes.

-6-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited - In thousands)


	Fiscal quarter ended
	September 26, 2020		September 28, 2019
Net earnings	$	5,664	$	4,530

Other comprehensive income (loss):
Foreign currency translation adjustment	2,479		(2,559)
Pension and other postretirement actuarial items, net of tax	(137)		(21)
Other comprehensive (loss) income	2,342		(2,580)

Comprehensive income	8,006		1,950

Less: comprehensive income attributable to noncontrolling interests	66		21

Comprehensive income attributable to VPG stockholders	$	7,940	$	1,929

See accompanying notes.

-7-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited - In thousands)


	Nine fiscal months ended
	September 26, 2020		September 28, 2019
Net earnings	$	10,703	$	18,436

Other comprehensive income (loss):
Foreign currency translation adjustment	409		(1,608)
Pension and other postretirement actuarial items, net of tax	(448)		164
Other comprehensive (loss) income	(39)		(1,444)

Comprehensive income	10,664		16,992

Less: comprehensive income attributable to noncontrolling interests	34		119

Comprehensive income attributable to VPG stockholders	$	10,630	$	16,873

See accompanying notes.

-8-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Cash Flows

(Unaudited - In thousands)


	Nine fiscal months ended
	September 26, 2020		September 28, 2019
Operating activities
Net earnings	$	10,703	$	18,436
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization	9,334		8,639
Loss from extinguishment of debt	30		—
Gain on sale of property and equipment	(140)		(100)
Reclassification of foreign currency translation adjustment related to disposal of subsidiary	—		(827)
Share-based compensation expense	1,137		1,592
Inventory write-offs for obsolescence	1,873		1,937
Deferred income taxes	127		605
Other	364		(2)
Net changes in operating assets and liabilities:
Accounts receivable, net	(1,541)		8,348
Inventories, net	(1,214)		(4,138)
Prepaid expenses and other current assets	(75)		(5,788)
Trade accounts payable	605		(1,353)
Other current liabilities	1,631		(2,727)
Net cash provided by operating activities	22,834		24,622

Investing activities
Capital expenditures	(15,815)		(8,621)
Proceeds from sale of property and equipment	423		265

Adjustment to purchase price of a business	156		—
Net cash used in investing activities	(15,236)		(8,356)

Financing activities

Principal payments on long-term debt	(3,459)		(3,461)



Debt issuance costs	(402)		—
Purchase of noncontrolling interest	(253)		—
Contributions from (distributions to) noncontrolling interests	35		(45)
Payments of employee taxes on certain share-based arrangements	(813)		(854)
Net cash used in financing activities	(4,892)		(4,360)
Effect of exchange rate changes on cash and cash equivalents	179		(766)
Increase in cash and cash equivalents	2,885		11,140
Cash and cash equivalents at beginning of period	86,910		90,159
Cash and cash equivalents at end of period	$	89,795	$	101,299

Supplemental disclosure of investing transactions:
Capital expenditures purchased	$	(15,395)	$	(7,383)
Capital expenditures accrued but not yet paid	$	762	$	613
Supplemental disclosure of financing transactions:
Non-cash extinguishment of long-term debt facility (see Note 7)	$	(7,020)	$	—
Non-cash refinancing of revolving facility (see Note 7)	$	7,020	$	—

See accompanying notes.

-9-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Equity

(Unaudited - In thousands, except share amounts)


	Fiscal quarter ended September 26, 2020
	Common Stock		Class B Convertible Common Stock		Treasury Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total VPG Inc. Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at June 27, 2020	$	1,317	$	103	$	(8,765)	$	197,134	$	94,359	$	(40,084)	$	244,064	$	176	$	244,240
Net earnings	—		—		—		—		5,598		—		5,598		66		5,664
Other comprehensive income	—		—		—		—		—		2,342		2,342		—		2,342
Share-based compensation expense	—		—		—		380		—		—		380		—		380






Distributions to noncontrolling interests	—		—		—		—		—		—		—		(82)		(82)
Balance at September 26, 2020	$	1,317	$	103	$	(8,765)	$	197,514	$	99,957	$	(37,742)	$	252,384	$	160	$	252,544


	Fiscal quarter ended September 28, 2019
	Common Stock		Class B Convertible Common Stock		Treasury Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total VPG Inc. Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at June 29, 2019	$	1,312	$	103	$	(8,765)	$	196,875	$	80,908	$	(36,329)	$	234,104	$	138	$	234,242
Net earnings	—		—				—		4,509				4,509		21		4,530
Other comprehensive loss	—		—		—		—		—		(2,580)		(2,580)		—		(2,580)
Share-based compensation expense	—		—		—		506		—		—		506		—		506






Distributions to noncontrolling interests	—		—		—		—		—		—		—		(47)		(47)
Balance at September 28, 2019	$	1,312	$	103	$	(8,765)	$	197,381	$	85,417	$	(38,909)	$	236,539	$	112	$	236,651

See accompanying notes.

-10-

VISHAY PRECISION GROUP, INC.

Consolidated Condensed Statements of Equity

(Unaudited - In thousands, except share amounts)


	Nine Fiscal Months Ended September 26, 2020
	Common Stock		Class B Convertible Common Stock		Treasury Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total VPG, Inc. Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2019	$	1,312	$	103	$	(8,765)	$	197,125	$	89,288	$	(37,703)	$	241,360	$	392	$	241,752
Net earnings	—		—		—		—		10,669		—		10,669		34		10,703
Other comprehensive loss	—		—		—		—		—		(39)		(39)		—		(39)
Share-based compensation expense	—		—		—		1,137		—		—		1,137		—		1,137
Restricted stock issuances (52,433 shares)	5		—		—		(796)		—		—		(791)		—		(791)




Purchase of noncontrolling interest	—		—		—		48		—		—		48		(301)		(253)
Contributions from noncontrolling interests	—		—		—		—		—		—		—		35		35
Balance at September 26, 2020	$	1,317	$	103	$	(8,765)	$	197,514	$	99,957	$	(37,742)	$	252,384	$	160	$	252,544


	Nine Fiscal Months Ended September 28, 2019
	Common Stock		Class B Convertible Common Stock		Treasury Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total VPG, Inc. Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2018	$	1,307	$	103	$	(8,765)	$	196,666	$	66,569	$	(37,465)	$	218,415	$	38	$	218,453
Net earnings	—		—		—		—		18,317		—		18,317		119		18,436
Other comprehensive loss	—		—		—		—		—		(1,444)		(1,444)		—		(1,444)
Share-based compensation expense	—		—		—		1,592		—		—		1,592		—		1,592
Restricted stock issuances (48,482 shares)	5		—		—		(877)		—		—		(872)		—		(872)

Cumulative effect adjustment for adoption of ASU 2016-02	—		—		—		—		531		—		531		—		531
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(45)		(45)
Balance at September 28, 2019	$	1,312	$	103	$	(8,765)	$	197,381	$	85,417	$	(38,909)	$	236,539	$	112	$	236,651

See accompanying notes.

-11-

Vishay Precision Group, Inc.

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1 – Basis of Presentation

Background

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

Interim Financial Statements

These unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020. The results of operations for the fiscal quarter ended September 26, 2020 are not necessarily indicative of the results to be expected for the full year. VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2020 and 2019 end on the following dates:


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

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments. In determining the amount of the allowance for credit losses, the Company considers historical loss data, customer specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The Company adopted this ASU, effective January 1, 2020, using the modified retrospective approach, and the effect on the Company's consolidated condensed financial statements and related disclosures was not material.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements (Topic 820)." This ASU modifies the disclosures on fair value measurements by removing the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The Company adopted this ASU effective January 1, 2020, and the effect on the Company's disclosures in its consolidated condensed financial statements was not material.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends Accounting Standards Codification ("ASC") 715 to add, remove and clarify disclosure requirements related to defined benefit and pension and other postretirement plans. The amendments in this ASU are

-12-

Note 1 – Basis of Presentation (continued)

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 condensed financial statements.

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

Reclassifications

Certain prior year amounts have been reclassified to conform to the current financial statement presentation.

Note 2 – Revenues

Revenue Recognition

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


	Fiscal quarter ended September 26, 2020								Fiscal quarter ended September 28, 2019
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total		Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	12,733	$	6,974	$	8,328	$	28,035	$	13,737	$	9,008	$	5,223	$	27,968
United Kingdom	778		2,321		2,633		5,732		762		2,554		3,650		6,966
Other Europe	7,660		2,357		3,441		13,458		8,262		2,475		3,116		13,853
Israel	5,981		78		—		6,059		2,768		127		—		2,895
Asia	5,754		2,132		2,471		10,357		6,590		2,053		1,836		10,479
Canada	—		—		3,884		3,884		—		—		5,260		5,260
Total	$	32,906	$	13,862	$	20,757	$	67,525	$	32,119	$	16,217	$	19,085	$	67,421


	Nine Fiscal Months Ended September 26, 2020								Nine Fiscal Months Ended September 28, 2019
	Foil Technology Products		Force Sensors		Weighing and Control Systems		Total		Foil Technology Products		Force Sensors		Weighing and Control Systems		Total
United States	$	35,456	$	19,479	$	23,226	$	78,161	$	43,748	$	25,557	$	16,150	$	85,455
United Kingdom	2,315		6,012		8,068		16,395		2,436		8,265		12,228		22,929
Other Europe	22,346		6,165		10,615		39,126		25,212		8,456		11,931		45,599
Israel	14,627		268		—		14,895		9,019		330		—		9,349
Asia	20,424		5,549		6,001		31,974		21,752		6,690		6,726		35,168
Canada	—		—		13,816		13,816		—		—		16,316		16,316
Total	$	95,168	$	37,473	$	61,726	$	194,367	$	102,167	$	49,298	$	63,351	$	214,816

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

-13-

Note 2 – Revenues (continued)


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Test & Measurement	$	11,953	$	16,203	$	40,325	$	51,804
Avionics, Military & Space	9,225		5,312		22,112		17,375
Transportation	7,138		8,679		20,570		28,738
Other Markets	15,350		12,480		40,670		37,952
Industrial Weighing	10,708		13,224		31,758		41,838
General Industrial	3,753		4,684		11,415		15,550
Steel	9,398		6,839		27,517		21,559
Total	$	67,525	$	67,421	$	194,367	$	214,816

Contract Assets & Liabilities

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

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


	Contract Asset		Contract Liability
	Unbilled Revenue		Accrued Customer Advances
Balance at December 31, 2019	$	3,937	$	4,561
Balance at September 26, 2020	2,993		4,079
(Decrease)/increase	$	(944)	$	(482)

The amount of revenue recognized during the nine fiscal months ended September 26, 2020 that was included in the contract liability balance at December 31, 2019 was $4.2 million.

Practical Expedients

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

Note 3 – Acquisitions

Dynamic Systems Inc.

On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes, for a purchase price of $40.3 million, subject to customary adjustments. During the second quarter of 2020, the Company received $0.2 million from escrow as a purchase price adjustment, resulting in a reduction of goodwill. Additionally, it was determined that an earn out, which was part of the purchase price, was not achieved. 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):

-14-

Note 3 - Acquisitions ( continued)


	November 1, 2019		Adjustments		Adjusted
Working capital (a)	$	6,874			$	6,874
Property and equipment	1,727				1,727
Long-term deferred income tax liability	(4,321)				(4,321)
Non-controlling interest	(299)				(299)
Intangible assets:
Patents and acquired technology	10,250				10,250
Customer relationships	4,344				4,344
Trade names	3,300				3,300
Total intangible assets	17,894		—		17,894
Fair value of acquired identifiable assets	21,875		—		21,875
Purchase price	$	40,481	$	(156)	$	40,325
Goodwill	$	18,606	$	(156)	$	18,450

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

The weighted average useful lives for the patents and acquired technology and customer relationships are 16 years, and 15 years, respectively. Most of the goodwill associated with DSI will be deductible for income tax purposes. The Company recorded acquisition costs associated with this transaction of $0.4 million during the fourth quarter of 2019.

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


	Fiscal quarter ended		Nine fiscal months ended
	September 28, 2019		September 28, 2019
Pro forma net revenues	$	70,953	$	228,774

Pro forma net earnings attributable to VPG stockholders	$	3,068	$	20,203

Pro forma basic earnings per share attributable to VPG stockholders	$	0.23	$	1.50
Pro forma diluted earnings per share attributable to VPG stockholders	$	0.23	$	1.49

Note 4 – Goodwill

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


	Total		Weighing and Control Systems Segment						Foil Technology Products Segment
			KELK Acquisition		DSI Acquisition		Stress-Tek Acquisition		Pacific Acquisition
Balance at December 31, 2019	$	35,018	$	6,559	$	18,606	$	6,311	$	3,542
Adjustment to purchase price	$	(156)	—		(156)		—		—
Foreign currency translation adjustment	(138)		(153)		15		—		—
Balance at September 26, 2020	$	34,724	$	6,406	$	18,465	$	6,311	$	3,542

Note 5 – Leases

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

-15-

Note 5 - Leases (continued)

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 twelve years. The Company has no finance leases. One of the Company's indirect wholly-owned subsidiaries entered into a lease agreement as tenant related to a property in Israel. The facility was made available to the Company during the second quarter of 2020, at which time the Company established an operating right of use asset and operating lease liability, with a lease term of 12.5 years, of $14.8 million, in accordance with the terms of the lease agreement.

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


Leases	September 26, 2020		December 31, 2019

Assets
Operating lease right of use asset	$	21,846	$	8,691

Liabilities
Operating lease - current	$	4,179	$	2,827
Operating lease - non-current	$	18,385	$	5,811

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


	September 26, 2020
Operating leases weighted average remaining lease term (in years)	9.15 years
Operating leases weighted average discount rate	3.67	%

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


	Fiscal quarter ended				Nine Fiscal Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Operating lease cost	$	1,164	$	866	$	3,177	$	2,501
Variable lease cost	—		5		—		14
Short-term lease cost	31		7		88		66
Total lease cost	$	1,195	$	878	$	3,265	$	2,581

Right of use assets obtained in exchange for new operating lease liability during 2020 were $15.7 million. The Company paid $2.6 million for its operating leases for each of the nine fiscal months ended September 26, 2020 and September 28, 2019, which are included in operating cash flows on the consolidated condensed statements of cash flows.

Undiscounted maturities of operating lease payments as of September 26, 2020 are summarized as follows (in thousands):

-16-

Note 5 - Leases (continued)


2020 (excluding the nine months ended September 26, 2020)	$	1,318
2021	4,239
2022	3,378
2023	2,879
2024	2,378
Thereafter	11,991
Total future minimum lease payments	$	26,183
Less: amount representing interest	(3,619)
Present value of future minimum lease payments	$	22,564

Note 6 – Income Taxes

VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter ended September 26, 2020 was 27.1% compared to 29.3% for the fiscal quarter ended September 28, 2019. The effective tax rate for the nine fiscal months ended September 26, 2020 was 29.0% compared to 27.5% for the nine fiscal months ended September 28, 2019. The tax rate for the nine fiscal months of 2020 is higher than the prior year period primarily due to changes in the mix of worldwide income.

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

Note 7 – Long-Term Debt

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


	September 26, 2020		December 31, 2019
2020 Credit Agreement - Revolving Facility	$	41,000	$	—
2015 Credit Agreement - Revolving Facility	—		34,000
2015 Credit Agreement - U.S. Closing Date Term Facility	—		2,038
2015 Credit Agreement - U.S. Delayed Draw Term Facility	—		4,982
2015 Credit Agreement - Canadian Term Facility	—		3,476

Other debt	52		149
Deferred financing costs	(396)		(112)
Total long-term debt	40,656		44,533
Less: current portion	52		44,516
Long-term debt, less current portion	$	40,604	$	17

2020 Credit Agreement

On March 20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility was revised to provide a secured revolving facility (the “2020 Revolving Facility”) in an aggregate principal amount of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which were used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows: (1) the “2015 U.S. Closing Date Term Facility” in an aggregate principal amount of $2.0

-17-

Note 7 - Long-Term Debt (continued)

million; and (2) the "2015 U.S. Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. The 2020 Credit Agreement terminates on March 20, 2025.

Interest payable on amounts borrowed under the 2020 Revolving Facility is based upon, at the Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2) LIBOR or CDOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage ratio, an interest rate margin ranging from 1.50% to 2.75% per annum is added to the applicable LIBOR or CDOR rate to determine the interest payable on the Libor or CDOR loans. The Company is required to pay a quarterly fee of 0.25% per annum to 0.40% per annum on the unused portion of the 2020 Revolving Facility, which is determined based on the Company’s leverage ratio each quarter. Additional customary fees apply with respect to letters of credit.

The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include interest coverage ratio and a leverage ratio. If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

Note 8 – Accumulated Other Comprehensive Income (Loss)

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


	Foreign Currency Translation Adjustment		Pension and Other Postretirement Actuarial Items		Total
Balance at January 1, 2020	$	(30,761)	$	(6,942)	$	(37,703)
Other comprehensive loss before reclassifications	409		—		409
Amounts reclassified from accumulated other comprehensive income (loss)	—		(448)		(448)
Balance at September 26, 2020	$	(30,352)	$	(7,390)	$	(37,742)


	Foreign Currency Translation Adjustment		Pension and Other Postretirement Actuarial Items		Total
Balance at January 1, 2019	$	(31,319)	$	(6,146)	$	(37,465)
Other comprehensive loss before reclassifications	(781)		—		(781)
Amounts reclassified from accumulated other comprehensive income (loss)	(827)		164		(663)
Balance at September 28, 2019	$	(32,927)	$	(5,982)	$	(38,909)

Reclassification of foreign currency translation adjustment for a gain on liquidation of a subsidiary is included in other income (expense) other ( see Note 13). Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9).

Note 9 – Pension and Other Postretirement Benefits

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

-18-

Note 9 - Pension and Other Postretirement Benefits ( continued)


	Fiscal quarter ended September 26, 2020				Fiscal quarter ended September 28, 2019
	Pension Plans		OPEB Plans		Pension Plans		OPEB Plans
Net service cost	$	99	$	31	$	82	$	32
Interest cost	128		33		154		45
Expected return on plan assets	(110)		—		(130)		—
Amortization of actuarial losses	77		34		50		39
Net periodic benefit cost	$	194	$	98	$	156	$	116


	Nine fiscal months ended September 26, 2020				Nine fiscal months ended September 28, 2019
	Pension Plans		OPEB Plans		Pension Plans		OPEB Plans
Net service cost	$	297	$	93	$	247	$	94
Interest cost	384		$	99	$	468	$	135
Expected return on plan assets	(330)		$	—	$	(395)	$	—
Amortization of actuarial losses	230		$	102	$	150	$	117
Net periodic benefit cost	$	581	$	294	$	470	$	346

Note 10 – Share-Based Compensation

The Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At September 26, 2020, the Company had reserved 371,637 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the Plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others.

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

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

On May 21, 2020, the Board of Directors approved the issuance of an aggregate of 15,564 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 2021 Annual Stockholders Meeting or May 21, 2021, subject to the directors' continued service on the Board of Directors.

Vesting of equity awards is subject to acceleration under certain circumstances.

-19-

Note 10 - Share-Based Compensation (continued)

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Restricted stock units	$	380	$	506	$	1,137	$	1,592

-20-

Note 11 – Segment Information

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

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net revenues:
Foil Technology Products	$	32,906	$	32,119	$	95,168	$	102,167
Force Sensors	13,862		16,217		37,473		49,298
Weighing and Control Systems	20,757		19,085		61,726		63,351
Total	$	67,525	$	67,421	$	194,367	$	214,816

Gross profit:
Foil Technology Products	$	13,515	$	11,970	$	38,002	$	42,943
Force Sensors	4,235		4,932		8,845		14,385
Weighing and Control Systems	9,599		8,888		28,677		30,122
Total	$	27,349	$	25,790	$	75,524	$	87,450

Reconciliation of segment operating income to consolidated results:
Foil Technology Products	$	8,078	$	6,259	$	21,532	$	25,185
Force Sensors	2,010		2,726		2,201		7,300
Weighing and Control Systems	5,222		4,808		13,909		16,426
Unallocated G&A expenses	(7,105)		(7,060)		(20,193)		(20,862)


Executive severance costs	—		—		—		(611)
Restructuring costs	(84)		(547)		(713)		(547)
Operating income	$	8,121	$	6,186	$	16,736	$	26,891













Restructuring costs:
Foil Technology Products	$	(23)	$	—	$	(466)	$	—
Force Sensors	$	—	$	(429)	$	(108)	$	(429)
Weighing and Control Systems	(61)		—		(61)		—
Corporate/Other	—		(118)		(78)		(118)
	$	(84)	$	(547)	$	(713)	$	(547)

Executive severance costs:
Corporate/Other	$	—	$	—	$	—	$	(611)
	$	—	$	—	$	—	$	(611)

-21-

Note 11 - Segment Information (continued)

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Foil Technology Products to Force Sensors and Weighing and Control Systems	$	858	$	1,011	$	2,451	$	3,018
Force Sensors to Foil Technology Products and Weighing and Control Systems	$	—	$	369	$	—	$	980
Weighing and Control Systems to Foil Technology Products and Force Sensors	$	83	$	75	$	294	$	373

-22-

Note 12 – Earnings Per Share

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Numerator:
Numerator for basic earnings per share:
Net earnings attributable to VPG stockholders	$	5,598	$	4,509	$	10,669	$	18,317







Denominator:
Denominator for basic earnings per share:
Weighted average shares	13,575		13,523		13,562		13,512

Effect of dilutive securities:


Restricted stock units	62		84		49		76
Dilutive potential common shares	62		84		49		76

Denominator for diluted earnings per share:
Adjusted weighted average shares	13,637		13,607		13,611		13,588

Basic earnings per share attributable to VPG stockholders	$	0.41	$	0.33	$	0.79	$	1.36

Diluted earnings per share attributable to VPG stockholders	$	0.41	$	0.33	$	0.78	$	1.35

-23-

Note 13 – Additional Financial Statement Information

Other Income (Expense) Other

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Foreign exchange gain (loss)	$	162	$	(306)	$	(123)	$	(1,360)
Interest income	29		181		205		519
Pension expense	(159)		(157)		(482)		(470)
Other	(71)		829		(229)		926
	$	(39)	$	547	$	(629)	$	(385)

Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter and nine fiscal months ended September 26, 2020, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar, the Israeli Shekel, the Euro, and the British pound.

Included in Other for the fiscal quarter and nine fiscal months ended September 28, 2019, respectively, is a one-time $0.8 million gain on liquidation of one of the Company's subsidiaries.

Executive Severance Costs

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

Note 14 – Fair Value Measurements

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

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

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

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

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

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

-24-

Note 14 - Fair Value Measurements (continued)


			Fair value measurements at reporting date using:
	Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
September 26, 2020
Assets
Assets held in rabbi trusts	$	5,224	$	80	$	5,144	$	—

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

The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at September 26, 2020 and December 31, 2019, and company-owned life insurance assets. The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the marketable securities held in the rabbi trust is considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.

The fair value of the long-term debt, excluding capitalized deferred financing costs, at September 26, 2020 and December 31, 2019 approximates its carrying value. The revolving debt at September 26, 2020 is reset on a monthly basis based on current market rates, plus a base rate as specified in the debt agreement. The revolving debt and term loans at December 31, 2019 were reset on a quarterly basis based on current market rates, plus a base rate as specified in the corresponding debt agreements. The fair value of long-term debt is considered a Level 2 measurement within the fair value hierarchy. The Company’s financial instruments include cash and cash equivalents whose carrying amounts reported in the consolidated condensed balance sheets approximate their fair values.

Note 15 – Restructuring Costs

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

The Company recorded $0.1 million and $0.5 million of restructuring costs during the fiscal quarter ended September 26, 2020 and September 28, 2019, respectively, and $0.7 million and $0.5 million for the nine fiscal months ended September 26, 2020 and September 28, 2019, respectively. Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.

The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of September 26, 2020 and December 31, 2019, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands):






Balance at December 31, 2019	$	604
Restructuring charges in 2020	713

Cash payments	(1,140)
Foreign currency translation	(2)
Balance at September 26, 2020	$	175

-25-

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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

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

Impact of COVID-19 on Our Business

As the COVID-19 pandemic began to unfold around the world, the Company took measures to protect its employees and customers. Those measures included suspending business travel, enabling certain employees to work from home, implementing workplace distancing, and adjusting work shifts to minimize employees’ contact with other employees. While the majority of the Company’s operations were able to operate despite the impacts from the COVID-19 pandemic, the Company’s Force Sensors manufacturing facility in India had operated at partial capacity as a result of government-mandated restrictions. In the third quarter of 2020, these restrictions reduced Force Sensors revenue by approximately $2.5 million and Force Sensors operating income by approximately $1.0 million due to the lower volume. For the first nine months of 2020, these restrictions impacted Force Sensors revenue in aggregate by approximately $10 million from pre-COVID runrate levels and reduced its operating income by approximately $4 million due to the lower revenue. The Company received approval from the Indian government to operate its facility without limitation on July 1, 2020, and as of the end of the third quarter the facility was operating at full capacity.

As of November 3, 2020, all of the Company’s facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible. Nonetheless, given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic, the ongoing economic disruption may continue to adversely affect the Company’s business and financial results.

Overview of Financial Results

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Net revenues for the fiscal quarter ended September 26, 2020 were $67.5 million versus $67.4 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended September 26, 2020 were $5.6 million, or $0.41 per diluted share, versus $4.5 million, or $0.33 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended September 26, 2020 were $194.4 million versus $214.8 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the nine fiscal months ended September 26, 2020 were $10.7 million, or $0.78 per diluted share, versus $18.3 million, or $1.35 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters and nine fiscal months ended September 26, 2020 and September 28, 2019 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance with U.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating performance for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company’s performance and in comparing the Company’s financial performance to that of its peer companies and competitors. Management believes that the Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results.


	Gross Profit						Operating Income						Net Earnings Attributable to VPG Stockholders				Diluted Earnings Per share
Three months ended	September 26, 2020			September 28, 2019			September 26, 2020			September 28, 2019			September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
As reported - GAAP	$	27,349		$	25,790		$	8,121		$	6,186		$	5,598	$	4,509	$	0.41	$	0.33
As reported - GAAP Margins	40.5		%	38.3		%	12.0		%	9.2		%
Acquisition purchase accounting adjustments (a)	4			—			4			—			4		—		—		—

COVID-19 impact (b)	(22)						(320)						(320)				(0.03)


Restructuring costs				—			84			547			84		547		0.01		0.04

Less: Tax effect of reconciling items and discrete tax items				—						—			(84)		80		(0.01)		—
As Adjusted - Non GAAP	$	27,331		$	25,790		$	7,889		$	6,733		$	5,450	$	4,976	$	0.40	$	0.37
As Adjusted - Non GAAP Margins	40.5		%	38.3		%	11.7		%	10.0		%

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	Gross Profit						Operating Income						Net Earnings Attributable to VPG Stockholders				Diluted Earnings Per share
Nine fiscal months ended	September 26, 2020			September 28, 2019			September 26, 2020			September 28, 2019			September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
As reported - GAAP	75,524			87,450			16,736			26,891			$	10,669	$	18,317	$	0.78	$	1.35
As reported - GAAP Margins	38.9		%	40.7		%	8.6		%	12.5		%
Acquisition purchase accounting adjustments (a)	560			—			560			—			560		—		0.04		—

COVID-19 impact (b)	536						123						123				0.01
Executive Severance costs				—						611					611		—		0.04

Restructuring costs				—			713			547			713		547		0.05		0.04

Less: Tax effect of reconciling items and discrete tax items				—						—			59		80		—		—
As Adjusted - Non GAAP	$	76,620		$	87,450		$	18,132		$	28,049		$	12,006	$	19,395	$	0.88	$	1.43
As Adjusted - Non GAAP Margins	39.4		%	40.7		%	9.3		%	13.1		%

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

(b) COVID-19 impact is the net impact to the Company of costs incurred as a result of the COVID-19 pandemic, net of government subsidies received.

Financial Metrics

We utilize several financial measures and metrics to evaluate performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover.

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

End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, backlog is not necessarily indicative of the results expected for future periods.

Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period compared with the amount of product shipped during that period. A book-to-bill ratio that is greater than one indicates that revenues may increase in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand and may foretell declining sales. The book-to-bill ratio is also impacted by the timing of orders, particularly from our project-based product lines.

We focus on inventory turnover as a measure of how well we manage our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.

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The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the third quarter of 2019 through the third quarter of 2020 (dollars in thousands):


	3rd Quarter			4th Quarter			1st Quarter			2nd Quarter			3rd Quarter
	2019			2019			2020			2020			2020
Net revenues	$	67,421		$	69,142		$	67,696		$	59,146		$	67,525

Gross profit margin	38.3		%	35.0		%	37.0		%	39.1		%	40.5		%

End-of-period backlog	$	79,300		$	90,900		$	94,300		$	92,900		$	90,800

Book-to-bill ratio	0.96			1.15			1.08			0.95			0.95

Inventory turnover	2.60			2.72			2.58			2.20			2.38


	3rd Quarter			4th Quarter			1st Quarter			2nd Quarter			3rd Quarter
	2019			2019			2020			2020			2020
Foil Technology Products
Net revenues	$	32,119		$	29,636		$	30,477		$	31,785		$	32,906
Gross profit margin	37.3		%	34.9		%	36.7		%	41.8		%	41.1		%
End-of-period backlog	$	38,900		$	44,600		$	51,700		$	47,500		$	48,500
Book-to-bill ratio	0.91			1.18			1.25			0.85			1.01
Inventory turnover	2.79			2.66			2.74			2.58			2.63

Force Sensors
Net revenues	$	16,217		$	15,059		$	14,695		$	8,916		$	13,862
Gross profit margin	30.4		%	24.2		%	24.3		%	11.6		%	30.5		%
End-of-period backlog	$	15,200		$	17,100		$	16,900		$	22,300		$	21,300
Book-to-bill ratio	0.94			1.11			1.02			1.58			0.90
Inventory turnover	2.30			2.43			2.64			2.02			2.28

Weighing and Control Systems
Net revenues	$	19,085		$	24,447		$	22,524		$	18,445		$	20,757
Gross profit margin	46.6		%	41.6		%	45.7		%	47.6		%	46.2		%
End-of-period backlog	$	25,200		$	29,200		$	25,700		$	23,100		$	21,000
Book-to-bill ratio	1.04			1.15			0.90			0.82			0.88
Inventory turnover	2.61			3.10			2.31			1.81			2.13

Net revenues for the third quarter of 2020 increased 14.2% from the second quarter of 2020 mainly due to increased volume in all reporting segments. Net revenues increased 0.2% from the third quarter of 2019 with increased volume in the Weighing and Control Systems and Foil Technology Products reporting segment mostly offset by lower volume in the Force Sensors reporting segment.

Net revenues in the Foil Technology Products reporting segment increased 3.5% compared to the second quarter of 2020 and increased 2.5% from the third quarter of 2019. The sequential and year-over-year increases in revenues were primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our Pacific Instruments product line in the avionics, military and space market, which partially offset a decrease in precision resistor sales in the test and measurement market.

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Net revenues in the Force Sensors reporting segment increased 55.5% from the second quarter of 2020 and decreased 14.5% from the third quarter of 2019. Sequentially net revenues increased as a result of COVID-19 mitigation restrictions being lifted as of July 1, 2020 by the Indian government and the subsequent ramping up of production without limitations at our India operations during the third quarter of 2020. The sequential revenue increase reflected higher sales in the industrial weighing and our other markets. Compared to the third quarter of 2019, the decrease reflects the impact of the COVID-19 pandemic on our India facility.

Net revenues in the Weighing and Control Systems reporting segment increased 12.5% from the second quarter of 2020 and increased 8.8% from the third quarter of 2019. Sequentially, the higher net revenues are primarily attributable to the Dynamic Systems Inc. ("DSI") product line and an increase in sales of our onboard weighing products for the transportation market, which was partially offset by lower KELK steel-related sales. Compared to the third quarter of 2019, the increase in net revenues is primarily attributable to the additional revenues of DSI acquired in November 2019, which was partially offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales.

Overall gross profit margin in the third quarter of 2020 increased 1.4% as compared to the second quarter of 2020 and increased 2.2% from the third quarter of 2019.

Sequentially, improved gross profit margin in the Force Sensors reporting segment was partially offset by decreased gross profit margins in the Weighing and Control Systems reporting segment, while the Foil Technology Products reporting segment gross profit margins remained flat. The Force Sensors reporting segment gross profit margin increased sequentially due to higher volume. In the Weighing and Control Systems reporting segment, the gross profit margin was 46.2% compared to 47.6% in the prior sequential quarter. The decrease in the gross profit margin was mainly due to unfavorable product mix and a reduction in inventory, partially offset by higher volume.

Compared to the third quarter of 2019, the Foil Technology Products reporting segment had a higher gross profit margin primarily due to manufacturing efficiencies and cost controls. The Force Sensors reporting segment increase in gross profit margin compared to 2019 was primarily due to cost controls and a positive impact of foreign exchange, partially offset by lower volume due to the COVID-19 impacts mentioned above and a reduction in export grants. In the Weighing and Control Systems segment, the gross profit margin of 46.2% decreased from the third quarter of 2019 mostly due to unfavorable product mix, partially offset by higher volume.

Optimize Core Competence

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

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

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

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, China, and Israel, where we can benefit from lower labor costs, improved efficiencies, or available tax and other government-sponsored incentives. For example, in 2019 and 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

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in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. In 2017, we closed two leased facilities in the United States and moved to more cost effective locations.

Acquisition Strategy

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

Research and Development

Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance.

Cost Management

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

Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020.

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

Goodwill

We test the goodwill in each of our reporting units for impairment at least annually, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.

Foreign Currency

We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. U.S. GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have subsidiaries that fall into each of these categories.

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Foreign Subsidiaries which use the Local Currency as the Functional Currency

Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity.

For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the period. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated condensed statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.

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

Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency.

Effects of Foreign Exchange Rate on Operations

For the fiscal quarter ended September 26, 2020, exchange rates increased net revenues by $0.7 million, and increased costs of products sold and selling, general, and administrative expenses by $0.9 million, when compared to the comparable prior year period. For the nine fiscal months ended September 26, 2020, exchange rates decreased net revenues by $0.5 million, and increased costs of products sold and selling, general, and administrative expenses by $1.5 million, when compared to the comparable prior year period.

Off-Balance Sheet Arrangements

As of September 26, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.

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Results of Operations

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Costs of products sold	59.5	%	61.7	%	61.1	%	59.3	%
Gross profit	40.5	%	38.3	%	38.9	%	40.7	%
Selling, general, and administrative expenses	28.4	%	28.3	%	29.9	%	27.7	%
Operating income	12.0	%	9.2	%	8.6	%	12.5	%
Income before taxes	11.5	%	9.5	%	7.8	%	11.8	%
Net earnings	8.4	%	6.7	%	5.5	%	8.6	%
Net earnings attributable to VPG stockholders	8.3	%	6.7	%	5.5	%	8.5	%

Effective tax rate	27.1	%	29.3	%	29.0	%	27.5	%

Net Revenues

Net revenues were as follows (dollars in thousands):


	Fiscal quarter ended					Nine fiscal months ended
	September 26, 2020			September 28, 2019		September 26, 2020			September 28, 2019
Net revenues	$	67,525		$	67,421	$	194,367		$	214,816
Change versus comparable prior year period	$	104				$	(20,449)
Percentage change versus prior year period	0.2		%			(9.5)		%

Changes in net revenues were attributable to the following:


	vs. prior year quarter		vs. prior year- to-date
Change attributable to:
Change in volume	(6.6)	%	(14.0)	%
Change in average selling prices	0.0	%	0.3	%
Foreign currency effects	1.1	%	(0.2)	%
Acquisitions	5.7	%	4.4	%

Net change	0.2	%	(9.5)	%

During the fiscal quarter ended September 26, 2020, net revenues increased 0.2% as compared to the comparable prior year period, with increased volume in the Weighing and Control Systems and Foil Technology Products reporting segment mostly offset by lower volume in the Force Sensors reporting segment. During nine fiscal months ended September 26, 2020, net revenues decreased 9.5%, as compared to the comparable prior year period, mainly due to decreased volume in all reporting segments.

Gross Profit Margin

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Gross profit margin	40.5	%	38.3	%	38.9	%	40.7	%

The gross profit margin for the fiscal quarter ended September 26, 2020 increased 2.2% compared to the comparable prior year period, with higher margins in the Foil Technology Products and Force Sensors reporting segments being partially offset by

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lower margins in the Weighing and Control Systems segment. The gross profit margin for the nine fiscal months ended September 26, 2020 decreased 1.8% compared to the comparable prior year period, with all reporting segments contributing to the decline.

Segments

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

Foil Technology Products

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


	Fiscal quarter ended					Nine fiscal months ended
	September 26, 2020			September 28, 2019		September 26, 2020			September 28, 2019
Net revenues	$	32,906		$	32,119	$	95,168		$	102,167
Change versus comparable prior year period	$	787				$	(6,999)
Percentage change versus prior year period	2.5		%			(6.9)		%

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


	vs. prior year quarter		vs. prior year- to-date
Change attributable to:
Change in volume	1.1	%	(7.4)	%
Change in average selling prices	0.3	%	0.6	%
Foreign currency effects	1.1	%	(0.1)	%


Net change	2.5	%	(6.9)	%

Net revenues increased 2.5% for the fiscal quarter ended September 26, 2020 as compared to the comparable prior year period. Increases in revenues were primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our Pacific Instruments product line in the avionics, military and space market, which partially offset a decrease in precision resistor sales in the test and measurement market.

Net revenues decreased 6.9% for the nine fiscal months ended September 26, 2020 as compared to the comparable prior year period. Decreases in net revenues in precision resistor products sales in the test and measurement market and strain gages in our general industrial market were partially offset by increases in net revenues in the avionics, military and space market, and increases in our net revenues from the advanced sensors product line primarily in our consumer-related markets.

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Gross profit margin	41.1	%	37.3	%	39.9	%	42.0	%

The gross profit margin increased 3.8% for the fiscal quarter ended September 26, 2020, when compared to the comparable prior year period, primarily due to manufacturing efficiencies and cost controls. The gross profit margin decreased 2.1% for the nine fiscal months ended September 26, 2020 as compared to the comparable prior year period primarily due to lower volume from products in the test and measurement and general industrial market segments.

Force Sensors

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

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	Fiscal quarter ended					Nine fiscal months ended
	September 26, 2020			September 28, 2019		September 26, 2020			September 28, 2019
Net revenues	$	13,862		$	16,217	$	37,473		$	49,298
Change versus comparable prior year period	$	(2,355)				$	(11,825)
Percentage change versus prior year period	(14.5)		%			(24.0)		%

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


	vs. prior year quarter		vs. prior year- to-date
Change attributable to:
Change in volume	(14.4)	%	(23.8)	%
Change in average selling prices	(1.0)	%	(0.1)	%
Foreign currency effects	0.9	%	(0.1)	%

Net change	(14.5)	%	(24.0)	%

Net revenues decreased 14.5% for the fiscal quarter ended September 26, 2020, as compared to the comparable prior year period, reflecting the impact of the COVID-19 pandemic on our India facility. This limitation in our production also contributed to the year to date decline in Force Sensor revenues of 24.0% when compared to the prior year. The manufacturing facility in India operated at partial capacity as a result of government mandated restrictions until July 1, 2020, when restrictions were lifted.

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Gross profit margin	30.5	%	30.4	%	23.6	%	29.2	%

The gross profit margin for the fiscal quarter ended September 26, 2020 increased 0.1% compared to the comparable prior year period. This increase was primarily due to cost controls and a positive impact of foreign exchange, partially offset by lower volume due to the COVID-19 impacts mentioned above and a reduction in export grants. The gross profit margin for the nine fiscal months ended September 26, 2020 decreased 5.6% compared to the prior year period. Lower volume due to COVID-19 impacts was partially offset by cost savings initiatives.

Weighing and Control Systems

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


	Fiscal quarter ended					Nine fiscal months ended
	September 26, 2020			September 28, 2019		September 26, 2020			September 28, 2019
Net revenues	$	20,757		$	19,085	$	61,726		$	63,351
Change versus comparable prior year period	$	1,672				$	(1,625)
Percentage change versus prior year period	8.8		%			(2.6)		%

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


	vs. prior year quarter		vs. prior year- to-date
Change attributable to:
Change in volume	(13.2)	%	(17.4)	%
Change in average selling prices	0.3	%	0.2	%
Foreign currency effects	1.6	%	(0.7)	%
Acquisitions	20.1	%	15.3	%

Net change	8.8	%	(2.6)	%

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Net revenues increased 8.8% for the fiscal quarter ended September 26, 2020 as compared to the comparable prior year period. This increase was primarily attributable to additional revenues of DSI, acquired in November 2019, which was partially offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales. Net revenues decreased 2.6% for the nine fiscal months ended September 26, 2020, as compared to the comparable prior year periods. Additional revenues of DSI, were offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales.

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


	Fiscal quarter ended				Nine fiscal months ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Gross profit margin	46.2	%	46.6	%	46.5	%	47.5	%

The gross profit margin for the fiscal quarter ended September 26, 2020 of 46.2% decreased from the third quarter of 2019 mostly due to unfavorable product mix, partially offset by higher volume. The gross profit margin for the nine fiscal months ended September 26, 2020 of 46.5%, decreased from the prior year period due to lower volume, an unfavorable product mix and unfavorable exchange rate impacts.

Selling, General, and Administrative Expenses

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


	Fiscal quarter ended						Nine fiscal months ended
	September 26, 2020			September 28, 2019			September 26, 2020			September 28, 2019
Total SG&A expenses	$	19,144		$	19,057		$	58,075		$	59,401

As a percentage of net revenues	28.4		%	28.3		%	29.9		%	27.7		%

SG&A expenses for the fiscal quarter ended September 26, 2020 were flat compared to the comparable prior year period with additional SG&A expenses related to DSI being offset by lower travel costs, personnel costs and professional fees. SG&A expenses for the nine fiscal months ended September 26, 2020 decreased compared to the comparable prior year period mainly due to lower travel costs, personnel costs, commissions, and professional fees, partially offset by SG&A expenses related to DSI.

Executive Severance Costs

Restructuring Costs

Other Income (Expense)

Interest expense for the fiscal quarter and nine fiscal months ended September 26, 2020 was lower compared with interest expense in the comparable prior year periods mainly due to the lower debt balances during 2020 and the favorable borrowing rates negotiated with the 2020 Restated and Amended Revolving Credit Facility in March 2020.

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


	Fiscal quarter ended
	September 26, 2020		September 28, 2019		Change
Foreign exchange gain (loss)	$	162	$	(306)	$	468

Interest income	29		181		(152)
Pension expense	(159)		(157)		(2)
Other	(71)		829		(900)
	$	(39)	$	547	$	(586)


	Nine fiscal months ended
	September 26, 2020		September 28, 2019		Change
Foreign exchange (loss) gain	$	(123)	$	(1,360)	$	1,237
Interest income	205		519		(314)
Pension expense	(482)		(470)		(12)
Other	(229)		926		(1,155)
	$	(629)	$	(385)	$	(244)

Included in Other for the fiscal quarter and nine fiscal months ended September 28, 2019, respectively, is a one-time $0.8 million gain on liquidation of one of the Company's subsidiaries.

Income Taxes

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Financial Condition, Liquidity, and Capital Resources

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

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

The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include interest coverage ratio and a leverage ratio. We were in compliance with these covenants at September 26, 2020. If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

Our other long-term debt is not significant and consists of zero percent interest rate debt held by our Japanese subsidiary of approximately $0.1 million at September 26, 2020 and $0.1 million at December 31, 2019.

Our business has historically generated significant cash flow. For the nine fiscal months ended September 26, 2020, cash provided by operating activities was $22.8 million compared to $24.6 million in the comparable prior year period. Our net cash used in investing activities for the nine fiscal months ended September 26, 2020 was higher compared to the prior year period mainly due to increased capital spending. Our net cash used by financing activities for the nine fiscal months ended September 26, 2020, reflects the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.

Adjusted free cash flow generated during the nine fiscal months ended September 26, 2020, was $7.4 million. We refer to the amount of cash provided by operating activities ($22.8 million) in excess of our capital expenditures ($15.8 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”

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The following table summarizes the components of net cash at September 26, 2020 and December 31, 2019 (in thousands):


	September 26, 2020		December 31, 2019
Cash and cash equivalents	$	89,795	$	86,910

Third-party debt, including current and long-term:
Term loans	—		10,496
Revolving debt	41,000		34,000
Third-party debt held by Japanese subsidiary	52		149

Deferred financing costs	(396)		(112)
Total third-party debt	40,656		44,533
Net cash	$	49,139	$	42,377

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

Approximately 91% and 93% of our cash and cash equivalents balance at September 26, 2020 and December 31, 2019, respectively, was held by our non-U.S. subsidiaries.

See the following table for the percentage of cash and cash equivalents, by region, at September 26, 2020 and December 31, 2019:


	September 26, 2020		December 31, 2019
Israel	19	%	28	%
Asia	24	%	23	%
Europe	19	%	14	%
United States	9	%	7	%
United Kingdom	17	%	17	%
Canada	12	%	11	%
	100	%	100	%

We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 26, 2020, to be indefinitely reinvested.

Our financial condition as of September 26, 2020 remains strong, with a current ratio (current assets to current liabilities) of 4.6 to 1.0, as compared to a ratio of 2.4 to 1.0 at December 31, 2019.

Cash paid for property and equipment for the nine fiscal months ended September 26, 2020 was $15.8 million compared to $8.6 million in the comparable prior year period.

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Contractual Commitments

Our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 11, 2020, includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K, except that the Company recorded a material lease liability during the second quarter of 2020 in connection with a lease of a new manufacturing facility in Israel. Lease maturities for the Company's operating leases are fully described in Note 5 to the consolidated condensed financial statements.

Safe Harbor Statement

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

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies (including DSI); the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate; difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; significant developments from the recent and potential changes in tariffs and trade regulation; our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter-in-place orders and business closures and the related impact on resource allocations, manufacturing and supply chains; the Company’s status as a “critical”, “essential” or “life-sustaining” business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority; the Company’s ability to execute its business continuity, operational and budget plans in light of the COVID-19 pandemic; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

During our last fiscal quarter ended September 26, 2020, there was no change in our internal control over financial reporting that materially affected, or is reasonable likely to materially affect, internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020, and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020, filed with the SEC on May 5, 2020. There have been no material changes in reported risk factors from the information reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020.

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

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

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Item 6. EXHIBITS


31.1						Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Ziv Shoshani, Chief Executive Officer.
31.2						Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – William M. Clancy, Chief Financial Officer.
32.1						Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Ziv Shoshani, Chief Executive Officer.
32.2						Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – William M. Clancy, Chief Financial Officer.
101						Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 26, 2020, furnished in XBRL (eXtensible Business Reporting Language).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			VISHAY PRECISION GROUP, INC.


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

Date: November 3, 2020

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