What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-05 · 173 added, 136 removed, 291 unchanged (52% of the section changed)

15 unchanged sentences

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in economic disruption and has adversely affected and will likely continue to adversely affect our business.

Uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic.

As previously disclosed, the Company's force sensor manufacturing facility in Tianjin, China was closed for three weeks due to governmental restrictions related to the COVID-19 pandemic.

The closure of our Tianjin facility ended in February 2020, but had a negative impact on our financial performance in the quarter ended March 28, 2020.

Our force sensor manufacturing facility in India had also been operating with a significantly reduced workforce since late March 2020.

The Indian government has allowed us to resume partial operations at such factory effective May 4, 2020, and we expect that the Indian government will allow businesses such as ours to resume full operations on May 17, 2020.

As of the date of this filing, all of the Company's facilities continue to operate, at least partially, as we believe that our business is “critical,” “essential” or “life-sustaining” under applicable laws, orders and guidelines, although they are operating with reduced numbers of personnel and following social distancing protocols.

Factors related to the COVID-19 response that have negatively impacted and may negatively impact our results of operations in the future include, but are not limited to:

limitations on the ability of our suppliers to manufacture, or our ability to procure from other manufacturers, the materials we need to produce the products we sell, or to meet delivery requirements and commitments;

limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home, including, notably, with respect to our manufacturing facility in India where a material portion of our force sensor components and products are made;

limitations on the ability of commercial carriers to deliver our products to customers;

and limitations on the ability of our customers to conduct their business and purchase our products and services.

We expect that many of our customers have closed or significantly reduced their operations due to the COVID-19 pandemic, and such actions may result in customer orders from the first and second quarters of 2020 being delayed to the third or fourth quarter of 2020 or later.

We also expect the operating results of our Force Sensors and Weighing and Control Systems segments in at least the second quarter of 2020 to be negatively impacted, potentially significantly, by the partial closure of our India force sensor manufacturing facility during March, April and a portion of May 2020 and softer demand across the majority of our Weighing and Control Systems markets due to the impact of COVID-19 on key end-markets, such as transportation and industrial weighing.

In particular, and assuming a full reopening of our India force sensor manufacturing facility on May 17, 2020, which is the current date that the Indian government has given for a full reopening, we expect revenues from our Force Sensors segment to be reduced by $5 million to $7 million and operating profit to be impacted by $3.5 million in the second quarter

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

In light of the adverse effects of the COVID-19 pandemic, we are evaluating factors impacting our liquidity and taking actions to reduce costs and spending across our organization.

This includes reducing hiring, adjusting salary programs, and limiting discretionary spending.

We have also reduced anticipated spending on capital investment projects.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders.

We are currently unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity and capital resources.

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 have been able to operate despite the impacts from the COVID-19 pandemic, the Company’s Force Sensors manufacturing facility in India operated at partial capacity through the second quarter of 2020 as a result of government-mandated restrictions.

These restrictions significantly impacted the Company’s financial results in the second quarter, reducing Force Sensors revenue by approximately $6 million from pre-COVID runrate levels and reducing its operating profit by approximately $2.5 million due to the lower revenue.

After the Company received approval from the Indian government to operate its facility without limitation on July 1, 2020, the Company accelerated the ramp of production.

Given the timing of these efforts, for the third quarter the Company expects Force Sensor revenues to be adversely impacted by approximately $3 million to $4 million from pre-COVID runrate levels, and its operating profit to be impacted by approximately $1.0 million to $1.5 million due to the lower revenue.

As of July 1, 2020, all of the Company’s facilities are operating without limitations with some employees working 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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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.

Net revenues for the fiscal quarter ended March 28, 2020 were $67.7 million versus $76.5 million for the comparable prior year period.

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

The results of operations for the fiscal quarters ended March 28, 2020 and March 30, 2019 include items affecting comparability as listed in the reconciliations below.

Net revenues for the fiscal quarter ended June 27, 2020 were $59.1 million versus $70.9 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended June 27, 2020 were $1.8 million, or $0.13 per diluted share, versus $5.6 million, or $0.41 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended June 27, 2020 were $126.8 million versus $147.4 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended June 27, 2020 were $5.1 million, or $0.37 per diluted share, versus $13.8 million, or $1.02 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters and six fiscal months ended June 27, 2020 and June 29, 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.

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Management believes that the Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results.

Operating Income

Net Earnings Attributable to VPG Stockholders

Diluted Earnings Per share

Three fiscal months ended

March 28, 2020

March 30, 2019

March 28, 2020

March 30, 2019

March 28, 2020

March 30, 2019

March 28, 2020

March 30, 2019

Gross Profit Operating Income Net Earnings Attributable to VPG Stockholders Diluted Earnings Per share

Three months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

As reported - GAAP $ 23,110 $ 28,609 $ 3,971 $ 8,102 $ 1,759 $ 5,565 $ 0.13 $ 0.41

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Acquisition purchase accounting adjustments (a) 41 — 41 — 41 — — —

COVID-19 impact (b) 558 443 443 0.03

Executive Severance costs — 611 611 — 0.04

Restructuring costs — 499 — 499 — 0.04 —

2 unchanged sentences

As Adjusted - Non GAAP Margins 40.1 % 40.4 % 8.4 % 12.3 %

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

Gross Profit Operating Income Net Earnings Attributable to VPG Stockholders Diluted Earnings Per share

Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

As reported - GAAP 48,175 61,660 8,615 20,705 $ 5,071 $ 13,808 $ 0.37 $ 1.02

As reported - GAAP Margins 38.0 % 41.8 % 6.8 % 14.0 %

Acquisition purchase accounting adjustments (a) 556 — 556 — 556 — 0.04 —

COVID-19 impact (b) 558 443 443 0.03

Executive Severance costs — 611 611 — 0.04

Restructuring costs — 629 — 629 — 0.05 —

Tax effect of reconciling items and discrete tax items — — 142 — 0.01 —

As Adjusted - Non GAAP $ 49,289 $ 61,660 $ 10,243 $ 21,316 $ 6,557 $ 14,419 $ 0.48 $ 1.06

As Adjusted - Non GAAP Margins 38.9 % 41.8 % 8.1 % 14.5 %

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

(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

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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 first quarter of 2019 through the first quarter of 2020 (dollars in thousands) :

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 second quarter of 2019 through the second quarter of 2020 (dollars in thousands) :

2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter

2019 2019 2019 2020 2020

Net revenues $ 70,870 $ 67,421 $ 69,142 $ 67,696 $ 59,146

Gross profit margin 40.4 % 38.3 % 35.0 % 37.0 % 39.1 %

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Inventory turnover 2.66 2.60 2.72 2.58 2.20

2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter

2019 2019 2019 2020 2020

Foil Technology Products

Net revenues $ 32,999 $ 32,119 $ 29,636 $ 30,477 $ 31,785

Gross profit margin 43.6 % 37.3 % 34.9 % 36.7 % 41.8 %

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Force Sensors

Net revenues $ 16,349 $ 16,217 $ 15,059 $ 14,695 $ 8,916

Gross profit margin 26.9 % 30.4 % 24.2 % 24.3 % 11.6 %

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Weighing and Control Systems

Net revenues $ 21,522 $ 19,085 $ 24,447 $ 22,524 $ 18,445

Gross profit margin 45.6 % 46.6 % 41.6 % 45.7 % 47.6 %

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Inventory turnover 3.03 2.61 3.10 2.31 1.81

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

Net revenues decreased 11.5% from the first quarter of 2019 due to decreased volume in all of the reporting segments.

Net revenues in the Foil Technology Products reporting segment increased 2.8% compared to the fourth quarter of 2019 and decreased 17.7% from the first quarter of 2019.

The sequential increase in revenue was attributable to precision resistor products in all regions for distribution and EMS customers, primarily in the avionics, military and space, as well as test and measurement end markets.

Compared to the first quarter of 2019, the decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market.

The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.

Net revenues in the Force Sensors reporting segment decreased 2.4% from the fourth quarter of 2019 and decreased 12.2% from the first quarter of 2019.

The sequential decrease in revenue was attributable to distribution customers in the industrial weighing market, mainly in the Americas and Asia.

Compared to the first quarter of 2019, the decrease in revenues was mainly due to lower volume from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.

Net revenues in the Weighing and Control Systems reporting segment decreased 7.9% from the fourth quarter of 2019 and decreased 1.0% from the first quarter of 2019.

Sequentially, the lower net revenues are primarily attributable to a reduction in the steel product line in the Americas and in Asia for end user customers.

Compared to the first quarter of 2019, the decrease in revenues are attributable to our KELK steel product line in the Americas and in Europe, onboard weighing product line for the transportation end market in Europe, and the European process weighing product line, mostly offset with the additional revenues of Dynamic Systems Inc.

("DSI"), which was acquired in November 2019.

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

Sequentially, the Foil Technology Products segment gross profit margin increased primarily due to higher volume.

The Force Sensors segment gross profit margin was flat as the favorable impact from cost savings initiatives offset lower volume and a reduction in export grants .

In the Weighing and Control Systems segment, the gross profit margin was 45.7% (48.0% excluding

the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) compared to 41.6% (46.8% excluding the purchase accounting adjustment of $1.3 million related to the DSI acquisition) .

The increase was mainly due to manufacturing efficiencies which were partially offset by lower volume.

Compared to the first quarter of 2019, the Foil Technology Products reporting segment had a lower gross profit margin primarily due to lower volume, negative impact of foreign exchange rates and inventory reductions.

The Force Sensors reporting segment decrease in gross profit margin was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives.

In the Weighing and Control Systems segment, the gross profit margin of 45.7% (48.0% excluding the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) decreased from the first quarter of 2019 primarily due to unfavorable product mix.

Net revenues for the second quarter of 2020 decreased 12.6% from the first quarter of 2020 mainly due to decreased volume in the Force Sensors and Weighing and Control Systems segments, partially offset by volume improvement in the Foil Technology Products segment.

Net revenues decreased 16.5% from the second quarter of 2019 due to decreased volume in all of the reporting segments.

Net revenues in the Foil Technology Products reporting segment increased 4.3% compared to the first quarter of 2020 and decreased 3.7% from the second quarter of 2019.

The sequential increase in revenue was attributable to precision resistor products for OEM customers, primarily in the avionics, military and space market and an increase in the advance sensors product line in our other markets.

Compared to the second quarter of 2019, the decrease in revenues was primarily attributable to lower precision resistor sales in the test and measurement market, which was partially offset by an increase in the avionics,

military and space market.

The decrease was also reflected for distributors and OEM customers in the industrial weighing market, which was mostly offset by an increase in our advance sensors product line in our other markets.

Net revenues in the Force Sensors reporting segment decreased 39.3% from the first quarter of 2020 and decreased 45.5% from the second quarter of 2019.

The sequential and year-over-year decrease in revenue was attributable to a significant limitation in production at our India operations during the second quarter of 2020 as a result of COVID-19 mitigation orders by the Indian government.

Net revenues in the Weighing and Control Systems reporting segment decreased 18.1% from the first quarter of 2020 and decreased 14.3% from the second quarter of 2019.

Sequentially, the lower net revenues are primarily attributable to a reduction in sales of onboard weighing products for the transportation market and of Dynamic Systems Inc.

("DSI"), which was partially offset by higher steel-related sales.

Compared to the second quarter of 2019, the decrease in revenues are primarily attributable to the onboard weighing product line in the transportation market, which was partially offset with the additional revenues of DSI, acquired in November 2019.

Overall gross profit margin in the second quarter of 2020 increased 2.1% as compared to the first quarter of 2020 and decreased 1.3% from the second quarter of 2019.

Sequentially, the Foil Technology Products segment gross profit margin increased primarily due to higher volume and manufacturing efficiencies.

The Force Sensors segment gross profit margin decreased sequentially due to lower volume due to COVID-19 impacts, which was partially offset by cost controls.

In the Weighing and Control Systems segment, the gross profit margin was 47.6% (47.3% excluding the purchasing accounting adjustments related to the DSI acquisition and the impact of COVID-19) compared to 45.7% (48.0% excluding the purchase accounting adjustment of $0.5 million related to the DSI acquisition) in the prior sequential quarter.

The decrease in the adjusted gross margin was mainly due to lower volume, which was partially offset by cost controls.

Compared to the second quarter of 2019, the Foil Technology Products reporting segment had a lower gross profit margin primarily due to lower volume and a negative impact from exchange rates, which was partially offset by cost controls and manufacturing efficiencies.

The Force Sensors reporting segment decrease in gross profit margin compared to 2019 was primarily due to lower volume due to the COVID-19 impacts mentioned above, a reduction in export grants, and a negative impact of foreign exchange, which was partially offset by cost controls.

In the Weighing and Control Systems segment, the gross profit margin of 47.6% (47.3% excluding the purchasing accounting adjustments related to the DSI acquisition and the impact of COVID-19) increased from the second quarter of 2019 mostly due to favorable product mix and the addition of DSI.

Optimize Core Competence

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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.

available tax and other government-sponsored incentives.

For example, in 2018 we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.

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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.

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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Effects of Foreign Exchange Rate on Operations

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

For the fiscal quarter ended June 27, 2020, exchange rates decreased net revenues by $0.7 million, and increased costs of products sold and selling, general, and administrative expenses by $0.1 million, when compared to the comparable prior year period.

For the six fiscal months ended June 27, 2020, exchange rates decreased net revenues by $1.2 million, and increased costs of products sold and selling, general, and administrative expenses by $0.6 million, when compared to the comparable prior year period.

Off-Balance Sheet Arrangements

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

As of June 27, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.

Results of Operations

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Costs of products sold 60.9 % 59.6 % 62.0 % 58.2 %

Gross profit 39.1 % 40.4 % 38.0 % 41.8 %

Selling, general, and administrative expenses 31.5 % 28.1 % 30.7 % 27.4 %

1 unchanged sentence

Income before taxes 4.1 % 10.7 % 5.8 % 12.9 %

Net earnings 3.0 % 7.9 % 4.0 % 9.4 %

Net earnings attributable to VPG stockholders 3.0 % 7.9 % 4.0 % 9.4 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Net revenues $ 59,146 $ 70,870 $ 126,842 $ 147,395

Change versus comparable prior year period

$ (11,724) $ (20,553)

Percentage change versus prior year period

(16.5) % (13.9) %

Changes in net revenues were attributable to the following:

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Foreign currency effects (0.9) % (0.8) %

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

Acquisitions 2.7 % 3.8 %

Net change (16.5) % (13.9) %

During the fiscal quarter and six fiscal months ended June 27, 2020, net revenues decreased 16.5% and 13.9%, respectively, as compared to the comparable prior year periods, due to decreased volume in all of the reporting segments.

Gross Profit Margin

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Gross profit margin 39.1 % 40.4 % 38.0 % 41.8 %

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

The gross profit margin for the fiscal quarter ended June 27, 2020 decreased 1.3% compared to the comparable prior year period, with lower margins in the Foil Technology Products and Force Sensors reporting segments being partially offset by higher margins in the Weighing and Control Systems segment.

The gross profit margin for the six fiscal months ended June 27, 2020 decreased 3.8% compared to the comparable prior year period, with all reporting segments contributing to the decline.

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

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Net revenues $ 31,785 $ 32,999 $ 62,262 $ 70,048

Change versus comparable prior year period

$ (1,214) $ (7,786)

Percentage change versus prior year period

(3.7) % (11.1) %

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

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Foreign currency effects (0.5) % (0.5) %

Net revenues decreased 17.7% for the fiscal quarter ended March 28, 2020 as compared to the comparable prior year period.

This decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market.

The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.

Net change (3.7) % (11.1) %

Net revenues decreased 3.7% for the fiscal quarter ended June 27, 2020 as compared to the comparable prior year period.

This decrease in revenues was primarily attributable to lower precision resistor sales in the test and measurement market, which was partially offset by an increase in the avionics, military and space market.

The decrease was also reflected for distributors and OEM customers in the industrial weighing market, which was mostly offset by an increase in our advance sensors product line in our other markets.

Net revenues decreased 11.1% for the six fiscal months ended June 27, 2020 as compared to the comparable prior year period.

Decreases in net revenues in precision resistor products sales in the test and measurement market were partially offset by increases in net revenues in the avionics, military and space market, and increases in our net revenues from the advance sensors product line in our other markets.

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Gross profit margin 41.8 % 43.6 % 39.3 % 44.2 %

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

The gross profit margin decreased 1.8% for the fiscal quarter ended June 27, 2020, and 4.9% for the six fiscal months ended June 28, 2020, when compared to the comparable prior year periods, primarily due to lower volume and a negative impact from exchange rates, which was partially offset by cost controls and manufacturing efficiencies.

Force Sensors

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

$ 8,916 $ 16,349 $ 23,611 $ 33,081

Change versus comparable prior year period

$ (7,433) $ (9,470)

Percentage change versus prior year period

(45.5) % (28.6) %

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

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Foreign currency effects (0.7) % (0.6) %

Net revenues decreased 12.2% for the fiscal quarter ended March 28, 2020 , as compared to the comparable prior year period.

The decrease for the fiscal quarter ended March 28, 2020 was attributable to lower revenues from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.

Net change (45.5) % (28.6) %

Net revenues decreased 45.5% for the fiscal quarter ended June 27, 2020, as compared to the comparable prior year period.

The decrease for the fiscal quarter ended June 27, 2020 was attributable to a significant limitation in production at our India operations during the second quarter of 2020 as a result of COVID-19 mitigation orders by the Indian government.

This limitation in our production also contributed to the year to date decline in Force Sensor revenues of 28.6% when compared to the prior year.

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Gross profit margin 11.6 % 26.9 % 19.5 % 28.6 %

The gross profit margin for the fiscal quarter ended March 28, 2020 decreased 5.9% compared to the comparable prior year period.

This decrease was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives.

The gross profit margin for the fiscal quarter ended June 27, 2020 decreased 15.3% compared to the comparable prior year period.

This decrease was primarily due to lower volume due to the COVID-19 impacts mentioned above, a reduction in export grants, and a negative impact of foreign exchange, which was partially offset by cost controls.

The gross profit margin for the six fiscal months ended June 27, 2020 decreased 9.1% compared to the prior year period.

Lower volume due to the 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

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Net revenues $ 18,445 $ 21,522 $ 40,969 $ 44,266

Change versus comparable prior year period

$ (3,077) $ (3,297)

Percentage change versus prior year period

(14.3) % (7.4) %

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

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Foreign currency effects (1.8) % (1.4) %

Net revenues decreased 1.0% for the fiscal quarter ended March 28, 2020 , as compared to the comparable prior year period.

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

Acquisitions 8.9 % 13.6 %

Net change (14.3) % (7.4) %

Net revenues decreased 14.3% for the fiscal quarter ended June 27, 2020 and 7.4% for the six fiscal months ended June 27, 2020 , as compared to the comparable prior year periods.

The decline in net revenues was attributable to the onboard weighing product line in the transportation market, which was partially offset with the additional revenues of DSI, acquired in November 2019.

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Gross profit margin 47.6 % 45.6 % 46.6 % 48.0 %

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

The gross profit margin for the fiscal quarter ended June 27, 2020 of 47.6% (47.3% excluding the purchasing accounting adjustments related to the DSI acquisition and the impact of COVID-19) increased from the second quarter of 2019 mostly due to favorable product mix and the addition of DSI.

The gross profit margin for the six fiscal months ended June 27, 2020 of 46.6%, (47.7% excluding the purchase accounting adjustments related to the DSI acquisition and the impact of COVID-19) 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

March 28, 2020

March 30, 2019

Fiscal quarter ended Six fiscal months ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Total SG&A expenses $ 18,640 $ 19,896 $ 38,931 $ 40,344

As a percentage of net revenues 31.5 % 28.1 % 30.7 % 27.4 %

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

SG&A expenses for the fiscal quarter ended June 27, 2020 decreased compared to the comparable prior year period mainly due to lower travel costs, personnel costs and professional fees, partially offset by SG&A expenses related to DSI.

SG&A expenses for the six fiscal months ended June 27, 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

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.

Restructuring Costs

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If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges.

The Company recorded $0.1 million and $0.0 million of restructuring costs during the fiscal quarter ended March 28, 2020 and March 30, 2019 , respectively.

The Company recorded $0.5 million and $0.0 million of restructuring costs during the fiscal quarter ended June 27, 2020 and June 29, 2019, respectively, and $0.6 million and $0.0 million for the six fiscal months ended June 27, 2020 and June 29, 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.

Other Income (Expense)

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

Interest expense for the fiscal quarter and six fiscal months ended June 27, 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.

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

Fiscal quarter ended

March 28, 2020

March 30, 2019

June 27, 2020 June 29, 2019 Change

Foreign exchange gain (loss) $ (1,185) $ (318) $ (867)

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Pension expense (164) (159) (5)

Other (33) 134 (167)

$ (1,273) $ (160) $ (1,113)

Six fiscal months ended

June 27, 2020 June 29, 2019 Change

Foreign exchange (loss) gain $ (285) $ (1,054) $ 769

Interest income 176 338 (162)

Pension expense (323) (317) (6)

Other (158) 101 (259)

$ (590) $ (932) $ 342

Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates.

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

For the fiscal quarter and six fiscal months ended June 27, 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, and the British pound.

VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items.

The effective tax rate for the fiscal quarter ended March 28, 2020 was 32.3% compared to 27.2% for the fiscal quarter ended March 30, 2019 .

The effective tax rate for the fiscal quarter ended June 27, 2020 was 28.1% compared to 26.4% for the fiscal quarter ended June 29, 2019.

The effective tax rate for the six fiscal months ended June 27, 2020 was 30.9% compared to 26.9% for the six fiscal months ended June 29, 2019.

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

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

We were in compliance with these covenants at March 28, 2020.

We were in compliance with these covenants at June 27, 2020.

If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

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

Our 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 June 27, 2020 and $0.1 million at December 31, 2019.

Our business has historically generated significant cash flow.

For the three fiscal months ended March 28, 2020 , cash provided by operating activities was $ 6.3 million .

Cash provided by operating activities for the three fiscal months ended March 30, 2019 was $8.1 million .

Cash provided by operating activities for the three fiscal months ended March 28, 2020 was lower than the cash provided by operating activities for the three fiscal months ended March 30, 2019 due to a decrease in net earnings.

Our net cash used in investing activities for the three fiscal months ended March 28, 2020 was comparable with the prior year.

Our net cash used by financing activities for the three fiscal months ended March 28, 2020 , reflects the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.

Adjusted free cash flow generated during the three fiscal months ended March 28, 2020 , was $3.0 million .

For the six fiscal months ended June 27, 2020, cash provided by operating activities was $16.7 million which was flat compared to the prior year period.

Our net cash used in investing activities for the six fiscal months ended June 27, 2020 was higher compared to the prior year period mainly due to increased capital spending.

Our net cash used by financing activities for the six fiscal months ended June 27, 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 six fiscal months ended June 27, 2020, was $6.1 million.

We refer to the amount of cash provided by operating activities ($16.7 million) in excess of our capital expenditures ($11.0 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”

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

March 28, 2020

December 31, 2019

The following table summarizes the components of net cash at June 27, 2020 and December 31, 2019 (in thousands) :

June 27, 2020 December 31, 2019

Cash and cash equivalents $ 87,197 $ 86,910

Third-party debt, including current and long-term:

Term loans — 10,496

Revolving debt 41,000 34,000

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Total third-party debt 40,677 44,533

Net cash $ 46,520 $ 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.

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These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.

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

Approximately 93% of our cash and cash equivalents balance at each of June 27, 2020 and December 31, 2019, was held by our non-U.S.

subsidiaries.

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

March 28, 2020

December 31, 2019

See the following table for the percentage of cash and cash equivalents, by region, at June 27, 2020 and December 31, 2019:

June 27, 2020 December 31, 2019

Israel 24 % 28 %

Asia 26 % 23 %

Europe 16 % 14 %

United States 7 % 7 %

United Kingdom 18 % 17 %

Canada 9 % 11 %

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.

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These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of March 28, 2020, to be indefinitely reinvested.

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

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

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of June 27, 2020, to be indefinitely reinvested.

Our financial condition as of June 27, 2020 remains strong, with a current ratio (current assets to current liabilities) of 4.5 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 six fiscal months ended June 27, 2020 was $11.0 million compared to $5.8 million in the comparable prior year period.

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.

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

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general business and economic conditions;

difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies (including Dynamic Systems, Inc.);

difficulties or delays in identifying, negotiating and

completing acquisitions and integrating acquired companies (including Dynamic Systems, Inc.);

the inability to realize anticipated synergies and expansion possibilities;

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significant developments from the recent and potential changes in tariffs and trade regulation;

our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter in place orders and business closures and resource allocations, manufacturing and supply chains;

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 outbreak;

and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis