Vishay Precision Group, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) June 27, 2020 December 31, 2019 (Unaudited) Assets Current assets: Cash and cash equivalents $ 87,197 $ 86,910 Accounts receivable, net 40,743 43,198 Inventories: Raw materials 22,899 21,701 Work in process 25,315 23,128 Finished goods 18,521 22,066 Inventories, net 66,735 66,895 Prepaid expenses and other current assets 16,046 15,558 Total current assets 210,721 212,561 Property and equipment, at cost: Land 4,191 4,243 Buildings and improvements 52,200 52,708 Machinery and equipment 112,888 111,492 Software 9,586 9,384 Construction in progress 10,028 2,485 Accumulated depreciation ( 122,893 ) ( 119,042 ) Property and equipment, net 66,000 61,270 Goodwill 34,588 35,018 Intangible assets, net 32,611 34,198 Operating lease right-of-use assets 22,401 8,691 Other assets 18,329 18,675 Total assets $ 384,650 $ 370,413 Continues on the following page. -3- VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) June 27, 2020 December 31, 2019 Liabilities and equity Current liabilities: Trade accounts payable $ 9,350 $ 8,869 Payroll and related expenses 15,090 16,312 Other accrued expenses 16,984 16,126 Income taxes 1,766 261 Current portion of operating lease liabilities 3,924 2,827 Current portion of long-term debt 85 44,516 Total current liabilities 47,199 88,911 Long-term debt, less current portion 40,592 17 Deferred income taxes 3,477 3,478 Operating lease liabilities 19,032 5,811 Other liabilities 14,409 14,775 Accrued pension and other postretirement costs 15,701 15,669 Total liabilities 140,410 128,661 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 197,134 197,125 Retained earnings 94,359 89,288 Accumulated other comprehensive loss ( 40,084 ) ( 37,703 ) Total Vishay Precision Group, Inc. stockholders' equity 244,064 241,360 Noncontrolling interests 176 392 Total equity 244,240 241,752 Total liabilities and equity $ 384,650 $ 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 June 27, 2020 June 29, 2019 Net revenues $ 59,146 $ 70,870 Costs of products sold 36,036 42,261 Gross profit 23,110 28,609 Selling, general, and administrative expenses 18,640 19,896 Executive severance costs — 611 Restructuring costs 499 — Operating income 3,971 8,102 Other income (expense): Interest expense ( 267 ) ( 359 ) Other ( 1,273 ) ( 160 ) Other income (expense) ( 1,540 ) ( 519 ) Income before taxes 2,431 7,583 Income tax expense 684 2,003 Net earnings 1,747 5,580 Less: net (loss) earnings attributable to noncontrolling interests ( 12 ) 15 Net earnings attributable to VPG stockholders $ 1,759 $ 5,565 Basic earnings per share attributable to VPG stockholders $ 0.13 $ 0.41 Diluted earnings per share attributable to VPG stockholders $ 0.13 $ 0.41 Weighted average shares outstanding - basic 13,571 13,518 Weighted average shares outstanding - diluted 13,609 13,595 See accompanying notes. -5- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Six fiscal months ended June 27, 2020 June 29, 2019 Net revenues $ 126,842 $ 147,395 Costs of products sold 78,667 85,735 Gross profit 48,175 61,660 Selling, general, and administrative expenses 38,931 40,344 Executive severance costs — 611 Restructuring costs 629 — Operating income 8,615 20,705 Other income (expense): Interest expense ( 728 ) ( 747 ) Other ( 590 ) ( 932 ) Other income (expense) ( 1,318 ) ( 1,679 ) Income before taxes 7,297 19,026 Income tax expense 2,258 5,120 Net earnings 5,039 13,906 Less: net (loss) earnings attributable to noncontrolling interests ( 32 ) 98 Net earnings attributable to VPG stockholders $ 5,071 $ 13,808 Basic earnings per share attributable to VPG stockholders $ 0.37 $ 1.02 Diluted earnings per share attributable to VPG stockholders $ 0.37 $ 1.02 Weighted average shares outstanding - basic 13,556 13,506 Weighted average shares outstanding - diluted 13,598 13,579 See accompanying notes. -6- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Fiscal quarter ended June 27, 2020 June 29, 2019 Net earnings $ 1,747 $ 5,580 Other comprehensive income (loss): Foreign currency translation adjustment 3,271 370 Pension and other postretirement actuarial items, net of tax ( 152 ) 80 Other comprehensive (loss) income 3,119 450 Comprehensive income 4,866 6,030 Less: comprehensive (loss) income attributable to noncontrolling interests ( 12 ) 15 Comprehensive income attributable to VPG stockholders $ 4,878 $ 6,015 See accompanying notes. -7- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Six fiscal months ended June 27, 2020 June 29, 2019 Net earnings $ 5,039 $ 13,906 Other comprehensive income (loss): Foreign currency translation adjustment ( 2,070 ) 951 Pension and other postretirement actuarial items, net of tax ( 311 ) 185 Other comprehensive (loss) income ( 2,381 ) 1,136 Comprehensive income 2,658 15,042 Less: comprehensive income (loss) attributable to noncontrolling interests ( 32 ) 98 Comprehensive income attributable to VPG stockholders $ 2,690 $ 14,944 See accompanying notes. -8- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) Six fiscal months ended June 27, 2020 June 29, 2019 Operating activities Net earnings $ 5,039 $ 13,906 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,312 5,619 Loss from extinguishment of debt 30 — Gain on disposal of property and equipment ( 143 ) ( 50 ) Share-based compensation expense 757 1,086 Inventory write-offs for obsolescence 1,302 1,389 Deferred income taxes ( 146 ) 379 Other 25 ( 2,753 ) Net changes in operating assets and liabilities: Accounts receivable, net 2,077 7,085 Inventories, net ( 1,383 ) ( 3,288 ) Prepaid expenses and other current assets ( 632 ) ( 3,301 ) Trade accounts payable 1,228 ( 645 ) Other current liabilities 2,229 ( 2,396 ) Net cash provided by operating activities 16,695 17,031 Investing activities Capital expenditures ( 11,018 ) ( 5,764 ) Proceeds from sale of property and equipment 378 214 Adjustment to purchase price of a business 156 — Net cash used in investing activities ( 10,484 ) ( 5,550 ) Financing activities Principal payments on long-term debt ( 66 ) ( 2,311 ) Repayments of principal upon termination of long-term borrowings ( 3,352 ) — Debt issuance costs ( 402 ) — Purchase of noncontrolling interest ( 253 ) — Contributions from noncontrolling interests 117 2 Payments of employee taxes on certain share-based arrangements ( 813 ) ( 854 ) Net cash used in financing activities ( 4,769 ) ( 3,163 ) Effect of exchange rate changes on cash and cash equivalents ( 1,155 ) 228 Increase in cash and cash equivalents 287 8,546 Cash and cash equivalents at beginning of period 86,910 90,159 Cash and cash equivalents at end of period $ 87,197 $ 98,705 Supplemental disclosure of investing transactions: Capital expenditures purchased $ ( 10,290 ) $ ( 4,992 ) Capital expenditures accrued but not yet paid $ 455 $ 1,077 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 June 27, 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 March 28, 2020 $ 1,316 $ 103 $ ( 8,765 ) $ 196,709 $ 92,600 $ ( 43,203 ) $ 238,760 $ 347 $ 239,107 Net earnings (loss) — — — — 1,759 — 1,759 ( 12 ) 1,747 Other comprehensive loss — — — — — 3,119 3,119 — 3,119 Share-based compensation expense — — — 378 — — 378 — 378 Restricted stock issuances ( 8,244 shares) 1 — — ( 1 ) — — — — — Purchase of noncontrolling interest — — — 48 — — 48 ( 301 ) ( 253 ) Contributions from noncontrolling interests — — — — — — — 142 142 Balance at June 27, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,134 $ 94,359 $ ( 40,084 ) $ 244,064 $ 176 $ 244,240 Fiscal quarter ended June 29, 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 March 30, 2019 $ 1,311 $ 103 $ ( 8,765 ) $ 196,578 $ 75,343 $ ( 36,779 ) $ 227,791 $ 87 $ 227,878 Net earnings — — — 5,565 5,565 15 5,580 Other comprehensive income — — — — — 450 450 — 450 Share-based compensation expense — — — 572 — — 572 — 572 Restricted stock issuances ( 11,295 shares) 1 — — ( 275 ) — — ( 274 ) — ( 274 ) Contributions from noncontrolling interests — — — — — — — 36 36 Balance at June 29, 2019 $ 1,312 $ 103 $ ( 8,765 ) $ 196,875 $ 80,908 $ ( 36,329 ) $ 234,104 $ 138 $ 234,242 See accompanying notes. -10- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Six Fiscal Months Ended June 27, 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 (loss) — — — — 5,071 — 5,071 ( 32 ) 5,039 Other comprehensive loss — — — — — ( 2,381 ) ( 2,381 ) — ( 2,381 ) Share-based compensation expense — — — 757 — — 757 — 757 Restricted stock issuances ( 52,433 shares) 5 — — ( 796 ) — — ( 791 ) — ( 791 ) Purchase of noncontrolling interest — — — 48 — — 48 ( 301 ) ( 253 ) Contributions from noncontrolling interests — — — — — — — 117 117 Balance at June 27, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,134 $ 94,359 $ ( 40,084 ) $ 244,064 $ 176 $ 244,240 Six Fiscal Months Ended June 29, 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 — — — — 13,808 — 13,808 98 13,906 Other comprehensive income — — — — — 1,136 1,136 — 1,136 Share-based compensation expense — — — 1,086 — — 1,086 — 1,086 Restricted stock issuances ( 48,482 shares) 5 — — ( 877 ) — — ( 872 ) — ( 872 ) Cumulative effect adjustment for adoption of ASU 2016-02 — — — — 531 — 531 — 531 Contributions from noncontrolling interests — — — — — — — 2 2 Balance at June 29, 2019 $ 1,312 $ 103 $ ( 8,765 ) $ 196,875 $ 80,908 $ ( 36,329 ) $ 234,104 $ 138 $ 234,242 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 June 27, 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 June 27, 2020 Fiscal quarter ended June 29, 2019 Foil Technology Products Force Sensors Weighing and Control Systems Total Foil Technology Products Force Sensors Weighing and Control Systems Total United States $ 10,789 $ 4,113 $ 6,010 $ 20,912 $ 13,102 $ 8,497 $ 5,894 $ 27,493 United Kingdom 586 1,711 1,722 4,019 833 2,534 4,234 7,601 Other Europe 6,974 1,434 3,430 11,838 8,847 2,957 4,273 16,077 Israel 5,691 92 — 5,783 3,272 84 — 3,356 Asia 7,745 1,566 1,859 11,170 6,945 2,277 2,316 11,538 Canada — — 5,424 5,424 — — 4,805 4,805 Total $ 31,785 $ 8,916 $ 18,445 $ 59,146 $ 32,999 $ 16,349 $ 21,522 $ 70,870 Six Fiscal Months Ended June 27, 2020 Six Fiscal Months Ended June 29, 2019 Foil Technology Products Force Sensors Weighing and Control Systems Total Foil Technology Products Force Sensors Weighing and Control Systems Total United States $ 22,723 $ 12,505 $ 14,898 $ 50,126 $ 30,011 $ 16,549 $ 10,927 $ 57,487 United Kingdom 1,537 3,691 5,435 10,663 1,674 5,711 8,578 15,963 Other Europe 14,686 3,808 7,174 25,668 16,950 5,981 8,815 31,746 Israel 8,646 190 — 8,836 6,251 203 — 6,454 Asia 14,670 3,417 3,530 21,617 15,162 4,637 4,890 24,689 Canada — — 9,932 9,932 — — 11,056 11,056 Total $ 62,262 $ 23,611 $ 40,969 $ 126,842 $ 70,048 $ 33,081 $ 44,266 $ 147,395 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 Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Test & Measurement $ 14,027 $ 17,980 $ 28,372 $ 35,601 Avionics, Military & Space 6,727 3,948 12,887 12,063 Transportation 5,188 10,440 13,432 20,059 Other Markets 12,192 12,548 25,320 25,472 Industrial Weighing 8,583 14,177 21,050 28,614 General Industrial 3,623 5,244 7,662 10,866 Steel 8,806 6,533 18,119 14,720 Total $ 59,146 $ 70,870 $ 126,842 $ 147,395 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 June 27, 2020 3,511 5,795 (Decrease)/increase $ ( 426 ) $ 1,234 The amount of revenue recognized during the six fiscal months ended June 27, 2020 that was included in the contract liability balance at December 31, 2019 was $ 3.7 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 Six fiscal months ended June 29, 2019 June 29, 2019 Pro forma net revenues $ 74,199 $ 157,821 Pro forma net earnings attributable to VPG stockholders $ 5,304 $ 17,135 Pro forma basic earnings per share attributable to VPG stockholders $ 0.39 $ 1.27 Pro forma diluted earnings per share attributable to VPG stockholders $ 0.39 $ 1.26 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 ( 274 ) ( 275 ) 1 — — Balance at June 27, 2020 $ 34,588 $ 6,284 $ 18,451 $ 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 six 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. Such lease agreement provides that we will lease a new building containing approximately 121,400 square feet. 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 June 27, 2020 December 31, 2019 Assets Operating lease right of use asset $ 22,401 $ 8,691 Liabilities Operating lease - current $ 3,924 $ 2,827 Operating lease - non-current $ 19,032 $ 5,811 Other information related to lease term and discount rate is as follows: June 27, 2020 Operating leases weighted average remaining lease term (in years) 9.24 years Operating leases weighted average discount rate 3.71 % The components of lease expense are as follows (in thousands) : Fiscal quarter ended Six Fiscal Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Operating lease cost $ 1,139 $ 812 $ 2,013 $ 1,635 Variable lease cost — 9 — 9 Short-term lease cost 34 32 57 59 Total lease cost $ 1,173 $ 853 $ 2,070 $ 1,703 Right of use assets obtained in exchange for new operating lease liability during 2020 were $ 15.3 million. The Company paid $ 1.7 million for its operating leases for each of the six fiscal months ended June 27, 2020 and June 29, 2019, which are included in operating cash flows on the consolidated condensed statements of cash flows. Undiscounted maturities of operating lease payments as of June 27, 2020 are summarized as follows (in thousands) : -16- Note 5 - Leases (continued) 2020 (excluding the six months ended June 27, 2020) $ 2,113 2021 4,198 2022 3,343 2023 2,804 2024 2,283 Thereafter 12,050 Total future minimum lease payments $ 26,791 Less: amount representing interest ( 3,835 ) Present value of future minimum lease payments $ 22,956 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 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. 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) : June 27, 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 85 149 Deferred financing costs ( 408 ) ( 112 ) Total long-term debt 40,677 44,533 Less: current portion 85 44,516 Long-term debt, less current portion $ 40,592 $ 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 ( 2,070 ) — ( 2,070 ) Amounts reclassified from accumulated other comprehensive income (loss) — ( 311 ) ( 311 ) Balance at June 27, 2020 $ ( 32,831 ) $ ( 7,253 ) $ ( 40,084 ) 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 951 — 951 Amounts reclassified from accumulated other comprehensive income (loss) — 185 185 Balance at June 29, 2019 $ ( 30,368 ) $ ( 5,961 ) $ ( 36,329 ) 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 June 27, 2020 Fiscal quarter ended June 29, 2019 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 99 $ 31 $ 82 $ 31 Interest cost 127 33 157 45 Expected return on plan assets ( 109 ) — ( 132 ) — Amortization of actuarial losses 76 34 50 39 Net periodic benefit cost $ 193 $ 98 $ 157 $ 115 Six fiscal months ended June 27, 2020 Six fiscal months ended June 29, 2019 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 198 $ 62 $ 165 $ 62 Interest cost 256 $ 66 $ 314 $ 90 Expected return on plan assets ( 220 ) $ — $ ( 265 ) $ — Amortization of actuarial losses 153 $ 68 $ 100 $ 78 Net periodic benefit cost $ 387 $ 196 $ 314 $ 230 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 June 27, 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 Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Restricted stock units $ 378 $ 512 $ 757 $ 1,086 -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 Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Net revenues: Foil Technology Products $ 31,785 $ 32,999 $ 62,262 $ 70,048 Force Sensors 8,916 16,349 23,611 33,081 Weighing and Control Systems 18,445 21,522 40,969 44,266 Total $ 59,146 $ 70,870 $ 126,842 $ 147,395 Gross profit: Foil Technology Products $ 13,286 $ 14,394 $ 24,487 $ 30,973 Force Sensors 1,038 4,392 4,610 9,453 Weighing and Control Systems 8,786 9,823 19,078 21,234 Total $ 23,110 $ 28,609 $ 48,175 $ 61,660 Reconciliation of segment operating income to consolidated results: Foil Technology Products $ 8,070 $ 8,619 $ 13,454 $ 18,925 Force Sensors ( 1,013 ) 2,039 191 4,574 Weighing and Control Systems 4,019 5,043 8,687 11,618 Unallocated G&A expenses ( 6,606 ) ( 6,988 ) ( 13,088 ) ( 13,801 ) Executive severance costs — ( 611 ) — ( 611 ) Restructuring costs ( 499 ) — ( 629 ) — Operating income $ 3,971 $ 8,102 $ 8,615 $ 20,705 Restructuring costs: Foil Technology Products $ ( 341 ) $ — $ ( 443 ) $ — Force Sensors $ ( 80 ) $ — $ ( 108 ) $ — Corporate/Other ( 78 ) — ( 78 ) — $ ( 499 ) $ — $ ( 629 ) $ — Executive severance costs: Corporate/Other $ — $ ( 611 ) $ — $ ( 611 ) $ — $ ( 611 ) $ — $ ( 611 ) 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) : -21- Note 11 - Segment Information (continued) Fiscal quarter ended Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Foil Technology Products to Force Sensors and Weighing and Control Systems $ 868 $ 1,074 $ 1,592 $ 2,007 Force Sensors to Foil Technology Products and Weighing and Control Systems $ — $ 184 $ — $ 611 Weighing and Control Systems to Foil Technology Products and Force Sensors $ 124 $ 146 $ 211 $ 298 -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 Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Numerator: Numerator for basic earnings per share: Net earnings attributable to VPG stockholders $ 1,759 $ 5,565 $ 5,071 $ 13,808 Denominator: Denominator for basic earnings per share: Weighted average shares 13,571 13,518 13,556 13,506 Effect of dilutive securities: Restricted stock units 38 77 42 73 Dilutive potential common shares 38 77 42 73 Denominator for diluted earnings per share: Adjusted weighted average shares 13,609 13,595 13,598 13,579 Basic earnings per share attributable to VPG stockholders $ 0.13 $ 0.41 $ 0.37 $ 1.02 Diluted earnings per share attributable to VPG stockholders $ 0.13 $ 0.41 $ 0.37 $ 1.02 -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 Six fiscal months ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Foreign exchange gain (loss) $ ( 1,185 ) $ ( 318 ) $ ( 285 ) $ ( 1,054 ) Interest income 109 183 176 338 Pension expense ( 164 ) ( 159 ) ( 323 ) ( 317 ) Other ( 33 ) 134 ( 158 ) 101 $ ( 1,273 ) $ ( 160 ) $ ( 590 ) $ ( 932 ) Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. 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. 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) : Fair value measurements at reporting date using: Total Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs June 27, 2020 Assets Assets held in rabbi trusts $ 5,047 $ 99 $ 4,948 $ — December 31, 2019 Assets Assets held in rabbi trusts $ 5,169 $ 53 $ 5,116 $ — -24- Note 14 - Fair Value Measurements (continued) 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 June 27, 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 June 27, 2020 and December 31, 2019 approximates its carrying value. The revolving debt and term loans are 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 $ 0.5 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. The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of June 27, 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 629 Cash payments ( 823 ) Foreign currency translation ( 7 ) Balance at June 27, 2020 $ 403 -25-