What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-04 · 114 added, 113 removed, 351 unchanged (39% of the section changed)

17 unchanged sentences

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.

While the majority of the Company’s operations were able to operate despite the impacts from the COVID-19 pandemic, the Company’s Force Sensors manufacturing facility in India had operated at partial capacity as a result of government-mandated restrictions.

In the third quarter of 2020, these restrictions reduced Force Sensors revenue by approximately $2.5 million and Force Sensors operating income by approximately $1.0 million due to the lower volume.

For the first nine months of 2020, these restrictions impacted Force Sensors revenue in aggregate by approximately $10 million from pre-COVID runrate levels and reduced its operating income by approximately $4 million due to the lower revenue.

The Company received approval from the Indian government to operate its facility without limitation on July 1, 2020, and as of the end of the third quarter the facility was operating at full capacity.

As of November 3, 2020, all of the Company’s facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible.

Nonetheless, given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic, the ongoing economic disruption may continue to adversely affect the Company’s business and financial results.

5 unchanged sentences

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 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.

Net revenues for the fiscal quarter ended September 26, 2020 were $67.5 million versus $67.4 million for the comparable prior year period.

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

Net revenues for the nine fiscal months ended September 26, 2020 were $194.4 million versus $214.8 million for the comparable prior year period.

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

The results of operations for the fiscal quarters and nine fiscal months ended September 26, 2020 and September 28, 2019 include items affecting comparability as listed in the reconciliations below.

The reconciliations below include certain financial measures which are not recognized in accordance with U.S.

8 unchanged sentences

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

Three months ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

As reported - GAAP $ 27,349 $ 25,790 $ 8,121 $ 6,186 $ 5,598 $ 4,509 $ 0.41 $ 0.33

2 unchanged sentences

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

Executive Severance costs — 611 611 — 0.04

Restructuring costs — 84 547 84 547 0.01 0.04

3 unchanged sentences

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

Nine fiscal months ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

As reported - GAAP 75,524 87,450 16,736 26,891 $ 10,669 $ 18,317 $ 0.78 $ 1.35

27 unchanged sentences

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

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the third quarter of 2019 through the third quarter of 2020 (dollars in thousands) :

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

2019 2019 2020 2020 2020

4 unchanged sentences

Inventory turnover 2.60 2.72 2.58 2.20 2.38

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

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

2019 2019 2020 2020 2020

17 unchanged sentences

Inventory turnover 2.61 3.10 2.31 1.81 2.13

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.

Net revenues for the third quarter of 2020 increased 14.2% from the second quarter of 2020 mainly due to increased volume in all reporting segments.

Net revenues increased 0.2% from the third quarter of 2019 with increased volume in the Weighing and Control Systems and Foil Technology Products reporting segment mostly offset by lower volume in the Force Sensors reporting segment.

Net revenues in the Foil Technology Products reporting segment increased 3.5% compared to the second quarter of 2020 and increased 2.5% from the third quarter of 2019.

The sequential and year-over-year increases in revenues were primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our Pacific Instruments product line in the avionics, military and space market, which partially offset a decrease in precision resistor sales in the test and measurement market.

Net revenues in the Force Sensors reporting segment increased 55.5% from the second quarter of 2020 and decreased 14.5% from the third quarter of 2019.

Sequentially net revenues increased as a result of COVID-19 mitigation restrictions being lifted as of July 1, 2020 by the Indian government and the subsequent ramping up of production without limitations at our India operations during the third quarter of 2020.

The sequential revenue increase reflected higher sales in the industrial weighing and our other markets.

Compared to the third quarter of 2019, the decrease reflects the impact of the COVID-19 pandemic on our India facility.

Net revenues in the Weighing and Control Systems reporting segment increased 12.5% from the second quarter of 2020 and increased 8.8% from the third quarter of 2019.

Sequentially, the higher net revenues are primarily attributable to the Dynamic Systems Inc.

("DSI") product line and an increase in sales of our onboard weighing products for the transportation market, which was partially offset by lower KELK steel-related sales.

Compared to the third quarter of 2019, the increase in net revenues is primarily attributable to the additional revenues of DSI acquired in November 2019, which was partially offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales.

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

Sequentially, improved gross profit margin in the Force Sensors reporting segment was partially offset by decreased gross profit margins in the Weighing and Control Systems reporting segment, while the Foil Technology Products reporting segment gross profit margins remained flat.

The Force Sensors reporting segment gross profit margin increased sequentially due to higher volume.

In the Weighing and Control Systems reporting segment, the gross profit margin was 46.2% compared to 47.6% in the prior sequential quarter.

The decrease in the gross profit margin was mainly due to unfavorable product mix and a reduction in inventory, partially offset by higher volume.

Compared to the third quarter of 2019, the Foil Technology Products reporting segment had a higher gross profit margin primarily due to manufacturing efficiencies and cost controls.

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

In the Weighing and Control Systems segment, the gross profit margin of 46.2% decreased from the third quarter of 2019 mostly due to unfavorable product mix, partially offset by higher volume.

Optimize Core Competence

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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.

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.

For example, in 2019 and 2018, we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities

in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.

In 2017, we closed two leased facilities in the United States and moved to more cost effective locations.

32 unchanged sentences

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.

18 unchanged sentences

Effects of Foreign Exchange Rate on Operations

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.

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

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

Off-Balance Sheet Arrangements

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

As of September 26, 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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Costs of products sold 59.5 % 61.7 % 61.1 % 59.3 %

7 unchanged sentences

Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Net revenues $ 67,525 $ 67,421 $ 194,367 $ 214,816

10 unchanged sentences

Net change 0.2 % (9.5) %

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.

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

During nine fiscal months ended September 26, 2020, net revenues decreased 9.5%, as compared to the comparable prior year period, mainly due to decreased volume in all reporting segments.

Gross Profit Margin

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Gross profit margin 40.5 % 38.3 % 38.9 % 40.7 %

The gross profit margin for the fiscal quarter ended 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.

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

lower margins in the Weighing and Control Systems segment.

The gross profit margin for the nine fiscal months ended September 26, 2020 decreased 1.8% compared to the comparable prior year period, with all reporting segments contributing to the decline.

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

1 unchanged sentence

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Net revenues $ 32,906 $ 32,119 $ 95,168 $ 102,167

9 unchanged sentences

Net change 2.5 % (6.9) %

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.

Net revenues increased 2.5% for the fiscal quarter ended September 26, 2020 as compared to the comparable prior year period.

Increases in revenues were primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our Pacific Instruments product line in the avionics, military and space market, which partially offset a decrease in precision resistor sales in the test and measurement market.

Net revenues decreased 6.9% for the nine fiscal months ended September 26, 2020 as compared to the comparable prior year period.

Decreases in net revenues in precision resistor products sales in the test and measurement market and strain gages in our general industrial market were partially offset by increases in net revenues in the avionics, military and space market, and increases in our net revenues from the advanced sensors product line primarily in our consumer-related markets.

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Gross profit margin 41.1 % 37.3 % 39.9 % 42.0 %

The gross profit margin 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.

The gross profit margin increased 3.8% for the fiscal quarter ended September 26, 2020, when compared to the comparable prior year period, primarily due to manufacturing efficiencies and cost controls.

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

Force Sensors

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

$ 13,862 $ 16,217 $ 37,473 $ 49,298

9 unchanged sentences

Net change (14.5) % (24.0) %

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.

Net revenues decreased 14.5% for the fiscal quarter ended September 26, 2020, as compared to the comparable prior year period, reflecting the impact of the COVID-19 pandemic on our India facility.

This limitation in our production also contributed to the year to date decline in Force Sensor revenues of 24.0% when compared to the prior year.

The manufacturing facility in India operated at partial capacity as a result of government mandated restrictions until July 1, 2020, when restrictions were lifted.

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Gross profit margin 30.5 % 30.4 % 23.6 % 29.2 %

The gross profit margin for the fiscal quarter ended 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.

The gross profit margin for the fiscal quarter ended September 26, 2020 increased 0.1% compared to the comparable prior year period.

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

The gross profit margin for the nine fiscal months ended September 26, 2020 decreased 5.6% compared to the prior year period.

Lower volume due to COVID-19 impacts was partially offset by cost savings initiatives.

Weighing and Control Systems

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Net revenues $ 20,757 $ 19,085 $ 61,726 $ 63,351

10 unchanged sentences

Net change 8.8 % (2.6) %

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.

Net revenues increased 8.8% for the fiscal quarter ended September 26, 2020 as compared to the comparable prior year period.

This increase was primarily attributable to additional revenues of DSI, acquired in November 2019, which was partially offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales.

Net revenues decreased 2.6% for the nine fiscal months ended September 26, 2020, as compared to the comparable prior year periods.

Additional revenues of DSI, were offset by lower volume of our onboard weighing products for the transportation market and lower KELK steel-related sales.

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Gross profit margin 46.2 % 46.6 % 46.5 % 47.5 %

The gross profit margin for the fiscal quarter ended 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.

The gross profit margin for the fiscal quarter ended September 26, 2020 of 46.2% decreased from the third quarter of 2019 mostly due to unfavorable product mix, partially offset by higher volume.

The gross profit margin for the nine fiscal months ended September 26, 2020 of 46.5%, decreased from the prior year period due to lower volume, an unfavorable product mix and unfavorable exchange rate impacts.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Total SG&A expenses $ 19,144 $ 19,057 $ 58,075 $ 59,401

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

SG&A expenses for the fiscal quarter ended 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.

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

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

Executive Severance Costs

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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 $0.5 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.

The Company recorded $0.1 million and $0.5 million of restructuring costs during the fiscal quarter ended September 26, 2020 and September 28, 2019, respectively, and $0.7 million and $0.5 million for the nine fiscal months ended September 26, 2020 and September 28, 2019, respectively.

Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.

Other Income (Expense)

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.

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

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

Fiscal quarter ended

June 27, 2020 June 29, 2019 Change

September 26, 2020 September 28, 2019 Change

Foreign exchange gain (loss) $ 162 $ (306) $ 468

3 unchanged sentences

$ (39) $ 547 $ (586)

Six fiscal months ended

June 27, 2020 June 29, 2019 Change

Nine fiscal months ended

September 26, 2020 September 28, 2019 Change

Foreign exchange (loss) gain $ (123) $ (1,360) $ 1,237

4 unchanged sentences

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.

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

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

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 effective tax rate for the fiscal quarter ended September 26, 2020 was 27.1% compared to 29.3% for the fiscal quarter ended September 28, 2019.

The effective tax rate for the nine fiscal months ended September 26, 2020 was 29.0% compared to 27.5% for the nine fiscal months ended September 28, 2019.

The tax rate for the nine fiscal months of 2020 is higher than the prior year period primarily due to changes in the mix of worldwide income.

The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate.

28 unchanged sentences

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

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

We were in compliance with these covenants at September 26, 2020.

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

Our other long-term debt is not significant and consists of zero percent interest rate debt held by our Japanese subsidiary of approximately $0.1 million at June 27, 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 September 26, 2020 and $0.1 million at December 31, 2019.

Our business has historically generated significant cash flow.

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.

For the nine fiscal months ended September 26, 2020, cash provided by operating activities was $22.8 million compared to $24.6 million in the comparable prior year period.

Our net cash used in investing activities for the nine fiscal months ended September 26, 2020 was higher compared to the prior year period mainly due to increased capital spending.

Our net cash used by financing activities for the nine fiscal months ended September 26, 2020, reflects the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.

Adjusted free cash flow generated during the nine fiscal months ended September 26, 2020, was $7.4 million.

We refer to the amount of cash provided by operating activities ($22.8 million) in excess of our capital expenditures ($15.8 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”

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

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

September 26, 2020 December 31, 2019

Cash and cash equivalents $ 89,795 $ 86,910

10 unchanged sentences

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

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.

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

subsidiaries.

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

June 27, 2020 December 31, 2019

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

September 26, 2020 December 31, 2019

Israel 19 % 28 %

11 unchanged sentences

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 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.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 26, 2020, to be indefinitely reinvested.

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

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

Contractual Commitments

9 unchanged sentences

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 DSI);

the inability to realize anticipated synergies and expansion possibilities;

2 unchanged sentences

changes in foreign currency exchange rates;

political, economic, health (including the COVID-19 "coronavirus") and military instability in the countries in which we operate;

political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate;

difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies;

2 unchanged sentences

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;

the Company’s ability to execute its business continuity, operational and budget plans in light of the COVID-19 pandemic;

and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020.

3 unchanged sentences

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