What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-11 compared with 2020-03-11 · 154 added, 211 removed, 360 unchanged (50% of the section changed)

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We believe this offers a substantial growth opportunity for our products and expertise.

Impact of COVID-19 on our Business

As the COVID-19 pandemic began to unfold around the world, the Company took measures to protect its employees and customers.

Those measures included suspending business travel, enabling certain employees to work from home, implementing workplace distancing, and adjusting work shifts to minimize employees’ contact with other employees.

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

The Company received approval from the Indian government to operate its facility without limitations on July 1, 2020, and since that date, has been operating at pre-pandemic capacity.

As of March 11, 2021, all of the Company’s facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible.

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

Overview of Financial Results

VPG reports in three product segments:

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

Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating performance for the relevant period.

Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating results for the relevant period.

The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods.

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

Beginning in the fourth quarter of 2020, the Company has determined to include the impact of foreign currency exchange rates on its assets and liabilities in certain of its non-GAAP measures for its current and comparative periods.

The items affecting comparability are (dollars in thousands, except per share amounts) :

Operating Income

Net Earnings Attributable to VPG Stockholders

Diluted Earnings Per share

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

Fiscal Year Ended December 31, 2020 2019 2020 2019 2020 2019 2020 2019

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Acquisition purchase accounting adjustments (a)

569 1,254 569 1,254 569 1,254 0.04 0.09

Acquisition costs (b)

Executive Severance costs (c)

— 443 — 443 — 0.03

COVID-19 impact (c)

434 — (366) — (366) — (0.03)

Executive Severance costs (d)

— 611 — 611 — 0.04

Impairment of goodwill and indefinite-lived intangibles 2,440 — 2,440 — 0.18 —

Restructuring costs 918 2,293 918 2,293 0.07 0.17

UK pension settlement (d)

Tax effect of reconciling items and discrete tax items (e)

Foreign exchange (gain)/loss (e)

2,246 1,638 0.16 0.12

Tax effect of reconciling items and discrete tax items (f)

(1,381) 4,102 (0.11) 0.29

As Adjusted - Non GAAP $ 105,274 $ 112,871 $ 26,218 $ 33,249 $ 17,975 $ 24,325 $ 1.32 $ 1.79

As Adjusted - Non GAAP Margins 39.0 % 39.7 % 9.7 % 11.7 %

Acquisition purchase accounting adjustments in 2019 include fair market value adjustments associated with inventory recorded as a component of costs of products sold.

Acquisition costs associated with the acquisition of DSI in 2019.

Severance costs associated with the resignation of an executive officer of the Company in 2019.

In 2018, the Company incurred one-time settlement costs in connection with the de-risking of the pension plan in our UK location (see Note 9 to our consolidated financial statements).

Included in the discrete items for 2019 is a $3.4 million tax benefit primarily related to the acquisition of DSI.

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

(b) Acquisition costs associated with the acquisition of DSI in 2019.

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

(d) Severance costs associated with the resignation of an executive officer of the Company in 2019.

(e) Impact of foreign currency exchange rates on assets and liabilities.

The change in the dollar-shekel exchange rate, particularly in the fourth quarter of 2020, resulted in an unfavorable foreign exchange impact primarily related to the shekel-denominated lease liability for a new Foil Technology Products facility in Israel.

(f) Included in the discrete items for 2020 is a $1.7 million tax expense related to the acquisition of DSI, and in 2019, a $3.4 million tax benefit primarily related to the acquisition of DSI.

Financial Metrics

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

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

2019 2020 2020 2020 2020

Net revenues $ 69,142 $ 67,696 $ 59,146 $ 67,525 $ 75,445

Gross profit margin 35.0 % 37.0 % 39.1 % 40.5 % 38.1 %

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Inventory turnover 2.72 2.58 2.20 2.38 2.86

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

2019 2020 2020 2020 2020

Foil Technology Products

Net revenues $ 29,636 $ 30,477 $ 31,785 $ 32,906 $ 36,477

Gross profit margin 34.9 % 36.7 % 41.8 % 41.1 % 38.4 %

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Force Sensors

Net revenues $ 15,059 $ 14,695 $ 8,916 $ 13,862 $ 16,251

Gross profit margin 24.2 % 24.3 % 11.6 % 30.5 % 29.1 %

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Weighing and Control Systems

Net revenues $ 24,447 $ 22,524 $ 18,445 $ 20,757 $ 22,717

Gross profit margin 41.6 % 45.7 % 47.6 % 46.2 % 44.0 %

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Inventory turnover 3.10 2.31 1.81 2.13 2.67

Net revenues for the fourth quarter of 2019 increased 2.6% from the net revenues of $67.4 million reported in the third quarter of 2019 , and decreased 10.2% from $77.0 million for the comparable prior year period.

Net revenues in the Foil Technology Products segment of $29.6 million in the fourth quarter of 2019 decreased 7.7% from $32.1 million in the third quarter of 2019 , and decreased 19.3% from $36.7 million in the fourth quarter of 2018 .

The sequential decline in revenue was attributable to precision resistor products in the test and measurement market.

Compared to the fourth quarter of 2018, the decline in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement and avionics, military and space markets.

Net revenues in the Force Sensors segment of $15.1 million in the fourth quarter of 2019 decreased 7.1% compared to revenues of $16.2 million in the third quarter of 2019 due to lower volume attributable to OEM customers in the precision weighing and force measurement markets in the Americas and Europe.

Net revenues in the fourth quarter of 2019 decreased 11.4% compared to $17.0 million in the fourth quarter of 2018 mainly due to lower volume attributable to distribution customers in the precision weighing market across all regions.

Net revenues in the Weighing and Control Systems segment of $24.4 million in the fourth quarter of 2019 increased 28.1% from $19.1 million in the third quarter of 2019 and increased 5.2% from $23.2 million in the fourth quarter of 2018 .

The sequential increase in revenues was primarily attributable to the addition of DSI, with an increase in our European process weighing product line along with an increase in the steel product line.

Compared to the fourth quarter of 2018, the increase in net revenues was primarily attributable to the addition of DSI in November 2019, which offset lower sales of steel, process weighing, and U.S.-based onboard weighing products.

The gross profit margin for the fourth quarter of 2019 decreased 3.3% compared to the third quarter of 2019 , and decreased 5% from the fourth quarter of 2018 .

Net revenues for the fourth quarter of 2020 increased 11.7% from the net revenues of $67.5 million reported in the third quarter of 2020, and increased 9.1% from $69.1 million for the comparable prior year period.

Net revenues in the Foil Technology Products segment of $36.5 million in the fourth quarter of 2020 increased 10.9% from $32.9 million in the third quarter of 2020, and increased 23.1% from $29.6 million in the fourth quarter of 2019.

The sequential and year over year increases in revenues was primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and higher sales of precision resistors and our Pacific Instruments product line in the avionics, military and space market.

Sequentially, the increase in revenue reflected higher precision resistor sales in the test and measurement market, an increase in our Pacific Instruments product line in the avionics, military and space market, and an increase in our advanced sensors product line primarily in our consumer-related markets.

Net revenues in the Force Sensors segment of $16.3 million in the fourth quarter of 2020 increased 17.2% compared to revenues of $13.9 million in the third quarter of 2020.

The sequential increase in revenues, which was attributable to higher sales in the precision agriculture and industrial weighing markets, reflected the return to full production capability at the end of the third quarter of the Force Sensors operations that had been constrained due to the COVID-19 pandemic.Net revenues in the fourth quarter of 2020 increased 7.9% compared to $15.1 million in the fourth quarter of 2019 mainly due to an increase in our OEM customers in the precision agriculture market, partially offset by lower sales in the industrial weighing market.

Net revenues in the Weighing and Control Systems segment of $22.7 million in the fourth quarter of 2020 increased 9.4% from $20.8 million in the third quarter of 2020 and decreased 7.1% from $24.4 million in the fourth quarter of 2019.

The sequential increase in revenue was primarily attributable to our onboard weighing products for the transportation market and an increase in our process weighing business.

The year-over-year decrease in revenues was primarily attributable lower KELK and DSI steel-related sales and lower sales in our process weighing business, partially offset by an increase in our onboard weighing products for the transportation market.

The gross profit margin for the fourth quarter of 2020 decreased 2.4% compared to the third quarter of 2020, and increased 3.1% from the fourth quarter of 2019.

Sequentially, gross profit margins declined in all reporting segments.

In the Foil Technology Products segment, the decline in gross profit margin was primarily due to lower volume, product mix, and one-time inventory reductions.

In the Force Sensors segment, the decline in gross profit margin was due to lower volume and a reduction in inventory.

In the Weighing and Control System segment, gross profit margin decreased due to recording $1.3 million of purchase accounting adjustments related to the DSI acquisition.

Excluding the purchase accounting adjustments of $1.3 million related to the DSI acquisition , the gross profit margin would have been 46.8% , and increase of 0.2%, reflecting the higher volume attributable to the DSI acquisition.

Compared to the fourth quarter of 2018 , gross profit margins declined in all reporting segments.

In the Foil Technology Products segment, the decline in gross profit margin was primarily due to lower volume and the negative impact of foreign exchange rates.

In the Force Sensors segment the lower g ross profit margin was primarily due to lower volume and one-time inventory reductions, which was partially offset by higher export grants.

In the Weighing and Control Systems segment, gross profit margin decreased due to recording $1.3 million of purchase accounting adjustments related to the DSI acquisition.

Excluding the purchase accounting adjustments of $1.3 million related to the DSI acquisition the gross profit margin would have been 46.8% which is the same as the prior year period.

In the Foil Technology Products segment, the decline in gross profit margin was primarily due to manufacturing inefficiencies, unfavorable product mix and one-time inventory adjustments, partially offset by an increase in volume.

In the Force Sensors segment, the decline in gross profit margin was primarily due to a reduction of inventory, partially offset by an increase in volume.

In the Weighing and Control System segment, gross profit margin decreased due to unfavorable product mix and inventory reductions, partially offset by higher volume.

Compared to the fourth quarter of 2019, gross profit margins increased in all reporting segments.

In the Foil Technology Products segment, the increase in gross profit margin was primarily due to higher volume.

In the Force Sensors segment, the increase in g ross profit margin was primarily due to higher volume, structural cost savings initiatives, an increase in inventories and a positive impact of foreign exchange, partially offset by a reduction of export grants.

In the Weighing and Control Systems segment, gross profit margin increased due to recording of purchase accounting adjustments related to the DSI acquisition and the impact of COVID-19 subsidies.

Excluding those adjustments, the gross profit margin declined 4.8% primarily due to lower volume and an unfavorable product mix.

Optimize Core Competence

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Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins.

As a sign of our commitment to these businesses, we recently signed a long term lease for a state of the art facility to be constructed in Israel to move forward with our advanced sensors business.

As a sign of our commitment to these businesses, we signed a long-term lease for a state of the art facility which has been constructed in Israel.

Our administrative personnel have moved to the new facility, and we have begun the transition of our advanced sensors business to that facility.

Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market.

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For example, in 2019 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.

Acquisition Strategy

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Additionally, the KELK acquisition resulted in the acquisition of certain optical sensor technology.

The Pacific acquisition significantly broadened our existing data acquisition offerings and opened new markets for us.

Our most recent acquisition, of DSI, expands our position in the steel market.

Along with our success in MEMS technology for on-board weighing, we expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration.

The Pacific Instruments acquisition significantly broadened our existing data acquisition offerings and opened new markets for us.

Our most recent acquisition, DSI, expands our position in the steel market.

We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration.

We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.

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The Company recorded restructuring costs of $0.9 million, $2.3 million, and $0.3 million during the years ended December 31, 2020, 2019, and 2018, respectively.

In 2020 and 2018, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances.

In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China.

In 2018 and 2017, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations.

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Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency.

For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as

of the balance sheet date.

For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date.

Translation adjustments do not impact the results of operations and are reported as a separate component of equity.

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While these subsidiaries transact most business in U.S.

dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency.

dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.

Effects of Foreign Exchange Rate on Operations

For the year ended December 31, 2019 , exchange rate impacts decreased net revenues by $5.7 million, decreased costs of products sold and selling, general, and administrative expenses by $5.2 million, and decreased net earnings by $1.3 million or $0.10 per diluted share, when compared to the prior year.

For the year ended December 31, 2020, exchange rate impacts increased net revenues by $0.9 million, increased costs of products sold and selling, general, and administrative expenses by $2.8 million, and decreased net earnings by $1.9 million or $0.13 per diluted share, when compared to the prior year.

Refer to Item 7.

“Overview” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 and the year ended December 31, 2017.

“Overview” in our Annual Report on Form 10-K for the year ended December 31, 2019 for a comparison of the year ended December 31, 2019 and the year ended December 31, 2018, which comparison is hereby incorporated by reference.

Off-Balance Sheet Arrangements

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We identify here a number of policies that entail significant judgments or estimates by management.

Revenue Recognition

The Company derives substantially all of its revenue from product sales.

The Company recognizes the vast majority of its sales at a point-in-time.

It utilizes the core principle of recognizing revenue when the Company satisfies performance obligations as evidenced by the transfer of control of its products to the customer.

Such revenues are derived from purchase orders and/or contracts with customers.

Each contract has the promise to transfer the control of the products, each of which is individually distinct and is considered the identified performance obligation.

As part of the decision to enter into each contract, the Company evaluates the customer’s credit risk, but its contracts do not have any significant financing components, as payment is generally due net 30 to 60 days after delivery.

In accordance with contract terms, revenue from the Company’s product sales is recognized at the time of product shipment from its facilities or delivery to the customer location, as determined by the agreed upon shipping terms.

Under the terms of some of its contracts, the Company may be required to perform certain installation services.

These installation services are performed at the time of product delivery or at some point thereafter.

The installation services do not significantly modify the product provided, and although the Company may be required contractually to provide these services, the installation services could be performed by a third party or the customer.

Thus, these installation services are a distinct performance obligation.

In most of the applicable contracts, this installation service element is immaterial in the context of the agreement.

When the installation services are accounted for as a separate performance obligation, the Company allocates the transaction price to this element based on its relative standalone selling price.

Given the specialized nature of the Company's products, the Company generally does not allow product returns.

Shipping and handling costs are recorded to Costs of product sold when control of the product has transferred to the customer.

The Company offers standard product warranties.

Warranty related costs continue to be recognized as expense when the products are sold.

Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based upon net realizable value.

The valuation of our inventories requires management to make market estimates.

The valuation of our inventories requires management to make costing and market estimates.

For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products.

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These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.

Estimates of Restructuring and Severance Costs

To maintain our cost competitiveness, we are shifting manufacturing emphasis to more advanced automation in higher-cost regions and relocating production to regions with skilled workforces and relatively lower labor costs.

We could also incur similar costs after we acquire companies.

These production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs.

We anticipate that we will realize the benefits of our restructuring efforts through lower labor costs and other operating efficiencies in future periods.

Restructuring and severance costs are expensed during the period in which we incur those costs and all other requirements for accrual are met.

Because transfers of manufacturing operations sometimes occur incrementally over a period of time, the expense initially recorded is often based on estimates.

Because these costs are recorded based on estimates, our actual expenditures for restructuring activities may differ from the initially recorded costs.

If this happens, we will adjust our estimates in future periods, either by recording additional expenses in future periods if our initial estimates were too low, or by reversing part of the charges that we recorded initially if our initial estimates were too high.

Goodwill and Other Intangible Assets

Goodwill and Other Indefinite-lived Intangible Assets

Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in circumstances occur indicating that it is "more likely than not" impairment may have been incurred.

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However, if we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing it against its carrying amount.

We estimate the fair value of our steel and on-board weighing reporting units using the income approach and a market approach to valuation.

The income approach to valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash flows.

The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital requirements.

The market approach to valuation uses the market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums.

We weigh the results of the income approach and the market approach to arrive at the estimated fair value of the reporting unit.

We estimate the fair value of our instrumentation reporting unit using the income approach.

We have four reporting units to which goodwill is allocated:

steel, on-board weighing, instrumentation, and DSI.

For the steel and on-board weighing goodwill reporting units, we performed the qualitative assessment, which included assessment of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other entity specific events which could impact the reporting unit.

Based on this review, it was determined that the fair value of each of those reporting units was in excess of its carrying value and therefore no quantitative impairment test was required.

For the instrumentation and DSI goodwill reporting units, we performed the quantitative impairment test.

In estimating the fair value of our instrumentation and DSI reporting units we use the income approach.

We further use the market approach to evaluate the estimated fair value of the reporting units that was obtained by using the income approach.

The income approach to valuation requires management to make significant estimates and assumptions related to future revenues, profitability, working capital requirements and selection of discount rate and long term growth rate.

Changes in these estimates and assumptions could have a significant impact on the fair value of the reporting units.

If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized.

An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.

During 2018, we recognized an impairment loss associated with the goodwill and indefinite lived intangible assets in the instrumentation reporting unit, which holds goodwill related to our 2016 Pacific acquisition, which was recognized in the fourth quarter of fiscal 2018.

The impairment was primarily from lower margins on the forecasted projections due to product mix.

After considering the impact of the impairment charges, the carrying amount of goodwill and indefinite-lived trade names as of December 31, 2018 was $3.5 million and $0.4 million, respectively.

In 2019, we did not recognize an impairment for the instrumentation reporting unit, as the fair value exceeded its carrying value by approximately 12%.

The instrumentation reporting unit is particularly sensitive to the revenue projections used in the income approach valuation to determine the fair value and its related impact on gross margin.

Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit.

Changes in these estimates could materially affect the determination of fair value for each reporting unit.

A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.

The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method.

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Any impairment would be recognized in the reporting period in which it has been identified.

Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements, and certain trade names are amortized on a straight-line method over their estimated useful lives.

Patents and acquired technology are being amortized over useful lives of seven to twenty years.

Customer relationships are being amortized over useful lives of five to eighteen years.

Trade names are being amortized over their contractual period ranging from seven to ten years.

Non-competition agreements are being amortized over periods of five to ten years.

We review the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets, when combined with the broader asset group in which they belong, may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition.

Impairment of Long-Lived Assets

We assess the impairment of our long-lived assets, other than goodwill and indefinite-lived intangible assets, including property and equipment, whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Factors we consider important, which could trigger an impairment review, include significant changes in the manner of our use of the asset, changes in historical or projected operating performance, and significant negative economic trends.

Pension and Other Postretirement Benefits

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These assumptions are updated periodically to reflect the actual experience and expectations on a plan-specific basis, as appropriate.

Our defined benefit plans are concentrated in the United States and the United Kingdom.

Our defined benefit plans are concentrated in the United States, Japan and the United Kingdom.

Plans in these countries comprise approximately 87% of our retirement obligations at December 31, 2020.

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If we decide to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the United States.

On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted.

The 2017 Tax Act permanently reduces the U.S.

tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018.

GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.

The 2017 Tax Act subjects a U.S.

shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries.

The FASB Staff Q&A, Topic 740, No.

5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred.

The Company elects to recognize tax expense related to GILTI in the year the tax is incurred.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

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Costs of products sold 61.4 % 60.7 %

Gross profit 38.6 % 39.3 %

Selling, general, and administrative expenses 29.0 % 28.0 %

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Income before taxes 6.8 % 9.3 %

Net earnings 4.0 % 7.9 %

Net earnings attributable to VPG stockholders 4.0 % 7.8 %

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Years ended December 31,

Net revenues $ 269,812 $ 283,958

Change versus prior year $ (14,146)

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Foreign currency effects 0.2 %

Acquisitions 4.5 %

Net change (5.0) %

During the year ended December 31, 2020, net revenues decreased 5.0% over the prior year.

The decrease in net revenues is attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and Electronic Manufacturing Services ("EMS") customers, primarily in the test and measurement, and avionics, military and space market sectors in the Foil Technology Products segment, and to the distribution customers in the precision weighing markets across all regions in the Force Sensors segment.

This was partially offset by an increase in revenues for the Weighing and Control System segment, which was primarily attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for process weighing market and the US on board weighing product lines.

Volume decreased across all reporting segments, with the most significant declines coming from the industrial weighing market in Force Sensor reporting segment, transportation market and KELK for the steel market in the Weighing and Control Systems reporting segment, and the precision resistor foil for the test and measurement market in the Foil Technology Products reporting segment.

This was partially offset by an increase in revenues attributable to the addition of DSI.

Gross Profit Margin

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The gross profit margin for the year ended December 31, 2020 decreased 0.7% over the prior year.

The reduction in gross profit margin was primarily due to lower volume in the Foil Technology Products and Force Sensors reporting segments, partially offset by an increase in volume in the Weighing and Controls System segment.

The gross profit margin was also impacted by $1.3 million relating to the purchase accounting adjustment for the DSI acquisition.

Excluding the $1.3 million purchase accounting adjustment, the gross profit margin would have been 39.7%.

The gross profit margin was also negatively impacted by $1.8 million related to foreign currency exchange rates.

The reduction in gross profit margin was primarily due to lower volume in the Force Sensors and Weighing and Control Systems reporting segments, and negative impacts of foreign currency exchange rates of $1.0 million, partially offset by manufacturing efficiencies, primarily from the Foil Technology Products reporting segment.

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

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Years ended December 31,

Net revenues $ 131,645 $ 131,803

Change versus prior year $ (158)

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Foreign currency effects 0.5 %

Net change (0.1) %

For the year ended December 31, 2020, net revenues decreased 0.1% as compared to the prior year.

The decrease in net revenues is attributable to volume decreases in the precision resistors products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement, and avionics, military and space market sectors in the Foil Technology Products segment.

Negative exchange rate impacts, mainly from the Euro, also impacted net revenues for the year ended December 31, 2019 as compared to the comparable prior year period.

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

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

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Gross profit margin 39.5 % 40.4 %

For the year ended December 31, 2019 , the gross profit margin decreased 3.3% as compared to the prior year primarily due to lower volume and negative exchange rate impacts relating to the Euro.

For the year ended December 31, 2020, the gross profit margin decreased 0.9% as compared to the prior year primarily due to lower volume from products in the test and measurement and general industrial market segments, unfavorable product mix and negative impacts from foreign currency exchange rates, primarily from the Israeli shekel.

Force Sensors

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Years ended December 31,

Net revenues $ 53,724 $ 64,357

Change versus prior year $ (10,633)

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Foreign currency effects 0.2 %

For the year ended December 31, 2019 , net revenues decreased 12.1% from the prior year mainly due to lower volume to the distribution customers in the precision weighing markets across all regions.

Negative exchange rate impacts from the Euro, British pound, India rupee and the China Renminbi lowered net revenues.

Net change (16.5) %

For the year ended December 31, 2020, net revenues decreased 16.5% from the prior year mainly reflecting the impact of the COVID-19 pandemic on our India facility, where production was limited.

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

By the end of the third quarter of 2020, the facility was back to running at pre-pandemic capacity.

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

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Gross profit margin 25.3 % 28.0 %

For the year ended December 31, 2019 , the gross profit margin increased 0.7% when compared to the prior year.

Lower net revenues were more than offset by labor and manufacturing efficiencies, increase in export grants and a favorable exchange rate impact with the India rupee.

For the year ended December 31, 2020, the gross profit margin decreased 2.7% when compared to the prior year primarily due to volume declines resulting from the government mandated restrictions, partially offset by cost savings initiatives.

Weighing and Control Systems

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Years ended December 31,

Net revenues $ 84,443 $ 87,798

Change versus prior year $ (3,355)

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Foreign currency effects 0.2 %

For the year ended December 31, 2019 , net revenues increased 2.6% when compared to the prior year which was primarily attributable to the addition of DSI and an increase in volume for the steel product line, offset by lower volumes for process weighing market and the US on board weighing product lines.

This was partially offset by unfavorable exchange rate impacts with the Euro, British pound, Swedish Krona and the Canadian Dollar compared to the prior year.

Acquisitions 15.2 %

Net change (3.8) %

For the year ended December 31, 2020, net revenues decreased 3.8% when compared to the prior year.

The revenues generated by DSI were offset by lower volume from our onboard weighing products for the transportation market in Europe and lower KELK steel-related sales.

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

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Gross profit margin 45.8 % 45.9 %

For the year ended December 31, 2019 , the gross profit margin decreased 0.5% from the prior year mainly due to the recording of $1.3 million of purchase accounting adjustments related to the DSI acquisition.

Excluding the $1.3 million purchase accounting adjustment, the gross profit margin would have been 47.3% as compared to 46.4% in the prior year.

For the year ended December 31, 2020, the gross profit margin decreased 0.1% from the prior year.

Volume declines and unfavorable product mix were partially offset by government subsidies received in Canada, which resulted in gross profit margin remaining fairly flat compared to the prior year.

We also recorded less purchase accounting adjustments in 2020 as compared to 2019, which had a positive impact to the gross profit margin.

Selling, General, and Administrative Expenses

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as a percentage of net revenues 29.0 % 28.0 %

SG&A expenses for the year ended December 31, 2019 decreased $1.3 million versus the prior year mainly due to a reduction in bonus accruals and $1.4 million related to favorable exchange rate impacts partially offset by higher personnel costs, including wage increases, and headcount, and SG&A expenses related to the acquisition of DSI, which was completed in November of 2019.

SG&A expenses for the year ended December 31, 2020 decreased $1.4 million versus the prior year due to lower travel costs, personnel costs, commissions, and professional fees, partially offset by SG&A expenses related to DSI, and unfavorable foreign currency exchange rate impacts, mainly from the Israeli shekel.

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the year ended December 31, 2019, there were no impairment charges recorded, as a result of our annual impairment test.

For the year ended December 31, 2018, as a result of our required annual impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a $2.5 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and a $0.3 million net of tax, non-cash impairment charge which reduced the carrying value of indefinite-lived intangible assets.

For the year ended December 31, 2020, as a result of our required annual impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a $2.4 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets.

See our critical accounting policies and Note 4 for further discussion.

For the year ended December 31, 2019, there were no impairment charges recorded as a result of our annual impairment test.

Executive Severance Costs

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The Company recorded restructuring costs of $0.9 million and $2.3 million during the years ended December 31, 2020 and 2019, respectively.

In 2020, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

Acquisition Costs

There were no acquisition costs recorded in our consolidated statements of operations for the year ended December 31, 2020.

For the year ended December 31, 2019, we recorded acquisition costs in our consolidated statements of operations of $0.4 million in connection with the acquisitions of DSI.

There were no acquisition costs recorded in our consolidated statements of operations for the years ended December 31, 2018 and December 31, 2017.

Other Income (Expense)

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The Company recorded interest expense of $1.4 million and $1.5 million for the years ended December 31, 2020 and 2019, respectively.

Interest expense was lower in 2019 compared to 2018, with lower debt balances and lower interim borrowings, prior to the acquisition of DSI in November of 2019.

Interest expense was lower in 2020 compared to 2019, 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 statements of operations (in thousands) :

Years ended December 31,

2020 2019 Change

Foreign exchange gain/(loss) $ (2,246) $ (1,638) $ (608)

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Pension expense (738) (643) (95)

Other (244) 958 (1,202)

$ (2,982) $ (701) $ (2,281)

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

The change in foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel, the Euro, India Rupee and the Canadian dollar.

Included in the pension expense for 2018 is $0.7 million associated with the de-risking of the pension plan in our UK location.

The change in foreign exchange gains / (losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel.

Included within Other, for the year ended December 31, 2019, is net proceeds of $0.8 million related to a liquidation of a foreign subsidiary.

Our effective tax rate for the year ended December 31, 2020 was 41.0%, compared to 15.7% for the year ended December 31, 2019.

Our effective tax rate was lower in 2019 compared to 2018 primarily due to foreign exchange, a net reduction in valuation allowance on deferred tax assets as a result of our acquisition of Dynamic Systems, Inc., and changes in the geographical mix of income.

On December 22, 2017, the 2017 Tax Act was enacted.

The 2017 Tax Act significantly changed U.S.

tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017.

The 2017 Tax Act permanently reduced the U.S.

tax rate from a maximum of 35% to a flat 21% , effective January 1, 2018.

GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.

Guidance issued by the Securities Exchange Commission ("SEC"), provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act.

Consistent with that guidance, the Company had provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million for 2017.

This amount included the tax benefit from the net operating loss of approximately $3.9 million.

As a result of the implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million of withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings.

The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017.

In accordance with SAB 118 the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 which resulted in a net increase in tax expense of approximately $0.8 million caused by a decrease in the transition tax and an increase in the valuation allowance.

Our effective tax rate was higher in 2020 compared to 2019 primarily due to a net increase in valuation allowance on deferred tax assets as a result of our acquisition of Dynamic Systems, Inc., reserves for impairment of certain intangible assets, foreign currency, and changes in the geographical mix of income.

We reassessed our ability to realize our U.S.

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federal income tax rate and our effective tax rate:

• 13.4% increase related to an increase in valuation allowance, primarily a result of the completion of purchase accounting for Dynamic Systems, Inc.

• 5.8% increase related to the loss of the benefit of current year U.S.

net operating loss as a result of the Tax Cuts and Jobs Act ("2017 Tax Act") enacted on December 22, 2017 and the effects of GILTI.

• 4.0% increase related to the effects of foreign operations primarily related to the difference between the U.S.

statutory rate and foreign tax rates.

• 2.8% increase related to the impairment of certain intangible assets.

• 1.9% decrease related to foreign currency primarily attributable to our operations in China, India, Israel and Taiwan.

• 1.4% decrease related to specialty tax credits.

• 4.4% decrease related to foreign currency primarily attributable to our operations in Israel and India.

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net operating loss as a result of the 2017 Tax Act and the effects of GILTI.

2.4% increase as a result of the enactment of the 2017 Tax Act in the U.S., as described above.

1.8% increase related to the effects of foreign operations primarily related to the difference between the U.S.

statutory rate and foreign tax rates.

1.5% increase related to increase in valuation allowance primarily related to our US entities.

1.5% increase related to impairment of goodwill.

0.9% increase related to foreign currency primarily attributable to our operations in Israel and India.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

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

On December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for the following facilities:

(1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0 million , with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S.

and Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which was used to fund the Stress-Tek and Pacific acquisitions ;

(2) a secured closing date term facility for the Company (the “2015 U.S.

Closing Date Term Facility”) in an aggregate principal amount of $4.5 million , the proceeds of which were used by the Company to refinance indebtedness under its existing term loan;

(3) a secured delayed draw term facility for the Company (the "2015 U.S.

Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million , the proceeds of which were used to fund a portion of the Stress-Tek acquisition;

and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”) in an aggregate principal amount of $9.5 million , the proceeds of which were used by VPG Canada to refinance indebtedness under its existing term loan.

On March 20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders named therein, 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 were 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 the 2020 Revolving Facility may be used for working capital and general corporate purposes, and a portion of such proceeds was used to refinance the Company’s existing revolving credit facility in the amount of $34.0 million and the Company’s existing term loans as follows:

(1) the “2015 U.S.

Closing Date Term Facility” in an aggregate principal amount of $2.0 million;

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 2015 Credit Agreement terminates on December 30, 2020 .

The term loans are being repaid in quarterly installments.

Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S.

Closing Date Term Facility, the 2015 U.S.

Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the Company’s option, (1) the greatest of:

the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2) LIBOR plus a specified margin.

The 2020 Credit Agreement terminates on March 20, 2025.

The 2020 Credit Agreement replaced the 2015 Credit Agreement.

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 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the interest payable on the Facilities.

The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each

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 total interest rates at December 31, 2019 and December 31, 2018, were 3.97% and 4.82%, respectively, for the 2015 Revolving and U.S.

Delayed Draw Term Facilities and 3.97% and 4.82%, respectively, for the 2015 U.S.

Closing Date Term and 2015 Canadian Term Facilities.

The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the Company (with respect to the 2015 Canadian Term Facility).

The obligations of the Company 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 2015 Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and its domestic subsidiaries.

The 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 a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio.

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

The Company was in compliance with its financial maintenance covenants at December 31, 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.

On October 23, 2019, the Company exercised all of the $15.0 million accordion feature (the “Accordion”) of the 2015 Revolving Facility.

The exercise of the Accordion increases the aggregate principal amount available under the 2015 Revolving Facility to $45.0 million.

By reason of the spin-off, VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes effective July 6, 2010.

The maturity date of the notes was December 13, 2102 .

Effective February 26, 2018, the holder of the Company's exchangeable notes exercised its option to exchange the remaining $2.8 million principal amount of the notes for 123,808 shares of VPG common stock at the contractual put/call rate of $22.57 per share.

Following these transactions, all exchangeable notes have been canceled and VPG has no further obligations pursuant to such notes.

Our other long-term debt is not significant and consists of debt held by one of our Japanese subsidiaries of approximately $0.0 million at December 31, 2020 and $0.1 million at December 31, 2019.

The debt is payable monthly over the next 2 years at a zero percent interest rate.

The debt is payable monthly over the next 1 year at a zero interest rate.

See Note 7 to our consolidated financial statements for additional details.

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Our cash provided by operating activities for the year ended December 31, 2020 was $35.3 million as compared to $30.9 million for the year ended December 31, 2019.

Cash provided by operating activities for the year ended December 31, 2019 was lower than the cash provided by operating activities for the year ended December 31, 2018 due to a decrease in net earnings.

Our net cash used in investing activities for the year ended December 31, 2019 was $51.1 million as compared to $14.4 million for the year ended December 31, 2018 .

This increase was primarily due to the purchase of DSI.

Our net cash provided by financing activities for the year ended December 31, 2019 was $16.5 million as compared to net cash used for financing activities of $3.5 million for the year ended December 31, 2018 .

This reflects the higher borrowings on the revolving credit facility which were used to fund the purchase of DSI.

Our net cash used in investing activities for the year ended December 31, 2020 was $21.8 million, comprised mainly of capital spending as

compared to $51.1 million for the year ended December 31, 2019, which included the purchase of DSI for $40 million.

Our net cash used for financing activities for the year ended December 31, 2020 was $5.0 million which reflects the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility, as compared to net cash provided by financing activities of $16.5 million for the year ended December 31, 2019, which reflects the higher borrowings on the revolving credit facility which were used to fund the purchase of DSI.

Approximately 90% of our cash and cash equivalents balance at December 31, 2020 and 2019, respectively, was held by our non-U.S.

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

Asia 18 % 23 %

United States 10 % 7 %

Israel 26 % 28 %

Europe 16 % 14 %

United Kingdom 18 % 17 %

Canada 12 % 11 %

Total 100 % 100 %

We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions.

As a result, as discussed above, a significant portion of our cash and short-term investments

are held by foreign subsidiaries.

As a result of the 2017 Tax Act, the Company reassessed its assertion with respect to the indefinite reinvestment for certain of Company’s foreign subsidiaries and recorded a deferred tax liability of approximately $1.8 million of withholding tax associated with the planned cash distribution of approximately $25.5 million.

As of December 31, 2019, the remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million.

As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries.

The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned.

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In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

If we should require more capital in the United States than is generated by our domestic operations, and the planned dividend noted above, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances.

If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances.

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

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of December 31, 2019 , to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $1.5 million noted above.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of December 31, 2020, to be indefinitely reinvested.

For the year ended December 31, 2020, we generated adjusted free cash flow of $13.3 million.

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Third-party debt, including current and long-term

Term loans $ — $ 10,496

Revolving debt 41,000 34,000

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Total third-party debt (356) 44,533

Net cash $ 98,794 $ 42,377

Measurements such as “adjusted free cash flow” and “net cash" do not have uniform definitions and are not recognized in accordance with U.S.

Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity.

However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management.

However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund

acquisitions, and that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management.

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

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Cash paid for property and equipment for the year ended December 31, 2020 and December 31, 2019 was $22.9 million and $11.2 million, respectively.

Capital spending for 2019 was comprised of projects related to the normal maintenance of business, cost reduction programs, and some carryover projects from 2018 .

Capital expenditures for 2020 are expected to be approximately $33 million, which includes expected building projects of approximately $20 million for capacity expansion in Israel and Asia.

Contractual Commitments

As of December 31, 2019 , we had contractual obligations as follows (in thousands) :

Payments due by period

Long-term debt

Interest payments on long-term debt

Operating leases

Unrecognized tax benefits, including interest and penalties

Expected pension and postretirement plan benefit payments from unfunded plans (a)

Expected pension and postretirement plan contributions to funded plans (b)

Total contractual cash obligations

Due to the nature of unfunded plans, benefit payments are considered to be funded when paid.

Due to the uncertainty of future cash outflows, contributions to the pension and other postretirement benefit plans subsequent to 2019 have been excluded from the table above.

Our consolidated balance sheet at December 31, 2019 includes approximately $1.5 million of liabilities associated with uncertain tax positions relating to multiple taxing jurisdictions.

There are certain guarantees and indemnifications extended among Vishay Intertechnology and us in accordance with the terms of the Master Separation and Distribution Agreement and the Tax Matters Agreement.

The guarantees primarily relate to certain contingent tax liabilities included in the Tax Matters Agreement.

However, of the $1.5 million of unrecognized tax benefits, none are covered under the terms of the Tax Matters Agreement.

Due to the uncertainty and complexity relating to the settlement of tax matters, including the difficulty in predicting the conclusion of tax audits around the world, we are unable to make reliable estimates of the timing and amount of the remaining cash outflows, if any, relating to these liabilities.

Accordingly, the remaining uncertain tax positions are classified as payments due after five years, although actual timing of payments may be sooner.

See Note 6 to our consolidated financial statements for additional information.

Capital spending for 2020 was comprised of building projects related to capacity expansion in Israel and other projects related to the normal maintenance of business, cost reduction programs, and some carryover projects from 2019.

Capital expenditures for 2021 are expected to be approximately $26.1 million, which includes capital equipment for capacity expansion in the Foil Technology Products reporting segment and expected building projects of approximately $6.1 million for capacity expansion in Israel and Asia.

Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis