What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-11 compared with 2020-11-03 · 127 added, 163 removed, 302 unchanged (49% of the section changed)

15 unchanged sentences

Impact of COVID-19 on Our Business

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

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

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

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

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

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

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

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

As of May 11, 2021, all of the Company’s facilities are open and operational.

The Company is continuing to maintain COVID-19 best practices it believes are warranted with respect to working conditions.

Nonetheless, given the ongoing uncertainty concerning the magnitude and duration of the COVID-19 pandemic around the world, any ongoing economic disruption may adversely affect the Company’s business and financial results.

Overview of Financial Results

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The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications.

Net revenues for the fiscal quarter ended 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.

Net revenues for the fiscal quarter ended April 3, 2021 were $70.6 million versus $67.7 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended April 3, 2021 were $5.0 million, or $0.36 per diluted share, versus $3.3 million, or $0.24 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter ended April 3, 2021 and March 28, 2020 include items affecting comparability as listed in the reconciliations below.

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

generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share.

These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance.

Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per diluted share do not have uniform definitions.

Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA and adjusted EBITDA do not have uniform definitions.

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

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

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

The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these

non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods.

In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company’s performance and in comparing the Company’s financial performance to that of its peer companies and competitors.

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

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.

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

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

Three fiscal months ended April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

As reported - GAAP 28,622 25,065 6,439 4,644 $ 4,961 $ 3,312 $ 0.36 $ 0.24

2 unchanged sentences

COVID-19 impact (b) (151) — (443) — (443) — (0.03) —

Start-up costs (c)

129 — 129 — 129 — 0.01 —

Restructuring costs — 130 — 130 — 0.01

Foreign exchange (gain)/loss (d)

(735) (900) (0.05) (0.07)

Tax effect of reconciling items and discrete tax items (233) (194) (0.02) (0.02)

1 unchanged sentence

As Adjusted - Non GAAP Margins 40.5 % 37.8 % 8.7 % 7.8 %

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

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

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

As reported - GAAP Margins 38.9 % 40.7 % 8.6 % 12.5 %

Three months ended

April 3, 2021 March 28, 2020

Net earnings attributable to VPG stockholders $ 4,961 $ 3,312

Interest Expense 305 461

Income tax expense 1,764 1,574

Depreciation 2,907 2,571

Amortization 615 628

EBITDA 10,552 $ 8,546

EBITDA as a % of sales 14.9 % 12.6 %

Impairment of goodwill and indefinite-lived intangibles — —

Acquisition purchase accounting adjustments (a) 11 515

COVID-19 impact (b) 536 123 123 0.01

Executive Severance costs — 611 611 — 0.04

Restructuring costs — 130

Tax effect of reconciling items and discrete tax items — — 59 80 — —

As Adjusted - Non GAAP $ 76,620 $ 87,450 $ 18,132 $ 28,049 $ 12,006 $ 19,395 $ 0.88 $ 1.43

As Adjusted - Non GAAP Margins 39.4 % 40.7 % 9.3 % 13.1 %

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

COVID-19 impact (b) (443) —

Start-up costs (c) 129 —

Foreign exchange (gain)/loss (d) (735) (900)

ADJUSTED EBITDA 9,514 8,291

ADJUSTED EBITDA as a % of sales 13.5 % 12.2 %

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

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

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

Note that impacts in prior year have been added to this table.

Financial Metrics

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The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business.

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

3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd 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 first quarter of 2020 through the first quarter of 2021 (dollars in thousands) :

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

2020 2020 2020 2020 2021

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Inventory turnover 2.58 2.20 2.38 2.86 2.67

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

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

2020 2020 2020 2020 2021

17 unchanged sentences

Inventory turnover 2.31 1.81 2.13 2.67 2.54

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.

Net revenues for the first quarter of 2021 decreased 6.4% from the fourth quarter of 2020 mainly due to decreased volume in the Foil Technology Products and Weighing and Control Systems reporting segments.

Net revenues increased 4.3% from the first quarter of 2020 with increased volume in the Foil Technology Products and Force Sensors partially offset by lower volume in the Weighing and Control Systems reporting segment.

Favorable exchange rates also contributed to the increase.

Net revenues in the Foil Technology Products reporting segment decreased 10.3% compared to the fourth quarter of 2020 and increased 7.3% from the first quarter of 2020.

Sequentially, the decline in revenue was primarily due to lower sales of Pacific Instruments and precision foil resistors in the avionics, military and space market, partially offset by an increase in precision foil resistors in the test and measurements market.

The year-over-year increase in revenue was primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our precision foil resistors revenue to the avionics, military and space market, which was partially offset by lower revenue of Pacific Instruments in the avionics, military and space market.

Net revenues in the Force Sensors reporting segment increased 4.2% from the fourth quarter of 2020 and increased 15.2% from the first quarter of 2020.

The sequential increase was primarily due to higher revenue in the industrial weighing and general industrial markets.

The year-over-year increase was primarily due to higher revenue in our other markets, mainly agriculture and consumer.

Net revenues in the Weighing and Control Systems reporting segment decreased 7.8% from the fourth quarter of 2020 and decreased 7.0% from the first quarter of 2020.

The declines in sequential and year over year revenues were primarily attributable to lower project-driven revenue of Dynamic Systems Inc.

("DSI") and KELK steel-related revenue, which was partially offset by higher revenue of our onboard weighing products for the transportation market.

Overall gross profit margin in the first quarter of 2021 increased 2.4% as compared to the fourth quarter of 2020 and increased 3.5% from the first quarter of 2020.

Sequentially, all reporting segments contributed to the improved gross profit margin.

The Foil Technology Products reporting segment gross profit margins increased sequentially due to favorable product mix, manufacturing efficiencies and one-time inventory adjustments in the fourth quarter which did not reoccur, partially offset by lower revenue.

The Force Sensors reporting segment gross profit margin increased sequentially due to higher revenue and manufacturing efficiencies.

In the Weighing and Control Systems reporting segment, the gross profit margin was 45.6% compared to 44.0% in the prior

sequential quarter.

The increase in the gross profit margin was mainly due to favorable product mix and an increase in inventory, partially offset by lower revenue.

Compared to the first quarter of 2020, the Foil Technology Products reporting segment had a higher gross profit margin primarily due to higher revenue, favorable product mix, and manufacturing efficiencies.

The Force Sensors reporting segment increase in gross profit margin as compared to 2020 was primarily due to higher revenue, an increase in inventory, cost controls and a positive impact of foreign exchange.

In the Weighing and Control Systems segment, the gross profit margin of 45.6% was flat compared to the first quarter of 2020.

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 support 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 and we expect to complete the transition to the new facility in the third quarter of 2021.

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

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

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.

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.

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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We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods.

However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020.

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

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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 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.

For the fiscal quarter ended April 3, 2021, exchange rates increased net revenues by $2.1 million, and increased costs of products sold and selling, general, and administrative expenses by $2.3 million, when compared to the comparable prior year period.

Off-Balance Sheet Arrangements

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

As of April 3, 2021 and December 31, 2020, 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 Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Costs of products sold 59.5 % 63.0 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Net revenues $ 70,589 $ 67,696

Change versus comparable prior year period

$ 104 $ (20,449)

Percentage change versus prior year period

0.2 % (9.5) %

Changes in net revenues were attributable to the following:

3 unchanged sentences

Foreign currency effects 3.2 %

Acquisitions 5.7 % 4.4 %

Net change 4.3 %

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.

During the fiscal quarter ended April 3, 2021, net revenues increased 4.3% as compared to the comparable prior year period, with increased volume in the Foil Technology Products and Force Sensors partially offset by lower volume in the Weighing and Control Systems reporting segment.

Favorable exchange rates also contributed to the increase.

Gross Profit Margin

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Gross profit margin 40.5 % 37.0 %

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.

The gross profit margin for the fiscal quarter ended April 3, 2021 increased 3.5% compared to the comparable prior year period primarily due to higher margins in the Foil Technology Products and Force Sensors reporting segments.

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

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Net revenues $ 32,711 $ 30,477

Change versus comparable prior year period

$ 787 $ (6,999)

Percentage change versus prior year period

2.5 % (6.9) %

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

4 unchanged sentences

Net change 7.3 %

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.

Net revenues increased 7.3% for the fiscal quarter ended April 3, 2021 as compared to the comparable prior year period.

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Gross profit margin 39.9 % 36.7 %

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.

The gross profit margin increased 3.2% for the fiscal quarter ended April 3, 2021, when compared to the comparable prior year period, primarily due to higher revenue, favorable product mix, and manufacturing efficiencies.

Force Sensors

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

$ 16,933 $ 14,695

Change versus comparable prior year period

$ (2,355) $ (11,825)

Percentage change versus prior year period

(14.5) % (24.0) %

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

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Net change 15.2 %

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.

Net revenues increased 15.2% for the fiscal quarter ended April 3, 2021, as compared to the comparable prior year period.

The year-over-year increase was primarily due to higher revenue in our other markets, mainly agriculture and consumer.

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Gross profit margin 35.7 % 24.3 %

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.

The gross profit margin for the fiscal quarter ended April 3, 2021 increased 11.4% compared to the comparable prior year period.

This increase was primarily due to higher revenue, an increase in inventory, cost controls and a positive impact of foreign exchange.

Weighing and Control Systems

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Net revenues $ 20,945 $ 22,524

Change versus comparable prior year period

$ 1,672 $ (1,625)

Percentage change versus prior year period

8.8 % (2.6) %

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

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Foreign currency effects 4.0 %

Acquisitions 20.1 % 15.3 %

Net change (7.0) %

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.

Net revenues decreased 7.0% for the fiscal quarter ended April 3, 2021 as compared to the comparable prior year period.

The decreases were primarily attributable to lower project-driven revenue of Dynamic Systems Inc.

("DSI") and KELK steel-related revenue, which was partially offset by higher revenue of our onboard weighing products for the transportation market.

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Gross profit margin 45.6 % 45.7 %

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.

The gross profit margin for the fiscal quarter ended April 3, 2021 of 45.6% decreased from the first quarter of 2020.

The decline was primarily due to lower revenue.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Total SG&A expenses $ 22,183 $ 20,291

As a percentage of net revenues 31.4 % 30.0 %

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

During the second fiscal quarter of 2019, the Company recorded $0.6 million of severance costs associated with the resignation of an executive office of the Company.

The severance costs consisted of payments and other benefits as specified in the executive officer's resignation agreement.

SG&A expenses for the fiscal quarter ended April 3, 2021 increased compared to the comparable prior year period with additional SG&A expenses related to personnel costs and foreign currency impacts..

Restructuring Costs

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

The Company recorded $0.1 million and $0.5 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.

The Company recorded $0.0 million and $0.1 million of restructuring costs during the fiscal quarter ended April 3, 2021 and March 28, 2020, 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 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.

Interest expense for the fiscal quarter ended April 3, 2021 was lower compared with interest expense in the comparable prior year periods mainly due to more favorable borrowing rates in 2021.

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

Fiscal quarter ended

September 26, 2020 September 28, 2019 Change

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

Interest income 29 181 (152)

Pension expense (159) (157) (2)

Other (71) 829 (900)

$ (39) $ 547 $ (586)

Nine fiscal months ended

September 26, 2020 September 28, 2019 Change

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

April 3, 2021 March 28, 2020 Change

Foreign exchange gain $ 735 $ 900 $ (165)

Interest income 45 67 (22)

3 unchanged sentences

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

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

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

For the fiscal quarter ended April 3, 2021, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar, the Israeli shekel, and the British pound.

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

The effective tax rate for the fiscal quarter ended 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 effective tax rate for the fiscal quarter ended April 3, 2021 was 26.3% compared to 32.3% for the fiscal quarter ended March 28, 2020.

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.

11 unchanged sentences

(1) secured revolving facility of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes.

The restated credit agreement was used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows:

(1) the “2015 U.S.

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

(2) the "2015 U.S.

Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million.

The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement.

10 unchanged sentences

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

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

We were in compliance with these covenants at April 3, 2021.

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

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

Our business has historically generated significant cash flow.

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

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

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

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

For the three fiscal months ended April 3, 2021, cash provided by operating activities was $5.6 million compared to $6.3 million in the comparable prior year period.

Our net cash used in investing activities for the three fiscal months ended April 3, 2021 was higher compared to the prior year period mainly due to increased capital spending.

Our net cash used by financing activities for the three fiscal months ended April 3, 2021 was lower compared to prior year mainly due to the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.

Adjusted free cash flow generated during the three fiscal months ended April 3, 2021, was $(0.1) million.

We refer to the amount of cash provided by operating activities ($5.6 million) in excess of our capital expenditures ($5.7 million) and net of proceeds from the sale of assets ($0.0 million) as “adjusted free cash flow.”

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

The following table summarizes the components of net cash at April 3, 2021 and December 31, 2020 (in thousands) :

April 3, 2021 December 31, 2020

Cash and cash equivalents $ 96,154 $ 98,438

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

Term loans — 10,496

Revolving debt 41,000 41,000

7 unchanged sentences

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

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

Approximately 92% and 90% of our cash and cash equivalents balance at April 3, 2021 and December 31, 2020, respectively, was held by our non-U.S.

subsidiaries.

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

September 26, 2020 December 31, 2019

See the following table for the percentage of cash and cash equivalents, by region, at April 3, 2021 and December 31, 2020:

April 3, 2021 December 31, 2020

Israel 23 % 26 %

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 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

Our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 11, 2020, includes a table of contractual commitments.

There were no material changes to these commitments since the filing of our Annual Report on Form 10-K, except that the Company recorded a material lease liability during the second quarter of 2020 in connection with a lease of a new manufacturing facility in Israel.

Lease maturities for the Company's operating leases are fully described in Note 5 to the consolidated condensed financial statements.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of April 3, 2021, to be indefinitely reinvested.

Our financial condition as of April 3, 2021 remains strong, with a current ratio (current assets to current liabilities) of 4.9 to 1.0, as compared to a ratio of 4.7 to 1.0 at December 31, 2020.

Cash paid for property and equipment for the three fiscal months ended April 3, 2021 was $5.7 million compared to $3.3 million in the comparable prior year period.

Safe Harbor Statement

5 unchanged sentences

general business and economic conditions;

difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies (including DSI);

difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies;

the inability to realize anticipated synergies and expansion possibilities;

8 unchanged sentences

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.

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, 2020.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

2 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