What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-11 · 164 added, 98 removed, 331 unchanged (44% of the section changed)

15 unchanged sentences

Impact of COVID-19 on Our Business

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

As of August 10, 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.

6 unchanged sentences

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

Net revenues for the fiscal quarter ended 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.

On June 1, 2021, we completed the acquisition of California-based Diversified Technical Systems, Inc.

(“DTS”), a manufacturer of data acquisition systems and sensors for product safety and testing.

DTS reports into the Company's Weighing and Control Systems segment.

Net revenues for the fiscal quarter ended July 3, 2021 were $75.3 million versus $59.1 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended July 3, 2021 were $3.9 million, or $0.29 per diluted share, versus $1.8 million, or $0.13 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended July 3, 2021 were $145.9 million versus $126.8 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended July 3, 2021 were $8.9 million, or $0.65 per diluted share, versus $5.1 million, or $0.37 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter ended July 3, 2021 and June 27, 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, adjusted net earnings per diluted share, EBITDA and adjusted EBITDA.

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

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

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.

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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.

Beginning in the fourth quarter of 2020, the Company 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 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

Three months ended July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

As reported - GAAP $ 29,798 $ 23,110 $ 4,924 $ 3,971 $ 3,920 $ 1,759 $ 0.29 $ 0.13

1 unchanged sentence

Acquisition purchase accounting adjustments (a) 919 41 919 41 919 41 0.07 —

Acquisition costs (b) — 1,198 — 1,198 — 0.09 —

COVID-19 impact (b) (26) 558 (242) 443 (242) 443 (0.02) 0.03

Start-up costs (c) 1,159 — 1,159 — 1,159 — 0.08 —

Impairment of goodwill and indefinite-lived intangibles — 1,223 — 1,223 — 0.09 —

Restructuring costs — — 499 — 499 — 0.04

Foreign exchange (gain)/loss (d) — — 174 1,185 0.01 0.09

Tax effect of reconciling items and discrete tax items — — 1,639 340 0.12 0.02

As Adjusted - Non GAAP $ 31,850 $ 23,709 $ 9,181 $ 4,954 $ 6,712 $ 3,587 $ 0.49 $ 0.27

As Adjusted - Non GAAP Margins 42.3 % 40.1 % 12.2 % 8.4 %

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

Six fiscal months ended July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

As reported - GAAP 58,420 48,175 11,363 8,615 $ 8,881 $ 5,071 $ 0.65 $ 0.37

As reported - GAAP Margins 40.0 % 38.0 % 7.8 % 6.8 %

Acquisition purchase accounting adjustments (a) 930 556 930 556 930 556 0.07 0.04

Acquisition costs (b) — 1,198 — 1,198 — 0.09 —

COVID-19 impact (b) (177) 558 (685) 443 (685) 443 (0.05) 0.03

Start-up costs (c)

1,288 — 1,288 — 1,288 — 0.09 —

Impairment of goodwill and indefinite-lived intangibles — — 1,223 — 1,223 — 0.09 —

Restructuring costs — 629 — 629 — 0.05

4 unchanged sentences

As Adjusted - Non GAAP Margins 41.4 % 38.9 % 10.5 % 8.1 %

Three months ended

April 3, 2021 March 28, 2020

Three months ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Net earnings attributable to VPG stockholders $ 3,920 $ 1,759 $ 8,881 $ 5,071

4 unchanged sentences

EBITDA 8,041 $ 5,823 18,593 $ 14,369

EBITDA as a % of sales 14.9 % 12.6 %

EBITDA MARGIN 10.7 % 9.8 % 12.7 % 11.3 %

Impairment of goodwill and indefinite-lived intangibles 1,223 — 1,223 —

Acquisition purchase accounting adjustments (a) 919 41 930 556

Acquisition costs 1,198 — $ 1,198 $ —

Restructuring costs — 499 — 629

3 unchanged sentences

ADJUSTED EBITDA $ 12,472 $ 7,991 $ 21,986 $ 16,282

ADJUSTED EBITDA as a % of sales 13.5 % 12.2 %

ADJUSTED EBITDA MARGIN 16.6 % 13.5 % 15.1 % 12.8 %

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

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the first quarter of 2020 through the first quarter of 2021 (dollars in thousands) :

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

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

2020 2020 2020 2021 2021

4 unchanged sentences

Inventory turnover 2.20 2.38 2.86 2.67 2.64

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

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

2020 2020 2020 2021 2021

17 unchanged sentences

Inventory turnover 1.81 2.13 2.67 2.54 2.64

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.

Net revenues for the second quarter of 2021 increased 6.7% from the first quarter of 2021 mainly due to increased volume in all of the Company's reporting segments.

Net revenues increased 27.4% from the second quarter of 2020 with increased volume primarily from the Force Sensors reporting segment and the Weighing and Control Systems segment.

The increase in the Weighing and Control Systems reporting segment was aided by the addition of revenues from the acquisition of DTS.

Net revenues in the Foil Technology Products reporting segment increased 1.8% compared to the first quarter of 2021 and increased 4.8% from the second quarter of 2020.

Sequentially, the increase in revenue was primarily driven by higher sales of precision foil resistors in the test and measurements market, partially offset by lower revenue to the Avionics, Military and Space market.

In addition, the sequential increase in revenue in our Pacific Instrument product line in the Avionics, Military and Space market was partially offset by lower revenue of advanced sensors in our other markets.

The year-over-year increase in revenue was primarily attributable to an increase in our advanced sensors product line, primarily in our general industrial market and an increase in our Pacific Instrument product line in the Avionics, Military and Space market.

Net revenues in the Force Sensors reporting segment increased 1.7% from the first quarter of 2021 and increased 93.1% from the second quarter of 2020.

The sequential increase was primarily due to higher revenue in our Other markets, mainly in consumer and construction.

The year-over-year increase primarily reflected operational limitations in the second fiscal quarter of 2020 from the COVID pandemic at our facility in India.

Net revenues in the Weighing and Control Systems reporting segment increased 18.5% from the first quarter of 2021 and increased 34.5% from the second quarter of 2020.

The sequential increase in net revenues was primarily due to the acquisition of DTS and higher revenue of process weighing solutions and KELK products.

The year-over-year increase in revenue was primarily attributable to the addition of revenue for DTS, higher revenue of our onboard weighing products for the transportation market, higher revenue of our process weighing solutions for the industrial market, and higher revenue of our Dynamic Systems, Inc.

("DSI") products for the steel market, which was partially offset by lower revenue of KELK steel-related products.

Overall gross profit margin in the second quarter of 2021 decreased 0.9% as compared to the first quarter of 2021 and increased 0.5% from the second quarter of 2020.

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

The Foil Technology Products reporting segment gross profit margins decreased sequentially due to the impact of charges related to start-up costs in our new advanced sensors facility and the impact of COVID-19, which were partially offset by manufacturing efficiencies, an increase

in inventory and higher volume.

The Force Sensors reporting segment gross profit margin decreased sequentially due to unfavorable foreign exchange rates, partially offset by increases in inventory and volume.

In the Weighing and Control Systems reporting segment, the decrease in gross profit margin compared to the prior sequential quarter was due to the impact of charges related to the purchase accounting adjustment from the DTS acquisition and the impact of COVID-19, which were partially offset by the addition of DTS.

Compared to the second quarter of 2020, the Foil Technology Products reporting segment had a lower gross profit margin.

Impacts from charges related to start-up costs in our new advanced sensors facility and the impact of COVID-19 were partially offset by higher volume and favorable product mix.

The Force Sensors reporting segment increase in gross profit margin as compared to 2020 was primarily due to higher revenue and an increase in inventory.

In the Weighing and Control Systems segment, the decrease in gross profit margin as compared to the second quarter of 2020 was due to the impact of charges related to purchase accounting adjustments from the DTS acquisition and the impact of COVID-19, along with an unfavorable product mix, which were partially offset by the addition of DTS and favorable exchange rates.

Optimize Core Competence

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Historically, our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our force sensor products, and incorporating those products into our weighing and control systems.

The acquisitions of Stress-Tek and KELK, each of which employ our foil strain gages to manufacture load cells for their systems, continued this strategy.

The acquisitions of Stress-Tek and KELK, each of which employs our foil strain gages to manufacture load cells for its systems, continued this strategy.

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

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.

The acquisition of DSI expanded our position in the steel market.

On June 1, 2021, we completed the acquisition of California-based Diversified Technical Systems, Inc., a manufacturer of data acquisition systems and sensors for product safety and testing, DTS is an established niched-market leader with a strong brand in automotive, avionics, military and defense markets.

DTS adds complementary technology to our platform and brings unique engineering capabilities, centered on miniaturized data acquisition and systems integration with sensor technology for critical testing applications.

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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Effects of Foreign Exchange Rate on Operations

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.

For the fiscal quarter ended July 3, 2021, exchange rates increased net revenues by $2.8 million, and increased costs of products sold and selling, general, and administrative expenses by $3.5 million, when compared to the comparable prior year period.

For the six fiscal months ended July 3, 2021, exchange rates increased net revenues by $4.9 million, and increased costs of products sold and selling, general, and administrative expenses by $5.8 million, when compared to the comparable prior year period.

Off-Balance Sheet Arrangements

As of April 3, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements.

As of July 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

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Costs of products sold 60.4 % 60.9 % 60.0 % 62.0 %

7 unchanged sentences

Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Net revenues $ 75,339 $ 59,146 $ 145,928 $ 126,842

Change versus comparable prior year period

$ 16,193 $ 19,086

Percentage change versus prior year period

27.4 % 15.0 %

Changes in net revenues were attributable to the following:

3 unchanged sentences

Foreign currency effects 5.6 % 4.2 %

Acquisitions 5.1 % 2.4 %

Net change 27.4 % 15.0 %

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.

During the fiscal quarter ended July 3, 2021, net revenues increased 27.4% as compared to the comparable prior year period, with increased volume primarily from the Force Sensors reporting segment and the Weighing and Control Systems segment.

The increase in the Weighing and Control Systems reporting segment was aided by the addition of revenues from the acquisition of DTS.

During six fiscal months ended July 3, 2021, net revenues increased 15.0%, as compared to the comparable prior year period, mainly due to increased volume in the Foil Technology and Force Sensors reporting segment, and the addition of revenues from the acquisition of DTS on June 1, 2021.

Gross Profit Margin

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Gross profit margin 39.6 % 39.1 % 40.0 % 38.0 %

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.

The gross profit margin for the fiscal quarter ended July 3, 2021 increased 0.5% as compared to the comparable prior year period with higher gross profit margins in the Force Sensors reporting segment being offset by lower margin in the Foil Technology and Weighing and Controls Systems reporting segments.

The gross profit margin for the six fiscal months ended July 3, 2021 increased 2% as compared to the comparable prior year period, mainly from higher gross profit margins in the Force Sensors reporting segment.

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

1 unchanged sentence

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Net revenues $ 33,308 $ 31,785 $ 66,019 $ 62,262

Change versus comparable prior year period

$ 1,523 $ 3,757

Percentage change versus prior year period

5 unchanged sentences

Net change 4.8 % 6.0 %

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

Net revenues increased 4.8% for the fiscal quarter ended July 3, 2021, as compared to the comparable prior year period.

Net revenues increased 6.0% for the six fiscal months ended July 3, 2021, as compared to the comparable prior year period.

Increases in net revenues are primarily attributable to our advanced sensors product line in other markets, test and measurement markets, and general industrial markets.

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Gross profit margin 38.9 % 41.8 % 39.4 % 39.3 %

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.

The gross profit margin decreased 2.9% for the fiscal quarter ended July 3, 2021, when compared to the comparable prior year period.

Impacts from charges related to start-up costs in our new advanced sensors facility and the impact of COVID-19 were partially offset by higher volume and favorable product mix.

The gross profit margin increased 0.1% for the six fiscal months ended July 3, 2021 as compared to the comparable prior year period.

Impacts from charges related to start-up costs in our new advanced sensors facility and the impact COVIID-19 completely offset the higher volume and favorable product mix.

Force Sensors

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

$ 17,216 $ 8,916 $ 34,149 $ 23,611

Change versus comparable prior year period

$ 8,300 $ 10,538

Percentage change versus prior year period

93.1 % 44.6 %

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

4 unchanged sentences

Net change 93.1 % 44.6 %

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.

Net revenues increased 93.1% for the fiscal quarter ended July 3, 2021, and 44.6% for the six fiscal months ended July 3, 2021 as compared to the comparable prior year periods.

The year-over-year increase primarily reflected operational limitations in the second fiscal quarter of 2020 from the COVID pandemic at our facility in India.

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Gross profit margin 34.7 % 11.6 % 35.2 % 19.5 %

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.

The gross profit margin for the fiscal quarter ended July 3, 2021 increased 23.1% as compared to the comparable prior year period primarily due to higher revenue and an increase in inventory.

The gross profit margin for the six fiscal months ended July 3, 2021 increased 15.7% as compared to the prior year period primarily due to higher revenue and an increase in inventory.

Weighing and Control Systems

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Net revenues $ 24,815 $ 18,445 $ 45,760 $ 40,969

Change versus comparable prior year period

$ 6,370 $ 4,791

Percentage change versus prior year period

34.5 % 11.7 %

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

3 unchanged sentences

Foreign currency effects 9.7 % 6.6 %

Acquisitions 16.3 % 6.6 %

Net change 34.5 % 11.7 %

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.

Net revenues increased 34.5% for the fiscal quarter ended July 3, 2021 as compared to the comparable prior year period.

("DSI") products for the steel market, which was partially offset by lower revenue of KELK steel-related products.

Net revenues increased 11.7% for the six fiscal months ended July 3, 2021 as compared to the comparable prior year period primarily due to the addition of revenue for DTS and favorable foreign currency effects.

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Gross profit margin 43.9 % 47.6 % 44.6 % 46.6 %

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.

The gross profit margin for the fiscal quarter ended July 3, 2021 of 43.9% decreased from the second quarter of 2020 due to the impacts of charges related to purchase accounting adjustments from the DTS acquisitions and the impact of COVID-19, along with an unfavorable product mix, which were partially offset by the addition of DTS and favorable exchange rates.

The gross profit margin for the six fiscal months ended July 3, 2021 of 44.6%, decreased from the prior year period due to the impacts of charges related to purchase accounting adjustments from the DTS acquisitions, lower volume and unfavorable product mix, which were partially offset by the addition of DTS and favorable exchange rate impacts.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended

April 3, 2021 March 28, 2020

Fiscal quarter ended Six fiscal months ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Total SG&A expenses $ 22,453 $ 18,640 $ 44,636 $ 38,931

As a percentage of net revenues 29.8 % 31.5 % 30.6 % 30.7 %

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..

SG&A expenses for the fiscal quarter and six fiscal months ended July 3, 2021 increased compared to the comparable prior year periods with additional SG&A expenses related to personnel costs and foreign currency impacts and SG&A expenses from the acquisition of DTS.

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the fiscal quarter and six fiscal months ended July 3, 2021, as a result of our interim impairment test, we recorded a $1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets.

See Note 4 for further discussion.

Acquisition Costs

Acquisition costs associated with the acquisition of DTS were as follows (in thousands):

Fiscal quarter ended Six fiscal months ended

July 3, 2021 July 3, 2021

Legal fees $ 341 $ 341

Appraisal fees 18 18

Other (investment banker and insurance costs) 839 839

$ 1,198 $ 1,198

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

The Company recorded $0.0 million and $0.5 million of restructuring costs during the fiscal quarter ended July 3, 2021 and June 27, 2020, respectively, and $0.0 million and $0.6 million of restructuring costs during the six fiscal months ended July 3, 2021 and June 27, 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 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.

Interest expense for the fiscal quarter ended July 3, 2021 was flat when compared with interest expense in the comparable prior year period.

The impact of increased borrowings on the Company's revolving credit facility in conjunction with the acquisition of DTS were offset by more favorable borrowing rates in 2021.

Interest expense for the six fiscal months ended July 3, 2021 was lower when compared with the comparable prior year period 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

April 3, 2021 March 28, 2020 Change

Foreign exchange gain $ 735 $ 900 $ (165)

July 3, 2021 June 27, 2020 Change

Foreign exchange loss $ (174) $ (1,185) $ 1,011

Interest income 20 109 (89)

2 unchanged sentences

$ (326) $ (1,273) $ 947

Six fiscal months ended

July 3, 2021 June 27, 2020 Change

Foreign exchange gain (loss) $ 561 $ (285) $ 846

Interest income 65 176 (111)

Pension expense (280) (323) 43

Other (99) (158) 59

$ 247 $ (590) $ 837

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

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.

For the fiscal quarter ended July 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, Japanese yen, the Israeli shekel and the British pound.

For the six fiscal months ended July 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, the Japanese yen, the euro 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 April 3, 2021 was 26.3% compared to 32.3% for the fiscal quarter ended March 28, 2020.

The effective tax rate for the fiscal quarter ended July 3, 2021 was 6.1% compared to 28.1% for the fiscal quarter ended June 27, 2020 and the effective tax rate for the six fiscal months ended July 3, 2021 was 18.4% compared to 30.9% for the six fiscal months ended June 27, 2020.

The tax rate for both periods presented in 2021 is lower than the prior year periods primarily due to the acquisition of DTS, which enabled the Company to reduce its valuation allowance against deferred tax assets, tax rate changes in certain foreign jurisdictions, and changes in the mix of worldwide income.

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

23 unchanged sentences

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

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

We were in compliance with these covenants at July 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 business has historically generated significant cash flow.

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.

For the six fiscal months ended July 3, 2021, cash provided by operating activities was $12.4 million compared to $16.7 million in the comparable prior year period.

Our net cash used in investing activities for the six fiscal months ended July 3, 2021 was higher compared to the prior year period mainly due to the acquisition of DTS.

Our net cash provided by financing activities for the six fiscal months ended July 3, 2021 was higher compared to prior year mainly due to the borrowings on the 2020 credit facility for the acquisition of DTS.

Adjusted free cash flow generated during the six fiscal months ended July 3, 2021, was $4.1 million.

We refer to the amount of cash provided by operating activities ($12.4 million) in excess of our capital expenditures ($8.3 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 April 3, 2021 and December 31, 2020 (in thousands) :

April 3, 2021 December 31, 2020

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

July 3, 2021 December 31, 2020

Cash and cash equivalents $ 73,456 $ 98,438

9 unchanged sentences

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

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.

Approximately 87% and 90% of our cash and cash equivalents balance at July 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 April 3, 2021 and December 31, 2020:

April 3, 2021 December 31, 2020

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

July 3, 2021 December 31, 2020

Israel 18 % 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 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.

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

Our financial condition as of July 3, 2021 remains strong, with a current ratio (current assets to current liabilities) of 4.2 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 six fiscal months ended July 3, 2021 was $8.3 million compared to $11.0 million in the comparable prior year period.

Safe Harbor Statement

21 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