Vishay Precision Group, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) October 2, 2021 December 31, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 75,544 $ 98,438 Accounts receivable, net 53,711 45,339 Inventories: Raw materials 26,071 21,894 Work in process 27,142 21,534 Finished goods 25,279 18,920 Inventories, net 78,492 62,348 Prepaid expenses and other current assets 19,463 15,761 Total current assets 227,210 221,886 Property and equipment: Land 4,248 4,282 Buildings and improvements 68,616 67,581 Machinery and equipment 119,826 115,717 Software 8,386 10,026 Construction in progress 3,930 6,341 Accumulated depreciation ( 128,698 ) ( 128,931 ) Property and equipment, net 76,308 75,016 Goodwill 45,560 31,105 Intangible assets, net 53,327 32,039 Operating lease right-of-use assets 27,405 21,788 Other assets 20,113 20,053 Total assets $ 449,923 $ 401,887 Continues on the following page. -3- VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) October 2, 2021 December 31, 2020 Liabilities and equity Current liabilities: Trade accounts payable $ 13,103 $ 10,487 Payroll and related expenses 17,867 17,595 Other accrued expenses 19,291 13,843 Income taxes 679 1,593 Current portion of operating lease liabilities 4,415 4,011 Current portion of long-term debt — 18 Total current liabilities 55,355 47,547 Long-term debt, less current portion 60,692 40,626 Deferred income taxes 8,516 3,403 Operating lease liabilities 24,462 19,504 Other liabilities 15,962 16,263 Accrued pension and other postretirement costs 15,270 16,687 Total liabilities 180,257 144,030 Commitments and contingencies Equity: Common stock 1,322 1,317 Class B convertible common stock 103 103 Treasury stock ( 8,765 ) ( 8,765 ) Capital in excess of par value 198,235 197,764 Retained earnings 114,335 100,075 Accumulated other comprehensive loss ( 35,549 ) ( 32,671 ) Total Vishay Precision Group, Inc. stockholders' equity 269,681 257,823 Noncontrolling interests ( 15 ) 34 Total equity 269,666 257,857 Total liabilities and equity $ 449,923 $ 401,887 See accompanying notes. -4- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Fiscal quarter ended October 2, 2021 September 26, 2020 Net revenues $ 81,974 $ 67,525 Costs of products sold 50,129 40,176 Gross profit 31,845 27,349 Selling, general, and administrative expenses 24,580 19,144 Restructuring costs — 84 Operating income 7,265 8,121 Other income (expense): Interest expense ( 328 ) ( 309 ) Other 174 ( 39 ) Other expense ( 154 ) ( 348 ) Income before taxes 7,111 7,773 Income tax expense 1,662 2,109 Net earnings 5,449 5,664 Less: net earnings attributable to noncontrolling interests 70 66 Net earnings attributable to VPG stockholders $ 5,379 $ 5,598 Basic earnings per share attributable to VPG stockholders $ 0.39 $ 0.41 Diluted earnings per share attributable to VPG stockholders $ 0.39 $ 0.41 Weighted average shares outstanding - basic 13,626 13,575 Weighted average shares outstanding - diluted 13,664 13,637 See accompanying notes. -5- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Nine fiscal months ended October 2, 2021 September 26, 2020 Net revenues $ 227,902 $ 194,367 Costs of products sold 137,637 118,843 Gross profit 90,265 75,524 Selling, general, and administrative expenses 69,216 58,075 Acquisition costs 1,198 — Impairment of goodwill and indefinite-lived intangibles 1,223 — Restructuring costs — 713 Operating income 18,628 16,736 Other income (expense): Interest expense ( 906 ) ( 1,037 ) Other 421 ( 629 ) Other expense ( 485 ) ( 1,666 ) Income before taxes 18,143 15,070 Income tax expense 3,688 4,367 Net earnings 14,455 10,703 Less: net earnings attributable to noncontrolling interests 195 34 Net earnings attributable to VPG stockholders $ 14,260 $ 10,669 Basic earnings per share attributable to VPG stockholders $ 1.05 $ 0.79 Diluted earnings per share attributable to VPG stockholders $ 1.04 $ 0.78 Weighted average shares outstanding - basic 13,612 13,562 Weighted average shares outstanding - diluted 13,647 13,611 See accompanying notes. -6- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Fiscal quarter ended October 2, 2021 September 26, 2020 Net earnings $ 5,449 $ 5,664 Other comprehensive income (loss): Foreign currency translation adjustment ( 2,116 ) 2,479 Pension and other postretirement actuarial items, net of tax 113 ( 137 ) Other comprehensive (loss) income ( 2,003 ) 2,342 Comprehensive income 3,446 8,006 Less: comprehensive income attributable to noncontrolling interests 70 66 Comprehensive income attributable to VPG stockholders $ 3,376 $ 7,940 See accompanying notes. -7- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Nine fiscal months ended October 2, 2021 September 26, 2020 Net earnings $ 14,455 $ 10,703 Other comprehensive income (loss): Foreign currency translation adjustment ( 3,309 ) 409 Pension and other postretirement actuarial items, net of tax 431 ( 448 ) Other comprehensive loss ( 2,878 ) ( 39 ) Comprehensive income 11,577 10,664 Less: comprehensive income attributable to noncontrolling interests 195 34 Comprehensive income attributable to VPG stockholders $ 11,382 $ 10,630 See accompanying notes. -8- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) Nine fiscal months ended October 2, 2021 September 26, 2020 Operating activities Net earnings $ 14,455 $ 10,703 Adjustments to reconcile net earnings to net cash provided by operating activities: Impairment of goodwill and indefinite-lived intangibles 1,223 — Depreciation and amortization 11,033 9,334 Loss from extinguishment of debt — 30 Gain on sale of property and equipment ( 35 ) ( 140 ) Share-based compensation expense 1,328 1,137 Inventory write-offs for obsolescence 1,613 1,873 Deferred income taxes ( 1,412 ) 127 Other ( 2,022 ) 364 Net changes in operating assets and liabilities: Accounts receivable, net ( 3,078 ) ( 1,541 ) Inventories, net ( 9,624 ) ( 1,214 ) Prepaid expenses and other current assets ( 3,591 ) ( 75 ) Trade accounts payable 3,695 605 Other current liabilities 4,496 1,631 Net cash provided by operating activities 18,081 22,834 Investing activities Capital expenditures ( 11,191 ) ( 15,815 ) Proceeds from sale of property and equipment 181 423 Purchase of business, net of cash acquired ( 47,216 ) 156 Net cash used in investing activities ( 58,226 ) ( 15,236 ) Financing activities Principal payments on long-term debt ( 18 ) ( 3,459 ) Proceeds from revolving facility 20,000 — Debt issuance costs — ( 402 ) Purchase of noncontrolling interest — ( 253 ) (Distributions to) contributions from noncontrolling interests ( 244 ) 35 Payments of employee taxes on certain share-based arrangements ( 853 ) ( 813 ) Net cash provided by (used in) financing activities 18,885 ( 4,892 ) Effect of exchange rate changes on cash and cash equivalents ( 1,634 ) 179 (Decrease) increase in cash and cash equivalents ( 22,894 ) 2,885 Cash and cash equivalents at beginning of period 98,438 86,910 Cash and cash equivalents at end of period $ 75,544 $ 89,795 Supplemental disclosure of investing transactions: Capital expenditures purchased $ ( 9,368 ) $ ( 15,395 ) Capital expenditures accrued but not yet paid $ 738 $ 762 See accompanying notes. -9- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Fiscal quarter ended October 2, 2021 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at July 3, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 197,856 $ 108,956 $ ( 33,546 ) $ 265,926 $ ( 8 ) $ 265,918 Net earnings — — — — 5,379 — 5,379 70 5,449 Other comprehensive income — — — — — ( 2,003 ) ( 2,003 ) — ( 2,003 ) Share-based compensation expense — — — 386 — — 386 — 386 Restricted stock issuances ( 465 shares) — — — ( 7 ) — — ( 7 ) — ( 7 ) Distributions to noncontrolling interests — — — — — — — ( 77 ) ( 77 ) Balance at October 2, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 198,235 $ 114,335 $ ( 35,549 ) $ 269,681 $ ( 15 ) $ 269,666 Fiscal quarter ended September 26, 2020 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at June 27, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,134 $ 94,359 $ ( 40,084 ) $ 244,064 $ 176 $ 244,240 Net earnings — — — — 5,598 — 5,598 66 5,664 Other comprehensive loss — — — — — 2,342 2,342 — 2,342 Share-based compensation expense — — — 380 — — 380 — 380 Distribution to noncontrolling interests — — — — — — — ( 82 ) ( 82 ) Balance at September 26, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,514 $ 99,957 $ ( 37,742 ) $ 252,384 $ 160 $ 252,544 See accompanying notes. -10- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Nine Fiscal Months Ended October 2, 2021 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,764 $ 100,075 $ ( 32,671 ) $ 257,823 $ 34 $ 257,857 Net earnings — — — — 14,260 — 14,260 195 14,455 Other comprehensive loss — — — — — ( 2,878 ) ( 2,878 ) — ( 2,878 ) Share-based compensation expense — — — 1,328 — — 1,328 — 1,328 Restricted stock issuances ( 50,781 shares) 5 — — ( 857 ) — — ( 852 ) — ( 852 ) Distributions to noncontrolling interests — — — — — — — ( 244 ) ( 244 ) Balance at October 2, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 198,235 $ 114,335 $ ( 35,549 ) $ 269,681 $ ( 15 ) $ 269,666 Nine Fiscal Months Ended September 26, 2020 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2019 $ 1,312 $ 103 $ ( 8,765 ) $ 197,125 $ 89,288 $ ( 37,703 ) $ 241,360 $ 392 $ 241,752 Net earnings — — — — 10,669 — 10,669 34 10,703 Other comprehensive loss — — — — — ( 39 ) ( 39 ) — ( 39 ) Share-based compensation expense — — — 1,137 — — 1,137 — 1,137 Restricted stock issuances ( 52,433 shares) 5 — — ( 796 ) — — ( 791 ) — ( 791 ) Purchase of noncontrolling interest — — — 48 — — 48 ( 301 ) ( 253 ) Contributions from noncontrolling interests — — — — — — — 35 35 Balance at September 26, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,514 $ 99,957 $ ( 37,742 ) $ 252,384 $ 160 $ 252,544 See accompanying notes. -11- Vishay Precision Group, Inc. Notes to Unaudited Consolidated Condensed Financial Statements Note 1 – Basis of Presentation Background Vishay Precision Group, Inc. (“VPG” or the “Company”) is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon the Company's proprietary technology. The Company provides precision products and solutions, many of which are “designed-in” by its customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements. Interim Financial Statements These unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 11, 2021. The results of operations for the fiscal quarter ended October 2, 2021 are not necessarily indicative of the results to be expected for the full year. VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2021 and 2020 end on the following dates: 2021 2020 Quarter 1 April 3, March 28, Quarter 2 July 3, June 27, Quarter 3 October 2, September 26, Quarter 4 December 31, December 31, Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. ASU 2019-12, "Simplifying the Accounting for Income Taxes". This ASU amends Accounting Standards Codification ("ASC") 740 by removing certain exceptions to the general principles, clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company adopted this standard in the first quarter of 2021. The adoption of this ASU did not impact our financial statements or the related disclosures. Note 2 – Revenues Revenue Recognition The following table disaggregates net revenue by geographic region from contracts with customers based on net revenues generated by subsidiaries within that geographic location (in thousands) : -12- Note 2 – Revenues (continued) Fiscal quarter ended October 2, 2021 Fiscal quarter ended September 26, 2020 Foil Technology Products Force Sensors Weighing and Control Systems Total Foil Technology Products Force Sensors Weighing and Control Systems Total United States $ 11,458 $ 8,183 $ 16,642 $ 36,283 $ 12,733 $ 6,974 $ 8,328 $ 28,035 United Kingdom 875 606 3,760 5,241 778 2,321 2,633 5,732 Other Europe 6,185 5,563 5,191 16,939 7,660 2,357 3,441 13,458 Israel 4,711 232 — 4,943 5,981 78 — 6,059 Asia 9,561 3,120 2,481 15,162 5,754 2,132 2,471 10,357 Canada — — 3,406 3,406 — — 3,884 3,884 Total $ 32,790 $ 17,704 $ 31,480 $ 81,974 $ 32,906 $ 13,862 $ 20,757 $ 67,525 Nine Fiscal Months Ended October 2, 2021 Nine Fiscal Months Ended September 26, 2020 Foil Technology Products Force Sensors Weighing and Control Systems Total Foil Technology Products Force Sensors Weighing and Control Systems Total United States $ 32,940 $ 23,971 $ 34,883 $ 91,794 $ 35,456 $ 19,479 $ 23,226 $ 78,161 United Kingdom 2,875 1,687 11,454 16,016 2,315 6,012 8,068 16,395 Other Europe 20,055 16,056 14,956 51,067 22,346 6,165 10,615 39,126 Israel 16,436 623 — 17,059 14,627 268 — 14,895 Asia 26,503 9,516 6,094 42,113 20,424 5,549 6,001 31,974 Canada — — 9,853 9,853 — — 13,816 13,816 Total $ 98,809 $ 51,853 $ 77,240 $ 227,902 $ 95,168 $ 37,473 $ 61,726 $ 194,367 The following table disaggregates net revenue from contracts with customers by market sector (in thousands) . Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Test & Measurement $ 15,883 $ 11,953 $ 46,578 $ 40,325 Avionics, Military & Space 7,542 9,225 19,444 22,112 Transportation 13,668 7,138 35,152 20,570 Other Markets 17,453 15,350 52,487 40,670 Industrial Weighing 12,254 10,708 36,301 31,758 General Industrial 4,069 3,753 12,324 11,415 Steel 11,105 9,398 25,616 27,517 Total $ 81,974 $ 67,525 $ 227,902 $ 194,367 Contract Assets & Liabilities Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations. Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due is not significant. The outstanding contract assets and liability accounts were as follows (in thousands) : -13- Note 2 – Revenues (continued) Contract Asset Contract Liability Unbilled Revenue Accrued Customer Advances Balance at December 31, 2020 $ 3,605 $ 2,873 Balance at October 2, 2021 6,113 6,018 (Decrease)/increase $ 2,508 $ 3,145 The amount of revenue recognized during the nine fiscal months ended October 2, 2021 that was included in the contract liability balance at December 31, 2020 was $ 2.6 million. Practical Expedients The Company does not disclose the value of unsatisfied performance obligations for contracts that have a duration of one year or less and for contracts that are substantially complete. The Company treats shipping and handling activities as fulfillment costs. Note 3 - Acquisition On June 1, 2021, VPG completed the acquisition of California-based Diversified Technical Systems, Inc. (“DTS”), a manufacturer of data acquisition systems and sensors for product safety and testing, for a purchase price of $ 47.2 million, subject to customary adjustments. The Company used cash on hand and borrowings under its revolving credit facility to fund the purchase price under the purchase agreement. DTS reports into the Company's Weighing and Control Systems segment. The following table summarizes the provisional fair values assigned to the assets and liabilities of DTS as of June 1, 2021 (in thousands): June 1, 2021 Working capital $ 12,999 Property and equipment 1,209 Deferred income tax liability ( 6,274 ) Intangible assets: Acquired technology 13,167 Customer relationships 8,135 Trade names 2,393 Total intangible assets 23,695 Fair value of acquired identifiable assets 31,629 Purchase price $ 47,216 Goodwill $ 15,587 The Company utilizes certain valuations and studies to determine the fair value of the tangible and intangible assets acquired. These valuations and studies are currently being analyzed and have yet to be finalized. Accordingly, the assets and liabilities assumed are subject to adjustment once the detailed analysis is completed. The provisional estimated weighted average useful lives for the acquired technology and customer relationships are 15 years. Trade names are treated as indefinite-lived intangible assets. None of the goodwill associated with DTS will be deductible for income tax purposes. The Company recorded acquisition costs associated with this transaction as follows (in thousands ): Fiscal quarter ended Nine fiscal months ended October 2, 2021 October 2, 2021 Legal fees $ — $ 341 Appraisal fees — 18 Other (investment banker and insurance costs) — 839 $ — $ 1,198 -14- Note 3 - Acquisition (continued) Included in the results of the operations of the Company, starting on June 1, 2021, are net revenues of $ 7.6 million and $ 10.7 million from DTS for the fiscal quarter and nine fiscal months ended October 2, 2021 and net earnings of $ 0.3 million and $ 0.1 million for the fiscal quarter and nine fiscal months ended October 2, 2021. DTS results include amortization of the inventory step-up of $ 1.3 million and $ 2.2 million for the fiscal quarter and nine fiscal months ended October 2, 2021, and amortization of intangible assets of $ 0.4 million and $ 0.5 million for the fiscal quarter and nine fiscal months ended October 2, 2021. Following is the supplemental consolidated financial results for the Company on an unaudited pro forma basis, as if the DTS acquisition had been consummated on January 1, 2020: Fiscal quarter ended Nine fiscal months ended Fiscal quarter ended Nine fiscal months ended September 26, 2020 September 26, 2020 October 2, 2021 October 2, 2021 Pro forma net revenues $ 75,605 $ 235,316 81,974 241,138 Pro forma net earnings attributable to VPG stockholders $ 5,778 $ 18,173 5,737 19,148 Pro forma basic earnings per share attributable to VPG stockholders $ 0.43 $ 1.34 $ 0.42 $ 1.41 Pro forma diluted earnings per share attributable to VPG stockholders $ 0.42 $ 1.34 $ 0.42 $ 1.40 Note 4 – Goodwill and Other Intangible Assets The Company tests the goodwill in each of its goodwill reporting units for impairment at least annually, as of the first day of it's fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. Due to updated financial projections, the Company performed a quantitative impairment test for the instrumentation reporting unit during the second quarter of 2021. In estimating the fair value of our instrumentation reporting unit the Company used the income approach. The results of the quantitative impairment test for the instrumentation reporting unit's goodwill and indefinite-lived trade name indicated an impairment, and in the second quarter of 2021, the Company recognized a non-cash impairment loss of $ 1.1 million in goodwill and $ 0.1 million to the indefinite-lived trade name. The impairment was driven mainly by changes in forecasted projections including a slower growth rate in revenues. After considering the impact of the impairment charges, the carrying amount of goodwill and indefinite-lived trade names as of October 2, 2021 was $ 0.0 million and $ 0.3 million, respectively. The change in the carrying amount of goodwill by segment is as follows (in thousands): Total Weighing and Control Systems Segment Foil Technology Products Segment KELK Acquisition DSI Acquisition DTS Acquisition Stress-Tek Acquisition Pacific Acquisition Balance at December 31, 2020 $ 31,105 $ 6,726 $ 16,942 $ 6,311 $ 1,126 Goodwill acquired 15,587 15,587 Impairment charges ( 1,126 ) ( 1,126 ) Foreign currency translation adjustment ( 6 ) 17 ( 23 ) — — Balance at October 2, 2021 $ 45,560 $ 6,743 $ 16,919 $ 15,587 $ 6,311 $ — -15- Note 4 – Goodwill and Other Intangible Assets (continued) Intangible assets were as follows (in thousands) : October 2, 2021 December 31, 2020 Intangible assets subject to amortization (Definite-lived): Patents and acquired technology $ 32,938 $ 19,804 Customer relationships 34,117 26,061 Trade names 1,684 1,747 Non-competition agreements 11,576 12,259 80,315 59,871 Accumulated amortization: Patents and acquired technology ( 6,960 ) ( 5,895 ) Customer relationships ( 14,497 ) ( 13,363 ) Trade names ( 1,684 ) ( 1,747 ) Non-competition agreements ( 11,569 ) ( 12,250 ) ( 34,710 ) ( 33,255 ) Net intangible assets subject to amortization $ 45,605 $ 26,616 Intangible assets not subject to amortization (Indefinite-lived): Trade names 7,722 5,423 $ 53,327 $ 32,039 The increase in net intangible assets from December 31, 2020 is due to the acquisition of DTS on June 1, 2021. The Company has preliminarily allocated $ 21.3 million of the purchase price to definite-lived intangible assets and $ 2.4 million to indefinite-lived intangible assets. Amortization expense for the fiscal quarter and nine fiscal months ended October 2, 2021 was $ 1.0 million and $ 2.3 million, respectively. The DTS intangible assets accounted for $ 0.4 million and $ 0.5 million of amortization expense for the fiscal quarter and nine fiscal months ended October 2, 2021. Estimated annual amortization expense for the full year of 2021 and each of the next four years, is as follows ( in thousands) : 2021 $ 3,280 2022 3,871 2023 3,763 2024 3,728 2025 3,728 Note 5 – Leases The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to eleven years . The Company has no finance leases. Leases recorded on the balance sheet consist of the following (in thousands) : -16- Note 5 - Leases (continued) Leases October 2, 2021 December 31, 2020 Assets Operating lease right of use asset $ 27,405 $ 21,788 Liabilities Operating lease - current $ 4,415 $ 4,011 Operating lease - non-current $ 24,462 $ 19,504 Other information related to lease term and discount rate is as follows: October 2, 2021 Operating leases weighted average remaining lease term (in years) 8.74 years Operating leases weighted average discount rate 3.17 % The components of lease expense are as follows (in thousands) : Fiscal quarter ended Nine Fiscal Months Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Operating lease cost $ 1,407 $ 1,164 $ 3,847 $ 3,177 Short-term lease cost 30 31 98 88 Sublease income ( 78 ) — ( 106 ) — Total net lease cost $ 1,359 $ 1,195 $ 3,839 $ 3,265 Right of use assets obtained in exchange for new operating lease liability during 2021 were $ 9.1 million. The Company paid $ 3.8 million and $ 2.6 million for its operating leases for each of the nine fiscal months ended October 2, 2021 and September 26, 2020, which are included in operating cash flows on the consolidated condensed statements of cash flows. Undiscounted maturities of operating lease payments as of October 2, 2021 are summarized as follows (in thousands) : 2021 (excluding the nine months ended October 2, 2021) $ 1,322 2022 4,718 2023 4,177 2024 3,738 2025 3,249 Thereafter 15,757 Total future minimum lease payments $ 32,961 Less: amount representing interest ( 4,084 ) Present value of future minimum lease payments $ 28,877 Note 6 – Income Taxes VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter ended October 2, 2021 was 23.4 % compared to 27.1 % for the fiscal quarter ended September 26, 2020, and the effective tax rate for the nine fiscal months ended October 2, 2021 was 20.3 % compared to 29.0 % for the nine fiscal months ended September 26, 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. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they -17- Note 6 - Income Taxes (continued) may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. Note 7 – Long-Term Debt Long-term debt consists of the following (in thousands) : October 2, 2021 December 31, 2020 2020 Credit Agreement - Revolving Facility $ 61,000 $ 41,000 Other debt — 18 Deferred financing costs ( 308 ) ( 374 ) Total long-term debt 60,692 40,644 Less: current portion — 18 Long-term debt, less current portion $ 60,692 $ 40,626 Note 8 – Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in thousands) : Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2021 $ ( 25,591 ) $ ( 7,080 ) $ ( 32,671 ) Other comprehensive loss before reclassifications ( 3,309 ) — ( 3,309 ) Amounts reclassified from accumulated other comprehensive income (loss) — 431 431 Balance at October 2, 2021 $ ( 28,900 ) $ ( 6,649 ) $ ( 35,549 ) Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2020 $ ( 30,761 ) $ ( 6,942 ) $ ( 37,703 ) Other comprehensive loss before reclassifications 409 — 409 Amounts reclassified from accumulated other comprehensive income (loss) — ( 448 ) ( 448 ) Balance at September 26, 2020 $ ( 30,352 ) $ ( 7,390 ) $ ( 37,742 ) Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9). Note 9 – Pension and Other Postretirement Benefits Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. The following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands) : -18- Note 9 - Pension and Other Postretirement Benefits ( continued) Fiscal quarter ended October 2, 2021 Fiscal quarter ended September 26, 2020 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 96 $ 9 $ 99 $ 31 Interest cost 102 17 128 33 Expected return on plan assets ( 97 ) ( 110 ) — Amortization of actuarial losses 102 5 77 34 Net periodic benefit cost $ 203 $ 31 $ 194 $ 98 Nine fiscal months ended October 2, 2021 Nine fiscal months ended September 26, 2020 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 289 $ 27 $ 297 $ 93 Interest cost 308 51 384 99 Expected return on plan assets ( 291 ) — ( 330 ) — Amortization of actuarial losses 306 15 230 102 Net periodic benefit cost $ 612 $ 93 $ 581 $ 294 Note 10 – Share-Based Compensation The Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At October 2, 2021, the Company had reserved 328,418 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the Plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others. On March 4, 2021 and in accordance with their respective employment agreements, VPG’s three executive officers were granted annual equity awards in the form of RSUs, of which 50 % are performance-based. The awards have an aggregate target grant-date fair value of $ 1.7 million and were comprised of 52,486 RSUs. Fifty percent of these awards will vest on January 1, 2024, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2024, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and "net earnings goals", each weighted equally. On March 8, 2021, certain non-executive VPG employees were granted annual equity awards in the form of RSUs. Certain employees received awards, of which 75 % are performance-based and certain employees received awards of which 50 % are performance-based. The awards have an aggregate grant-date fair value of $ 0.6 million and were comprised of 17,793 RSUs. The non-performance portion of these awards ( twenty-five percent for certain employees and fifty percent for certain employees) will vest on January 1, 2024 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2024, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings and cash flow goals, each weighted equally. On May 27, 2021 and in accordance with the Company's 2017 Non-Employee Director Compensation Plan, the Board of Directors approved the issuance of an aggregate of 9,936 RSUs to the independent board members of the Board of Directors and to the non-executive Chairman of the Board of Directors. The awards have an aggregate grant-date fair value of $ 0.3 million and will vest on the earlier of the 2022 Annual Stockholders Meeting or May 27, 2022, subject to the directors' continued service on the Board of Directors. Vesting of equity awards is subject to acceleration under certain circumstances. -19- Note 10 - Share-Based Compensation (continued) The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands) : Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Restricted stock units $ 386 $ 380 $ 1,328 $ 1,137 Note 11 – Segment Information VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications. VPG evaluates reporting segment performance based on multiple performance measures including third party net revenues, gross profits and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring costs and other items is meaningful because it provides insight with respect to the intrinsic operating results of VPG. The following table sets forth reporting segment information (in thousands) : -20- Note 11 - Segment Information (continued) Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Net revenues: Foil Technology Products $ 32,790 $ 32,906 $ 98,809 $ 95,168 Force Sensors 17,704 13,862 51,853 37,473 Weighing and Control Systems 31,480 20,757 77,240 61,726 Total $ 81,974 $ 67,525 $ 227,902 $ 194,367 Gross profit: Foil Technology Products $ 10,530 $ 13,515 $ 36,511 $ 38,002 Force Sensors 6,108 4,235 18,116 8,845 Weighing and Control Systems 15,207 9,599 35,638 28,677 Total $ 31,845 $ 27,349 $ 90,265 $ 75,524 Reconciliation of segment operating income to consolidated results: Foil Technology Products $ 5,087 $ 8,078 $ 19,138 $ 21,532 Force Sensors 3,511 2,010 10,489 2,201 Weighing and Control Systems 7,048 5,222 15,467 13,909 Unallocated G&A expenses ( 8,381 ) ( 7,105 ) ( 24,045 ) ( 20,193 ) Acquisition costs — — ( 1,198 ) — Impairment of goodwill and indefinite-lived intangibles — — ( 1,223 ) — Restructuring costs — ( 84 ) — ( 713 ) Operating income $ 7,265 $ 8,121 $ 18,628 $ 16,736 Acquisition costs: Weighing and Control Systems — — ( 1,198 ) — $ — $ — $ ( 1,198 ) $ — Impairment of goodwill and indefinite-lived intangibles: Foil Technology Products $ — $ — $ ( 1,223 ) $ — $ — $ — $ ( 1,223 ) $ — Restructuring costs: Foil Technology Products $ — $ ( 23 ) $ — $ ( 466 ) Force Sensors — — — ( 108 ) Weighing and Control Systems — ( 61 ) — ( 61 ) Corporate/Other — — — ( 78 ) $ — $ ( 84 ) $ — $ ( 713 ) Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. The table below summarizes intersegment sales (in thousands) : -21- Note 11 - Segment Information (continued) Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Foil Technology Products to Force Sensors and Weighing and Control Systems $ 875 $ 858 $ 2,795 $ 2,451 Weighing and Control Systems to Foil Technology Products and Force Sensors $ 155 $ 83 $ 419 $ 294 Note 12 – Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share) : Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Numerator: Numerator for basic earnings per share: Net earnings attributable to VPG stockholders $ 5,379 $ 5,598 $ 14,260 $ 10,669 Denominator: Denominator for basic earnings per share: Weighted average shares 13,626 13,575 13,612 13,562 Effect of dilutive securities: Restricted stock units 38 62 35 49 Dilutive potential common shares 38 62 35 49 Denominator for diluted earnings per share: Adjusted weighted average shares 13,664 13,637 13,647 13,611 Basic earnings per share attributable to VPG stockholders $ 0.39 $ 0.41 $ 1.05 $ 0.79 Diluted earnings per share attributable to VPG stockholders $ 0.39 $ 0.41 $ 1.04 $ 0.78 -22- Note 13 – Additional Financial Statement Information Other Income (Expense) Other The caption “Other” on the consolidated condensed statements of operations consists of the following (in thousands) : Fiscal quarter ended Nine fiscal months ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Foreign exchange (loss) gain $ ( 38 ) $ 162 $ 522 $ ( 123 ) Interest income 151 29 216 205 Pension expense ( 151 ) ( 159 ) ( 431 ) ( 482 ) Other 212 ( 71 ) 114 ( 229 ) $ 174 $ ( 39 ) $ 421 $ ( 629 ) Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended October 2, 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 euro, the Israeli shekel and the British pound. For the nine fiscal months ended October 2, 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 euro, the Israeli shekel, and the Japanese yen. Note 14 – Fair Value Measurements ASC Topic 820, Fair Value Measurement, establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the Company’s own assumptions. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands) : Fair value measurements at reporting date using: Total Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs October 2, 2021 Assets Assets held in rabbi trusts $ 5,991 $ 61 $ 5,930 $ — December 31, 2020 Assets Assets held in rabbi trusts $ 5,601 $ 61 $ 5,540 $ — The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at October 2, 2021 and December 31, 2020, and company-owned life insurance assets. The marketable securities -23- Note 14 - Fair Value Measurements (continued) held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the cash equivalents held in the rabbi trust are considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy. The fair value of the long-term debt, excluding capitalized deferred financing costs, at October 2, 2021 and December 31, 2020 approximates its carrying value as the revolving debt is reset on a monthly basis based on current market rates, plus a base rate as specified in the debt agreement. The fair value of long-term debt is considered a Level 2 measurement within the fair value hierarchy. The Company’s financial instruments include cash and cash equivalents, accounts receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values. Note 15 – Restructuring Costs Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges. The Company recorded $ 0.0 million and $ 0.1 million of restructuring costs during the fiscal quarter ended October 2, 2021 and September 26, 2020, respectively and $ 0.0 million and $ 0.7 million of restructuring costs during the nine fiscal months ended October 2, 2021 and September 26, 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. The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of October 2, 2021 and December 31, 2020, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands) : Balance at December 31, 2020 $ 63 Cash payments ( 43 ) Balance at October 2, 2021 $ 20 -24-