What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-04 compared with 2021-03-11 · 203 added, 132 removed, 382 unchanged (47% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

VPG 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 our proprietary technology.

We provide precision products and solutions, many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements.

A significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure.

We believe this strategy results in higher quality, more cost effective and focused solutions for our customers.

Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality.

Our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and systems.

The Company also has a long heritage of innovation in precision foil resistors, foil strain gages, and sensors that convert mechanical inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products.

Our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary, highly automated environment.

Precision sensors are essential to the accurate measurement, resolution and display of force, weight, pressure, torque, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplaces.

This expertise served as a foundation for our expansion into strain gage instrumentation, load cells, transducers, weighing modules, and complete systems for process control and on-board weighing.

Although our products are typically used in the industrial market, our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications.

The precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus, including medical, agricultural, transportation, industrial, avionics, military, and space applications.

We believe that as original equipment manufacturers (“OEMs”) continue a drive to make products “smarter,” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and/or response.

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

VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems.

Many of our precision measurement sensing products and solutions are “designed-in” by our customers, and address growing applications across a diverse array of industries and markets.

Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality, and we employ an operationally diversified structure to manage our businesses.

Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement technologies help ensure and deliver required levels of quality of mission-critical or high-value data.

Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end products.

Our precision measurement solutions are used across a wide variety of end markets upon which we focus, including industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space, and consumer product applications.

The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive.

As the functionality of customers products increases, and they integrate more precision measurement sensors and related systems into their solutions in order to link the mechanical and physical world with digital control and/or response, we believe this will offer substantial growth opportunities for our products and expertise.

Impact of COVID-19 on our Business

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

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

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

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

As of March 4, 2022, 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.

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 adversely affect the Company’s business and financial results in future periods.

Overview of Financial Results

In the fourth quarter of fiscal 2021, we formally adopted an operationally diversified structure and strategy, through which each of VPG's business segments maintains and deploys distinct go-to-market strategies, technical expertise, capital requirements, and acquisition opportunities.

We use an operationally diversified strategy and structure to be close to our customers and to leverage our high-level engineering expertise to optimize and enhance the performance of our customers' solutions.

We seek to maximize the performance and value of our businesses by leveraging our accumulated experience, methodologies, and expertise in driving operational excellence across our functional areas, as well as in the allocation of capital and investment.

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 and on-board weighing applications.

Sensors segment, Weighing Solutions segment, and Measurement Systems segment.

The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments.

The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure.

The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing.

Net revenues for the year ended December 31, 2021 were $317.9 million compared to net revenues of $269.8 million for the year ended December 31, 2020.

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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 results for the relevant period.

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

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.

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

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(66) 434 (574) (366) (574) (366) (0.04) (0.03)

Executive Severance costs (d)

Start-up costs (d)

3,174 — 3,174 — 3,174 — 0.23 —

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As Adjusted - Non GAAP Margins 41.2 % 39.0 % 11.1 % 9.7 %

December 31, 2021 December 31, 2020

Net earnings attributable to VPG stockholders $ 20,221 $ 10,787

Interest Expense 1,230 1,366

Income tax expense 5,469 7,509

Depreciation 11,684 10,064

Amortization 3,312 2,443

EBITDA $ 41,916 $ 32,169

EBITDA MARGIN 13.2 % 11.9 %

Impairment of goodwill and indefinite-lived intangibles 1,223 2,440

Acquisition purchase accounting adjustments (a) 2,775 569

Acquisition costs (b) 1,198 —

Restructuring costs 76 918

COVID-19 impact (c) (574) (366)

Start-up costs (d) 3,174 —

Foreign exchange loss (e) 109 2,246

ADJUSTED EBITDA 49,897 37,976

ADJUSTED EBITDA MARGIN 15.7 % 14.1 %

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

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

(b) Acquisition costs associated with the acquisition of DTS in 2021.

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

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

(d) Start-up costs in 2021 are associated with the ramp up of our new manufacturing facility in Israel.

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

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

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

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

(f) Included in the discrete items for 2021 is a $1.6 million tax benefit related to the acquisition of DTS and in 2020 is a $1.7 million tax expense related to the acquisition of DSI.

Financial Metrics

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2020 2021 2021 2021 2021

Foil Technology Products

Net revenues $ 31,875 $ 31,815 $ 31,176 $ 30,721 $ 34,149

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Inventory turnover 3.22 3.06 2.90 3.14 3.53

Force Sensors

Weighing Solutions

Net revenues $ 29,546 $ 30,968 $ 31,675 $ 30,676 $ 32,071

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Inventory turnover 2.81 2.89 2.78 2.47 2.63

Weighing and Control Systems

Measurement Systems

Net revenues $ 14,024 $ 7,806 $ 12,488 $ 20,577 $ 23,797

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Net revenues for the fourth quarter of 2021 increased 9.8% from the net revenues of $82.0 million reported in the third quarter of 2021, and increased 19.3% from $75.4 million for the comparable prior year period.

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

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

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

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

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

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

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

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

Net revenues in the Sensors segment of $34.1 million in the fourth quarter of 2021 increased 11.2% from $30.7 million in the third quarter of 2021, and increased 7.1% from $31.9 million in the fourth quarter of 2020.

The year over year increase in revenues was primarily attributable to an increase in our sales of precision resistors in the test and measurement and other markets, partially offset by lower sales in the avionics, military and space market.

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

Net revenues in the Weighing Solutions segment of $32.1 million in the fourth quarter of 2021 increased 4.5% compared to revenues of $30.7 million in the third quarter of 2021.

The sequential increase in revenues was primarily attributable to higher sales in the process weighing product lines, partially offset by lower sales in our on-board weighing product lines.

Net revenues in the fourth quarter of 2021 increased 8.5% compared to $29.5 million in the fourth quarter of 2020 mainly due to an increase in our OEM customers in the construction equipment market and an increase in our process weighing product line, partially offset by lower sales of our on-board weighing product lines.

Net revenues in the Measurement Systems segment of $23.8 million in the fourth quarter of 2021 increased 15.6% from $20.6 million in the third quarter of 2021 and increased 69.7% from $14.0 million in the fourth quarter of 2020.

The sequential increase in revenue was primarily attributable to higher KELK steel related sales and DTS products.

The year-over-year increase in revenues was primarily attributable to the acquisition of DTS and higher KELK and DSI steel-related sales.

The gross profit margin for the fourth quarter of 2021 decreased 0.1% compared to the third quarter of 2021, and increased 0.6% from the fourth quarter of 2020.

Sequentially, gross profit margins declined in all reporting segments.

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

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

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

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

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

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

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

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

Sequentially, gross profit margins improved in the Sensors and Measurement Systems segments and decreased in the Weighing Solutions segment.

In the Sensors segment, the increase in gross profit margin was primarily due to an increase in volume, partially offset by unfavorable foreign exchange rates, wage increases, and labor inefficiencies.

In the Weighing Solutions segment, the decline in gross profit margin was primarily due to an unfavorable product mix, reduction of inventory, and higher material costs, partially offset by an increase in volume.

In the Measurement Systems segment, gross profit margin increased due to higher volume, which was partially offset by unfavorable product mix and inventory reductions.

Compared to the fourth quarter of 2020, gross profit margins decreased in the Sensors segment and increased in the Weighing Solutions and Measurement Systems segments.

In the Sensors segment, the decrease in gross profit margin was primarily due

to unfavorable foreign exchange rates, wage increases, and labor inefficiencies, partially offset by an increase in volume.

In the Weighing Solutions segment, the increase in g ross profit margin was primarily due to higher volume.

In the Measurement Systems segment, gross profit margin increased primarily due to higher revenue coming from DTS, which was acquired on June 1, 2021.

Optimize Core Competence

The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and precision measurement sensors and sensor-based systems.

Our foil technology resistors and strain gages are recognized as global market leading products that provide high precision and high stability over extreme temperature ranges, and long life.

Our force sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision measurements of force, weight, pressure, torque, tilt, motion, and acceleration.

The Company’s core competencies include our innovative deep technical and applications-specific expertise to add value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy.

We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts;

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and refining our manufacturing processes.

Our foil technology research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line.

Our Sensors segment research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line.

We believe this unique foil technology will create new markets as customers “design in” these next generation products in existing and new applications.

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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 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.

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

We fully transitioned to this facility in the third quarter of fiscal 2021.

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

We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function.

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

For example, in 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.

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 improved efficiencies or available tax and other government-sponsored incentives.

In the past several years, we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our load cell 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

We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments.

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.

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.

We expect to continue to make strategic acquisitions where opportunities present themselves to grow and expand our segments.

Historically, our growth and acquisition strategy had been largely focused on vertical product integration, using our foil strain gages in our load cell products, and incorporating those products into our weighing solutions.

In recent years, we widened our acquisition strategy to include a broader set of precision measurement systems and product companies.

We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision measurement solutions, including 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 year ended December 31, 2020, exchange rate impacts increased net revenues by $0.9 million, increased costs of products sold and selling, general, and administrative expenses by $2.8 million, and decreased net earnings by $1.9 million or $0.13 per diluted share, when compared to the prior year.

Refer to Item 7.

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

Off-Balance Sheet Arrangements

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

For the year ended December 31, 2021, exchange rate impacts increased net revenues by $5.3 million and increased costs of products sold and selling, general, and administrative expenses by $8.7 million.

For the year ended December 31, 2020, exchange rate impacts increased net revenues by $0.9 million and increased costs of products sold and selling, general, and administrative expenses by $2.8 million.

Critical Accounting Policies and Estimates

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Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed.

Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to:

discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes.

Different valuations approaches are used to value different types of intangible assets.

The Company primarily uses the income approach in the valuation of intangible assets.

The income approach to valuation is based on the present value of future cash flows attributable to each identifiable intangible asset.

This approach to valuation requires management to make significant estimates and assumptions including but not limited to:

discount rates, future cash flows and the economic lives of trade names, technology, and customer relationships.

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

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

We have four reporting units to which goodwill is allocated:

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

At the beginning of 2021, we had five reporting units to which goodwill was allocated:

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

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

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

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

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

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

During the second quarter of 2021, due to updated financial projections, we performed a quantitative impairment test on our instrumentation reporting unit's goodwill and indefinite-lived intangible trade name.

Based on this review, we recorded an impairment charge which eliminated that remaining goodwill associated with this reporting unit and reduced the value of the indefinite-lived trade-name.

For the DSI goodwill reporting unit, the Company performed the quantitative impairment test.

In estimating the fair value of our DSI reporting unit the Company used the income approach.

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

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

The goodwill and indefinite-lived trade name allocated the DTS goodwill reporting unit is still provisional as of December 31, 2021 and therefore will be tested in the following year's annuals impairment test.

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

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Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates.

The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans.

The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two

critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans.

Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement medical plans, increases or trends in health care costs.

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Results of Operations – Years Ended December 31, 2021, 2020, and 2019

Refer to Item 7.

“Results of Operations - Years Ended December 31, 2019, and 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 for a comparison of the year ended December 31, 2019 to the year ended December 31, 2018.

Results of operations by reporting segments for the years ended December 31, 2020 and 2019 have been recast to reflect the new reporting segments as described under Item 7.

Overview of Financial Results.

Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:

Years ended December 31,

2021 2020 2019

Costs of products sold 60.6 % 61.4 % 60.7 %

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Years ended December 31,

2021 2020 2019

Net revenues $ 317,919 $ 269,812 $ 283,958

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Changes in net revenues were attributable to the following:

2020 2020 vs.

Change attributable to:

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Net change 17.8 % (5.0) %

During the year ended December 31, 2021, net revenues increased 17.8% over the prior year.

Volume increased across all reporting segments, with the most significant increase coming from the industrial weighing, transportation, and other markets in the Weighing Solutions reporting segment.

Net revenues in the Measurement Systems segment increased mainly due to the acquisition of DTS on June 1, 2021.

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

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

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

Volume decreased across all reporting segments, with the most significant declines coming from the industrial weighing market in the Weighing Solutions reporting segment, the transportation market and KELK for the steel market in the Measurement Systems reporting segment, and the precision resistor foil for the test and measurement market in the Sensors reporting segment.

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

Gross Profit Margin

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Years ended December 31,

2021 2020 2019

Gross profit margin 39.4 % 38.6 % 39.3 %

The gross profit margin for the year ended December 31, 2021 increased 0.8% over the prior year.

The increase in gross profit margin was primarily due to improved gross profit margins in the Weighing Solutions and Measurement Systems reporting segments, partially offset by decreased gross profit margins in the Sensors reporting segment, which were impacted by start-up costs association with the new manufacturing facility in Israel.

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

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

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

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

Foil Technology Products

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

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

Years ended December 31,

2021 2020 2019

Net revenues $ 127,861 $ 120,754 $ 121,827

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Percentage change versus prior year 5.9 % (0.9) %

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

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

2020 2020 vs.

Change attributable to:

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Net change 5.9 % (0.9) %

For the year ended December 31, 2021, net revenues increased 5.9% as compared to the prior year, due to increases in our net revenues from the advanced sensors product line, primarily in our test and measurement and general industrial markets and in net revenues from our precision resistor products in the test and measurement market.

These increases were partially offset by declines in net revenues from our precision resistor products in our avionics, military and space market and net revenues from strain gage products in our other markets.

For the year ended December 31, 2020, net revenues decreased 0.9% as compared to the prior year.

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

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

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

Years ended December 31,

2021 2020 2019

Gross profit margin 35.6 % 39.3 % 40.4 %

For the year ended December 31, 2021, the gross profit margin decreased 3.7% as compared to the prior year primarily due to manufacturing inefficiencies with the start-up up our new production facility in Israel.

For the year ended December 31, 2020, the gross profit margin decreased 1.1% as compared to the prior year primarily due to lower volume from products in the test and measurement and general industrial market segments, unfavorable product mix and negative impacts from foreign currency exchange rates, primarily from the Israeli shekel.

Force Sensors

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

Weighing Solutions

Net revenues of the Weighing Solutions segment were as follows (dollars in thousands) :

Years ended December 31,

2021 2020 2019

Net revenues $ 125,390 $ 101,386 $ 119,854

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Percentage change versus prior year 23.7 % (15.4) %

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

Changes in Weighing Solutions segment net revenues were attributable to the following:

2020 2020 vs.

Change attributable to:

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Net change 23.7 % (15.4) %

For the year ended December 31, 2021, net revenues increased 23.7% from the prior year reflecting improved volume in our force sensors products, which were significantly impacted in 2020 by production limitations due to the COVID-19 pandemic.

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

Our on-board weighing products also contributed higher volume mainly in the transportation market.

For the year ended December 31, 2020, net revenues decreased 15.4% from the prior year mainly reflecting the impact of the COVID-19 pandemic on our India facility, where production was limited.

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

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

Gross profit as a percentage of net revenues for the Weighing Solutions segment was as follows:

Years ended December 31,

2021 2020 2019

Gross profit margin 36.6 % 31.8 % 33.9 %

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

Weighing and Control Systems

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

For the year ended December 31, 2021, the gross profit margin increased 4.8% as compared to the prior year primarily due to improved volume in our force sensors and on-board weighing products.

For the year ended December 31, 2020, the gross profit margin decreased 2.1% as compared to the prior year primarily due to volume declines resulting from the government mandated restrictions, partially offset by cost savings initiatives.

Measurement Systems

Net revenues of the Measurement Systems segment were as follows (dollars in thousands) :

Years ended December 31,

2021 2020 2019

Net revenues $ 64,668 $ 47,672 $ 42,277

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Percentage change versus prior year 35.7 % 12.8 %

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

Changes in Measurement Systems segment net revenues were attributable to the following:

2020 2020 vs.

Change attributable to:

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Net change 35.7 % 12.8 %

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

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

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

For the year ended December 31, 2021, net revenues increased 35.7% as compared to the prior year.

The revenues generated by DTS in our transportation market and steel-related sales from DSI were partially offset by lower KELK steel-related sales and lower Pacific-related sales in our avionics, military and space market.

For the year ended December 31, 2020, net revenues increased 12.8% as compared to the prior year.

The revenues generated by DSI were partially offset by lower volume KELK steel-related sales.

Gross profit as a percentage of net revenues for the Measurement Systems segment was as follows:

Years ended December 31,

2021 2020 2019

Gross profit margin 52.2 % 51.4 % 51.5 %

For the year ended December 31, 2021, the gross profit margin increased 0.8% from the prior year.

Volume improvements partially offset the negative impacts of the purchase accounting adjustments recorded in 2021 in connection with the DTS acquisition.

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

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

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

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

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Years ended December 31,

2021 2020 2019

Total SG&A expenses $ 95,273 $ 78,256 $ 79,622

as a percentage of net revenues 30.0 % 29.0 % 28.0 %

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

SG&A expenses for the year ended December 31, 2021 increased $17.0 million as compared to the prior year due to SG&A expenses related to the acquisition of DTS, higher personnel costs and unfavorable foreign currency exchange rate impacts, mainly from the Israeli shekel.

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

Impairment of Goodwill and Indefinite-lived Intangible Assets

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

For the year ended December 31, 2021, as a result of our interim impairment test performed on goodwill and indefinite-lived intangible assets, 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 our critical accounting policies and Note 4 for further discussion.

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

For the year ended December 31, 2019, there was no impairment on goodwill and indefinite-lived intangible assets.

Executive Severance Costs

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

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

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

The Company recorded restructuring costs of $0.1 million, $0.9 million, and $2.3 million during the years ended December 31, 2021, 2020, and 2019 respectively.

In 2021 and 2020, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

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

Acquisition Costs

For the year ended December 31, 2021, we recorded acquisition costs in our consolidated statements of operations of $1.2 million in connection with the acquisition of DTS.

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

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Interest Expense

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

Interest expense was lower in 2020 compared to 2019, mainly due to the lower debt balances during 2020 and the favorable borrowing rates negotiated with the 2020 Restated and Amended Revolving Credit Facility in March 2020.

The Company recorded interest expense of $1.2 million, $1.4 million and $1.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Interest expense was lower in 2021 compared to 2020 mainly due to more favorable borrowing rates during 2021.

Interest expense in 2020 was lower as compared to 2019 mainly due to the lower debt balances during 2020 and the favorable borrowing rates negotiated with the 2020 Restated and Amended Revolving Credit Facility in March 2020.

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

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2021 2020 Change

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

Foreign exchange loss $ (110) $ (2,246) $ 2,136

Interest income 252 246 6

3 unchanged sentences

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

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

The change in foreign exchange gains / (losses) for the year ended December 31, 2021, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel.

Additionally in 2021, there were favorable foreign exchange impacts from the Japanese yen and the Canadian dollar.

Years ended December 31,

2020 2019 Change

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

Interest income 246 622 (376)

Pension expense (738) (643) (95)

Other (244) 958 (1,202)

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

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

The change in foreign exchange gains / (losses) for the year ended December 31, 2020, as compared to the prior year period, was primarily due to fluctuations in the Israeli shekel.

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

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

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

Our effective tax rate for the year ended December 31, 2021 was 21.1%, as compared to 41.0% for the year ended December 31, 2020 and 15.7% for the year ended December 31, 2019.

Our effective tax rate was lower in 2021 compared to 2020 primarily due to changes in valuation allowances as result of the completion of purchase accounting of DSI in 2020 and the acquisition of DTS in 2021.

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

We reassessed our ability to realize our U.S.

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federal income tax rate and our effective tax rate:

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

• 8.1% increase related to the effects of foreign operations primarily related to the difference between the U.S.

statutory rate and foreign tax rates.

• 4.6% decrease related to a decrease in valuation allowance, primarily as a result of the acquisition of DTS

• 1.5% decrease related to state income taxes

• 1.3% decrease related to specialty tax credits

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

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

7 unchanged sentences

• 2.4% decrease related to a reduction in valuation allowance.

This reduction was primarily a result of the acquisition of Dynamic Systems, Inc.

This reduction was primarily a result of the acquisition of DSI

• 1.4% decrease related to stock compensation.

8 unchanged sentences

On March 20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders named therein, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised to provide a secured revolving facility (the “2020 Revolving Facility”) in an aggregate principal amount of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement.

The proceeds of the 2020 Revolving Facility may be used for working capital and general corporate purposes, and a portion of such proceeds was used to refinance the Company’s existing revolving credit facility in the amount of $34.0 million and the Company’s existing term loans as follows:

(1) the “2015 U.S.

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

and (2) the "2015 U.S.

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

The proceeds of the 2020 Revolving Facility may be used on an ongoing basis for working capital and general corporate purposes.

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

The 2020 Credit Agreement terminates on March 20, 2025.

The 2020 Credit Agreement replaced the 2015 Credit Agreement.

Interest payable on amounts borrowed under the 2020 Revolving Facility is based upon, at the Company’s option, (1) the greatest of:

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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 debt held by one of our Japanese subsidiaries of approximately $0.0 million at December 31, 2020 and $0.1 million at December 31, 2019.

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

Our other long-term debt is not significant and consisted of zero interest rate debt held by one of our Japanese subsidiaries which was fully paid off in 2021.

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

1 unchanged sentence

Our cash provided by operating activities for the year ended December 31, 2021 was $33.5 million as compared to $35.3 million for the year ended December 31, 2020.

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

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

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

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

Our net cash used in investing activities for the year ended December 31, 2021 was $64.0 million, which includes $47.2 million for the purchase of DTS, compared to $21.8 million for the year ended December 31, 2020.

Our net cash provided by financing activities for the year ended December 31, 2021 was $18.8 million which includes the borrowing on the 2020 credit facility for the acquisition of DTS, as compared to net cash used for financing activities of $5.0 million for the year ended December 31, 2020.

Approximately 87% and 90% of our cash and cash equivalents balance at December 31, 2021 and 2020, respectively, was held by our non-U.S.

subsidiaries.

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For the year ended December 31, 2021, we generated adjusted free cash flow of $16.7 million.

We refer to “adjusted free cash flow,” a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating activities ($35.3 million) in excess of our capital expenditures ($22.9 million) and net of proceeds from the sale of assets ($0.9 million).

We define “adjusted free cash flow,” a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating activities ($33.5 million) in excess of our capital expenditures ($17.1 million) and net of proceeds from the sale of assets ($0.2 million).

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

1 unchanged sentence

Third-party debt, including current and long-term

Term loans $ — $ 10,496

Revolving debt 61,000 41,000

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

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

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

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

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

2 unchanged sentences

Capital spending for 2021 was comprised of building projects related to capacity expansion in Israel and other projects related to the normal maintenance of business, cost reduction programs, and some carryover projects from 2020.

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

Capital expenditures for 2022 are expected to be approximately $32.4 million, which includes approximately $11.8

million in capital equipment for capacity expansion in the Sensors reporting segment and expected building projects of approximately $13.7 million for capacity expansion, mainly in Asia.

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

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

2 unchanged sentences

See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

From time to time, information provided by us, including, but not limited to, statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or other statements made by or on our behalf, may contain or constitute "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated.

Such statements (including those regarding our new corporate strategy), are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected.

Among the factors that could cause actual results to materially differ include:

general business and economic conditions;

impact of inflation, global labor and supply chain challenges;

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

the inability to realize anticipated synergies and expansion possibilities;

difficulties in new product development;

changes in competition and technology in the markets that we serve and the mix of our products required to address these changes;

changes in foreign currency exchange rates;

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

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

significant developments from the recent and potential changes in tariffs and trade regulation;

our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter-in-place orders and business closures and the related impact on resource allocations, manufacturing and supply chains;

the Company’s status as a “critical”, “essential” or “life-sustaining” business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority;

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

and other factors affecting our operations, markets, products, services, and prices that are set forth in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis