What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 161 added, 99 removed, 318 unchanged (45% of the section changed)

9 unchanged sentences

Impact of COVID-19 on Our Business

As of May 10, 2022, all of the Company’s facilities are open and operational.

As of August 9, 2022, all of the Company’s facilities are open and operational.

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

5 unchanged sentences

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

Net revenues for the fiscal quarter ended April 2, 2022 were $87.7 million versus $70.6 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended April 2, 2022 were $6.4 million, or $0.46 per diluted share, versus $5.0 million, or $0.36 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter ended April 2, 2022 and April 3, 2021 include items affecting comparability as listed in the reconciliations below.

Net revenues for the fiscal quarter ended July 2, 2022 were $88.6 million versus $75.3 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended July 2, 2022 were $10.8 million, or $0.79 per diluted share, versus $3.9 million, or $0.29 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended July 2, 2022 were $176.3 million versus $145.9 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended July 2, 2022 were $17.1 million, or $1.25 per diluted share, versus $8.9 million, or $0.65 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter and six fiscal months ended July 2, 2022 and July 3, 2021 include items affecting comparability as listed in the reconciliations below.

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

8 unchanged sentences

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

Three months ended April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Three months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

As reported - GAAP $ 37,334 $ 29,798 $ 10,551 $ 4,924 $ 10,755 $ 3,920 $ 0.79 $ 0.29

1 unchanged sentence

Acquisition purchase accounting adjustments (a) 679 919 679 919 679 919 0.05 0.07

Acquisition costs — — 1,198 — 1,198 — 0.09

COVID-19 impact (b) — (26) — (242) — (242) — (0.02)

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

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

Restructuring costs — 904 — 904 — 0.07 —

3 unchanged sentences

As Adjusted - Non GAAP Margins 42.9 % 42.3 % 13.7 % 12.2 %

Three months ended

April 2, 2022 April 3, 2021

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

Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

As reported - GAAP 72,584 58,420 18,866 11,363 $ 17,111 $ 8,881 $ 1.25 $ 0.65

As reported - GAAP Margins 41.2 % 40.0 % 10.7 % 7.8 %

Acquisition purchase accounting adjustments (a) 1,050 930 1,050 930 1,050 930 0.08 0.07

Acquisition costs — — 1,198 — 1,198 — 0.09

COVID-19 impact (b) 138 (177) 138 (685) 138 (685) 0.01 (0.05)

Start-up costs (c)

150 1,288 150 1,288 150 1,288 0.01 0.09

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

Restructuring costs 1,165 — 1,165 — 0.09 —

Foreign exchange (gain)/loss (d)

(3,934) (561) (0.29) (0.04)

Tax effect of reconciling items and discrete tax items (302) 1,406 (0.02) 0.10

As Adjusted - Non GAAP $ 73,922 $ 60,461 $ 21,369 $ 15,317 $ 15,982 $ 10,868 $ 1.17 $ 0.80

As Adjusted - Non GAAP Margins 41.9 % 41.4 % 12.1 % 10.5 %

Three months ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net earnings attributable to VPG stockholders $ 10,755 $ 3,920 $ 17,111 $ 8,881

5 unchanged sentences

EBITDA MARGIN 19.8 % 10.7 % 16.9 % 12.7 %

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

Acquisition purchase accounting adjustments (a) 679 919 1,050 930

Acquisition costs — 1,198 — 1,198

Restructuring costs 904 — 1,165 —

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the first quarter of 2021 through the first quarter of 2022 (dollars in thousands) :

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the second quarter of 2021 through the second quarter of 2022 (dollars in thousands) :

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

2021 2021 2021 2022 2022

4 unchanged sentences

Inventory turnover 2.64 2.55 2.82 2.69 2.52

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

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

2021 2021 2021 2022 2022

16 unchanged sentences

Inventory turnover 1.85 1.92 2.18 1.68 1.90

Net revenues for the first quarter of 2022 decreased 2.6% from the fourth quarter of 2021 mainly due to decreased volume in Measurement Systems reporting segments partially offset by increased volume in the Sensors reporting segment.

Net revenues increased 24.2% from the first quarter of 2021 with increased volume primarily from the Sensors and Measurement Systems reporting segments.

The increase in the Measurement Systems reporting segment was mainly driven by the revenues from the acquisition of DTS.

Net revenues in the Sensors reporting segment increased 10.5% compared to the fourth quarter of 2021 and increased 18.7% from the first quarter of 2021.

Sequentially, the increase in revenues reflected revenue growth in our advanced sensors products in Other markets (mainly for consumer and medical applications) and in our General Industrial end markets.

The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and Measurements market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer and medical applications) and in our General Industrial markets.

Net revenues in the Weighing Solutions reporting segment increased 2.2% from the fourth quarter of 2021 and increased 5.8% from the first quarter of 2021.The sequential increase in revenues was primarily attributable to higher sales of on-board weighing products in our Transportation market and an increase in our OEM customers in our Other markets mainly for precision agriculture and medical equipment, partially offset by lower sales in the Industrial weighing market for process weighing applications.

The year-over-year increase in revenues was primarily attributable to increased revenue to our OEM customers in our Other markets (primarily for construction equipment) and in our Industrial weighing market.

Net revenues in the Measurement Systems reporting segment decreased 27.9% from the fourth quarter of 2021 and increased 119.7% from the first quarter of 2021.

Sequentially, the decrease in revenue was primarily due to the lower revenue of Dynamic Systems, Inc.

("DSI") and KELK products to the Steel market, and lower revenues for our Diversified Technical Systems, Inc.

("DTS") and Pacific Instruments businesses.

The year-over-year increase in revenue was primarily attributable to the addition of revenue for DTS, which was acquired on June 1, 2021, and higher revenue of our Pacific Instruments and KELK businesses.

Overall gross profit margin in the first quarter of 2022 increased 1.5% as compared to the fourth quarter of 2021 and decreased 0.3% from the first quarter of 2021.

Sequentially, the increase in the gross profit margin in the Sensors and Weighing Solutions reporting segments was partially offset by a decrease in the gross profit margin in the Measurement Systems reporting segment.

In the Sensors reporting

segment, the gross profit margins increased sequentially due to higher volume and a favorable product mix, partially offset by wage increases.

In the Weighing Solutions reporting segment, the sequential increase in gross profit margins was primarily due to higher volume, higher selling prices and a favorable product mix, offset by higher material costs.

The sequential decrease in the gross profit margins in the Measurement Systems reporting segment was primarily due to lower revenue and unfavorable product mix.

Compared to the first quarter of 2021, the Sensors and Weighing Solutions reporting segments had lower gross profit margins, while the Measurement Systems gross profit margin was flat.

The Sensors reporting segment had a lower gross profit margin due to impacts from charges related to start-up costs in our new advanced sensors facility and the impact of COVID-19 in conjunction with unfavorable foreign exchange rates, wage increases, and labor inefficiencies due to the hiring of new personnel, partially offset by higher volume.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2021 was primarily due to higher material prices, unfavorable foreign exchange rates, and wage increases, partially offset by higher volume.

In the Measurement Systems reporting segment, the gross profit margin was flat as compared to the first quarter of 2021.

The higher revenue coming from DTS was offset by the impact of charges related to purchase accounting adjustments from the DTS acquisition and the impact of COVID-19.

Net revenues for the second quarter of 2022 increased 1.1% from the first quarter of 2022 mainly due to increased volume in Sensors and Measurement Systems reporting segments partially offset by decreased volume in the Weighing Solutions reporting segment.

Net revenues increased 17.6% from the second quarter of 2021 with increased volume primarily from the Sensors and Measurement Systems reporting segments.

Net revenues in the Sensors reporting segment increased 6.7% compared to the first quarter of 2022 and increased 29.2% from the second quarter of 2021.

Sequentially, the increase in revenues reflected revenue growth in our sales of precision resistors in the Test and Measurement market, partially offset by a decrease in revenues for precision resistors in the Avionics, Military and Space market.

Net revenues in the Weighing Solutions reporting segment decreased 13.1% from the first quarter of 2022 and decreased 10.2% from the second quarter of 2021.

The year-over-year and sequential decreases in revenues were primarily attributable to a decrease in revenue related to force sensor products to our OEM customers in our Other markets and lower sales of onboard weighing products to the Transportation market.

Net revenues in the Measurement Systems reporting segment increased 15.9% from the first quarter of 2022 and increased 59.2% from the second quarter of 2021.

Sequentially, the increase in revenue was primarily due to the higher revenue of KELK and Dynamic Systems, Inc.

("DSI") products to the Steel market.

The year-over-year increase in revenue was primarily attributable to the addition of revenue for Diversified Technical Systems, Inc.

("DTS"), which was acquired on June 1, 2021, and higher revenue of our KELK and DSI steel-related businesses .

Overall gross profit margin in the second quarter of 2022 increased 1.9% as compared to the first quarter of 2022 and increased 2.5% from the second quarter of 2021.

Sequentially, the increase in the gross profit margin in the Sensors reporting segment was partially offset by a decrease in the gross profit margin in the Weighing Solutions and Measurement Systems reporting segments.

In the Sensors reporting segment, the gross profit margins increased sequentially due to higher volume and labor efficiencies.

In the Weighing Solutions reporting segment, the sequential decrease in gross profit margins was primarily due to lower volume and an unfavorable product mix.

The sequential decrease in the gross profit margins in the Measurement Systems reporting segment was a result of unfavorable product mix and a reduction in inventory which offset the higher volume.

Compared to the second quarter of 2021, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.

The Sensors reporting segment had a higher gross profit margin due to higher volume partially offset by unfavorable foreign exchange rates, wage increases, and labor inefficiencies due to the hiring of new personnel.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the second quarter of 2021 primarily due to higher revenue, partially offset by an unfavorable foreign exchange rate and a full quarter of costs for DTS compared to one month in the prior year period.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2021 was primarily due to lower volume, unfavorable foreign exchange rates, and unfavorable product mix.

Optimize Core Competence

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Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability.

We expect to continue to expand our position as a leading supplier of precision foil technology

We expect to continue to expand our position as a leading supplier of precision foil technology products.

We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance.

10 unchanged sentences

While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.

We test the goodwill in each of our reporting units for impairment at least annually, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred.

We test the goodwill in each of our reporting units for impairment at least annually, as of the first day of our fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred.

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

10 unchanged sentences

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

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

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

the rate of exchange as of the balance sheet date.

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

14 unchanged sentences

Effects of Foreign Exchange Rate on Operations

For the fiscal quarter ended April 2, 2022, exchange rates decreased net revenues by $1.5 million, and decreased costs of products sold and selling, general, and administrative expenses by $0.2 million, when compared to the comparable prior year period.

For the fiscal quarter ended July 2, 2022, exchange rates decreased net revenues by $4.0 million, and decreased costs of products sold and selling, general, and administrative expenses by $3.2 million, when compared to the comparable prior year period.

For the six fiscal months ended July 2, 2022, exchange rates decreased net revenues by $5.5 million, and decreased costs of products sold and selling, general, and administrative expenses by $3.4 million, when compared to the comparable prior year period.

Results of Operations

Results of operations by reporting segments for the fiscal quarter ended April 3, 2021 have been recast to reflect the new reporting segments as described under Item 7.

Results of operations by reporting segments for the fiscal quarter and six fiscal months ended July 3, 2021 have been recast to reflect the new reporting segments as described under Item 7.

Overview of Financial Results of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 4, 2022.

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Costs of products sold 57.9 % 60.4 % 58.8 % 60.0 %

7 unchanged sentences

Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net revenues $ 88,618 $ 75,339 $ 176,283 $ 145,928

Change versus comparable prior year period

$ 13,279 $ 30,355

Percentage change versus prior year period

17.6 % 20.8 %

Changes in net revenues were attributable to the following:

5 unchanged sentences

Net change 17.6 % 20.8 %

During the fiscal quarter ended April 2, 2022, net revenues increased 24.2% as compared to the comparable prior year period, with increased volume primarily from the Sensors and Measurement Systems reporting segments.

The increase in the Measurement Systems reporting segment was mainly driven by the revenues from the acquisition of DTS.

During the fiscal quarter and six fiscal months ended July 2, 2022, net revenues increased 17.6% and 20.8%, respectively, as compared to the comparable prior year periods, with increased volume primarily from the Sensors and Measurement Systems reporting segments.

Gross Profit Margin

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Gross profit margin 42.1 % 39.6 % 41.2 % 40.0 %

The gross profit margin for the fiscal quarter ended April 2, 2022 decreased 0.3% as compared to the comparable prior year period with lower gross profit margins in the Sensors and Weighing Solutions reporting segments and flat gross profit margins in the Measurement Systems reporting segment.

The gross profit margin for the fiscal quarter and six fiscal months ended July 2, 2022 increased 2.5% and 1.2%, respectively, as compared to the comparable prior year periods, with higher gross profit margins in the Sensors and Measurements Systems reporting segments and lower gross profit margins in the Weighing Solutions reporting segment.

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

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net revenues $ 40,280 $ 31,176 $ 78,030 $ 62,991

Change versus comparable prior year period

$ 9,104 $ 15,039

Percentage change versus prior year period

29.2 % 23.9 %

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

4 unchanged sentences

Net change 29.2 % 23.9 %

Net revenues increased 18.7% for the fiscal quarter ended April 2, 2022, as compared to the comparable prior year period.

Net revenues increased 29.2% for the fiscal quarter ended July 2, 2022, as compared to the comparable prior year period and increased 23.9% for the six fiscal months ended July 2, 2022, as compared to the comparable prior year period.

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Gross profit margin 44.3 % 38.9 % 41.2 % 39.6 %

The gross profit margin decreased 2.5% for the fiscal quarter ended April 2, 2022, when compared to the comparable prior year period due to impacts from charges related to start-up costs in our new advanced sensors facility and the impact of COVID-19 in conjunction with unfavorable foreign exchange rates, wage increases, and labor inefficiencies due to the hiring of new personnel, partially offset by higher volume.

The gross profit margin increased 5.4% for the fiscal quarter ended July 2, 2022, when compared to the comparable prior year period due to higher volume partially offset by unfavorable foreign exchange rates, wage increases, and labor inefficiencies due to the hiring of new personnel.

Additionally, there were higher start-up costs associated with our new advanced sensors facility in 2021.

The gross profit margin increased 1.6% for the six fiscal months ended July 2, 2022 as compared to the comparable prior year period.

Volume increases were mostly offset by impacts from charges related to start-up costs in our new advanced sensors facility, wage increase, and labor inefficiencies.

Weighing Solutions

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

$ 28,459 $ 31,675 $ 61,227 $ 62,643

Change versus comparable prior year period

$ (3,216) $ (1,416)

Percentage change versus prior year period

(10.2) % (2.3) %

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

4 unchanged sentences

Net change (10.2) % (2.3) %

Net revenues increased 5.8% for the fiscal quarter ended April 2, 2022 as compared to the comparable prior year periods.

Net revenues decreased 10.2% for the fiscal quarter ended July 2, 2022, and decreased 2.3% for the six fiscal months ended July 2, 2022 as compared to the comparable prior year periods.

The decreases in revenues were primarily attributable to a decrease in revenue related to force sensor products to our OEM customers in our Other markets and lower sales of onboard weighing products to the Transportation market.

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Gross profit margin 33.7 % 37.2 % 35.4 % 37.6 %

The gross profit margin for the fiscal quarter ended April 2, 2022 decreased 1.1% as compared to the comparable prior year period was primarily due to higher material prices, unfavorable foreign exchange rates, and wage increases, partially offset by higher volume.

The gross profit margin for the fiscal quarter ended July 2, 2022 decreased 3.5% as compared to the comparable prior year period and decreased 2.2% for the six fiscal months ended July 2, 2022 when compared to the prior year period.

The decreases were primarily due to lower volume, unfavorable foreign exchange rates, and unfavorable product mix.

Measurement Systems

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net revenues $ 19,879 $ 12,488 $ 37,026 $ 20,294

Change versus comparable prior year period

$ 7,391 $ 16,732

Percentage change versus prior year period

59.2 % 82.4 %

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

5 unchanged sentences

Net change 59.2 % 82.4 %

Net revenues increased 119.7% for the fiscal quarter ended April 2, 2022 as compared to the comparable prior year period.

Net revenues increased 59.2% for the fiscal quarter ended July 2, 2022 as compared to the comparable prior year period and increased 82.4% for the six fiscal months ended July 2, 2022 as compared to the comparable prior year period.

The year-over-year increase in revenue was primarily attributable to the addition of revenue for DTS, which was acquired on June 1, 2021, and higher revenue of our KELK and DSI steel-related businesses .

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Gross profit margin 49.9 % 47.1 % 50.8 % 48.8 %

The gross profit margin for the fiscal quarter ended April 2, 2022 of 51.8% was flat compared to the first quarter of 2021.

The increase in volume from DTS was offset by the impact of charges related to purchase accounting adjustments from the DTS acquisition and the impact of COVID-19.

The gross profit margin for the fiscal quarter ended July 2, 2022 increased 2.8% compared to the second quarter of 2021.

The increase was mainly due to higher revenue, partially offset by an unfavorable foreign exchange rate and a full quarter of costs for DTS compared to one month in the prior year period.

The gross profit margin for the six fiscal months ended July 2, 2022 increased 2.0% from the prior year period.

Higher revenues coming from DTS and our KELK and DSI steel-related businesses were partially offset by an unfavorable product mix and an unfavorable foreign exchange rate impact.

Additionally, COVID-19 subsidies were received in 2021 that did not continue in 2022.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended

April 2, 2022 April 3, 2021

Fiscal quarter ended Six fiscal months ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Total SG&A expenses $ 25,879 $ 22,453 $ 52,553 $ 44,636

As a percentage of net revenues 29.2 % 29.8 % 29.8 % 30.6 %

SG&A expenses for the fiscal quarter ended April 2, 2022 increased $4.5 million compared to the comparable prior year periods, with $4.1 million of the increase driven by SG&A expenses from DTS, which was acquired in June of 2021.

The remaining increase is from additional SG&A expenses related to wage increases and other costs.

SG&A expenses for the fiscal quarter ended July 2, 2022 increased $3.4 million compared to the comparable prior year period, with $2.3 million of the increase driven by SG&A expenses from DTS, which was acquired in June of 2021.

The remaining increase is from additional SG&A expenses related to wage increases, travel costs, and commissions.

SG&A expenses for the six fiscal months ended July 2, 2022 increased $7.9 million compared to the comparable prior year periods with $6.1 million of the increase driven by SG&A expenses from DTS.

The remaining increase is from additional SG&A expenses related to wage increases, commissions, and other costs.

Impairment of Goodwill and Indefinite-lived Intangible Assets

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

Acquisition Costs

For the fiscal quarter and six fiscal months ended July 3, 2021, we recorded Acquisition Costs associated with the acquisition of DTS as follows (in thousands):

Fiscal quarter ended Six fiscal months ended

July 3, 2021 July 3, 2021

Legal fees $ 341 $ 341

Appraisal fees 18 18

Other (investment banker and insurance costs) 839 839

$ 1,198 $ 1,198

Restructuring Costs

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

The Company recorded $0.3 million and $0.0 million of restructuring costs during the fiscal quarter ended April 2, 2022 and April 3, 2021, respectively.

Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, in connection with the closure of one of our facilities.

The Company recorded $0.9 million and $0.0 million of restructuring costs during the fiscal quarter ended July 2, 2022 and July 3, 2021, respectively, and $1.2 million and $0.0 million of restructuring costs during the six fiscal months ended July 2, 2022 and July 3, 2021, respectively.

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

Other Income (Expense)

Interest expense for the fiscal quarter ended April 2, 2022 was comparable with interest expense for the fiscal quarter ended April 3, 2021.

Interest expense for the fiscal quarter and six fiscal months ended July 2, 2022 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2022.

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

Fiscal quarter ended

April 2, 2022 April 3, 2021 Change

July 2, 2022 July 3, 2021 Change

Foreign exchange gain (loss) $ 3,380 $ (174) $ 3,554

Interest income 80 20 60

Pension expense (104) (143) 39

Other (12) (29) 17

$ 3,344 $ (326) $ 3,670

Six fiscal months ended

July 2, 2022 July 3, 2021 Change

Foreign exchange gain $ 3,934 $ 561 $ 3,373

3 unchanged sentences

$ 3,783 $ 247 $ 3,536

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

For the fiscal quarter ended April 2, 2022, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar, the Israeli shekel, the Japanese yen and the British pound.

Included in Other for the fiscal quarter ended April 2, 2022 is a $0.2 million loss on liquidation of two of the Company's European subsidiaries.

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

For the fiscal quarter and six fiscal months ended July 2, 2022, the change in foreign exchange gains and losses during the period, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Japanese yen and the British pound.

The change in the dollar-shekel exchange rate resulted in a favorable foreign exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility in Israel.

Included in Other for the six fiscal months ended July 2, 2022 is a $0.2 million loss on liquidation of two of the Company's European subsidiaries.

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

The effective tax rate for the fiscal quarter ended April 2, 2022 was 20.7% compared to 26.3% for the fiscal quarter ended April 3, 2021 The tax rate for the fiscal quarter ended April 2, 2022 is lower than the prior year period primarily due to the reduction of the valuation allowance on certain tax credits.

The effective tax rate for the fiscal quarter ended July 2, 2022 was 19.2% compared to 6.1% for the fiscal quarter ended July 3, 2021.

The effective tax rate for the fiscal quarter ended July 2, 2022 was higher than the prior year period primarily due to foreign exchange gains and losses, offset by tax rate changes and a reduction in our valuation allowance on deferred tax assets.

The effective tax rate for the six fiscal months ended July 2, 2022 was 19.8% compared to 18.4% for the six fiscal months ended July 3, 2021.

The effective tax rate for the six fiscal months ended July 2, 2022 was higher than the prior year period primarily due to changes in the mix of worldwide income and foreign exchange gains and losses, offset by tax rate changes and a reduction in our valuation allowance on deferred tax assets.

On December 28, 2021, the United States Treasury Department and the Internal Revenue Service issued final regulations relating to the foreign tax credit and clarifying the rules relating to foreign derived intangible income.

27 unchanged sentences

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

Our business has historically generated significant cash flow, however, in the first quarter of 2022, our working capital needs, driven by our high backlog, impacted our cash from operation.

For the three fiscal months ended April 2, 2022, cash used in operating activities was $0.3 million compared to cash provided by operations of $5.6 million in the comparable prior year period.

Our net cash used in investing activities for the three fiscal months ended April 2, 2022 was lower compared to the prior year period mainly due to slightly lower capital spending.

Our net cash used in financing activities for the three fiscal months ended April 2, 2022 was comparable to prior year period.

Approximately 89% and 87% of our cash and cash equivalents balance at April 2, 2022 and December 31, 2021, respectively, was held by our non-U.S.

Our business has historically generated significant cash flow.

For the six fiscal months ended July 2, 2022, cash provided by operating activities was $8.8 million compared to cash provided by operations of $12.4 million in the comparable prior year period.

The decrease in cash provided by operations was due to our working capital needs to support our increased level backlog.

We also had significant cash payments for bonuses in first half of fiscal 2022 compared to the first half of fiscal 2021.

Our net cash used in investing activities for the six fiscal months ended July 2, 2022 was lower compared to the prior year period mainly due to the acquisition of DTS which took place in the second quarter of 2021.

Our net cash used in financing activities for the six fiscal months ended July 2, 2022 was lower than the comparable to prior year period due to the 2021 borrowings in connection with the acquisition of DTS.

Approximately 92% and 87% of our cash and cash equivalents balance at July 2, 2022 and December 31, 2021, respectively, was held by our non-U.S.

subsidiaries.

See the following table for the percentage of cash and cash equivalents, by region, at April 2, 2022 and December 31, 2021:

April 2, 2022 December 31, 2021

See the following table for the percentage of cash and cash equivalents, by region, at July 2, 2022 and December 31, 2021:

July 2, 2022 December 31, 2021

Israel 18 % 25 %

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Canada 12 % 8 %

We earn a significant amount of our operating income outside the United States, and we consider the majority of the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, as of April 2, 2022.

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

As a result, as discussed

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

The Company will continue to evaluate its cash needs.

However, we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what

is already planned.

However, we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned.

The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner.

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

Adjusted free cash flow generated during the three fiscal months ended April 2, 2022, was $(4.6) million.

Adjusted free cash flow generated during the six fiscal months ended July 2, 2022, was $0.3 million.

We refer to the amount of cash provided by operating activities ($8.8 million) in excess of our capital expenditures ($8.8 million) and net of proceeds from the sale of assets ($0.3 million) as “adjusted free cash flow.”

The following table summarizes the components of net cash at April 2, 2022 and December 31, 2021 (in thousands) :

April 2, 2022 December 31, 2021

The following table summarizes the components of net cash at July 2, 2022 and December 31, 2021 (in thousands) :

July 2, 2022 December 31, 2021

Cash and cash equivalents $ 79,429 $ 84,335

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

Our financial condition as of April 2, 2022 remains strong, with a current ratio (current assets to current liabilities) of 4.0 to 1.0, as compared to a ratio of 3.6 to 1.0 at December 31, 2021.

Cash paid for property and equipment for the three fiscal months ended April 2, 2022 was $4.3 million compared to $5.7 million in the comparable prior year period.

As of April 2, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

Our financial condition as of July 2, 2022 remains strong, with a current ratio (current assets to current liabilities) of 4.0 to 1.0, as compared to a ratio of 3.6 to 1.0 at December 31, 2021.

Cash paid for property and equipment for the six fiscal months ended July 2, 2022 was $8.8 million compared to $8.3 million in the comparable prior year period.

As of July 2, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

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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;

compliance issues under applicable laws, such as export control laws, including the outcome of our voluntary self-disclosure of export control non-compliance ;

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

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

We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report or as of the dates otherwise indicated in such forward-looking statements.

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

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis