Vishay Precision Group, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) July 2, 2022 December 31, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 79,429 $ 84,335 Accounts receivable, net 58,674 58,265 Inventories: Raw materials 29,484 25,464 Work in process 28,126 23,851 Finished goods 26,728 27,112 Inventories, net 84,338 76,427 Prepaid expenses and other current assets 15,228 15,916 Total current assets 237,669 234,943 Property and equipment: Land 4,119 4,241 Buildings and improvements 68,339 68,778 Machinery and equipment 122,388 122,202 Software 9,303 8,871 Construction in progress 8,305 7,747 Accumulated depreciation ( 130,506 ) ( 130,619 ) Property and equipment, net 81,948 81,220 Goodwill 45,872 45,830 Intangible assets, net 50,426 52,437 Operating lease right-of-use assets 25,783 27,764 Other assets 16,680 19,695 Total assets $ 458,378 $ 461,889 Continues on the following page. -3- VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) July 2, 2022 December 31, 2021 Liabilities and equity Current liabilities: Trade accounts payable $ 13,172 $ 14,876 Payroll and related expenses 17,872 23,772 Other accrued expenses 23,562 17,596 Income taxes 478 3,774 Current portion of operating lease liabilities 4,343 4,610 Total current liabilities 59,427 64,628 Long-term debt, less current portion 60,758 60,714 Deferred income taxes 6,096 5,848 Operating lease liabilities 21,749 25,140 Other liabilities 14,157 16,264 Accrued pension and other postretirement costs 10,841 12,253 Total liabilities 173,028 184,847 Commitments and contingencies Equity: Common stock 1,325 1,322 Class B convertible common stock 103 103 Treasury stock ( 8,765 ) ( 8,765 ) Capital in excess of par value 199,749 199,151 Retained earnings 137,407 120,296 Accumulated other comprehensive loss ( 44,581 ) ( 35,008 ) Total Vishay Precision Group, Inc. stockholders' equity 285,238 277,099 Noncontrolling interests 112 ( 57 ) Total equity 285,350 277,042 Total liabilities and equity $ 458,378 $ 461,889 See accompanying notes. -4- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Fiscal quarter ended July 2, 2022 July 3, 2021 Net revenues $ 88,618 $ 75,339 Costs of products sold 51,284 45,541 Gross profit 37,334 29,798 Selling, general, and administrative expenses 25,879 22,453 Acquisition costs — 1,198 Impairment of goodwill and indefinite-lived intangibles — 1,223 Restructuring costs 904 — Operating income 10,551 4,924 Other income (expense): Interest expense ( 428 ) ( 273 ) Other 3,344 ( 326 ) Other income (expense) 2,916 ( 599 ) Income before taxes 13,467 4,325 Income tax expense 2,587 262 Net earnings 10,880 4,063 Less: net earnings attributable to noncontrolling interests 125 143 Net earnings attributable to VPG stockholders $ 10,755 $ 3,920 Basic earnings per share attributable to VPG stockholders $ 0.79 $ 0.29 Diluted earnings per share attributable to VPG stockholders $ 0.79 $ 0.29 Weighted average shares outstanding - basic 13,648 13,618 Weighted average shares outstanding - diluted 13,692 13,646 See accompanying notes. -5- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Six fiscal months ended July 2, 2022 July 3, 2021 Net revenues $ 176,283 $ 145,928 Costs of products sold 103,699 87,508 Gross profit 72,584 58,420 Selling, general, and administrative expenses 52,553 44,636 Acquisition costs — 1,198 Impairment of goodwill and indefinite-lived intangibles — 1,223 Restructuring costs 1,165 — Operating income 18,866 11,363 Other income (expense): Interest expense ( 757 ) ( 578 ) Other 3,783 247 Other income (expense) 3,026 ( 331 ) Income before taxes 21,892 11,032 Income tax expense 4,328 2,026 Net earnings 17,564 9,006 Less: net earnings attributable to noncontrolling interests 453 125 Net earnings attributable to VPG stockholders $ 17,111 $ 8,881 Basic earnings per share attributable to VPG stockholders $ 1.25 $ 0.65 Diluted earnings per share attributable to VPG stockholders $ 1.25 $ 0.65 Weighted average shares outstanding - basic 13,643 13,605 Weighted average shares outstanding - diluted 13,684 13,638 See accompanying notes. -6- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Fiscal quarter ended July 2, 2022 July 3, 2021 Net earnings $ 10,880 $ 4,063 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 7,943 ) 607 Pension and other postretirement actuarial items 81 109 Other comprehensive income (loss) ( 7,862 ) 716 Comprehensive income 3,018 4,779 Less: comprehensive income attributable to noncontrolling interests 125 143 Comprehensive income attributable to VPG stockholders $ 2,893 $ 4,636 See accompanying notes. -7- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Six fiscal months ended July 2, 2022 July 3, 2021 Net earnings $ 17,564 $ 9,006 Other comprehensive income (loss): Foreign currency translation adjustment ( 9,735 ) ( 1,193 ) Pension and other postretirement actuarial items, net of tax 162 318 Other comprehensive loss ( 9,573 ) ( 875 ) Comprehensive income 7,991 8,131 Less: comprehensive income attributable to noncontrolling interests 453 125 Comprehensive income attributable to VPG stockholders $ 7,538 $ 8,006 See accompanying notes. -8- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) Six fiscal months ended July 2, 2022 July 3, 2021 Operating activities Net earnings $ 17,564 $ 9,006 Adjustments to reconcile net earnings to net cash provided by operating activities: Impairment of goodwill and indefinite-lived intangibles — 1,223 Depreciation and amortization 7,622 7,108 Loss (gain) on sale of property and equipment ( 178 ) 44 Reclassification of foreign currency translation adjustment related to disposal of subsidiary 191 — Share-based compensation expense 1,024 942 Inventory write-offs for obsolescence 866 1,135 Deferred income taxes 1,116 ( 1,110 ) Other ( 3,485 ) ( 1,820 ) Net changes in operating assets and liabilities: Accounts receivable, net ( 3,434 ) ( 776 ) Inventories, net ( 10,739 ) ( 7,744 ) Prepaid expenses and other current assets 254 314 Trade accounts payable 14 1,715 Other current liabilities ( 2,059 ) 2,341 Net cash provided by operating activities 8,756 12,378 Investing activities Capital expenditures ( 8,815 ) ( 8,309 ) Proceeds from sale of property and equipment 380 16 Purchase of business, net of cash acquired — ( 47,216 ) Net cash used in investing activities ( 8,435 ) ( 55,509 ) Financing activities Principal payments on long-term debt — ( 18 ) Proceeds from revolving facility — 20,000 Distributions to noncontrolling interests ( 284 ) ( 167 ) Payments of employee taxes on certain share-based arrangements ( 435 ) ( 846 ) Net cash (used in) provided by financing activities ( 719 ) 18,969 Effect of exchange rate changes on cash and cash equivalents ( 4,508 ) ( 820 ) Decrease in cash and cash equivalents ( 4,906 ) ( 24,982 ) Cash and cash equivalents at beginning of period 84,335 98,438 Cash and cash equivalents at end of period $ 79,429 $ 73,456 Supplemental disclosure of investing transactions: Capital expenditures purchased $ ( 8,432 ) $ ( 6,353 ) Capital expenditures accrued but not yet paid $ 2,684 $ 606 See accompanying notes. -9- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Fiscal quarter ended July 2, 2022 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at April 2, 2022 $ 1,324 $ 103 $ ( 8,765 ) $ 199,223 $ 126,652 $ ( 36,719 ) $ 281,818 $ 25 $ 281,843 Net earnings — — — — 10,755 — 10,755 125 10,880 Other comprehensive loss — — — — — ( 7,862 ) ( 7,862 ) — ( 7,862 ) Share-based compensation expense — — — 527 — — 527 — 527 Restricted stock issuances ( 10,531 shares) 1 — — ( 1 ) — — — — — Distributions to noncontrolling interests — — — — — — — ( 38 ) ( 38 ) Balance at July 2, 2022 $ 1,325 $ 103 $ ( 8,765 ) $ 199,749 $ 137,407 $ ( 44,581 ) $ 285,238 $ 112 $ 285,350 Fiscal quarter ended July 3, 2021 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at April 3, 2021 $ 1,320 $ 103 $ ( 8,765 ) $ 197,282 $ 105,036 $ ( 34,262 ) $ 260,714 $ ( 95 ) $ 260,619 Net earnings — — — — 3,920 — 3,920 143 4,063 Other comprehensive income — — — — — 716 716 — 716 Share-based compensation expense — — — 576 — — 576 — 576 Restricted stock issuances ( 15,564 shares) 2 — — ( 2 ) — — — — — Distribution to noncontrolling interests — — — — — — — ( 56 ) ( 56 ) Balance at July 3, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 197,856 $ 108,956 $ ( 33,546 ) $ 265,926 $ ( 8 ) $ 265,918 See accompanying notes. -10- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Six Fiscal Months Ended July 2, 2022 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 199,151 $ 120,296 $ ( 35,008 ) $ 277,099 $ ( 57 ) $ 277,042 Net earnings — — — — 17,111 — 17,111 453 17,564 Other comprehensive loss — — — — — ( 9,573 ) ( 9,573 ) — ( 9,573 ) Share-based compensation expense — — — 1,024 — — 1,024 — 1,024 Restricted stock issuances ( 28,368 shares) 3 — — ( 426 ) — — ( 423 ) — ( 423 ) Distributions to noncontrolling interests — — — — — — — ( 284 ) ( 284 ) Balance at July 2, 2022 $ 1,325 $ 103 $ ( 8,765 ) $ 199,749 $ 137,407 $ ( 44,581 ) $ 285,238 $ 112 $ 285,350 Six Fiscal Months Ended July 3, 2021 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2020 $ 1,317 $ 103 $ ( 8,765 ) $ 197,764 $ 100,075 $ ( 32,671 ) $ 257,823 $ 34 $ 257,857 Net earnings — — — — 8,881 — 8,881 125 9,006 Other comprehensive loss — — — — — ( 875 ) ( 875 ) — ( 875 ) Share-based compensation expense — — — 942 — — 942 — 942 Restricted stock issuances ( 50,316 shares) 5 — — ( 850 ) — — ( 845 ) — ( 845 ) Distribution to noncontrolling interests — — — — — — — ( 167 ) ( 167 ) Balance at July 3, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 197,856 $ 108,956 $ ( 33,546 ) $ 265,926 $ ( 8 ) $ 265,918 See accompanying notes. -11- Vishay Precision Group, Inc. Notes to Unaudited Consolidated Condensed Financial Statements Note 1 – Basis of Presentation Background Vishay Precision Group, Inc. (“VPG” or the “Company”) is 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. Interim Financial Statements These unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 4, 2022. The results of operations for the fiscal quarter ended July 2, 2022 are not necessarily indicative of the results to be expected for the full year. VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2022 and 2021 end on the following dates: 2022 2021 Quarter 1 April 2, April 3, Quarter 2 July 2, July 3, Quarter 3 October 1, October 2, Quarter 4 December 31, December 31, Note 2 – Revenues Revenue Recognition The following table disaggregates net revenue by geographic region from contracts with customers based on net revenues generated by subsidiaries within that geographic location (in thousands) : -12- Note 2 – Revenues (continued) Fiscal quarter ended July 2, 2022 Fiscal quarter ended July 3, 2021 Sensors Weighing Solutions Measurement Systems Total Sensors Weighing Solutions Measurement Systems Total United States $ 13,469 $ 12,463 $ 11,308 $ 37,240 $ 9,437 $ 12,932 $ 7,226 $ 29,595 United Kingdom 933 3,859 161 4,953 744 4,195 358 5,297 Other Europe 8,024 8,820 1,117 17,961 6,396 9,897 534 16,827 Israel 8,050 110 — 8,160 5,284 261 — 5,545 Asia 9,804 3,207 811 13,822 9,315 4,390 1,027 14,732 Canada — — 6,482 6,482 — — 3,343 3,343 Total $ 40,280 $ 28,459 $ 19,879 $ 88,618 $ 31,176 $ 31,675 $ 12,488 $ 75,339 Six Fiscal Months Ended July 2, 2022 Six Fiscal Months Ended July 3, 2021 Sensors Weighing Solutions Measurement Systems Total Sensors Weighing Solutions Measurement Systems Total United States $ 26,475 $ 26,541 $ 21,773 $ 74,789 $ 19,143 $ 25,512 $ 10,857 $ 55,512 United Kingdom 1,810 8,193 459 10,462 1,604 8,775 396 10,775 Other Europe 15,816 19,351 2,999 38,166 13,577 19,830 722 34,129 Israel 15,381 300 — 15,681 11,725 391 — 12,116 Asia 18,548 6,842 1,821 27,211 16,942 8,126 1,882 26,950 Canada — — 9,974 9,974 — 9 6,437 6,446 Total $ 78,030 $ 61,227 $ 37,026 $ 176,283 $ 62,991 $ 62,643 $ 20,294 $ 145,928 The following table disaggregates net revenue from contracts with customers by market sector (in thousands) . Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Test & Measurement $ 21,483 $ 16,279 $ 39,456 $ 30,695 Avionics, Military & Space 6,878 5,872 15,040 11,902 Transportation 13,195 11,930 27,149 21,484 Other Markets 18,035 17,489 39,185 35,034 Industrial Weighing 12,944 12,042 26,153 24,047 General Industrial 5,325 4,173 11,191 8,255 Steel 10,758 7,554 18,109 14,511 Total $ 88,618 $ 75,339 $ 176,283 $ 145,928 Contract Assets & Liabilities Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations. Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due is not significant. The outstanding contract assets and liability accounts were as follows (in thousands) : -13- Note 2 – Revenues (continued) Contract Asset Contract Liability Unbilled Revenue Accrued Customer Advances Balance at December 31, 2021 $ 3,570 $ 4,765 Balance at July 2, 2022 2,416 8,407 (Decrease)/increase $ ( 1,154 ) $ 3,642 The amount of revenue recognized during the six fiscal months ended July 2, 2022 that was included in the contract liability balance at December 31, 2021 was $ 2.7 million. Note 3 - Acquisition Diversified Technical Systems, Inc. On June 1, 2021, VPG completed the acquisition of California-based Diversified Technical Systems, Inc. (“DTS”), a manufacturer of data acquisition systems and sensors for product safety and testing, for a purchase price of $ 47.2 million. The Company used cash on hand and borrowings under its revolving credit facility to fund the purchase price under the purchase agreement. DTS reports into the Company's Measurement Systems segment. The following table summarizes the final fair values assigned to the assets and liabilities of DTS as of June 1, 2021 (in thousands): June 1, 2021 Working capital $ 12,494 Property and equipment 1,209 Deferred income tax liability ( 6,215 ) Intangible assets: Acquired technology 13,167 Customer relationships 8,135 Trade names 2,393 Total intangible assets 23,695 Fair value of acquired identifiable assets 31,183 Purchase price $ 47,216 Goodwill $ 16,033 The Company utilizes certain valuations and studies to determine the fair value of the tangible and intangible assets acquired. The estimated weighted average useful lives for the acquired technology and customer relationships are 15 years. Trade names are treated as indefinite-lived intangible assets. None of the goodwill associated with DTS is deductible for income tax purposes. The Company recorded acquisition costs associated with this transaction of $ 1.2 million in the second quarter of 2021, which included legal fees, appraisal fees, investments banker fees and insurance costs. Included in the results of the operations of the Company for the fiscal quarter ended July 2, 2022, are net revenues of $ 6.9 million from DTS and a net loss of $ 0.6 million from DTS. DTS results include amortization of the inventory step-up of $ 0.7 million for the fiscal quarter ended July 2, 2022, and amortization of intangible assets of $ 0.4 million for the fiscal quarter ended July 2, 2022. Included in the results of the operations of the Company for the six fiscal months ended July 2, 2022 are net revenues of $ 14.6 million from DTS and a net loss of $ 0.5 million from DTS. DTS results include amortization of the inventory step-up of $ 1.1 million and amortization of intangible assets of $ 0.7 million for the six fiscal months ended July 2, 2022. Following is the supplemental consolidated financial results for the Company on an unaudited pro forma basis, as if the DTS acquisition had been consummated on January 1, 2021: -14- Fiscal quarter ended Six fiscal months ended July 3, 2021 July 3, 2021 Pro forma net revenues $ 80,243 $ 159,164 Pro forma net earnings attributable to VPG stockholders $ 6,929 $ 12,262 Pro forma basic earnings per share attributable to VPG stockholders $ 0.51 $ 0.90 Pro forma diluted earnings per share attributable to VPG stockholders $ 0.51 $ 0.90 Note 4 – Goodwill The Company tests the goodwill in each of its goodwill reporting units for impairment at least annually, as of the first day of its fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. The change in the carrying amount of goodwill by segment is as follows (in thousands): Total Measurement Systems Weighing Solutions KELK Acquisition DSI Acquisition DTS Acquisition Stress-Tek Acquisition Balance at December 31, 2021 $ 45,830 $ 6,706 $ 16,910 $ 15,903 $ 6,311 Adjustment to goodwill acquired 130 — — 130 — Foreign currency translation adjustment ( 88 ) ( 58 ) ( 30 ) — — Balance at July 2, 2022 $ 45,872 $ 6,648 $ 16,880 $ 16,033 $ 6,311 Note 5 – Leases The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to fourteen years . The Company has no finance leases. Leases recorded on the balance sheet consist of the following (in thousands) : Leases July 2, 2022 December 31, 2021 Assets Operating lease right of use asset $ 25,783 $ 27,764 Liabilities Operating lease - current $ 4,343 $ 4,610 Operating lease - non-current $ 21,749 $ 25,140 Other information related to lease term and discount rate is as follows: July 2, 2022 Operating leases weighted average remaining lease term (in years) 8.09 years Operating leases weighted average discount rate 3.1 % The components of lease expense are as follows (in thousands) : -15- Note 5 - Leases (continued) Fiscal quarter ended Six Fiscal Months Ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Operating lease cost $ 1,299 $ 1,258 $ 2,609 $ 2,439 Short-term lease cost 17 35 42 68 Sublease income ( 105 ) ( 19 ) ( 217 ) ( 28 ) Total net lease cost $ 1,211 $ 1,274 $ 2,434 $ 2,479 Right of use assets obtained in exchange for new operating lease liability during 2021 were $ 0.5 million. The Company paid $ 2.6 million and $ 2.4 million for its operating leases for each of the six fiscal months ended July 2, 2022 and July 3, 2021, which are included in operating cash flows on the consolidated condensed statements of cash flows. Undiscounted maturities of operating lease payments as of July 2, 2022 are summarized as follows (in thousands) : 2022 (excluding the six months ended July 2, 2022) $ 2,463 2023 4,510 2024 3,851 2025 3,270 2026 2,945 Thereafter 12,421 Total future minimum lease payments $ 29,460 Less: amount representing interest ( 3,368 ) Present value of future minimum lease payments $ 26,092 Note 6 – Income Taxes VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter ended July 2, 2022 was 19.2 % compared to 6.1 % for the fiscal quarter ended July 3, 2021. 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. 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. These new regulations apply to tax years beginning on or after December 28, 2021. The Company is still in the process of analyzing the potential tax impact that these regulations could have on the Company’s tax position. The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. Note 7 – Long-Term Debt Long-term debt consists of the following (in thousands) : July 2, 2022 December 31, 2021 2020 Credit Agreement - Revolving Facility $ 61,000 $ 61,000 Deferred financing costs ( 242 ) ( 286 ) Total long-term debt $ 60,758 $ 60,714 -16- Note 7 - Long-Term Debt (continued) Note 8 – Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in thousands) : Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2022 $ ( 30,276 ) $ ( 4,732 ) $ ( 35,008 ) Other comprehensive loss before reclassifications ( 9,926 ) — ( 9,926 ) Amounts reclassified from accumulated other comprehensive income 191 162 353 Balance at July 2, 2022 $ ( 40,011 ) $ ( 4,570 ) $ ( 44,581 ) Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2021 $ ( 25,591 ) $ ( 7,080 ) $ ( 32,671 ) Other comprehensive loss before reclassifications ( 1,193 ) — ( 1,193 ) Amounts reclassified from accumulated other comprehensive income — 318 318 Balance at July 3, 2021 $ ( 26,784 ) $ ( 6,762 ) $ ( 33,546 ) Reclassification of foreign currency translation adjustment for the loss on liquidation of subsidiaries is included in other income and expense other (see Note 13) . Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9). Note 9 – Pension and Other Postretirement Benefits Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. The following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands) : -17- Note 9 - Pension and Other Postretirement Benefits ( continued) Fiscal quarter ended July 2, 2022 Fiscal quarter ended July 3, 2021 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 81 $ 7 $ 96 $ 9 Interest cost 120 17 103 17 Expected return on plan assets ( 119 ) — ( 97 ) — Amortization of actuarial losses 72 1 102 5 Net periodic benefit cost $ 154 $ 25 $ 204 $ 31 Six fiscal months ended July 2, 2022 Six fiscal months ended July 3, 2021 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 165 $ 14 $ 193 $ 18 Interest cost 243 34 206 34 Expected return on plan assets ( 242 ) — ( 194 ) — Amortization of actuarial losses 146 2 204 10 Net periodic benefit cost $ 312 $ 50 $ 409 $ 62 Note 10 – Share-Based Compensation On May 26, 2022, t he Company’s stockholders voted to approve the adoption of the Vishay Precision Group, Inc. 2022 Stock Incentive Plan (the "2022 plan"), which replaced the Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (the "previous plan"). The 2022 plan permits issuance of up to 608,000 shares of common stock, which includes approximately 308,000 shares that were reserved for issuance under the previous plan and up to an additional 197,685 additional shares underlying awards outstanding under the previous plan. At July 2, 2022, the Company had reserved 591,466 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the 2022 plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others. If shares are withheld for payment of taxes, those shares do not become available for grant under the 2022 plan. On March 3, 2022 and in accordance with their respective employment agreements, VPG’s three executive officers were granted annual equity awards in the form of RSUs, of which 50 % are performance-based. The awards have an aggregate target grant-date fair value of $ 1.5 million and were comprised of 47,831 RSUs. Fifty percent of these awards will vest on January 1, 2025, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2025, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and "net earnings goals", each weighted equally. On March 9, 2022, certain non-executive VPG employees were granted annual equity awards in the form of RSUs. Certain employees received awards, of which 75 % are performance-based and certain employees received awards of which 50 % are performance-based. The awards have an aggregate grant-date fair value of $ 0.5 million and were comprised of 16,324 RSUs. The non-performance portion of these awards ( twenty-five percent for certain employees and fifty percent for certain employees) will vest on January 1, 2025 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2025, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings and cash flow goals, each weighted equally. On January 1, 2022 and in accordance with the Company's 2017 Non-Employee Director Compensation Plan (the "Director Plan"), the Board of Directors approved the issuance of an aggregate of 595 RSUs to the newly-appointed independent member of the Board of Directors. This award represented a pro-rated portion of the annual equity grant made to non-executive directors pursuant to the Director Plan. The aggregate grant-date fair value of this award is immaterial, and the award vested on May 26, 2022, the date of the 2022 Annual Stockholders Meeting. -18- Note 10 - Share-Based Compensation (continued) On May 26, 2022 and in accordance with the Company's 2017 Non-Employee Director Compensation Plan, the Board of Directors approved the issuance of an aggregate of 16,534 RSUs to the independent board members of the Board of Directors and to the non-executive Chairman of the Board of Directors. The awards have an aggregate grant-date fair value of $ 0.5 million and will vest on the earlier of the 2023 Annual Stockholders Meeting or May 26, 2023, subject to the directors' continued service on the Board of Directors. Vesting of equity awards is subject to acceleration under certain circumstances. The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands) : Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Restricted stock units $ 527 $ 576 $ 1,024 $ 942 Note 11 – Segment Information VPG reports in three product segments: the Sensors segment, the Weighing Solutions segment, and the 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. The chief operating decision maker ("CODM") is our chief executive officer. The CODM evaluates each operating segment's performance. The evaluation of the segment's performance is based on multiple performance measures including gross profits, revenues, and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring and severance costs, impairment of goodwill and indefinite-lived intangible assets, acquisition costs, and other items is meaningful because they relate to occurrences or events that are outside of our core operations, and management believes that the use of these measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. The following table sets forth reporting segment information. The reporting segment information reported for the fiscal quarter and six fiscal months ended July 3, 2021 has been recast to reflect the new reporting segments adopted by the Company in the fourth quarter of 2021, as described in the consolidated financial statements as of December 31, 2021, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 4, 2022 (in thousands) : -19- Note 11 - Segment Information (continued) Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Net revenues: Sensors $ 40,280 $ 31,176 $ 78,030 $ 62,991 Weighing Solutions 28,459 31,675 61,227 62,643 Measurement Systems 19,879 12,488 37,026 20,294 Total $ 88,618 $ 75,339 $ 176,283 $ 145,928 Gross profit: Sensors $ 17,831 $ 12,120 $ 32,117 $ 24,953 Weighing Solutions 9,585 11,791 21,664 23,565 Measurement Systems 9,918 5,887 18,803 9,902 Total $ 37,334 $ 29,798 $ 72,584 $ 58,420 Reconciliation of segment operating income to consolidated results: Sensors $ 13,060 $ 7,477 $ 22,018 $ 15,146 Weighing Solutions 4,177 6,097 10,391 11,914 Measurement Systems 3,263 1,714 5,474 2,388 Unallocated G&A expenses ( 9,045 ) ( 7,943 ) ( 17,852 ) ( 15,664 ) Acquisition costs — ( 1,198 ) — ( 1,198 ) Impairment of goodwill and indefinite-lived intangibles — ( 1,223 ) — ( 1,223 ) Restructuring costs ( 904 ) — ( 1,165 ) — Operating income $ 10,551 $ 4,924 $ 18,866 $ 11,363 Acquisition costs: Measurement Systems — ( 1,198 ) — ( 1,198 ) $ — $ ( 1,198 ) $ — $ ( 1,198 ) Impairment of goodwill and indefinite-lived intangibles: Measurement Systems — ( 1,223 ) — ( 1,223 ) $ — $ ( 1,223 ) $ — $ ( 1,223 ) Restructuring costs: Sensors $ ( 904 ) $ — $ ( 1,107 ) $ — Measurement Systems — — ( 58 ) — $ ( 904 ) $ — $ ( 1,165 ) $ — Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. The table below summarizes intersegment sales (in thousands) : Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Sensors to Weighing Solutions $ 433 $ 951 $ 822 $ 1,905 Sensors to Measurement Systems 98 7 159 15 -20- Note 12 – Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share) : Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Numerator: Numerator for basic earnings per share: Net earnings attributable to VPG stockholders $ 10,755 $ 3,920 $ 17,111 $ 8,881 Denominator: Denominator for basic earnings per share: Weighted average shares 13,648 13,618 13,643 13,605 Effect of dilutive securities: Restricted stock units 44 28 41 33 Dilutive potential common shares 44 28 41 33 Denominator for diluted earnings per share: Adjusted weighted average shares 13,692 13,646 13,684 13,638 Basic earnings per share attributable to VPG stockholders $ 0.79 $ 0.29 $ 1.25 $ 0.65 Diluted earnings per share attributable to VPG stockholders $ 0.79 $ 0.29 $ 1.25 $ 0.65 Note 13 – Additional Financial Statement Information Other Income (Expense) Other The caption “Other” on the consolidated condensed statements of operations consists of the following (in thousands) : Fiscal quarter ended Six fiscal months ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Foreign exchange gain (loss) $ 3,380 $ ( 174 ) $ 3,934 $ 561 Interest income 80 20 144 65 Pension expense ( 104 ) ( 143 ) ( 180 ) ( 280 ) Other ( 12 ) ( 29 ) ( 115 ) ( 99 ) $ 3,344 $ ( 326 ) $ 3,783 $ 247 -21- 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 the liquidation of two of the Company's European subsidiaries. Note 14 – Fair Value Measurements ASC Topic 820, Fair Value Measurement, establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the Company’s own assumptions. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands) : Fair value measurements at reporting date using: Total Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs July 2, 2022 Assets Assets held in rabbi trusts $ 5,477 $ 97 $ 5,380 $ — December 31, 2021 Assets Assets held in rabbi trusts $ 6,158 $ 49 $ 6,109 $ — The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at July 2, 2022 and December 31, 2021, and company-owned life insurance assets. The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the cash equivalents held in the rabbi trust are considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy. The fair value of the long-term debt, excluding capitalized deferred financing costs, at July 2, 2022 and December 31, 2021 approximates its carrying value as the revolving debt is reset on a monthly basis based on current market rates, plus a base rate as specified in the debt agreement. The fair value of long-term debt is considered a Level 2 measurement within the fair value hierarchy. The Company’s financial instruments include cash and cash equivalents, accounts receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values. Note 15 – Restructuring Costs Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially -22- recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges. The Company recorded $ 0.9 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, and were incurred in connection with various cost reduction programs. The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of July 2, 2022 and December 31, 2021, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands) : Balance at December 31, 2021 $ — Restructuring charges in 2022 1,165 Cash payments ( 616 ) Foreign currency translation 8 Balance at July 2, 2022 $ 557 Note 16 – Subsequent Event On August 8, 2022, the Company announced that its Board of Directors approved a stock repurchase plan, authorizing the Company to repurchase in the aggregate up to 600,000 shares of its outstanding common stock until August 11, 2023. -23-