What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 126 added, 132 removed, 347 unchanged (43% of the section changed)

8 unchanged sentences

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 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.

Overview of Financial Results

4 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 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.

Net revenues for the fiscal quarter ended October 1, 2022 were $90.1 million versus $82.0 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended October 1, 2022 were $10.1 million, or $0.74 per diluted share, versus $5.4 million, or $0.39 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended October 1, 2022 were $266.3 million versus $227.9 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the nine fiscal months ended October 1, 2022 were $27.2 million, or $1.99 per diluted share, versus $14.3 million, or $1.04 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter and nine fiscal months ended October 1, 2022 and October 2, 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.

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

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

Three months ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

As reported - GAAP $ 37,320 $ 31,845 $ 11,884 $ 7,265 $ 10,118 $ 5,379 $ 0.74 $ 0.39

1 unchanged sentence

Acquisition purchase accounting adjustments (a) 260 1,329 260 1,329 260 1,329 0.02 0.10

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

COVID-19 impact (b) — 111 — 111 — 111 — 0.01

Start-up costs (c) — 970 — 970 — 970 — 0.07

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

Restructuring costs — 165 — 165 — 0.01 —

Foreign exchange (gain)/loss (d) — — (3,380) 174 (0.25) 0.01

Foreign currency exchange (gain)/loss (d) — — (1,261) 38 (0.09) 0.01

Tax effect of reconciling items and discrete tax items — — (194) 754 (0.01) 0.06

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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

Nine fiscal months ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

As reported - GAAP 109,904 90,265 30,750 18,628 $ 27,229 $ 14,260 $ 1.99 $ 1.04

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Restructuring costs 1,330 — 1,330 — 0.10 —

Foreign exchange (gain)/loss (d)

Foreign currency exchange (gain)/loss (d)

(5,195) (523) (0.38) (0.04)

2 unchanged sentences

As Adjusted - Non GAAP Margins 41.9 % 41.6 % 12.6 % 11.0 %

Three months ended Six fiscal months ended

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

Three months ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net earnings attributable to VPG stockholders $ 10,118 $ 5,379 $ 27,341 $ 14,260

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Start-up costs (c) — 970 150 2,258

Foreign exchange (gain)/loss (d) (3,380) 174 (3,934) (561)

Foreign currency exchange (gain)/loss (d) (1,261) 38 (5,195) (523)

ADJUSTED EBITDA $ 16,138 $ 13,742 $ 44,525 $ 21,986

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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 second quarter of 2021 through the second quarter of 2022 (dollars in thousands) :

2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd 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 third quarter of 2021 through the third quarter of 2022 (dollars in thousands) :

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

2021 2021 2022 2022 2022

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Inventory turnover 2.55 2.82 2.69 2.52 2.47

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

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

2021 2021 2022 2022 2022

16 unchanged sentences

Inventory turnover 1.92 2.18 1.68 1.90 1.68

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.

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 for energy applications.

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.

Net revenues for the third quarter of 2022 increased 1.6% from the second quarter of 2022 mainly due to increased volume in the Weighing Solutions and Measurement Systems reporting segments partially offset by decreased volume in the Sensors reporting segment.

Net revenues increased 9.9% from the third quarter of 2021 with increased volume primarily from the Sensors reporting segment.

Net revenues in the Sensors reporting segment decreased 6.0% compared to the second quarter of 2022 and increased 23.3% from the third quarter of 2021.

Excluding the unfavorable impact of foreign currency exchange rates, revenue increased 35.1% from the third quarter of 2021.

Excluding the unfavorable impact of foreign currency exchange rates, revenue decreased 4.2% from the second quarter of 2022.

Sequentially, the decrease primarily reflected lower advanced sensors revenue in Other markets (mainly for consumer applications) and lower revenue of precision resistors in the Test and Measurements market.

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 applications).

Net revenues in the Weighing Solutions reporting segment increased 10.3% from the second quarter of 2022 and increased 2.4% from the third quarter of 2021.

The year-over-year and sequential increases in revenues were primarily attributable to increases in our Other markets for precision agriculture and construction applications.

Net revenues in the Measurement Systems reporting segment increased 4.5% from the second quarter of 2022 and increased 1.0% from the third quarter of 2021.

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

("DSI") products in the Steel market and our Diversified Technical Systems Inc.

("DTS") products in the Transportation market.

The year-over-year increase was primarily attributable to increased revenue in the Steel market.

Overall gross profit margin in the third quarter of 2022 decreased 0.7% as compared to the second quarter of 2022 and increased 2.6% from the third quarter of 2021.

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

In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, one-time inventory adjustments, and unfavorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential decrease in gross profit margins was primarily due to higher materials costs and reduction of inventories partially offset by higher volume and selling price increases.

The sequential increase in the gross profit margins in the Measurement Systems reporting segment was a result of favorable product mix and higher volume.

Compared to the third 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 and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the third quarter of 2021 primarily due to lower purchase accounting adjustments related to the DTS acquisition, partially offset by unfavorable product mix.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2021 was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.

Optimize Core Competence

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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.

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

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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.

13 unchanged sentences

dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.

Effects of Foreign Exchange Rate on Operations

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.

Effects of Foreign Currency Exchange Rate on Operations

For the fiscal quarter ended October 1, 2022, exchange rates decreased net revenues by $5.3 million, and decreased costs of products sold and selling, general, and administrative expenses by $4.2 million, when compared to the comparable prior year period.

For the nine fiscal months ended October 1, 2022, exchange rates decreased net revenues by $10.8 million, and decreased costs of products sold and selling, general, and administrative expenses by $7.7 million, when compared to the comparable prior year period.

Results of Operations

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.

Results of operations by reporting segments for the fiscal quarter and nine fiscal months ended October 2, 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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Costs of products sold 58.6 % 61.2 % 58.7 % 60.4 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net revenues $ 90,057 $ 81,974 $ 266,340 $ 227,902

2 unchanged sentences

Percentage change versus prior year period

17.6 % 20.8 %

Changes in net revenues were attributable to the following:

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Net change 9.9 % 16.9 %

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.

During the fiscal quarter and nine fiscal months ended October 1, 2022, net revenues increased 9.9% and 16.9%, respectively, as compared to the comparable prior year periods, with increased volume primarily from the Sensors reporting segment.

Gross Profit Margin

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Gross profit margin 41.4 % 38.8 % 41.3 % 39.6 %

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.

The gross profit margin for the fiscal quarter and nine fiscal months ended October 1, 2022 increased 2.6% and 1.7%, respectively, as compared to the comparable prior year periods.

For the fiscal quarter period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period.

For the nine fiscal month period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period.

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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net revenues $ 37,879 $ 30,721 $ 115,909 $ 93,712

9 unchanged sentences

Net change 23.3 % 23.7 %

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.

Net revenues increased 23.3% for the fiscal quarter ended October 1, 2022, as compared to the comparable prior year period and increased 23.7% for the nine fiscal months ended October 1, 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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Gross profit margin 40.5 % 31.1 % 40.9 % 36.8 %

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.

The gross profit margin increased 9.4% for the fiscal quarter ended October 1, 2022, when compared to the comparable prior year period due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases.

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.

The gross profit margin increased 4.1% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period.

Volume increases were partially 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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

$ 31,399 $ 30,676 $ 92,626 $ 93,319

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Net change 2.4 % (0.7) %

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.

Net revenues increased 2.4% for the fiscal quarter ended October 1, 2022, and decreased 0.7% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year periods.

The increase in fiscal quarter net revenues was primarily attributable to increases in our Other markets for precision agriculture and construction applications, while the same market reflected a decrease for the nine fiscal month period.

Both the fiscal quarter and nine fiscal month periods were negatively impacted by foreign currency exchange rate effects.

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Gross profit margin 33.3 % 37.2 % 34.7 % 37.5 %

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.

The gross profit margin for the fiscal quarter ended October 1, 2022 decreased 3.9% as compared to the comparable prior year period and decreased 2.8% for the nine fiscal months ended October 1, 2022 when compared to the prior year period.

The decrease for the fiscal quarter was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.

The decrease for the nine fiscal month period was primarily due to lower volume, higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by selling price increases.

Measurement Systems

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net revenues $ 20,779 $ 20,577 $ 57,805 $ 40,871

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Percentage change versus prior year period

59.2 % 82.4 %

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

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Net change 1.0 % 41.4 %

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 .

Net revenues increased 1.0% for the fiscal quarter ended October 1, 2022 as compared to the comparable prior year period and increased 41.4% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period.

The increase for the fiscal quarter was primarily due to increased revenue in the Steel market.

The increase in revenue for the nine fiscal months period 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 Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Gross profit margin 55.5 % 52.8 % 52.5 % 50.8 %

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.

The gross profit margin for the fiscal quarter ended October 1, 2022 increased 2.7% compared to the third quarter of 2021.

The increase was primarily due to lower purchase accounting adjustments related to the DTS acquisition partially offset by an unfavorable product mix.

The gross profit margin for the nine fiscal months ended October 1, 2022 increased 1.7% from the prior year period.

Higher revenues coming from DTS and our KELK and DSI steel-related businesses and lower purchase accounting adjustment related to the DTS acquisition were partially offset by an unfavorable product mix and an unfavorable foreign currency exchange rate impact.

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

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

Fiscal quarter ended Six fiscal months ended

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

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Total SG&A expenses $ 25,271 $ 24,580 $ 77,824 $ 69,216

As a percentage of net revenues 28.1 % 30.0 % 29.2 % 30.4 %

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.

SG&A expenses for the fiscal quarter ended October 1, 2022 increased $0.7 million compared to the comparable prior year period due to increases in wages, travel costs and other fees, partially offset by favorable foreign currency exchange rate impacts.

SG&A expenses for the nine fiscal months ended October 1, 2022 increased $8.6 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, travel costs, and other fees.

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.

For the nine fiscal months ended October 2, 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

For the nine fiscal months ended October 2, 2021, we recorded Acquisition Costs associated with the acquisition of DTS as follows (in thousands):

Nine fiscal months ended

October 2, 2021

Legal fees $ 341

1 unchanged sentence

Other (investment banker and insurance costs) 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 $0.9 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.

The Company recorded $0.2 million and $0.0 million of restructuring costs during the fiscal quarter ended October 1, 2022 and October 2, 2021, respectively, and $1.3 million and $0.0 million of restructuring costs during the nine fiscal months ended October 1, 2022 and October 2, 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 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.

Interest expense for the fiscal quarter and nine fiscal months ended October 1, 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

July 2, 2022 July 3, 2021 Change

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

October 1, 2022 October 2, 2021 Change

Foreign currency exchange gain (loss) $ 1,261 $ (38) $ 1,299

Interest income 91 151 (60)

2 unchanged sentences

$ 1,223 $ 174 $ 1,049

Six fiscal months ended

July 2, 2022 July 3, 2021 Change

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

Nine fiscal months ended

October 1, 2022 October 2, 2021 Change

Foreign currency exchange gain $ 5,195 $ 522 $ 4,673

Interest income 235 216 19

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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.

For the fiscal quarter and nine fiscal months ended October 1, 2022, the change in foreign currency 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, the Canadian dollar, and the British pound.

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

Included in Other for the nine fiscal months ended October 1, 2022 is a $0.2 million loss on the 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 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.

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 effective tax rate for the fiscal quarter ended October 1, 2022 was 18.6% compared to 23.4% for the fiscal quarter ended October 2, 2021.

The effective tax rate for the fiscal quarter ended October 1, 2022 was lower than the prior year period primarily due to foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets.

The effective tax rate for the nine fiscal months ended October 1, 2022 was 19.4% compared to 20.3% for the nine fiscal months ended October 2, 2021.

The effective tax rate for the nine fiscal months ended October 1, 2022 was lower than the prior year period primarily due to changes in the mix of worldwide income and foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets.

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.

22 unchanged sentences

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

The Company was in compliance with its financial maintenance covenants at December 31, 2021.

The Company was in compliance with its financial maintenance covenants at October 1, 2022.

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

Our business has historically generated significant cash flow.

For the 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.

For the nine fiscal months ended October 1, 2022, cash provided by operating activities was $20.5 million compared to cash provided by operations of $18.1 million in the comparable prior year period.

Our net cash used in investing activities for the nine fiscal months ended October 1, 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 nine fiscal months ended October 1, 2022 was lower than the comparable to prior year period due to the 2021 borrowings in connection with the acquisition of DTS.

Approximately 91% and 87% of our cash and cash equivalents balance at October 1, 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 July 2, 2022 and December 31, 2021:

July 2, 2022 December 31, 2021

See the following table for the percentage of cash and cash equivalents, by region, at October 1, 2022 and December 31, 2021:

October 1, 2022 December 31, 2021

Israel 24 % 25 %

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Canada 14 % 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 July 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 six fiscal months ended July 2, 2022, was $0.3 million.

Adjusted free cash flow generated during the nine fiscal months ended October 1, 2022, was $5.4 million.

We refer to the amount of cash provided by operating activities ($20.5 million) in excess of our capital expenditures ($15.5 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”

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

The following table summarizes the components of net cash at October 1, 2022 and December 31, 2021 (in thousands) :

October 1, 2022 December 31, 2021

Cash and cash equivalents $ 79,910 $ 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 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.

Our financial condition as of October 1, 2022 remains strong, with a current ratio (current assets to current liabilities) of 4.1 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 nine fiscal months ended October 1, 2022 was $15.5 million compared to $11.2 million in the comparable prior year period.

As of October 1, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

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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