What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-04 · 88 added, 157 removed, 428 unchanged (36% of the section changed)

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

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

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

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

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

VPG is a global, diversified company focused on precision measurement and sensing technologies that help power the future by bridging the physical world with the digital one.

Many of our specialized sensors, weighing solutions, and measurement systems are “designed-in” by our customers, and address growing applications across a diverse array of industries and markets.

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

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

VPG’s products are often at the first stage of a data value chain (i.e., the process of converting the physical world into a digital format that can be used for a specific purpose) and as such impact the effectiveness of vast number of critical, high-value downstream processes.

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

1 unchanged sentence

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

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

Impact of COVID-19 on our Business

As of March 4, 2022, all of the Company’s facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible.

Nonetheless, given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic, the ongoing economic disruption may adversely affect the Company’s business and financial results in future periods.

As the functionality of customers products continues to increase, and they integrate more precision measurement sensors and related systems into their solutions, we believe this will offer substantial growth opportunities for our products and expertise.

Overview of Financial Results

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

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

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

VPG reports in three product segments:

12 unchanged sentences

Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating results for the relevant period.

The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-

GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods.

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

In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company’s performance and in comparing the Company’s financial performance to that of its peer companies and competitors.

35 unchanged sentences

Start-up costs (d) 150 3,174

Foreign exchange loss (e) 109 2,246

Foreign exchange (gain) loss (e) (3,579) 109

ADJUSTED EBITDA 61,997 49,897

3 unchanged sentences

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

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

(d) Start-up costs in 2022 and 2021 are associated with the ramp up of our new manufacturing facility in Israel.

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

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

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

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

Financial Metrics

43 unchanged sentences

Net revenues for the fourth quarter of 2022 increased 6.9% from the net revenues of $90.1 million reported in the third quarter of 2022, and increased 6.9% from $90.0 million for the comparable prior year period.

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

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

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

Net revenues in the Sensors segment of $36.3 million in the fourth quarter of 2022 decreased 4.1% from $37.9 million in the third quarter of 2022, and increased 6.3% from $34.1 million in the fourth quarter of 2021.

Sequentially, the decrease in revenues reflected lower precision resistor sales in the Test and Measurement market which was partially offset by an increase in the Avionics, Military and Space (AMS) market, and a decrease in sales of our advanced sensors, primarily in our consumer electronics market.

The year-over-year increase in revenues was primarily attributable to an increase in sales of precision resistors in the Test and Measurement market, and higher sales of our advance sensors products primarily in the AMS market and General Industrial markets.

Net revenues in the Weighing Solutions segment of $33.1 million in the fourth quarter of 2022 increased 5.4% compared to revenues of $31.4 million in the third quarter of 2022.

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

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

The sequential increase in revenues was primarily attributable to increased revenues from OEM customers for precision agriculture and construction applications in our Other market segment and higher revenue in our Industrial Weighing market, partially offset by lower sales in the Transportation market.

Net revenues in the fourth quarter of 2022 increased 3.2% compared to $32.1 million in the fourth quarter of 2021 mainly due to increased revenues from OEM customers for precision agriculture applications in our Other market segment.

Net revenues in the Measurement Systems segment of $26.8 million in the fourth quarter of 2022 increased 29.2% from $20.8 million in the third quarter of 2022 and increased 12.8% from $23.8 million in the fourth quarter of 2021.

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

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

The sequential increase in revenue was primarily attributable to higher sales of Diversified Technical Systems, Inc.

("DTS") products to the Transportation and AMS markets and higher sales of KELK and Dynamic Systems Inc.

("DSI") to Steel markets.

The year-over-year increase in revenues was primarily attributable to higher sales of DTS products to the AMS and Transportation markets, and higher KELK and DSI steel-related sales.

The gross profit margin for the fourth quarter of 2022 decreased 0.2% compared to the third quarter of 2022, and increased 2.5% from the fourth quarter of 2021.

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

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

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

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

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

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

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

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

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

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

The decrease in the Sensors segment gross profit margin was primarily due to a decrease in volume and temporary manufacturing inefficiencies.

In the Weighing Solutions segment, gross profit margin was flat as higher volume was offset by unfavorable foreign currency exchange rates.

In the Measurement Systems segment, gross profit margin increased slightly reflecting higher volume which was partially offset by unfavorable product mix and foreign exchange rates.

Compared to the fourth quarter of 2021, gross profit margins increased in the Sensors and Measurement Systems segments and decreased in the Weighing Solutions segment.

In the Sensors segment, the increase in gross profit margin was primarily due to an increase in volume and average selling prices.

In the Measurement Systems segment, gross profit margin increased as higher revenue, higher average selling prices, and lower purchase accounting adjustments related to the DSI acquisition were partially offset by unfavorable product mix, unfavorable foreign exchange rates and higher materials costs.

In the Weighing Solutions segment, the decrease in g ross profit margin was primarily due to higher material costs and unfavorable foreign currency exchange rates, partially offset by higher volume and selling price increases.

Operationally Diversified

Optimize Core Competence

11 unchanged sentences

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

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

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, Japan, 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.

7 unchanged sentences

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 products.

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

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.

8 unchanged sentences

However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

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

In 2021 and 2020, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances.

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

The Company recorded restructuring costs of $1.5 million, $0.1 million, and $0.9 million during the years ended December 31, 2022, 2021, and 2020, respectively, which were comprised primarily of employee termination costs, including severance and statutory retirement allowances.

We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations.

27 unchanged sentences

Effects of Foreign Exchange Rate on Operations

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

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

For the year ended December 31, 2022, exchange rate impacts decreased net revenues by $16.1 million and decreased costs of products sold and selling, general, and administrative expenses by $13.3 million.

For the year ended December 31, 2021,

exchange rate impacts increased net revenues by $5.3 million and increased costs of products sold and selling, general, and administrative expenses by $8.7 million.

Critical Accounting Policies and Estimates

19 unchanged sentences

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

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

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

We have four reporting units to which goodwill was allocated:

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

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

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

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

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

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

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

For the DSI and DTS goodwill reporting units, the Company performed the quantitative impairment test.

In estimating the fair value of our DSI and DTS reporting units the Company used the income approach.

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

2 unchanged sentences

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

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

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

37 unchanged sentences

subsidiaries to be indefinitely invested outside the United States based on our estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment of foreign subsidiary earnings.

As a result of the Tax Cut and Jobs Act, in 2017 the Company had recorded a deferred tax liability of approximately $1.8 million of withholding tax associated with a planned distribution of approximately $25.5 million of previously unremitted earnings.

As of December 31, 2021, the planned distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million.

In addition, we estimate that additional withholding taxes of approximately $22.5 million would be payable upon the distribution of the balance of our previously unremitted earnings at December 31, 2021.

As of December 31, 2022, the Company had provided for a deferred tax liability of $2.1 million of withholding tax associated with unremitted, non-permanently reinvested earnings, including planned cash distributions of $19.6 million.

Additional withholding taxes of approximately $24.7 million are estimated to be payable upon the distribution of the remaining unremitted earnings at December 31, 2022.

If we decide to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the United States.

1 unchanged sentence

Results of Operations – Years Ended December 31, 2022 and 2021

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

Overview of Financial Results.

Refer to Item 7, "Results of Operations - Years Ended December 2021, 2020, and 2019 in our Annual Report on Form 10-K for the year ended December 31, 2021 for a comparison of the year ended December 31, 2021 to the year ended December 31, 2020.

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

Years ended December 31,

2021 2020 2019

Costs of products sold 58.7 % 60.6 %

8 unchanged sentences

Years ended December 31,

2021 2020 2019

Net revenues $ 362,580 $ 317,919

2 unchanged sentences

Changes in net revenues were attributable to the following:

2020 2020 vs.

Change attributable to:

5 unchanged sentences

During the year ended December 31, 2022, net revenues increased 14.0% over the prior year.

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

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

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

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

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

Volume increased in the Sensors and Measurement System reporting segments while revenues remained flat in the Weighing Solutions segments.

We saw a volume increase in all of our end markets, with the largest revenue increases year over year in the Test and Measurement markets.

Gross Profit Margin

1 unchanged sentence

Years ended December 31,

2021 2020 2019

Gross profit margin 41.3 % 39.4 %

The gross profit margin for the year ended December 31, 2022 increased 1.9% over the prior year.

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

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

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

The increase in gross profit margin was primarily due to improved gross profit margins in the Sensors and Measurement Systems reporting segments, partially offset by decreased gross profit margins in the Weighing Solution reporting segment.

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

1 unchanged sentence

Years ended December 31,

2021 2020 2019

Net revenues $ 152,221 $ 127,861

2 unchanged sentences

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

2020 2020 vs.

Change attributable to:

3 unchanged sentences

Net change 19.1 %

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

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

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

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

For the year ended December 31, 2022, net revenues increased 19.1% as compared to the prior year, due to higher sales of precision resistors in the Test and Measurements market and higher revenue of our advanced sectors products, primarily in Other markets (mainly for consumer applications) and in the General Industrial market.

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

Years ended December 31,

2021 2020 2019

Gross profit margin 40.1 % 35.6 %

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

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

For the year ended December 31, 2022, the gross profit margin increased 4.5% as compared to the prior year.

Volume increases were partially offset by wage increases, and labor inefficiencies.

Weighing Solutions

1 unchanged sentence

Years ended December 31,

2021 2020 2019

Net revenues $ 125,715 $ 125,390

2 unchanged sentences

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

2020 2020 vs.

Change attributable to:

3 unchanged sentences

Net change 0.3 %

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

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

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

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

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

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

For the year ended December 31, 2022, net revenues increased 0.3% from the prior year.

The impact on revenues of increased average selling prices, coupled with a slight increase in volume, was almost completely offset by unfavorable exchange rate

impacts, primarily from the Euro, the Swedish krone, and the British pound.

The volume increase was mainly from sales of products into Other Markets, for precision agriculture and construction applications, and sales of products into the General Industrial market, partially offset by lower sales of products in the Transportation market.

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

Years ended December 31,

2021 2020 2019

Gross profit margin 34.3 % 36.6 %

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

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

For the year ended December 31, 2022, the gross profit margin decreased 2.3% as compared to the prior year.

The slight increase in revenue as described above was offset by higher material costs, an unfavorable product mix and a reduction of inventories.

Measurement Systems

1 unchanged sentence

Years ended December 31,

2021 2020 2019

Net revenues $ 84,644 $ 64,668

2 unchanged sentences

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

2020 2020 vs.

Change attributable to:

4 unchanged sentences

Net change 30.9 %

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

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

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

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

For the year ended December 31, 2022, net revenues increased 30.9% as compared to the prior year, primarily due to the addition of revenue from DTS, which was acquired on June 1, 2021, in our AMS and Transportation markets and higher revenue of our KELK and DSI steel-related businesses.

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

Years ended December 31,

2021 2020 2019

Gross profit margin 53.6 % 52.2 %

For the year ended December 31, 2022, the gross profit margin increased 1.4% from the prior year.

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

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

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

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

Higher revenue coming from DTS and our KELK and DSI steel-related businesses coupled with lower purchase accounting adjustments related to the DTS acquisition were partially offset by an unfavorable product mix, higher material costs and unfavorable foreign currency exchange rate impacts.

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

Selling, General, and Administrative Expenses

1 unchanged sentence

Years ended December 31,

2021 2020 2019

Total SG&A expenses $ 104,285 $ 95,273

as a percentage of net revenues 28.8 % 30.0 %

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

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

SG&A expenses for the year ended December 31, 2022 increased $9.0 million as compared to the prior year due to SG&A expenses related to the acquisition of DTS, higher personnel costs including wage increases and travel costs, and other fees.

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the year ended December 31, 2021, as a result of our interim impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a $1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets.

See our critical accounting policies and Note 4 for further discussion.

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

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

Executive Severance Costs

During 2019, the Company recorded $0.6 million of severance costs associated with the resignation of an executive officer of the Company.

The severance costs consisted of payments and other benefits as specified in the executive officers resignation agreement.

For the year ended December 31, 2022, as a result of our annual impairment test performed on goodwill and indefinite-lived intangible assets there was no impairment on goodwill and indefinite-lived intangible assets.

For the year ended December 31, 2021, 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.

Restructuring Costs

3 unchanged sentences

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

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

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

The Company recorded restructuring costs of $1.5 million and $0.1 million during the years ended December 31, 2022 and 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.

Acquisition Costs

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

There were no acquisition costs recorded in our consolidated statements of operations for the year ended December 31, 2022.

For the year ended December 31, 2019, we recorded acquisition costs in our consolidated statements of operations of $0.4 million in connection with the acquisitions of DSI.

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

Other Income (Expense)

Interest Expense

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

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

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

The Company recorded interest expense of $2.3 million, and $1.2 million for the years ended December 31, 2022 and 2021, respectively.

Interest expense was higher in 2022 compared to 2021 mainly due to higher borrowing rates during 2022.

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

1 unchanged sentence

2022 2021 Change

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

Interest income 252 246 6

Pension expense (468) (738) 270

Other 96 (244) 340

$ (230) $ (2,982) $ 2,752

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

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

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

Years ended December 31,

2020 2019 Change

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

Foreign exchange gain/(loss) $ 3,579 $ (110) $ 3,689

Interest income 401 252 149

3 unchanged sentences

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

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

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

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

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

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

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

The change in foreign exchange gains / (losses) for the year ended December 31, 2022, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel, the Japanese yen and the British pound.

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

Our effective tax rate for the year ended December 31, 2022 was 18.9%, as compared to 21.1% for the year ended December 31, 2021.

Our effective tax rate was lower in 2022 compared to 2021 primarily due to changes in our geographical mix of income and releases of reserves for uncertain tax positions, offset by increases related to state income taxes, foreign currency gains and losses, changes in valuation allowances and statutory rate changes in foreign jurisdictions.

We reassessed our ability to realize our U.S.

7 unchanged sentences

statutory rate and foreign tax rates

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

• 1.5% decrease related to state income taxes

• 1.3% decrease related to specialty tax credits

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

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

net operating loss as a result of the Tax Cuts and Jobs Act ("2017 Tax Act") enacted on December 22, 2017 and the effects of GILTI.

• 1.5% increase related to foreign currency primarily attributable to our operations in India, Israel and Taiwan

• 1.4% decrease related to specialty tax credits, such as research credits

• 2.2% decrease related to changes in reserves for uncertain tax positions

• 3.6% decrease related to changes in valuation allowances

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

statutory rate and foreign tax rates.

• 2.8% increase related to the impairment of certain intangible assets.

• 1.9% decrease related to foreign currency primarily attributable to our operations in China, India, Israel and Taiwan.

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

• 1.5% decrease related to state income taxes

• 1.3% decrease related to specialty tax credits

• 4.4% decrease related to foreign currency primarily attributable to our operations in Israel and India.

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

This reduction was primarily a result of the acquisition of DSI

• 1.4% decrease related to stock compensation.

• 2.5% increase related to changes in reserves for uncertain tax positions.

• 3.7% increase related to the loss of the benefit of current year U.S.

net operating loss as a result of the 2017 Tax Act and the effects of GILTI.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

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

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

Our business has historically generated significant cash flow.

Our cash provided by operating activities for the year ended December 31, 2022 was $33.0 million as compared to $33.5 million for the year ended December 31, 2021.

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

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

Our net cash used in investing activities for the year ended December 31, 2022 was $20.8 million, compared to $64.0 million for the year ended December 31, 2021, which included $47.2 million for the purchase of DTS.

Our net cash provided by financing activities for the year ended December 31, 2022 was $3.6 million, as compared to net cash used for financing activities of $18.8 million for the year ended December 31, 2021, which included the borrowing on the 2020 credit facility for the acquisition of DTS.

Approximately 83% and 87% of our cash and cash equivalents balance at December 31, 2022 and 2021, respectively, was held by our non-U.S.

22 unchanged sentences

Revolving debt 61,000 61,000

Third-party debt held by Japanese subsidiary — 18

Deferred financing costs (201) (286)

7 unchanged sentences

Cash paid for property and equipment for the year ended December 31, 2022 and December 31, 2021 was $21.3 million and $17.1 million, respectively.

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

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

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

Capital spending for 2022 was comprised of building projects related to capacity expansion in Israel and Asia, and other projects related to the normal maintenance of business.

Capital expenditures for 2023 are expected to be approximately $18.5 million, which includes approximately $10.4 million in capital equipment for capacity expansion in the Sensors reporting segment and expected building projects of approximately $5.9 million for capacity expansion, mainly in Asia.

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

6 unchanged sentences

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

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

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions.

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

1 unchanged sentence

general business and economic conditions;

impact of inflation, global labor and supply chain challenges;

impact of inflation, issues respecting the United States federal government debt ceiling, global labor and supply chain challenges;

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

5 unchanged sentences

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;

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

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

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

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

our ability to execute our new corporate strategy and business continuity, operational and budget plans;

and other factors affecting our operations, markets, products, services, and prices that are set forth in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis