What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 133 added, 96 removed, 318 unchanged (42% of the section changed)

15 unchanged sentences

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

Net revenues for the fiscal quarter ended April 1, 2023 were $88.9 million versus $87.7 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended April 1, 2023 were $7.0 million, or $0.51 per diluted share, versus $6.4 million, or $0.46 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended April 1, 2023 and April 2, 2022 include items affecting comparability as listed in the reconciliations below.

Net revenues for the fiscal quarter ended July 1, 2023 were $90.8 million versus $88.6 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended July 1, 2023 were $8.2 million, or $0.60 per diluted share, versus $10.8 million, or $0.79 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended July 1, 2023 were $179.7 million versus $176.3 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended July 1, 2023 were $15.2 million, or $1.11 per diluted share, versus $17.1 million, or $1.25 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended July 1, 2023 and July 2, 2022 include items affecting comparability as listed in the reconciliations below.

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

8 unchanged sentences

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

Three months ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

As reported - GAAP $ 38,712 $ 37,334 $ 11,795 $ 10,551 $ 8,236 $ 10,755 $ 0.60 $ 0.79

1 unchanged sentence

Acquisition purchase accounting adjustments (a) 41 679 41 679 41 679 — 0.05

Restructuring costs — — 162 904 162 904 0.01 0.07

Foreign currency exchange (gain)/loss (d) — — — — (794) (3,380) (0.05) (0.25)

Tax effect of reconciling items and discrete tax items — — — — (312) (377) (0.02) (0.02)

As Adjusted - Non GAAP $ 38,753 $ 38,013 $ 11,998 $ 12,134 $ 7,957 $ 9,335 $ 0.58 $ 0.68

As Adjusted - Non GAAP Margins 42.7 % 42.9 % 13.2 % 13.7 %

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

Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

As reported - GAAP 75,911 72,584 21,719 18,866 $ 15,200 $ 17,111 $ 1.11 $ 1.25

As reported - GAAP Margins 42.3 % 41.2 % 12.1 % 10.7 %

Acquisition purchase accounting adjustments (a) 90 1,050 90 1,050 90 1,050 0.01 0.08

COVID-19 impact (b) — 138 — 138 — 138 — 0.01

Start-up costs (c)

— 150 — 150 — 150 — 0.01

Restructuring costs — — 278 1,165 278 1,165 0.02 0.09

Foreign currency exchange (gain)/loss (d)

— — — — (856) (3,934) (0.06) (0.29)

Tax effect of reconciling items and discrete tax items — — — — (280) (302) (0.02) (0.02)

1 unchanged sentence

As Adjusted - Non GAAP Margins 42.3 % 41.9 % 12.3 % 12.1 %

Three months ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net earnings attributable to VPG stockholders $ 8,236 $ 10,755 $ 15,200 $ 17,111

34 unchanged sentences

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the first quarter of 2022 through the first quarter of 2023 (dollars in thousands) :

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

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the second quarter of 2022 through the second quarter of 2023.

As part of our quarter-end review of backlog in connection with the preparation of our Form 10-Q for the fiscal quarter ended July 1, 2023, we discovered historical backlog inaccuracy relating to certain orders, which we have corrected.

As a result of the correction of historical inaccuracy, we made a one-time adjustment of $3.6 million to prior periods end of period backlog of our consolidated and sensors segments data.

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

(dollars in thousands)

2022 2022 2022 2023 2023

4 unchanged sentences

Inventory turnover 2.52 2.47 2.63 2.39 2.34

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

2022 2022 2022 2022 2023

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

(dollars in thousands) 2022 2022 2022 2023 2023

Net revenues $ 40,280 $ 37,879 $ 36,312 $ 36,726 $ 36,266

15 unchanged sentences

Inventory turnover 1.90 1.68 2.11 1.70 1.94

Net revenues for the first quarter of 2023 decreased 7.7% from the fourth quarter of 2022 mainly due to decreased volume in the Weighing Solutions and Measurement Systems reporting segments.

Net revenues increased 1.4% from the first quarter of 2022 with increased volume, primarily from the Measurement Systems reporting segment, partially offset by lower net revenues in the Sensors and Weighing Solutions reporting segments.

Net revenues in the Sensors reporting segment increased 1.1% compared to the fourth quarter of 2022 and decreased 2.7% from the first quarter of 2022.

Sequentially, the increase primarily reflected higher revenue of precision resistors in the AMS market partially offset by lower advanced sensors revenue in Other markets (mainly for consumer applications).

The year-over-year decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in Other markets (mainly for consumer applications), partially offset by increases in precision resistors revenues and advanced sensors in Avionics, Military and Space (AMS) and in precision resistors in the Test and Measurement market.

Net revenues in the Weighing Solutions reporting segment decreased 3.7% from the fourth quarter of 2022 and decreased 2.8% from the first quarter of 2022.

Sequentially, the decrease in revenues was attributable to lower sales in the Industrial Weighing market, partially offset by an increase in revenues in the Transportation market.

The year-over-year decrease in revenues was mainly attributable to lower sales of load cells in the Industrial Weighing market, partially offset by higher revenues in our Other markets for precision agriculture and construction applications.

Net revenues in the Measurement Systems reporting segment decreased 24.4% from the fourth quarter of 2022 and increased 18.3% from the first quarter of 2022.

Sequentially, the decrease in revenue was primarily due to the lower revenue of products in the Steel market and at Diversified Technical Systems Inc.

("DTS") products in the Transportation market.

Net revenues for the second fiscal quarter of 2023 increased 2.2% from the first fiscal quarter of 2023 mainly due to increased revenues in the Measurement Systems reporting segment.

Net revenues increased 2.5% from the second fiscal quarter of 2022 with increased volume, primarily from the Weighing Solutions and Measurement Systems reporting segments, partially offset by lower net revenues in the Sensors reporting segments.

Net revenues in the Sensors reporting segment decreased 1.3% compared to the first fiscal quarter of 2023 and decreased 10.0% from the second fiscal quarter of 2022.

Sequentially, the decrease primarily reflected lower revenue of precision resistors and

advanced sensors in the AMS markets partially offset by higher advanced sensors revenue in our Other markets (mainly for consumer applications).

The year-over-year decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in our Other markets (mainly for consumer applications) and lower sales of precision resistors in the Test and Measurement market, partially offset by increases in precision resistor sales in the Avionics, Military and Space (AMS) market.

Net revenues in the Weighing Solutions reporting segment decreased 1.9% from the first fiscal quarter of 2023 and increased 9.8% from the second fiscal quarter of 2022.

Sequentially, the decrease in revenues was attributable to lower sales in our Other markets for precision agriculture and construction applications, partially offset by an increase in revenues in the Industrial Weighing market.

The year-over-year increase in revenues was mainly attributable to higher sales of load cells in our Other markets for precision agriculture, consumer, and construction applications.

Net revenues in the Measurement Systems reporting segment increased 14.8% from the first fiscal quarter of 2023 and increased 17.1% from the second fiscal quarter of 2022.

Sequentially, the increase in revenue was primarily due to the higher revenue of products in the Steel market, partially offset by lower sales of Diversified Technical Systems Inc.

("DTS") products in the AMS market.

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

Overall gross profit margin in the first quarter of 2023 increased 0.7% as compared to the fourth quarter of 2022 and increased 1.7% from the first quarter of 2022.

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

In the Sensors reporting segment, the gross profit margins increased sequentially due to manufacturing efficiencies and favorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential increase in gross profit margins was primarily due to favorable foreign currency exchange rates, partially offset by lower volume.

The sequential decrease in the gross profit

margins in the Measurement Systems reporting segment was a result of lower volume and higher material costs, offset by higher selling prices.

Compared to the first quarter of 2022, 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 selling prices and favorable foreign currency exchange rates.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the first quarter of 2022 primarily due to higher volume.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2022 was primarily due to higher materials costs, lower volume and unfavorable product mix, mainly offset by selling price increases and favorable foreign currency exchange rates.

Overall gross profit margin in the second fiscal quarter of 2023 increased 0.7% as compared to the first fiscal quarter of 2023 and increased 0.5% from the second fiscal quarter of 2022.

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

In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, partially offset by favorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential increase in gross profit margins was primarily due to favorable product mix, increased selling prices and cost reduction programs.

The sequential decrease in the gross profit margins in the Measurement Systems reporting segment was a result of higher volume with an unfavorable product mix.

Compared to the second fiscal quarter of 2022, the Weighing Solutions and Measurement Systems reporting segments had higher gross profit margins, while the Sensors reporting segment gross profit margin was lower.

The Sensors reporting segment had a lower gross profit margin due to lower volume and temporary labor inefficiencies, partially offset by favorable foreign currency exchange rates and cost reduction programs.

The Weighing Solutions reporting segment increase in gross profit margin as compared to 2022 was primarily due to higher volume, selling price increases, lower freight costs, and cost reduction programs, partially offset by higher materials costs.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the second fiscal quarter of 2022 primarily due to higher volume and higher selling prices and lower purchase accounting adjustments, partially offset by unfavorable foreign exchange rates and higher wages and materials costs.

Optimize Core Competence

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Effects of Foreign Currency Exchange Rate on Operations

For the fiscal quarter ended April 1, 2023, exchange rates decreased net revenues by $2.4 million, and decreased costs of products sold and selling, general, and administrative expenses by $3.6 million, when compared to the comparable prior year period.

For the fiscal quarter ended July 1, 2023, exchange rates decreased net revenues by $0.7 million, and decreased costs of products sold and selling, general, and administrative expenses by $2.4 million, when compared to the comparable prior year period.

For the six fiscal months ended July 1, 2023, exchange rates decreased net revenues by $3.1 million, and increased costs of products sold and selling, general, and administrative expenses by $6.0 million, when compared to the comparable prior year period.

Results of Operations

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Costs of products sold 57.4 % 57.9 % 57.7 % 58.8 %

7 unchanged sentences

Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net revenues $ 90,802 $ 88,618 $ 179,666 $ 176,283

Change versus comparable prior year period

$ 2,184 $ 3,383

Percentage change versus prior year period

5 unchanged sentences

Net change 2.5 % 1.9 %

During the fiscal quarter ended April 1, 2023, net revenues increased 1.4% as compared to the comparable prior year period, with increased volume, primarily from the Measurement Systems reporting segment, partially offset by lower net revenues in the Sensors and Weighing Solutions reporting segments.

During the fiscal quarter and six fiscal months ended July 1, 2023, net revenues increased 2.5% and 1.9%, respectively, as compared to the comparable prior year periods, with increased volume, primarily from the Weighing Solutions and Measurement Systems reporting segments, partially offset by lower net revenues in the Sensors reporting segments.

Gross Profit Margin

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Gross profit margin 42.6 % 42.1 % 42.3 % 41.2 %

The gross profit margin for the fiscal quarter ended April 1, 2023 increased 1.7% as compared to the comparable prior year period.

For the fiscal quarter period 2023, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.

The gross profit margin for the fiscal quarter and six fiscal months ended July 1, 2023 increased 0.5% and 1.1% as compared to the comparable prior year periods.

For the fiscal quarter and six fiscal month periods, the Weighing Solutions and Measurement Systems reporting segments had higher gross profit margins, while the Sensors reporting segment gross profit margin was lower.

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

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net revenues $ 36,266 $ 40,280 $ 72,992 $ 78,030

Change versus comparable prior year period

$ (4,014) $ (5,038)

Percentage change versus prior year period

(10.0) % (6.5) %

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

4 unchanged sentences

Net change (10.0) % (6.5) %

Net revenues decreased 2.7% for the fiscal quarter ended April 1, 2023, as compared to the comparable prior year period.

The decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in Other markets (mainly for consumer applications), partially offset by increases in precision resistors revenues and advanced sensors in Avionics, Military and Space (AMS) and in precision resistors in the Test and Measurement market.

Net revenues decreased 10.0% and 6.5% for the fiscal quarter and six fiscal months ended July 1, 2023, respectively, as compared to the comparable prior year periods.

The decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in our Other markets (mainly for consumer applications) and lower sales of precision resistors in the Test and Measurement market, partially offset by increases in precision resistor sales in the Avionics, Military and Space (AMS) market.

Net revenues were also impacted by unfavorable foreign currency exchange rate impacts.

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Gross profit margin 40.1 % 44.3 % 40.7 % 41.2 %

The gross profit margin increased 3.4% for the fiscal quarter ended April 1, 2023, when compared to the comparable prior year period due to higher selling prices and favorable foreign currency exchange rates.

The gross profit margin decreased 4.2% and 0.5% for the fiscal quarter and six fiscal months ended July 1, 2023, respectively, when compared to the comparable prior year periods due to lower volume and temporary labor inefficiencies, partially offset by favorable foreign currency exchange rates and cost reduction programs.

Weighing Solutions

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

$ 31,261 $ 28,459 $ 63,120 $ 61,227

Change versus comparable prior year period

$ 2,802 $ 1,893

Percentage change versus prior year period

5 unchanged sentences

Net change 9.8 % 3.1 %

Net revenues decreased 2.8% for the fiscal quarter ended April 1, 2023, as compared to the comparable prior year period.

The decrease in revenues was mainly attributable to lower sales of load cells in the Industrial Weighing market, partially offset by higher revenues in our Other markets for precision agriculture and construction applications.

Net revenues were also impacted by unfavorable foreign currency exchange rate impacts.

Net revenues increased 9.8% for the fiscal quarter ended July 1, 2023, as compared to the comparable prior year period.

The increase in revenues was mainly attributable to higher sales of load cells in our Other markets for precision agriculture, consumer, and construction applications.

Net revenues increased 3.1% for the six fiscal months ended July 1, 2023 as compared to the comparable prior year period.

The increase in net revenues was primarily attributable to increased sales of load sales in our Other markets for precision agriculture and construction applications, partially offset by lower sales of our load cell products in our Industrial weighing market, as well as negative foreign currency exchange rate effects.

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Gross profit margin 38.7 % 33.7 % 36.8 % 35.4 %

The gross profit margin for the fiscal quarter ended April 1, 2023 decreased 2.0% as compared to the comparable prior year period.

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

The gross profit margin for the fiscal quarter and six fiscal months ended July 1, 2023 increased 5.0% and 1.4%, respectively, as compared to the comparable prior year periods primarily due to higher volume, selling price increases, lower freight costs, and cost reduction programs, partially offset by higher materials costs.

Measurement Systems

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net revenues $ 23,275 $ 19,879 $ 43,554 $ 37,026

Change versus comparable prior year period

$ 3,396 $ 6,528

Percentage change versus prior year period

17.1 % 17.6 %

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

4 unchanged sentences

Net change 17.1 % 17.6 %

Net revenues increased 18.3% for the fiscal quarter ended April 1, 2023 as compared to the comparable prior year period.

Net revenues increased 17.1% for the fiscal quarter ended July 1, 2023 as compared to the comparable prior year period and increased 17.6% for the six fiscal months ended July 1, 2023 as compared to the comparable prior year period.

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

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Gross profit margin 51.8 % 49.9 % 52.8 % 50.8 %

The gross profit margin for the fiscal quarter ended April 1, 2023 increased by 2.1% compared to the comparable prior year period primarily due to higher volume.

The gross profit margin for the fiscal quarter and six fiscal month ended July 1, 2023 increased by 1.9% and 2.0%, respectively, compared to the comparable prior year periods primarily due to higher volume and higher selling prices and lower purchase accounting adjustments, partially offset by unfavorable foreign exchange rates and higher wages and materials costs.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended

April 1, 2023 April 2, 2022

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Total SG&A expenses $ 26,755 $ 25,879 $ 53,914 $ 52,553

As a percentage of net revenues 29.5 % 29.2 % 30.0 % 29.8 %

SG&A expenses for the fiscal quarter ended April 1, 2023 increased $0.5 million compared to the comparable prior year period due to increases in wages, travel costs, commissions and other fees, partially offset by favorable foreign currency exchange rate impacts.

SG&A expenses for the fiscal quarter and six fiscal months ended July 1, 2023 increased $0.9 million and $1.4 million, respectively, compared to the comparable prior year periods due to increases in wages, travel costs, commissions and other fees, partially offset by favorable foreign currency exchange rate impacts.

Restructuring Costs

3 unchanged sentences

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

The Company recorded $0.1 million and $0.3 million of restructuring costs during the fiscal quarter ended April 1, 2023 and April 2, 2022, respectively.

The Company recorded $0.2 million and $0.9 million of restructuring costs during the fiscal quarter ended July 1, 2023 and July 2, 2022, respectively, and $0.3 million and $1.2 million of restructuring costs during the six fiscal months ended July 1, 2023 and July 2, 2022, respectively.

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

Other Income (Expense)

Interest expense for the fiscal quarter ended April 1, 2023 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2023.

Interest expense for the fiscal quarter and six fiscal months ended July 1, 2023 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2023.

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

Fiscal quarter ended

April 1, 2023 April 2, 2022 Change

July 1, 2023 July 2, 2022 Change

Foreign currency exchange gain $ 793 $ 3,380 $ (2,587)

3 unchanged sentences

$ 1,019 $ 3,344 $ (2,325)

Six fiscal months ended

July 1, 2023 July 2, 2022 Change

Foreign currency exchange gain $ 855 $ 3,934 $ (3,079)

Interest income 722 144 578

Pension expense (145) (180) 35

Other (138) (115) (23)

$ 1,294 $ 3,783 $ (2,489)

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

For the fiscal quarter ended April 1, 2023, the change in foreign currency exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Japanese yen, the Canadian dollar, and the British pound.

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

For the fiscal quarter and six fiscal months ended July 1, 2023, the change in foreign currency exchange gains and losses during the periods, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Canadian dollar, and the British pound.

For the fiscal quarter and six fiscal months ended July 2, 2022, the change in foreign exchange gains and losses during the periods, 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 fiscal quarter and six fiscal months ended July 2, 2022 was 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 April 1, 2023 was 24.1% compared to 20.7% for the fiscal quarter ended April 2, 2022.

The effective tax rate for the fiscal quarter ended April 1, 2023 was higher than the prior year period primarily due to changes in the mix of worldwide income and an increase in our valuation allowance on deferred tax assets.

The effective tax rate for the fiscal quarter ended July 1, 2023 was 28.8% compared to 19.2% for the fiscal quarter ended July 2, 2022.

The effective tax rate for the fiscal quarter ended July 1, 2023 was higher than the prior year period primarily due to changes in the mix of worldwide income and an increase in our valuation allowance on deferred tax assets.

The effective tax rate for the six fiscal months ended July 1, 2023 was 26.8% compared to 19.8% for the six fiscal months ended July 2, 2022.

The effective tax rate for the six fiscal months ended July 1, 2023 was higher than the prior year period primarily due to changes in the mix of worldwide income and an increase 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.

12 unchanged sentences

The 2020 Credit Agreement terminates on March 20, 2025.

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

the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2) LIBOR or CDOR plus a specified margin.

An interest margin of 0.25% is added to Base Rate loans.

Depending upon the Company’s leverage ratio, an interest rate margin ranging from 1.50% to 2.75% per annum is added to the applicable LIBOR or CDOR rate to determine the interest payable on the LIBOR or CDOR loans.

On May 5, 2023, the Company entered into Amendment No.

1 to Third Amended and Restated Credit Agreement (the “Credit Agreement Amendment”), by and among the Company, the lenders named therein, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers and the Agent, as agent for such lenders.

The Credit Agreement Amendment amended the 2020 Credit Agreement.

The primary purpose of the changes made in the Credit Agreement Amendment were to update the interest rate provisions to replace LIBOR with SOFR for U.S.

dollar denominated loans as well as update the other applicable reference borrowing rates for foreign currency loans which took effect on June 15, 2023.

Interest payable on amounts borrowed under the 2020 Revolving Facility is based upon the following:

(a) for revolving credit loans denominated in US Dollars, the SOFR rate plus applicable credit spread;

and (b) for revolving credit loans denominated in foreign currencies, at other applicable local reference rates plus an interest margin.

Depending upon the Company’s leverage ratio, an interest rate margin ranging from 1.50% to 2.75% per annum is added to the applicable SOFR rate to determine the interest payable on the SOFR loans.

The Company is required to pay a quarterly fee of 0.25% per annum to 0.40% per annum on the unused portion of the 2020 Revolving Facility, which is determined based on the Company’s leverage ratio each quarter.

Additional customary fees apply with respect to letters of credit.

See additional disclosure regarding interest rate provisions that will take effect on June 15, 2023 under Part II Item 5.

Other Information.

The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries.

2 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 April 1, 2023.

The Company was in compliance with its financial maintenance covenants at July 1, 2023.

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 three fiscal months ended April 1, 2023, cash provided by operating activities was $8.4 million compared to cash used by operations of $0.3 million in the comparable prior year period.

Our net cash used in investing activities for the three fiscal months ended April 1, 2023 was slightly lower compared to the prior year period mainly due to lower capital spending.

Our net cash used in financing activities for the three fiscal months ended April 1, 2023 was comparable with the prior year period.

Approximately 92% and 83% of our cash and cash equivalents balance at April 1, 2023 and December 31, 2022, respectively, was held by our non-U.S.

For the six fiscal months ended July 1, 2023, cash provided by operating activities was $18.2 million compared to $8.8 million in the comparable prior year period.

Our net cash used in investing activities for the six fiscal months ended July 1, 2023 was lower compared to the prior year period mainly due to lower capital spending.

Our net cash used in financing activities for the six fiscal months ended July 1, 2023 was slightly higher when compared with the prior year period due to the stock repurchases made during the period.

Approximately 91% and 83% of our cash and cash equivalents balance at July 1, 2023 and December 31, 2022, respectively, was held by our non-U.S.

subsidiaries.

See the following table for the percentage of cash and cash equivalents, by region, at April 1, 2023 and December 31, 2022:

April 1, 2023 December 31, 2022

See the following table for the percentage of cash and cash equivalents, by region, at July 1, 2023 and December 31, 2022:

July 1, 2023 December 31, 2022

Israel 37 % 28 %

7 unchanged sentences

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.

The Company will evaluate the

possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner.

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

In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

1 unchanged sentence

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

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of April 1, 2023, to be indefinitely reinvested.

Adjusted free cash flow generated during the three fiscal months ended April 1, 2023, was $4.9 million.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of July 1, 2023, to be indefinitely reinvested.

Adjusted free cash flow generated during the six fiscal months ended July 1, 2023, was $11.4 million.

We refer to the amount of cash provided by operating activities ($18.2 million) in excess of our capital expenditures ($6.9 million) and net of proceeds from the sale of assets ($0.1 million) as “adjusted free cash flow.”

The following table summarizes the components of net cash at April 1, 2023 and December 31, 2022 (in thousands) :

April 1, 2023 December 31, 2022

The following table summarizes the components of net cash at July 1, 2023 and December 31, 2022 (in thousands) :

July 1, 2023 December 31, 2022

Cash and cash equivalents $ 98,521 $ 88,562

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

Our financial condition as of April 1, 2023 remains strong, with a current ratio (current assets to current liabilities) of 4.3 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2022.

Cash paid for property and equipment for the three fiscal months ended April 1, 2023 was $3.5 million compared to $4.3 million in the comparable prior year period.

As of April 1, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

Our financial condition as of July 1, 2023 remains strong, with a current ratio (current assets to current liabilities) of 4.3 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2022.

Cash paid for property and equipment for the six fiscal months ended July 1, 2023 was $6.9 million compared to $8.8 million in the comparable prior year period.

As of July 1, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

6 unchanged sentences

impact of inflation;

issues respecting the United States federal government debt ceiling;

potential issues respecting the United States federal government debt ceiling;

global labor and supply chain challenges;

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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