Vishay Precision Group, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) July 1, 2023 December 31, 2022 (Unaudited) Assets Current assets: Cash and cash equivalents $ 98,521 $ 88,562 Accounts receivable, net 60,548 60,068 Inventories: Raw materials 33,737 31,852 Work in process 30,068 26,401 Finished goods 25,613 26,407 Inventories, net 89,418 84,660 Prepaid expenses and other current assets 15,904 18,516 Total current assets 264,391 251,806 Property and equipment: Land 4,139 4,117 Buildings and improvements 71,459 71,613 Machinery and equipment 125,593 125,301 Software 8,933 9,539 Construction in progress 10,662 10,075 Accumulated depreciation ( 133,658 ) ( 133,518 ) Property and equipment, net 87,128 87,127 Goodwill 45,703 45,544 Intangible assets, net 46,476 48,217 Operating lease right-of-use assets 23,663 24,342 Other assets 19,616 19,706 Total assets $ 486,977 $ 476,742 Continues on the following page. -3- VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) July 1, 2023 December 31, 2022 Liabilities and equity (Unaudited) Current liabilities: Trade accounts payable $ 12,411 $ 13,792 Payroll and related expenses 19,355 21,966 Other accrued expenses 22,660 20,306 Income taxes 2,740 4,064 Current portion of operating lease liabilities 4,072 4,208 Total current liabilities 61,238 64,336 Long-term debt, less current portion 60,799 60,799 Deferred income taxes 4,060 4,212 Operating lease liabilities 18,987 20,043 Other liabilities 13,200 13,053 Accrued pension and other postretirement costs 7,028 7,777 Total liabilities 165,312 170,220 Equity: Common stock 1,330 1,325 Class B convertible common stock 103 103 Treasury stock ( 11,924 ) ( 11,504 ) Capital in excess of par value 201,611 201,164 Retained earnings 171,559 156,359 Accumulated other comprehensive loss ( 41,076 ) ( 40,900 ) Total Vishay Precision Group, Inc. stockholders' equity 321,603 306,547 Noncontrolling interests 62 ( 25 ) Total equity 321,665 306,522 Total liabilities and equity $ 486,977 $ 476,742 See accompanying notes. -4- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Fiscal quarter ended July 1, 2023 July 2, 2022 Net revenues $ 90,802 $ 88,618 Costs of products sold 52,090 51,284 Gross profit 38,712 37,334 Selling, general, and administrative expenses 26,755 25,879 Restructuring costs 162 904 Operating income 11,795 10,551 Other income (expense): Interest expense ( 1,079 ) ( 428 ) Other 1,019 3,344 Other income (expense) ( 60 ) 2,916 Income before taxes 11,735 13,467 Income tax expense 3,384 2,587 Net earnings 8,351 10,880 Less: net earnings attributable to noncontrolling interests 115 125 Net earnings attributable to VPG stockholders $ 8,236 $ 10,755 Basic earnings per share attributable to VPG stockholders $ 0.61 $ 0.79 Diluted earnings per share attributable to VPG stockholders $ 0.60 $ 0.79 Weighted average shares outstanding - basic 13,601 13,648 Weighted average shares outstanding - diluted 13,670 13,692 See accompanying notes. -5- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Six fiscal months ended July 1, 2023 July 2, 2022 Net revenues $ 179,666 $ 176,283 Costs of products sold 103,755 103,699 Gross profit 75,911 72,584 Selling, general, and administrative expenses 53,914 52,553 Restructuring costs 278 1,165 Operating income 21,719 18,866 Other income (expense): Interest expense ( 2,076 ) ( 757 ) Other 1,294 3,783 Other income (expense) ( 782 ) 3,026 Income before taxes 20,937 21,892 Income tax expense 5,604 4,328 Net earnings 15,333 17,564 Less: net earnings attributable to noncontrolling interests 133 453 Net earnings attributable to VPG stockholders $ 15,200 $ 17,111 Basic earnings per share attributable to VPG stockholders $ 1.12 $ 1.25 Diluted earnings per share attributable to VPG stockholders $ 1.11 $ 1.25 Weighted average shares outstanding - basic 13,593 13,643 Weighted average shares outstanding - diluted 13,661 13,684 See accompanying notes. -6- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Fiscal quarter ended July 1, 2023 July 2, 2022 Net earnings $ 8,351 $ 10,880 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 1,680 ) ( 7,943 ) Pension and other postretirement actuarial items ( 1 ) 81 Other comprehensive loss ( 1,681 ) ( 7,862 ) Comprehensive income 6,670 3,018 Less: comprehensive income attributable to noncontrolling interests 115 125 Comprehensive income attributable to VPG stockholders $ 6,555 $ 2,893 See accompanying notes. -7- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited - In thousands) Six fiscal months ended July 1, 2023 July 2, 2022 Net earnings $ 15,333 $ 17,564 Other comprehensive income (loss): Foreign currency translation adjustment ( 178 ) ( 9,735 ) Pension and other postretirement actuarial items, net of tax 2 162 Other comprehensive loss ( 176 ) ( 9,573 ) Comprehensive income 15,157 7,991 Less: comprehensive income attributable to noncontrolling interests 133 453 Comprehensive income attributable to VPG stockholders $ 15,024 $ 7,538 See accompanying notes. -8- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) Six fiscal months ended July 1, 2023 July 2, 2022 Operating activities Net earnings $ 15,333 $ 17,564 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 7,725 7,622 Gain on sale of property and equipment 28 ( 178 ) Reclassification of foreign currency translation adjustment related to disposal of subsidiary — 191 Share-based compensation expense 1,229 1,024 Inventory write-offs for obsolescence 1,049 866 Deferred income taxes 507 1,116 Foreign currency impacts and other items ( 1,557 ) ( 2,740 ) Net changes in operating assets and liabilities: Accounts receivable ( 956 ) ( 3,434 ) Inventories ( 5,697 ) ( 10,739 ) Prepaid expenses and other current assets 2,726 254 Trade accounts payable ( 684 ) 14 Other current liabilities ( 593 ) ( 2,059 ) Other non current assets and liabilities, net ( 292 ) ( 403 ) Accrued pension and other postretirement costs, net ( 606 ) ( 342 ) Net cash provided by operating activities 18,212 8,756 Investing activities Capital expenditures ( 6,874 ) ( 8,815 ) Proceeds from sale of property and equipment 12 380 Net cash used in investing activities ( 6,862 ) ( 8,435 ) Financing activities Purchase of treasury stock ( 420 ) — Distributions to noncontrolling interests ( 46 ) ( 284 ) Payments of employee taxes on certain share-based arrangements ( 825 ) ( 435 ) Net cash used in financing activities ( 1,291 ) ( 719 ) Effect of exchange rate changes on cash and cash equivalents ( 100 ) ( 4,508 ) Increase (decrease) in cash and cash equivalents 9,959 ( 4,906 ) Cash and cash equivalents at beginning of period 88,562 84,335 Cash and cash equivalents at end of period $ 98,521 $ 79,429 Supplemental disclosure of investing transactions: Capital expenditures accrued but not yet paid $ 1,118 $ 2,684 See accompanying notes. -9- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Fiscal quarter ended July 1, 2023 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at April 1, 2023 $ 1,328 $ 103 $ ( 11,504 ) $ 201,065 $ 163,323 $ ( 39,395 ) $ 314,920 $ ( 27 ) $ 314,893 Net earnings — — — — 8,236 — 8,236 115 8,351 Other comprehensive loss — — — — — ( 1,681 ) ( 1,681 ) — ( 1,681 ) Share-based compensation expense — — — 548 — — 548 — 548 Restricted stock issuances ( 17,386 shares) 2 — — ( 2 ) — — — — — Purchase of treasury stock. ( 12,312 shares) — — ( 420 ) — — — ( 420 ) — ( 420 ) Distributions to noncontrolling interests — — — — — — — ( 26 ) ( 26 ) Balance at July 1, 2023 $ 1,330 $ 103 $ ( 11,924 ) $ 201,611 $ 171,559 $ ( 41,076 ) $ 321,603 $ 62 $ 321,665 Fiscal quarter ended July 2, 2022 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at April 2, 2022 $ 1,324 $ 103 $ ( 8,765 ) $ 199,223 $ 126,652 $ ( 36,719 ) $ 281,818 $ 25 $ 281,843 Net earnings — — — — 10,755 — 10,755 125 10,880 Other comprehensive income — — — — — ( 7,862 ) ( 7,862 ) — ( 7,862 ) Share-based compensation expense — — — 527 — — 527 — 527 Restricted stock issuances ( 10,531 shares) 1 — — ( 1 ) — — — — — Distribution to noncontrolling interests — — — — — — — ( 38 ) ( 38 ) Balance at July 2, 2022 $ 1,325 $ 103 $ ( 8,765 ) $ 199,749 $ 137,407 $ ( 44,581 ) $ 285,238 $ 112 $ 285,350 See accompanying notes. -10- VISHAY PRECISION GROUP, INC. Consolidated Condensed Statements of Equity (Unaudited - In thousands, except share amounts) Six Fiscal Months Ended July 1, 2023 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2022 $ 1,325 $ 103 $ ( 11,504 ) $ 201,164 $ 156,359 $ ( 40,900 ) $ 306,547 $ ( 25 ) $ 306,522 Net earnings — — — — 15,200 — 15,200 133 15,333 Other comprehensive loss — — — — — ( 176 ) ( 176 ) — ( 176 ) Share-based compensation expense — — — 1,229 — — 1,229 — 1,229 Restricted stock issuances ( 47,189 shares) 5 — — ( 782 ) — — ( 777 ) — ( 777 ) Purchase of treasury stock ( 12,312 shares) — — ( 420 ) — — — ( 420 ) — ( 420 ) Distributions to noncontrolling interests — — — — — — — ( 46 ) ( 46 ) Balance at July 1, 2023 $ 1,330 $ 103 $ ( 11,924 ) $ 201,611 $ 171,559 $ ( 41,076 ) $ 321,603 $ 62 $ 321,665 Six Fiscal Months Ended July 2, 2022 Common Stock Class B Convertible Common Stock Treasury Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total VPG, Inc. Stockholders' Equity Noncontrolling Interests Total Equity Balance at December 31, 2021 $ 1,322 $ 103 $ ( 8,765 ) $ 199,151 $ 120,296 $ ( 35,008 ) $ 277,099 $ ( 57 ) $ 277,042 Net earnings — — — — 17,111 — 17,111 453 17,564 Other comprehensive loss — — — — — ( 9,573 ) ( 9,573 ) — ( 9,573 ) Share-based compensation expense — — — 1,024 — — 1,024 — 1,024 Restricted stock issuances ( 28,368 shares) 3 — — ( 426 ) — — ( 423 ) — ( 423 ) Distribution to noncontrolling interests — — — — — — — ( 284 ) ( 284 ) Balance at July 2, 2022 $ 1,325 $ 103 $ ( 8,765 ) $ 199,749 $ 137,407 $ ( 44,581 ) $ 285,238 $ 112 $ 285,350 See accompanying notes. -11- Vishay Precision Group, Inc. Notes to Unaudited Consolidated Condensed Financial Statements Note 1 – Basis of Presentation Background Vishay Precision Group, Inc. (“VPG” or the “Company”) is a global, diversified company focused on precision measurement 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. Interim Financial Statements These unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023. The results of operations for the fiscal quarter ended July 1, 2023 are not necessarily indicative of the results to be expected for the full year. VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2023 and 2022 end on the following dates: 2023 2022 Quarter 1 April 1, April 2, Quarter 2 July 1, July 2, Quarter 3 September 30, October 1, Quarter 4 December 31, December 31, Reclassifications Certain prior year amounts have been reclassified to conform to the current financial statement presentation. Note 2 – Revenues Revenue Recognition The following table disaggregates net revenue by geographic region from contracts with customers based on net revenues generated by subsidiaries within that geographic location (in thousands) : -12- Note 2 – Revenues (continued) Fiscal quarter ended July 1, 2023 Fiscal quarter ended July 2, 2022 Sensors Weighing Solutions Measurement Systems Total Sensors Weighing Solutions Measurement Systems Total United States $ 14,555 $ 13,228 $ 12,872 $ 40,655 $ 13,469 $ 12,463 $ 11,308 $ 37,240 United Kingdom 911 3,724 75 4,710 933 3,859 161 4,953 Other Europe 7,951 10,350 1,236 19,537 8,024 8,820 1,117 17,961 Israel 4,131 50 — 4,181 8,050 110 — 8,160 Asia 8,718 3,909 1,494 14,121 9,804 3,207 811 13,822 Canada — — 7,598 7,598 — — 6,482 6,482 Total $ 36,266 $ 31,261 $ 23,275 $ 90,802 $ 40,280 $ 28,459 $ 19,879 $ 88,618 Six Fiscal Months Ended July 1, 2023 Six Fiscal Months Ended July 2, 2022 Sensors Weighing Solutions Measurement Systems Total Sensors Weighing Solutions Measurement Systems Total United States $ 27,229 $ 28,107 $ 23,533 $ 78,869 $ 26,475 $ 26,541 $ 21,773 $ 74,789 United Kingdom 1,726 7,833 171 9,730 1,810 8,193 459 10,462 Other Europe 17,958 20,067 4,406 42,431 15,816 19,351 2,999 38,166 Israel 8,094 126 — 8,220 15,381 300 — 15,681 Asia 17,985 6,987 3,547 28,519 18,548 6,842 1,821 27,211 Canada — — 11,897 11,897 — — 9,974 9,974 Total $ 72,992 $ 63,120 $ 43,554 $ 179,666 $ 78,030 $ 61,227 $ 37,026 $ 176,283 The following table disaggregates net revenue from contracts with customers by market sector (in thousands) . Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Test & Measurement $ 18,705 $ 21,483 $ 37,369 $ 39,456 Avionics, Military & Space 8,284 6,878 19,991 15,040 Transportation 13,031 13,195 25,503 27,149 Other Markets 18,417 18,035 37,722 39,185 Industrial Weighing 12,027 12,944 23,053 26,153 General Industrial 5,417 5,325 10,215 11,191 Steel 14,921 10,758 25,813 18,109 Total $ 90,802 $ 88,618 $ 179,666 $ 176,283 Contract Assets & Liabilities Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations. Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due is not significant. The outstanding contract assets and liability accounts were as follows (in thousands) : -13- Note 2 – Revenues (continued) Contract Asset Contract Liability Unbilled Revenue Accrued Customer Advances Balance at December 31, 2022 $ 3,990 $ 7,983 Balance at July 1, 2023 4,170 8,633 Increase $ 180 $ 650 The amount of revenue recognized during the six fiscal months ended July 1, 2023 that was included in the contract liability balance at December 31, 2022 was $ 6.2 million Note 3 – Goodwill The Company tests the goodwill in each of its goodwill reporting units for impairment at least annually, as of the first day of its fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. The change in the carrying amount of goodwill by segment is as follows (in thousands): Total Measurement Systems Weighing Solutions KELK Acquisition DSI Acquisition DTS Acquisition Stress-Tek Acquisition Balance at December 31, 2022 $ 45,544 $ 6,313 $ 16,887 $ 16,033 $ 6,311 Foreign currency translation adjustment 159 151 8 — — Balance at July 1, 2023 $ 45,703 $ 6,464 $ 16,895 $ 16,033 $ 6,311 Note 4 – Leases The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to thirteen years . The Company has no finance leases. Leases recorded on the balance sheet consist of the following (in thousands) : Leases July 1, 2023 December 31, 2022 Assets Operating lease right of use asset $ 23,663 $ 24,342 Liabilities Operating lease - current $ 4,072 $ 4,208 Operating lease - non-current $ 18,987 $ 20,043 Other information related to lease term and discount rate is as follows: July 1, 2023 Operating leases weighted average remaining lease term (in years) 7.24 years Operating leases weighted average discount rate 3.39 % The components of lease expense are as follows (in thousands) : -14- Note 4 - Leases (continued) Fiscal quarter ended Six Fiscal Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Operating lease cost $ 1,247 $ 1,299 $ 2,491 $ 2,609 Short-term lease cost 45 17 91 42 Sublease income ( 98 ) ( 105 ) ( 198 ) ( 217 ) Total net lease cost $ 1,194 $ 1,211 $ 2,384 $ 2,434 Right of use assets obtained in exchange for new operating lease liability during the six fiscal months ended July 1, 2023 were $ 1.5 million. The Company paid $ 2.5 million and $ 2.6 million for its operating leases for each of the six fiscal months ended July 1, 2023 and July 2, 2022, which are included in operating cash flows on the consolidated condensed statements of cash flows. Undiscounted maturities of operating lease payments as of July 1, 2023 are summarized as follows (in thousands) : 2023 (excluding the six months ended July 1, 2023) $ 2,370 2024 4,228 2025 3,843 2026 3,217 2027 3,010 Thereafter 9,158 Total future minimum lease payments $ 25,826 Less: amount representing interest ( 2,767 ) Present value of future minimum lease payments $ 23,059 Note 5 – Income Taxes VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate was 28.8 % and 19.2 % for the fiscal quarter ended July 1, 2023, and July 2, 2022, respectively. The effective tax rate for the fiscal quarter ended July 1, 2023 differs from the federal statutory rate of 21% due to foreign income taxed at different tax rates and changes in our valuation allowance on deferred tax assets. The effective tax rate for the fiscal quarter ended July 2, 2022 differs from the federal statutory rate of 21% due to foreign income taxed at different tax rates and changes 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. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. Note 6 – Long-Term Debt Long-term debt consists of the following (in thousands) : July 1, 2023 December 31, 2022 2020 Credit Agreement - Revolving Facility $ 61,000 $ 61,000 Deferred financing costs ( 201 ) ( 201 ) Total long-term debt $ 60,799 $ 60,799 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 -15- Note 6 - Long-Term Debt (continued) Wells Fargo Bank, National Association as joint lead arrangers and JPMorgan Chase Bank, National Association as agent for such lenders. The Credit Agreement Amendment amends the Third Amended and Restated Credit Agreement, dated March 20, 2020, by and among the Company, the lenders named therein, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers and JPMorgan Chase Bank, National Association as agent for such lenders. 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 . There is no material impact in interest expense or the loan balance as a result of the rate change. Note 7 – Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in thousands) : Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2023 $ ( 41,489 ) $ 589 $ ( 40,900 ) Other comprehensive income before reclassifications ( 178 ) — ( 178 ) Amounts reclassified from accumulated other comprehensive income — 2 2 Balance at July 1, 2023 $ ( 41,667 ) $ 591 $ ( 41,076 ) Foreign Currency Translation Adjustment Pension and Other Postretirement Actuarial Items Total Balance at January 1, 2022 $ ( 30,276 ) $ ( 4,732 ) $ ( 35,008 ) Other comprehensive loss before reclassifications ( 9,926 ) — ( 9,926 ) Amounts reclassified from accumulated other comprehensive income 191 162 353 Balance at July 2, 2022 $ ( 40,011 ) $ ( 4,570 ) $ ( 44,581 ) Reclassification of foreign currency translation adjustment for the loss on liquidation of subsidiaries is included in other income and expense other (see Note 12). Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 8). Note 8 – Pension and Other Postretirement Benefits Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. T he following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands) : -16- Note 8 - Pension and Other Postretirement Benefits ( continued) Fiscal quarter ended July 1, 2023 Fiscal quarter ended July 2, 2022 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 68 $ 4 $ 81 $ 7 Interest cost 192 28 120 17 Expected return on plan assets ( 214 ) ( 119 ) — Amortization of actuarial losses (gains) 7 ( 6 ) 72 1 Net periodic benefit cost $ 53 $ 26 $ 154 $ 25 Six Fiscal Months Ended July 1, 2023 Six Fiscal Months Ended July 2, 2022 Pension Plans OPEB Plans Pension Plans OPEB Plans Net service cost $ 137 $ 8 $ 165 $ 14 Interest cost $ 382 $ 56 $ 243 $ 34 Expected return on plan assets $ ( 426 ) $ — $ ( 242 ) $ — Amortization of actuarial losses (gains) $ 15 $ ( 12 ) $ 146 $ 2 Net periodic benefit cost $ 108 $ 52 $ 312 $ 50 Note 9 – Share-Based Compensation The Vishay Precision Group, Inc. 2022 Stock Incentive Plan (the "2022 plan") permits issuance of up to 608,000 shares of common stock. At July 1, 2023, the Company had reserved 525,239 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the 2022 plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others. If shares are withheld for payment of taxes, those shares do not become available for grant under the 2022 plan. On February 28, 2023 and in accordance with their respective employment agreements, VPG’s three executive officers were granted annual equity awards in the form of RSUs, of which 50 % are performance-based. The awards have an aggregate target grant-date fair value of $ 1.9 million and were comprised of 43,243 RSUs. Fifty percent of these awards will vest on January 1, 2026, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2026, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and "net earnings goals", each weighted equally. On March 9, 2023, certain non-executive VPG employees were granted annual equity awards in the form of RSUs. Certain employees received awards, of which 75 % are performance-based and certain employees received awards of which 50 % are performance-based. The awards have an aggregate grant-date fair value of $ 0.6 million and were comprised of 14,338 RSUs. The non-performance portion of these awards ( twenty-five percent for certain employees and fifty percent for certain employees) will vest on January 1, 2026, subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2026, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings and cash flow goals, each weighted equally. On May 24, 2023, and in accordance with the Company's 2017 Non-Employee Director Compensation Plan, the Board of Directors approved the issuance of an aggregate of 13,923 RSUs to the independent board members of the Board of Directors. The awards have an aggregate grant-date fair value of $ 0.5 million and will vest on the earlier of the 2024 Annual Stockholders Meeting or May 24, 2024, subject to each applicable director's continued service on the Board of Directors. Vesting of equity awards is subject to acceleration under certain circumstances. -17- Note 9 - Share-Based Compensation (continued) The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands) : Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Share-based compensation expense $ 548 $ 527 $ 1,229 $ 1,024 During the second quarter of 2023, a net adjustment of $ 0.1 million decreasing share-based compensation expense was recorded based on the evaluation of performance objectives associated with awards granted in 2021 and 2022. It was determined that certain objectives were not likely to be fully met necessitating a reversal of certain compensation expenses associated with those awards. Note 10 – Segment Information VPG reports in three product segments: the Sensors segment, the Weighing Solutions segment, and the Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing. The chief operating decision maker ("CODM") is our chief executive officer. The CODM evaluates each operating segment's performance. The evaluation of the segment's performance is based on multiple performance measures including gross profits, revenues, and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring and severance costs, impairment of goodwill and indefinite-lived intangible assets, acquisition costs, and other items is meaningful because they relate to occurrences or events that are outside of our core operations, and management believes that the use of these measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. The following table sets forth reporting segment information (in thousands) : -18- Note 10 - Segment Information (continued) Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net revenues: Sensors $ 36,266 $ 40,280 $ 72,992 $ 78,030 Weighing Solutions 31,261 28,459 63,120 61,227 Measurement Systems 23,275 19,879 43,554 37,026 Total $ 90,802 $ 88,618 $ 179,666 $ 176,283 Gross profit: Sensors $ 14,549 $ 17,831 $ 29,693 $ 32,117 Weighing Solutions 12,107 9,585 23,236 21,664 Measurement Systems 12,056 9,918 22,982 18,803 Total $ 38,712 $ 37,334 $ 75,911 $ 72,584 Reconciliation of segment operating income to consolidated results: Sensors $ 9,567 $ 13,060 $ 19,500 $ 22,018 Weighing Solutions 6,161 4,177 11,501 10,391 Measurement Systems 4,769 3,263 8,641 5,474 Unallocated G&A expenses ( 8,540 ) ( 9,045 ) ( 17,645 ) ( 17,852 ) Restructuring costs ( 162 ) ( 904 ) ( 278 ) ( 1,165 ) Operating income $ 11,795 $ 10,551 $ 21,719 $ 18,866 Restructuring costs: Sensors $ — $ ( 904 ) $ — $ ( 1,107 ) Weighing Solutions ( 162 ) — ( 196 ) — Measurement Systems — — ( 32 ) ( 58 ) Corporate/Other — — ( 50 ) — $ ( 162 ) $ ( 904 ) $ ( 278 ) $ ( 1,165 ) Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. The table below summarizes intersegment sales (in thousands) : Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Sensors to Weighing Solutions $ 433 $ 433 $ 761 $ 822 Sensors to Measurement Systems 12 98 48 159 -19- Note 11 – Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share) : Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Numerator: Numerator for basic earnings per share: Net earnings attributable to VPG stockholders $ 8,236 $ 10,755 $ 15,200 $ 17,111 Denominator: Denominator for basic earnings per share: Weighted average shares 13,601 13,648 13,593 13,643 Effect of dilutive securities: Restricted stock units 69 44 68 41 Dilutive potential common shares 69 44 68 41 Denominator for diluted earnings per share: Adjusted weighted average shares 13,670 13,692 13,661 13,684 Basic earnings per share attributable to VPG stockholders $ 0.61 $ 0.79 $ 1.12 $ 1.25 Diluted earnings per share attributable to VPG stockholders $ 0.60 $ 0.79 $ 1.11 $ 1.25 Note 12 – Additional Financial Statement Information Other Income (Expense) Other The caption “Other” on the consolidated condensed statements of operations consists of the following (in thousands) : Fiscal quarter ended Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Foreign currency exchange gain $ 793 $ 3,380 $ 855 $ 3,934 Interest income 356 80 722 144 Pension expense ( 71 ) ( 104 ) ( 145 ) ( 180 ) Other ( 59 ) ( 12 ) ( 138 ) ( 115 ) $ 1,019 $ 3,344 $ 1,294 $ 3,783 Foreign currency exchange gains represent the impact of changes in foreign currency exchange rates. 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. -20- Note 12 – Additional Financial Statement Information ( continued) 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 six fiscal months ended July 2, 2022 is a $ 0.2 million loss on the liquidation of two of the Company's European subsidiaries. Other Accrued Expenses Other accrued expenses consist of the following (in thousands) : July 1, 2023 December 31, 2022 Customer advance payments $ 8,633 $ 7,983 Accrued restructuring 61 183 Goods received, not yet invoiced 2,028 2,523 Accrued taxes, other than income taxes 1,905 1,141 Accrued commissions 3,570 3,217 Accrued professional fees 1,825 1,360 Accrued technical warranty 781 740 Current accrued pensions and other post retirement costs 505 505 Other 3,352 2,654 $ 22,660 $ 20,306 Note 13 – Fair Value Measurements ASC Topic 820, Fair Value Measurement, establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the Company’s own assumptions. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands) : Fair value measurements at reporting date using: Total Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs July 1, 2023 Assets Assets held in rabbi trusts $ 5,754 $ 110 $ 5,644 $ — December 31, 2022 Assets Assets held in rabbi trusts $ 5,427 $ 53 $ 5,374 $ — -21- Note 13 – Fair Value Measurements (continued) The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at July 1, 2023 and December 31, 2022, and company-owned life insurance assets. The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the cash equivalents held in the rabbi trust are considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy. The fair value of the long-term debt, excluding capitalized deferred financing costs, at July 1, 2023 and December 31, 2022 approximates its carrying value as the revolving debt is reset on a monthly basis based on current market rates, plus a base rate as specified in the debt agreement. The fair value of long-term debt is considered a Level 2 measurement within the fair value hierarchy. The Company’s financial instruments include cash and cash equivalents, accounts receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values. Note 14 – Restructuring Costs Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. 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 $ 0.2 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, and were incurred in connection with various cost reduction programs. The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of July 1, 2023 and December 31, 2022, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands) : Balance at December 31, 2022 $ 183 Restructuring charges in 2023 278 Cash payments ( 402 ) Foreign currency translation 2 Balance at July 1, 2023 $ 61 Note 15 – Subsequent Event On August 8, 2023, the Company announced that its Board of Directors extended the term of the previously approved stock repurchase plan to August 9, 2024. -22-