Vishay Precision Group, Inc. - Quarter Report: 2021 April (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-34679
VISHAY PRECISION GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 27-0986328 | |||||||||||||
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification Number) | |||||||||||||
| 3 Great Valley Parkway, Suite 150 | ||||||||||||||
Malvern, PA, 19355 | 484-321-5300 | |||||||||||||
| (Address of Principal Executive Offices) (Zip Code) | (Registrant’s Telephone Number, including area code) | |||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common stock, $0.10 par value | VPG | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. ý Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ý | |||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ | ||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ý No
As of May 11, 2021, the registrant had 12,587,191 shares of its common stock and 1,022,887 shares of its Class B convertible common stock outstanding.
VISHAY PRECISION GROUP, INC.
FORM 10-Q
April 3, 2021
CONTENTS
| Page Number | ||||||||
-2-
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) | |||||||||||
| April 3, 2021 | December 31, 2020 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 96,154 | $ | 98,438 | |||||||
| Accounts receivable, net | 43,884 | 45,339 | |||||||||
| Inventories: | |||||||||||
| Raw materials | 21,604 | 21,894 | |||||||||
| Work in process | 23,991 | 21,534 | |||||||||
| Finished goods | 18,702 | 18,920 | |||||||||
| Inventories, net | 64,297 | 62,348 | |||||||||
| Prepaid expenses and other current assets | 15,287 | 15,761 | |||||||||
| Total current assets | 219,622 | 221,886 | |||||||||
| Property and equipment, at cost: | |||||||||||
| Land | 4,268 | 4,282 | |||||||||
| Buildings and improvements | 66,611 | 67,581 | |||||||||
| Machinery and equipment | 118,136 | 115,717 | |||||||||
| Software | 10,067 | 10,026 | |||||||||
| Construction in progress | 6,374 | 6,341 | |||||||||
| Accumulated depreciation | (129,401) | (128,931) | |||||||||
| Property and equipment, net | 76,055 | 75,016 | |||||||||
| Goodwill | 31,167 | 31,105 | |||||||||
| Intangible assets, net | 31,523 | 32,039 | |||||||||
| Operating lease right-of-use assets | 20,647 | 21,788 | |||||||||
| Other assets | 19,586 | 20,053 | |||||||||
| Total assets | $ | 398,600 | $ | 401,887 | |||||||
Continues on the following page.
-3-
VISHAY PRECISION GROUP, INC. Consolidated Condensed Balance Sheets (In thousands) | |||||||||||
| April 3, 2021 | December 31, 2020 | ||||||||||
| Liabilities and equity | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 9,310 | $ | 10,487 | |||||||
| Payroll and related expenses | 14,670 | 17,595 | |||||||||
| Other accrued expenses | 15,211 | 13,843 | |||||||||
| Income taxes | 1,394 | 1,593 | |||||||||
| Current portion of operating lease liabilities | 3,812 | 4,011 | |||||||||
| Current portion of long-term debt | — | 18 | |||||||||
| Total current liabilities | 44,397 | 47,547 | |||||||||
| Long-term debt, less current portion | 40,648 | 40,626 | |||||||||
| Deferred income taxes | 3,178 | 3,403 | |||||||||
| Operating lease liabilities | 17,867 | 19,504 | |||||||||
| Other liabilities | 15,920 | 16,263 | |||||||||
| Accrued pension and other postretirement costs | 15,971 | 16,687 | |||||||||
| Total liabilities | 137,981 | 144,030 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Common stock | 1,320 | 1,317 | |||||||||
| Class B convertible common stock | 103 | 103 | |||||||||
| Treasury stock | (8,765) | (8,765) | |||||||||
| Capital in excess of par value | 197,282 | 197,764 | |||||||||
| Retained earnings | 105,036 | 100,075 | |||||||||
| Accumulated other comprehensive loss | (34,262) | (32,671) | |||||||||
| Total Vishay Precision Group, Inc. stockholders' equity | 260,714 | 257,823 | |||||||||
| Noncontrolling interests | (95) | 34 | |||||||||
| Total equity | 260,619 | 257,857 | |||||||||
| Total liabilities and equity | $ | 398,600 | $ | 401,887 | |||||||
See accompanying notes.
-4-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net revenues | $ | 70,589 | $ | 67,696 | |||||||
| Costs of products sold | 41,967 | 42,631 | |||||||||
| Gross profit | 28,622 | 25,065 | |||||||||
| Selling, general, and administrative expenses | 22,183 | 20,291 | |||||||||
| Restructuring costs | — | 130 | |||||||||
| Operating income | 6,439 | 4,644 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense | (305) | (461) | |||||||||
| Other | 573 | 683 | |||||||||
| Other income (expense) | 268 | 222 | |||||||||
| Income before taxes | 6,707 | 4,866 | |||||||||
| Income tax expense | 1,764 | 1,574 | |||||||||
| Net earnings | 4,943 | 3,292 | |||||||||
| Less: net earnings attributable to noncontrolling interests | (18) | (20) | |||||||||
| Net earnings attributable to VPG stockholders | $ | 4,961 | $ | 3,312 | |||||||
| Basic earnings per share attributable to VPG stockholders | $ | 0.36 | $ | 0.24 | |||||||
| Diluted earnings per share attributable to VPG stockholders | $ | 0.36 | $ | 0.24 | |||||||
| Weighted average shares outstanding - basic | 13,593 | 13,541 | |||||||||
| Weighted average shares outstanding - diluted | 13,629 | 13,586 | |||||||||
See accompanying notes.
-5-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited - In thousands)
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net earnings | $ | 4,943 | $ | 3,292 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment | (1,800) | (5,341) | |||||||||
| Pension and other postretirement actuarial items, net of tax | 209 | (159) | |||||||||
| Other comprehensive loss | (1,591) | (5,500) | |||||||||
| Comprehensive income (loss) | 3,352 | (2,208) | |||||||||
| Less: comprehensive income attributable to noncontrolling interests | (18) | (20) | |||||||||
| Comprehensive income (loss) attributable to VPG stockholders | $ | 3,370 | $ | (2,188) | |||||||
See accompanying notes.
-6-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
| Three fiscal months ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Operating activities | |||||||||||
| Net earnings | $ | 4,943 | $ | 3,292 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 3,522 | 3,199 | |||||||||
| Loss from extinguishment of debt | — | 30 | |||||||||
| Gain on sale of property and equipment | (1) | (3) | |||||||||
| Share-based compensation expense | 366 | 379 | |||||||||
| Inventory write-offs for obsolescence | 613 | 631 | |||||||||
| Deferred income taxes | (116) | (233) | |||||||||
| Other | (1,659) | (1,137) | |||||||||
| Net changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | 753 | (4,956) | |||||||||
| Inventories, net | (3,089) | 1,449 | |||||||||
| Prepaid expenses and other current assets | 366 | (1,380) | |||||||||
| Trade accounts payable | 526 | (617) | |||||||||
| Other current liabilities | (601) | 5,642 | |||||||||
| Net cash provided by operating activities | 5,623 | 6,296 | |||||||||
| Investing activities | |||||||||||
| Capital expenditures | (5,746) | (3,344) | |||||||||
| Proceeds from sale of property and equipment | 3 | 15 | |||||||||
| Net cash used in investing activities | (5,743) | (3,329) | |||||||||
| Financing activities | |||||||||||
| Principal payments on long-term debt | (18) | (3,385) | |||||||||
| Debt issuance costs | — | (402) | |||||||||
| Distributions to noncontrolling interests | (111) | (25) | |||||||||
| Payments of employee taxes on certain share-based arrangements | (846) | (813) | |||||||||
| Net cash used in financing activities | (975) | (4,625) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,189) | (2,521) | |||||||||
| Decrease in cash and cash equivalents | (2,284) | (4,179) | |||||||||
| Cash and cash equivalents at beginning of period | 98,438 | 86,910 | |||||||||
| Cash and cash equivalents at end of period | $ | 96,154 | $ | 82,731 | |||||||
| Supplemental disclosure of investing transactions: | |||||||||||
| Capital expenditures purchased | $ | (4,150) | $ | (3,178) | |||||||
| Capital expenditures accrued but not yet paid | $ | 965 | $ | 1,016 | |||||||
See accompanying notes.
-7-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Equity
(Unaudited - In thousands, except share amounts)
| Three Fiscal Months Ended April 3, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Class B Convertible Common Stock | Treasury Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total VPG, Inc. Stockholders' Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 1,317 | $ | 103 | $ | (8,765) | $ | 197,764 | $ | 100,075 | $ | (32,671) | $ | 257,823 | $ | 34 | $ | 257,857 | |||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 4,961 | — | 4,961 | (18) | 4,943 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,591) | (1,591) | — | (1,591) | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | 366 | — | — | 366 | — | 366 | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock issuances (34,572 shares) | 3 | — | — | (848) | — | — | (845) | — | (845) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (111) | (111) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 3, 2021 | $ | 1,320 | $ | 103 | $ | (8,765) | $ | 197,282 | $ | 105,036 | $ | (34,262) | $ | 260,714 | $ | (95) | $ | 260,619 | |||||||||||||||||||||||||||||||||||
| Three Fiscal Months Ended March 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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, 2019 | $ | 1,312 | $ | 103 | $ | (8,765) | $ | 197,125 | $ | 89,288 | $ | (37,703) | $ | 241,360 | $ | 392 | $ | 241,752 | |||||||||||||||||||||||||||||||||||
Net earnings | — | — | — | — | 3,312 | — | 3,312 | (20) | 3,292 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (5,500) | (5,500) | — | (5,500) | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | 379 | — | — | 379 | — | 379 | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock issuances (44,189 shares) | 4 | — | — | (795) | — | — | (791) | — | (791) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (25) | (25) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 28, 2020 | $ | 1,316 | $ | 103 | $ | (8,765) | $ | 196,709 | $ | 92,600 | $ | (43,203) | $ | 238,760 | $ | 347 | $ | 239,107 | |||||||||||||||||||||||||||||||||||
See accompanying notes.
-8-
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 an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon the Company's proprietary technology. The Company provides precision products and solutions, many of which are “designed-in” by its customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements.
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, 2020 and 2019 and for each of the three years in the period ended December 31, 2020, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 11, 2021. The results of operations for the fiscal quarter ended April 3, 2021 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 2021 and 2020 end on the following dates:
| 2021 | 2020 | ||||||||||
| Quarter 1 | April 3, | March 28, | |||||||||
| Quarter 2 | July 3, | June 27, | |||||||||
| Quarter 3 | October 2, | September 26, | |||||||||
| Quarter 4 | December 31, | December 31, | |||||||||
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. ASU 2019-12, "Simplifying the Accounting for Income Taxes". This ASU amends Accounting Standards Codification ("ASC") 740 by removing certain exceptions to the general principles, clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company adopted this standard in the first quarter of 2021. The adoption of this ASU did not impact our financial statements or the related disclosures.
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):
-9-
Note 2 – Revenues (continued)
| Fiscal quarter ended April 3, 2021 | Fiscal quarter ended March 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Foil Technology Products | Force Sensors | Weighing and Control Systems | Total | Foil Technology Products | Force Sensors | Weighing and Control Systems | Total | ||||||||||||||||||||||||||||||||||||||||
| United States | $ | 10,479 | $ | 7,771 | $ | 7,667 | $ | 25,917 | $ | 11,934 | $ | 8,392 | $ | 8,889 | $ | 29,215 | |||||||||||||||||||||||||||||||
| United Kingdom | 898 | 567 | 4,013 | 5,478 | 950 | 1,980 | 3,712 | 6,642 | |||||||||||||||||||||||||||||||||||||||
| Other Europe | 7,266 | 5,475 | 4,561 | 17,302 | 7,713 | 2,374 | 3,744 | 13,831 | |||||||||||||||||||||||||||||||||||||||
| Israel | 6,441 | 130 | — | 6,571 | 2,955 | 97 | — | 3,052 | |||||||||||||||||||||||||||||||||||||||
| Asia | 7,627 | 2,990 | 1,601 | 12,218 | 6,925 | 1,852 | 1,671 | 10,448 | |||||||||||||||||||||||||||||||||||||||
| Canada | — | — | 3,103 | 3,103 | — | — | 4,508 | 4,508 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 32,711 | $ | 16,933 | $ | 20,945 | $ | 70,589 | $ | 30,477 | $ | 14,695 | $ | 22,524 | $ | 67,696 | |||||||||||||||||||||||||||||||
The following table disaggregates net revenue from contracts with customers by market sector (in thousands).
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Test & Measurement | $ | 14,416 | $ | 14,345 | |||||||
| Avionics, Military & Space | 6,030 | 6,160 | |||||||||
| Transportation | 9,554 | 8,244 | |||||||||
| Other Markets | 17,545 | 13,128 | |||||||||
| Industrial Weighing | 12,005 | 12,467 | |||||||||
| General Industrial | 4,082 | 4,039 | |||||||||
| Steel | 6,957 | 9,313 | |||||||||
| Total | $ | 70,589 | $ | 67,696 | |||||||
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):
| Contract Asset | Contract Liability | ||||||||||
| Unbilled Revenue | Accrued Customer Advances | ||||||||||
| Balance at December 31, 2020 | $ | 3,605 | $ | 2,873 | |||||||
| Balance at April 3, 2021 | 3,542 | 3,284 | |||||||||
| (Decrease)/increase | $ | (63) | $ | 411 | |||||||
The amount of revenue recognized during the three fiscal months ended April 3, 2021 that was included in the contract liability balance at December 31, 2020 was $1.5 million.
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for contracts that have a duration of one year or less and for contracts that are substantially complete. The Company treats shipping and handling activities as fulfillment costs.
-10-
Note 3 – Goodwill
The change in the carrying amount of goodwill by segment is as follows (in thousands):
| Total | Weighing and Control Systems Segment | Foil Technology Products Segment | |||||||||||||||||||||||||||
| KELK Acquisition | DSI Acquisition | Stress-Tek Acquisition | Pacific Acquisition | ||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 31,105 | $ | 6,726 | $ | 16,942 | $ | 6,311 | $ | 1,126 | |||||||||||||||||||
| Foreign currency translation adjustment | 62 | 80 | (18) | — | — | ||||||||||||||||||||||||
| Balance at April 3, 2021 | $ | 31,167 | $ | 6,806 | $ | 16,924 | $ | 6,311 | $ | 1,126 | |||||||||||||||||||
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 eleven years. The Company has no finance leases.
Leases recorded on the balance sheet consist of the following (in thousands):
| Leases | April 3, 2021 | December 31, 2020 | |||||||||||||||
| Assets | |||||||||||||||||
| Operating lease right of use asset | $ | 20,647 | $ | 21,788 | |||||||||||||
| Liabilities | |||||||||||||||||
| Operating lease - current | $ | 3,812 | $ | 4,011 | |||||||||||||
| Operating lease - non-current | $ | 17,867 | $ | 19,504 | |||||||||||||
Other information related to lease term and discount rate is as follows:
| April 3, 2021 | |||||
| Operating leases weighted average remaining lease term (in years) | 9.07 years | ||||
| Operating leases weighted average discount rate | 3.53 | % | |||
The components of lease expense are as follows (in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Operating lease cost | $ | 1,181 | $ | 874 | |||||||
| Short-term lease cost | 33 | 23 | |||||||||
| Total lease cost | $ | 1,214 | $ | 897 | |||||||
Right of use assets obtained in exchange for new operating lease liability during 2021 were $0.2 million. The Company paid $1.2 million and $0.9 million for its operating leases for each of the fiscal quarters ended April 3, 2021 and March 28, 2020, which are included in operating cash flows on the consolidated condensed statements of cash flows.
-11-
Note 4 - Leases (continued)
Undiscounted maturities of operating lease payments as of April 3, 2021 are summarized as follows (in thousands):
| 2021 (excluding the three months ended April 3, 2021) | $ | 4,181 | |||
| 2022 | 3,299 | ||||
| 2023 | 2,812 | ||||
| 2024 | 2,534 | ||||
| 2025 | 1,994 | ||||
| Thereafter | 10,236 | ||||
| Total future minimum lease payments | $ | 25,056 | |||
| Less: amount representing interest | (3,377) | ||||
| Present value of future minimum lease payments | $ | 21,679 | |||
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 for the fiscal quarter ended April 3, 2021 was 26.3% compared to 32.3% for the fiscal quarter ended March 28, 2020. The tax rate for the fiscal quarter ended of 2021 is lower than the prior year period primarily due to changes in the mix of worldwide income.
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):
| April 3, 2021 | December 31, 2020 | ||||||||||
| 2020 Credit Agreement - Revolving Facility | $ | 41,000 | $ | 41,000 | |||||||
| Other debt | — | 18 | |||||||||
| Deferred financing costs | (352) | (374) | |||||||||
| Total long-term debt | 40,648 | 40,644 | |||||||||
| Less: current portion | — | 18 | |||||||||
| Long-term debt, less current portion | $ | 40,648 | $ | 40,626 | |||||||
-12-
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, 2021 | $ | (25,591) | $ | (7,080) | $ | (32,671) | |||||||||||
| Other comprehensive loss before reclassifications | (1,800) | — | (1,800) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 209 | 209 | ||||||||||||||
| Balance at April 3, 2021 | $ | (27,391) | $ | (6,871) | $ | (34,262) | |||||||||||
| Foreign Currency Translation Adjustment | Pension and Other Postretirement Actuarial Items | Total | |||||||||||||||
| Balance at January 1, 2020 | $ | (30,761) | $ | (6,942) | $ | (37,703) | |||||||||||
| Other comprehensive loss before reclassifications | (5,341) | — | (5,341) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (159) | (159) | ||||||||||||||
| Balance at March 28, 2020 | $ | (36,102) | $ | (7,101) | $ | (43,203) | |||||||||||
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. The following table sets forth the components of the net periodic benefit cost for the Company's defined benefit pension and OPEB plans (in thousands):
| Fiscal quarter ended April 3, 2021 | Fiscal quarter ended March 28, 2020 | ||||||||||||||||||||||
| Pension Plans | OPEB Plans | Pension Plans | OPEB Plans | ||||||||||||||||||||
| Net service cost | $ | 97 | $ | 9 | $ | 99 | $ | 31 | |||||||||||||||
| Interest cost | 103 | 17 | 129 | 33 | |||||||||||||||||||
| Expected return on plan assets | (97) | — | (111) | — | |||||||||||||||||||
| Amortization of actuarial losses | 102 | 5 | 77 | 34 | |||||||||||||||||||
| Net periodic benefit cost | $ | 205 | $ | 31 | $ | 194 | $ | 98 | |||||||||||||||
Note 9 – Share-Based Compensation
The Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At April 3, 2021, the Company had reserved 330,590 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the 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.
On March 4, 2021, 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 $1.7 million and were comprised of 52,486 RSUs. Fifty percent of these awards will vest on January 1, 2024, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2024, subject to the executives' continued employment and
-13-
Note 9 - Share-Based Compensation (continued)
the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and "net earnings goals", each weighted equally.
On March 8, 2021, 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 17,793 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, 2024 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2024, 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.
Vesting of equity awards is subject to acceleration under certain circumstances.
The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Restricted stock units | $ | 366 | $ | 379 | |||||||
-14-
Note 10 – Segment Information
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications.
VPG evaluates reporting segment performance based on multiple performance measures including third party net revenues, gross profits and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring costs, executive severance costs, and other items is meaningful because it provides insight with respect to the intrinsic operating results of VPG. The following table sets forth reporting segment information (in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net revenues: | |||||||||||
| Foil Technology Products | $ | 32,711 | $ | 30,477 | |||||||
| Force Sensors | 16,933 | 14,695 | |||||||||
| Weighing and Control Systems | 20,945 | 22,524 | |||||||||
| Total | $ | 70,589 | $ | 67,696 | |||||||
| Gross profit: | |||||||||||
| Foil Technology Products | $ | 13,039 | $ | 11,201 | |||||||
| Force Sensors | 6,040 | 3,572 | |||||||||
| Weighing and Control Systems | 9,543 | 10,292 | |||||||||
| Total | $ | 28,622 | $ | 25,065 | |||||||
| Reconciliation of segment operating income to consolidated results: | |||||||||||
| Foil Technology Products | $ | 6,832 | $ | 5,384 | |||||||
| Force Sensors | 3,504 | 1,204 | |||||||||
| Weighing and Control Systems | 3,824 | 4,668 | |||||||||
| Unallocated G&A expenses | (7,721) | (6,482) | |||||||||
| Restructuring costs | — | (130) | |||||||||
| Operating income | $ | 6,439 | $ | 4,644 | |||||||
| Restructuring costs: | |||||||||||
| Foil Technology Products | $ | — | $ | (130) | |||||||
| $ | — | $ | (130) | ||||||||
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 | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Foil Technology Products to Force Sensors and Weighing and Control Systems | $ | 961 | $ | 724 | |||||||
| Weighing and Control Systems to Foil Technology Products and Force Sensors | $ | 114 | $ | 87 | |||||||
-15-
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 | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Numerator: | |||||||||||
| Numerator for basic earnings per share: | |||||||||||
| Net earnings attributable to VPG stockholders | $ | 4,961 | $ | 3,312 | |||||||
| Denominator: | |||||||||||
| Denominator for basic earnings per share: | |||||||||||
| Weighted average shares | 13,593 | 13,541 | |||||||||
| Effect of dilutive securities: | |||||||||||
| Restricted stock units | 36 | 45 | |||||||||
| Dilutive potential common shares | 36 | 45 | |||||||||
| Denominator for diluted earnings per share: | |||||||||||
| Adjusted weighted average shares | 13,629 | 13,586 | |||||||||
Basic earnings per share attributable to VPG stockholders | $ | 0.36 | $ | 0.24 | |||||||
Diluted earnings per share attributable to VPG stockholders | $ | 0.36 | $ | 0.24 | |||||||
-16-
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 | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Foreign exchange gain | $ | 735 | $ | 900 | |||||||
| Interest income | 45 | 67 | |||||||||
| Pension expense | (137) | (159) | |||||||||
| Other | (70) | (125) | |||||||||
| $ | 573 | $ | 683 | ||||||||
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended April 3, 2021, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar, the Israeli shekel, and the British pound.
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 | |||||||||||||||||||||||
| April 3, 2021 | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Assets held in rabbi trusts | $ | 5,820 | $ | 99 | $ | 5,721 | $ | — | ||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Assets held in rabbi trusts | $ | 5,601 | $ | 61 | $ | 5,540 | $ | — | ||||||||||||||||||
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 April 3, 2021 and December 31, 2020, 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 marketable securities held in the rabbi trust is considered a Level 1
-17-
Note 13 - Fair Value Measurements (continued)
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 April 3, 2021 and December 31, 2020 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 to either record additional expense in future periods or to reverse part of the previously recorded charges.
The Company recorded $0.0 million and $0.1 million of restructuring costs during the fiscal quarter ended April 3, 2021 and March 28, 2020, respectively. Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.
The following table summarizes recent activity related to all restructuring programs. The accrued restructuring liability balance as of April 3, 2021 and December 31, 2020, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands):
| Balance at December 31, 2020 | $ | 63 | |||
| Cash payments | (36) | ||||
| Balance at April 3, 2021 | $ | 27 | |||
-18-
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
VPG is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon our proprietary technology. We provide precision products and solutions, many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements. A significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure. We believe this strategy results in higher quality, more cost effective and focused solutions for our customers. 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. Our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and systems.
The Company also has a long heritage of innovation in precision foil resistors, foil strain gages, and sensors that convert mechanical inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products. Our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary, highly automated environment. Precision sensors are essential to the accurate measurement, resolution and display of force, weight, pressure, torque, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplaces. This expertise served as a foundation for our expansion into strain gage instrumentation, load cells, transducers, weighing modules, and complete systems for process control and on-board weighing. Although our products are typically used in the industrial market, our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications.
The precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus, including medical, agricultural, transportation, industrial, avionics, military, and space applications. We believe that as original equipment manufacturers (“OEMs”) continue a drive to make products “smarter,” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and/or response. We believe this offers a substantial growth opportunity for our products and expertise.
Impact of COVID-19 on Our Business
As of May 11, 2021, all of the Company’s facilities are open and operational. The Company is continuing to maintain COVID-19 best practices it believes are warranted with respect to working conditions. Nonetheless, given the ongoing uncertainty concerning the magnitude and duration of the COVID-19 pandemic around the world, any ongoing economic disruption may adversely affect the Company’s business and financial results.
Overview of Financial Results
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications.
Net revenues for the fiscal quarter ended April 3, 2021 were $70.6 million versus $67.7 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended April 3, 2021 were $5.0 million, or $0.36 per diluted share, versus $3.3 million, or $0.24 per diluted share, for the comparable prior year period.
The results of operations for the fiscal quarter ended April 3, 2021 and March 28, 2020 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. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA and adjusted EBITDA. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA and adjusted EBITDA do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating performance 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
-19-
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. Management believes that the Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results. Beginning in the fourth quarter of 2020, the Company has determined to include the impact of foreign currency exchange rates on its assets and liabilities in certain of its non-GAAP measures for its current and comparative periods.
| Gross Profit | Operating Income | Net Earnings Attributable to VPG Stockholders | Diluted Earnings Per share | ||||||||||||||||||||||||||||||||||||||||||||
| Three fiscal months ended | April 3, 2021 | March 28, 2020 | April 3, 2021 | March 28, 2020 | April 3, 2021 | March 28, 2020 | April 3, 2021 | March 28, 2020 | |||||||||||||||||||||||||||||||||||||||
| As reported - GAAP | 28,622 | 25,065 | 6,439 | 4,644 | $ | 4,961 | $ | 3,312 | $ | 0.36 | $ | 0.24 | |||||||||||||||||||||||||||||||||||
| As reported - GAAP Margins | 40.5 | % | 37.0 | % | 9.1 | % | 6.9 | % | |||||||||||||||||||||||||||||||||||||||
| Acquisition purchase accounting adjustments (a) | 11 | 515 | 11 | 515 | 11 | 515 | — | 0.04 | |||||||||||||||||||||||||||||||||||||||
| COVID-19 impact (b) | (151) | — | (443) | — | (443) | — | (0.03) | — | |||||||||||||||||||||||||||||||||||||||
Start-up costs (c) | 129 | — | 129 | — | 129 | — | 0.01 | — | |||||||||||||||||||||||||||||||||||||||
| Restructuring costs | — | 130 | — | 130 | — | 0.01 | |||||||||||||||||||||||||||||||||||||||||
Foreign exchange (gain)/loss (d) | (735) | (900) | (0.05) | (0.07) | |||||||||||||||||||||||||||||||||||||||||||
| Less: Tax effect of reconciling items and discrete tax items | (233) | (194) | (0.02) | (0.02) | |||||||||||||||||||||||||||||||||||||||||||
| As Adjusted - Non GAAP | $ | 28,611 | $ | 25,580 | $ | 6,136 | $ | 5,289 | $ | 4,156 | $ | 3,251 | $ | 0.31 | $ | 0.24 | |||||||||||||||||||||||||||||||
| As Adjusted - Non GAAP Margins | 40.5 | % | 37.8 | % | 8.7 | % | 7.8 | % | |||||||||||||||||||||||||||||||||||||||
| Three months ended | ||||||||||||||
| April 3, 2021 | March 28, 2020 | |||||||||||||
| Net earnings attributable to VPG stockholders | $ | 4,961 | $ | 3,312 | ||||||||||
| Interest Expense | 305 | 461 | ||||||||||||
| Income tax expense | 1,764 | 1,574 | ||||||||||||
| Depreciation | 2,907 | 2,571 | ||||||||||||
| Amortization | 615 | 628 | ||||||||||||
| EBITDA | 10,552 | $ | 8,546 | |||||||||||
| EBITDA as a % of sales | 14.9 | % | 12.6 | % | ||||||||||
| Impairment of goodwill and indefinite-lived intangibles | — | — | ||||||||||||
| Acquisition purchase accounting adjustments (a) | 11 | 515 | ||||||||||||
| Restructuring costs | — | 130 | ||||||||||||
| COVID-19 impact (b) | (443) | — | ||||||||||||
| Start-up costs (c) | 129 | — | ||||||||||||
| Foreign exchange (gain)/loss (d) | (735) | (900) | ||||||||||||
| ADJUSTED EBITDA | 9,514 | 8,291 | ||||||||||||
| ADJUSTED EBITDA as a % of sales | 13.5 | % | 12.2 | % | ||||||||||
-20-
(a) Acquisition purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products sold.
(b) 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.
(c) Start-up costs in 2021 are associated with the ramp up of our new manufacturing facility in Israel.
(d) Impact of foreign currency exchange rates on assets and liabilities. Note that impacts in prior year have been added to this table.
Financial Metrics
We utilize several financial measures and metrics to evaluate performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover.
Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is a function of net revenues, but also reflects our cost-cutting programs and our ability to contain fixed costs.
End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, backlog is not necessarily indicative of the results expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period compared with the amount of product shipped during that period. A book-to-bill ratio that is greater than one indicates that revenues may increase in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand and may foretell declining sales. The book-to-bill ratio is also impacted by the timing of orders, particularly from our project-based product lines.
We focus on inventory turnover as a measure of how well we manage our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.
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 2020 through the first quarter of 2021 (dollars in thousands):
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 1st Quarter | |||||||||||||||||||||||||
| 2020 | 2020 | 2020 | 2020 | 2021 | |||||||||||||||||||||||||
| Net revenues | $ | 67,696 | $ | 59,146 | $ | 67,525 | $ | 75,445 | $ | 70,589 | |||||||||||||||||||
| Gross profit margin | 37.0 | % | 39.1 | % | 40.5 | % | 38.1 | % | 40.5 | % | |||||||||||||||||||
| End-of-period backlog | $ | 94,300 | $ | 92,900 | $ | 90,800 | $ | 87,600 | $ | 100,700 | |||||||||||||||||||
| Book-to-bill ratio | 1.08 | 0.95 | 0.95 | 0.93 | 1.21 | ||||||||||||||||||||||||
| Inventory turnover | 2.58 | 2.20 | 2.38 | 2.86 | 2.67 | ||||||||||||||||||||||||
-21-
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 1st Quarter | |||||||||||||||||||||||||
| 2020 | 2020 | 2020 | 2020 | 2021 | |||||||||||||||||||||||||
| Foil Technology Products | |||||||||||||||||||||||||||||
| Net revenues | $ | 30,477 | $ | 31,785 | $ | 32,906 | $ | 36,477 | $ | 32,711 | |||||||||||||||||||
| Gross profit margin | 36.7 | % | 41.8 | % | 41.1 | % | 38.4 | % | 39.9 | % | |||||||||||||||||||
| End-of-period backlog | $ | 51,700 | $ | 47,500 | $ | 48,500 | $ | 43,700 | $ | 48,400 | |||||||||||||||||||
| Book-to-bill ratio | 1.25 | 0.85 | 1.01 | 0.84 | 1.19 | ||||||||||||||||||||||||
| Inventory turnover | 2.74 | 2.58 | 2.63 | 3.05 | 2.72 | ||||||||||||||||||||||||
| Force Sensors | |||||||||||||||||||||||||||||
| Net revenues | $ | 14,695 | $ | 8,916 | $ | 13,862 | $ | 16,251 | $ | 16,933 | |||||||||||||||||||
| Gross profit margin | 24.3 | % | 11.6 | % | 30.5 | % | 29.1 | % | 35.7 | % | |||||||||||||||||||
| End-of-period backlog | $ | 16,900 | $ | 22,300 | $ | 21,300 | $ | 24,700 | $ | 26,800 | |||||||||||||||||||
| Book-to-bill ratio | 1.02 | 1.58 | 0.90 | 1.18 | 1.14 | ||||||||||||||||||||||||
| Inventory turnover | 2.64 | 2.02 | 2.28 | 2.74 | 2.72 | ||||||||||||||||||||||||
| Weighing and Control Systems | |||||||||||||||||||||||||||||
| Net revenues | $ | 22,524 | $ | 18,445 | $ | 20,757 | $ | 22,717 | $ | 20,945 | |||||||||||||||||||
| Gross profit margin | 45.7 | % | 47.6 | % | 46.2 | % | 44.0 | % | 45.6 | % | |||||||||||||||||||
| End-of-period backlog | $ | 25,700 | $ | 23,100 | $ | 21,000 | $ | 19,200 | $ | 25,500 | |||||||||||||||||||
| Book-to-bill ratio | 0.90 | 0.82 | 0.88 | 0.88 | 1.30 | ||||||||||||||||||||||||
| Inventory turnover | 2.31 | 1.81 | 2.13 | 2.67 | 2.54 | ||||||||||||||||||||||||
Net revenues for the first quarter of 2021 decreased 6.4% from the fourth quarter of 2020 mainly due to decreased volume in the Foil Technology Products and Weighing and Control Systems reporting segments. Net revenues increased 4.3% from the first quarter of 2020 with increased volume in the Foil Technology Products and Force Sensors partially offset by lower volume in the Weighing and Control Systems reporting segment. Favorable exchange rates also contributed to the increase.
Net revenues in the Foil Technology Products reporting segment decreased 10.3% compared to the fourth quarter of 2020 and increased 7.3% from the first quarter of 2020. Sequentially, the decline in revenue was primarily due to lower sales of Pacific Instruments and precision foil resistors in the avionics, military and space market, partially offset by an increase in precision foil resistors in the test and measurements market. The year-over-year increase in revenue was primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our precision foil resistors revenue to the avionics, military and space market, which was partially offset by lower revenue of Pacific Instruments in the avionics, military and space market.
Net revenues in the Force Sensors reporting segment increased 4.2% from the fourth quarter of 2020 and increased 15.2% from the first quarter of 2020. The sequential increase was primarily due to higher revenue in the industrial weighing and general industrial markets. The year-over-year increase was primarily due to higher revenue in our other markets, mainly agriculture and consumer.
Net revenues in the Weighing and Control Systems reporting segment decreased 7.8% from the fourth quarter of 2020 and decreased 7.0% from the first quarter of 2020. The declines in sequential and year over year revenues were primarily attributable to lower project-driven revenue of Dynamic Systems Inc. ("DSI") and KELK steel-related revenue, which was partially offset by higher revenue of our onboard weighing products for the transportation market.
Overall gross profit margin in the first quarter of 2021 increased 2.4% as compared to the fourth quarter of 2020 and increased 3.5% from the first quarter of 2020.
Sequentially, all reporting segments contributed to the improved gross profit margin. The Foil Technology Products reporting segment gross profit margins increased sequentially due to favorable product mix, manufacturing efficiencies and one-time inventory adjustments in the fourth quarter which did not reoccur, partially offset by lower revenue. The Force Sensors reporting segment gross profit margin increased sequentially due to higher revenue and manufacturing efficiencies. In the Weighing and Control Systems reporting segment, the gross profit margin was 45.6% compared to 44.0% in the prior
-22-
sequential quarter. The increase in the gross profit margin was mainly due to favorable product mix and an increase in inventory, partially offset by lower revenue.
Compared to the first quarter of 2020, the Foil Technology Products reporting segment had a higher gross profit margin primarily due to higher revenue, favorable product mix, and manufacturing efficiencies. The Force Sensors reporting segment increase in gross profit margin as compared to 2020 was primarily due to higher revenue, an increase in inventory, cost controls and a positive impact of foreign exchange. In the Weighing and Control Systems segment, the gross profit margin of 45.6% was flat compared to the first quarter of 2020.
Optimize Core Competence
The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and precision measurement sensors and sensor-based systems. Our foil technology resistors and strain gages are recognized as global market leading products that provide high precision and high stability over extreme temperature ranges, and long life. Our force sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision measurements of force, weight, pressure, torque, tilt, motion, and acceleration. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes
Our foil technology research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers “design in” these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we signed a long-term lease for a state of the art facility which has been constructed in Israel. Our administrative personnel have moved to the new facility, and we have begun the transition of our advanced sensors business to that facility and we expect to complete the transition to the new facility in the third quarter of 2021.
Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. 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 lower labor costs, improved efficiencies, or available tax and other government-sponsored incentives. For example, in 2019 we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our force sensor products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.
Acquisition Strategy
We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments. Historically, our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our force sensor products, and incorporating those products into our weighing and control systems. The acquisitions of Stress-Tek and KELK, each of which employ our foil strain gages to manufacture load cells for their systems, continued this strategy. Additionally, the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific Instruments acquisition significantly broadened our existing data acquisition offerings and opened new markets for us. Our most recent acquisition, DSI, expands our position in the steel market. We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Research and Development
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 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.
-23-
Cost Management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation.
Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. 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 our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 11, 2021.
We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
Goodwill
We test the goodwill in each of our reporting units for impairment at least annually, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.
Foreign Currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. U.S. GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have subsidiaries that fall into each of these categories.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the period. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated condensed statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.
-24-
Effects of Foreign Exchange Rate on Operations
For the fiscal quarter ended April 3, 2021, exchange rates increased net revenues by $2.1 million, and increased costs of products sold and selling, general, and administrative expenses by $2.3 million, when compared to the comparable prior year period.
Off-Balance Sheet Arrangements
As of April 3, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements.
-25-
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 3, 2021 | March 28, 2020 | ||||||||||
| Costs of products sold | 59.5 | % | 63.0 | % | |||||||
| Gross profit | 40.5 | % | 37.0 | % | |||||||
| Selling, general, and administrative expenses | 31.4 | % | 30.0 | % | |||||||
| Operating income | 9.1 | % | 6.9 | % | |||||||
| Income before taxes | 9.5 | % | 7.2 | % | |||||||
| Net earnings | 7.0 | % | 4.9 | % | |||||||
| Net earnings attributable to VPG stockholders | 7.0 | % | 4.9 | % | |||||||
| Effective tax rate | 26.3 | % | 32.3 | % | |||||||
Net Revenues
Net revenues were as follows (dollars in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net revenues | $ | 70,589 | $ | 67,696 | |||||||
Change versus comparable prior year period | $ | 2,893 | |||||||||
Percentage change versus prior year period | 4.3 | % | |||||||||
Changes in net revenues were attributable to the following:
| vs. prior year quarter | |||||
| Change attributable to: | |||||
| Change in volume | 1.1 | % | |||
| Change in average selling prices | 0.0 | % | |||
| Foreign currency effects | 3.2 | % | |||
| Net change | 4.3 | % | |||
During the fiscal quarter ended April 3, 2021, net revenues increased 4.3% as compared to the comparable prior year period, with increased volume in the Foil Technology Products and Force Sensors partially offset by lower volume in the Weighing and Control Systems reporting segment. Favorable exchange rates also contributed to the increase.
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Gross profit margin | 40.5 | % | 37.0 | % | |||||||
The gross profit margin for the fiscal quarter ended April 3, 2021 increased 3.5% compared to the comparable prior year period primarily due to higher margins in the Foil Technology Products and Force Sensors reporting segments.
-26-
Segments
Analysis of revenues and gross profit margins for each of our reportable segments is provided below.
Foil Technology Products
Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net revenues | $ | 32,711 | $ | 30,477 | |||||||
Change versus comparable prior year period | $ | 2,234 | |||||||||
Percentage change versus prior year period | 7.3 | % | |||||||||
Changes in Foil Technology Products segment net revenues were attributable to the following:
| vs. prior year quarter | |||||
| Change attributable to: | |||||
| Change in volume | 4.8 | % | |||
| Change in average selling prices | 0.3 | % | |||
| Foreign currency effects | 2.2 | % | |||
| Net change | 7.3 | % | |||
Net revenues increased 7.3% for the fiscal quarter ended April 3, 2021 as compared to the comparable prior year period. The year-over-year increase in revenue was primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and an increase in our precision foil resistors revenue to the avionics, military and space market, which was partially offset by lower revenue of Pacific Instruments in the avionics, military and space market.
Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Gross profit margin | 39.9 | % | 36.7 | % | |||||||
The gross profit margin increased 3.2% for the fiscal quarter ended April 3, 2021, when compared to the comparable prior year period, primarily due to higher revenue, favorable product mix, and manufacturing efficiencies.
Force Sensors
Net revenues of the Force Sensors segment were as follows (dollars in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
Net revenues | $ | 16,933 | $ | 14,695 | |||||||
Change versus comparable prior year period | $ | 2,238 | |||||||||
Percentage change versus prior year period | 15.2 | % | |||||||||
Changes in Force Sensors segment net revenues were attributable to the following:
| vs. prior year quarter | |||||
| Change attributable to: | |||||
| Change in volume | 13.5 | % | |||
| Change in average selling prices | (1.3) | % | |||
| Foreign currency effects | 3.0 | % | |||
| Net change | 15.2 | % | |||
-27-
Net revenues increased 15.2% for the fiscal quarter ended April 3, 2021, as compared to the comparable prior year period. The year-over-year increase was primarily due to higher revenue in our other markets, mainly agriculture and consumer.
Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Gross profit margin | 35.7 | % | 24.3 | % | |||||||
The gross profit margin for the fiscal quarter ended April 3, 2021 increased 11.4% compared to the comparable prior year period. This increase was primarily due to higher revenue, an increase in inventory, cost controls and a positive impact of foreign exchange.
Weighing and Control Systems
Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Net revenues | $ | 20,945 | $ | 22,524 | |||||||
Change versus comparable prior year period | $ | (1,579) | |||||||||
Percentage change versus prior year period | (7.0) | % | |||||||||
Changes in Weighing and Control Systems segment net revenues were attributable to the following:
| vs. prior year quarter | |||||
| Change attributable to: | |||||
| Change in volume | (11.6) | % | |||
| Change in average selling prices | 0.6 | % | |||
| Foreign currency effects | 4.0 | % | |||
| Net change | (7.0) | % | |||
Net revenues decreased 7.0% for the fiscal quarter ended April 3, 2021 as compared to the comparable prior year period. The decreases were primarily attributable to lower project-driven revenue of Dynamic Systems Inc. ("DSI") and KELK steel-related revenue, which was partially offset by higher revenue of our onboard weighing products for the transportation market.
Gross profit as a percentage of net revenues for the Weighing and Control Systems segment were as follows:
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Gross profit margin | 45.6 | % | 45.7 | % | |||||||
The gross profit margin for the fiscal quarter ended April 3, 2021 of 45.6% decreased from the first quarter of 2020. The decline was primarily due to lower revenue.
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
| Fiscal quarter ended | |||||||||||
| April 3, 2021 | March 28, 2020 | ||||||||||
| Total SG&A expenses | $ | 22,183 | $ | 20,291 | |||||||
| As a percentage of net revenues | 31.4 | % | 30.0 | % | |||||||
SG&A expenses for the fiscal quarter ended April 3, 2021 increased compared to the comparable prior year period with additional SG&A expenses related to personnel costs and foreign currency impacts..
-28-
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 to either record additional expense in future periods or to reverse part of the previously recorded charges.
The Company recorded $0.0 million and $0.1 million of restructuring costs during the fiscal quarter ended April 3, 2021 and March 28, 2020, respectively. Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.
Other Income (Expense)
Interest expense for the fiscal quarter ended April 3, 2021 was lower compared with interest expense in the comparable prior year periods mainly due to more favorable borrowing rates in 2021.
The following table analyzes the components of the line “Other” on the consolidated condensed statements of operations (in thousands):
| Fiscal quarter ended | |||||||||||||||||
| April 3, 2021 | March 28, 2020 | Change | |||||||||||||||
| Foreign exchange gain | $ | 735 | $ | 900 | $ | (165) | |||||||||||
| Interest income | 45 | 67 | (22) | ||||||||||||||
| Pension expense | (137) | (159) | 22 | ||||||||||||||
| Other | (70) | (125) | 55 | ||||||||||||||
| $ | 573 | $ | 683 | $ | (110) | ||||||||||||
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended April 3, 2021, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Canadian dollar, the Israeli shekel, and the British pound.
Income Taxes
VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter ended April 3, 2021 was 26.3% compared to 32.3% for the fiscal quarter ended March 28, 2020.
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.
-29-
Financial Condition, Liquidity, and Capital Resources
We believe that our current cash and cash equivalents, credit facilities and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months.
In March, 2020, we entered into a third amended and restated credit agreement. The terms of our credit agreement provide for the following facilities: (1) secured revolving facility of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. 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. 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.
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. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include interest coverage ratio and a leverage ratio. We were in compliance with these covenants at April 3, 2021. 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 3, 2021, cash provided by operating activities was $5.6 million compared to $6.3 million in the comparable prior year period. Our net cash used in investing activities for the three fiscal months ended April 3, 2021 was higher compared to the prior year period mainly due to increased capital spending. Our net cash used by financing activities for the three fiscal months ended April 3, 2021 was lower compared to prior year mainly due to the repayment of the Canadian term loans and the conversion of the US term loans to revolver under the 2020 credit facility.
Adjusted free cash flow generated during the three fiscal months ended April 3, 2021, was $(0.1) million. We refer to the amount of cash provided by operating activities ($5.6 million) in excess of our capital expenditures ($5.7 million) and net of proceeds from the sale of assets ($0.0 million) as “adjusted free cash flow.”
The following table summarizes the components of net cash at April 3, 2021 and December 31, 2020 (in thousands):
| April 3, 2021 | December 31, 2020 | ||||||||||
| Cash and cash equivalents | $ | 96,154 | $ | 98,438 | |||||||
| Third-party debt, including current and long-term: | |||||||||||
| Revolving debt | 41,000 | 41,000 | |||||||||
| Third-party debt held by Japanese subsidiary | — | 18 | |||||||||
| Deferred financing costs | (352) | (374) | |||||||||
| Total third-party debt | 40,648 | 40,644 | |||||||||
| Net cash | $ | 55,506 | $ | 57,794 | |||||||
Measurements such as “adjusted free cash flow” and “net cash" do not have uniform definitions and are not recognized in accordance with U.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that “adjusted free cash flow” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.
-30-
Approximately 92% and 90% of our cash and cash equivalents balance at April 3, 2021 and December 31, 2020, 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 3, 2021 and December 31, 2020:
| April 3, 2021 | December 31, 2020 | ||||||||||
| Israel | 23 | % | 26 | % | |||||||
| Asia | 22 | % | 18 | % | |||||||
| Europe | 14 | % | 16 | % | |||||||
| United States | 8 | % | 10 | % | |||||||
| United Kingdom | 19 | % | 18 | % | |||||||
| Canada | 14 | % | 12 | % | |||||||
| 100 | % | 100 | % | ||||||||
We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. 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.
If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. 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 3, 2021, to be indefinitely reinvested.
Our financial condition as of April 3, 2021 remains strong, with a current ratio (current assets to current liabilities) of 4.9 to 1.0, as compared to a ratio of 4.7 to 1.0 at December 31, 2020.
Cash paid for property and equipment for the three fiscal months ended April 3, 2021 was $5.7 million compared to $3.3 million in the comparable prior year period.
-31-
Safe Harbor Statement
From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. 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 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. Among the factors that could cause actual results to materially differ include: general business and economic conditions; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies; the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate; 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; 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; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
-32-
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the market risks previously disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 11, 2021.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our CEO and CFO, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must consider the benefits of controls relative to their costs. Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. While the design of any system of controls is to provide reasonable assurance of the effectiveness of disclosure controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be prevented or detected.
Changes in Internal Control over Financial Reporting
During our last fiscal quarter ended April 3, 2021, there was no change in our internal control over financial reporting that materially affected, or is reasonable likely to materially affect, internal control over financial reporting.
-33-
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 11, 2021. There have been no material changes in reported risk factors from the information reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
-34-
Item 6. EXHIBITS
| 10.1† | ||||||||
| 10.2† | ||||||||
| 10.3† | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended April 3, 2021, furnished in XBRL (eXtensible Business Reporting Language). | |||||||
† Denotes a management contract or compensatory plan, contract or arrangement.
-35-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VISHAY PRECISION GROUP, INC. | |||||
| /s/ William M. Clancy | |||||
| William M. Clancy | |||||
| Executive Vice President and Chief Financial Officer | |||||
| (as a duly authorized officer and principal financial and accounting officer) | |||||
Date: May 11, 2021
-36-