10-Q
Vishay Precision Group, Inc. (VPG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|---|
| For the quarterly period ended | March 28, 2020 |
| --- | --- |
| ¨ | 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 5, 2020, the registrant had 12,544,195 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
March 28, 2020
CONTENTS
| Page Number | ||
|---|---|---|
| PART I. | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements | |
| Consolidated Condensed Balance Sheets– March 28, 2020 (Unaudited) and December 31, 2019 | 3 | |
| Consolidated Condensed Statements of Operations (Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019 | 5 | |
| Consolidated Condensed Statements of Comprehensive Income (Loss)(Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019 | 6 | |
| Consolidated Condensed Statements of Cash Flows(Unaudited) –Fiscal Quarters Ended March 28, 2020 and March 30, 2019 | 7 | |
| Consolidated Condensed Statements of Equity(Unaudited) – Fiscal Quarters Ended March 28, 2020 and March 30, 2019 | 8 | |
| Notes to Unaudited Consolidated Condensed Financial Statements | 9 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II. | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 37 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. | Defaults Upon Senior Securities | 38 |
| Item 4. | Mine Safety Disclosures | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits | 39 |
| SIGNATURES | 40 |
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
| VISHAY PRECISION GROUP, INC.<br><br>Consolidated Condensed Balance Sheets<br><br>(In thousands) | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | December 31, 2019 | |||||
| (Unaudited) | ||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 82,731 | $ | 86,910 | ||
| Accounts receivable, net | 46,958 | 43,198 | ||||
| Inventories: | ||||||
| Raw materials | 25,712 | 21,701 | ||||
| Work in process | 19,062 | 23,128 | ||||
| Finished goods | 19,198 | 22,066 | ||||
| Inventories, net | 63,972 | 66,895 | ||||
| Prepaid expenses and other current assets | 16,616 | 15,558 | ||||
| Total current assets | 210,277 | 212,561 | ||||
| Property and equipment, at cost: | ||||||
| Land | 4,172 | 4,243 | ||||
| Buildings and improvements | 52,136 | 52,708 | ||||
| Machinery and equipment | 112,204 | 111,492 | ||||
| Software | 9,486 | 9,384 | ||||
| Construction in progress | 3,955 | 2,485 | ||||
| Accumulated depreciation | (120,744 | ) | (119,042 | ) | ||
| Property and equipment, net | 61,209 | 61,270 | ||||
| Goodwill | 34,511 | 35,018 | ||||
| Intangible assets, net | 32,937 | 34,198 | ||||
| Other assets | 25,867 | 27,366 | ||||
| Total assets | $ | 364,801 | $ | 370,413 |
Continues on the following page.
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| VISHAY PRECISION GROUP, INC.<br><br>Consolidated Condensed Balance Sheets (continued)<br><br>(In thousands) | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | December 31, 2019 | |||||
| (Unaudited) | ||||||
| Liabilities and equity | ||||||
| Current liabilities: | ||||||
| Trade accounts payable | $ | 7,937 | $ | 8,869 | ||
| Payroll and related expenses | 17,096 | 16,312 | ||||
| Other accrued expenses | 20,687 | 18,953 | ||||
| Income taxes | 1,631 | 261 | ||||
| Current portion of long-term debt | 115 | 44,516 | ||||
| Total current liabilities | 47,466 | 88,911 | ||||
| Long-term debt, less current portion | 40,599 | 17 | ||||
| Deferred income taxes | 3,478 | 3,478 | ||||
| Other liabilities | 18,631 | 20,586 | ||||
| Accrued pension and other postretirement costs | 15,520 | 15,669 | ||||
| Total liabilities | 125,694 | 128,661 | ||||
| Commitments and contingencies | ||||||
| Equity: | ||||||
| Common stock | 1,316 | 1,312 | ||||
| Class B convertible common stock | 103 | 103 | ||||
| Treasury stock | (8,765 | ) | (8,765 | ) | ||
| Capital in excess of par value | 196,709 | 197,125 | ||||
| Retained earnings | 92,600 | 89,288 | ||||
| Accumulated other comprehensive loss | (43,203 | ) | (37,703 | ) | ||
| Total Vishay Precision Group, Inc. stockholders' equity | 238,760 | 241,360 | ||||
| Noncontrolling interests | 347 | 392 | ||||
| Total equity | 239,107 | 241,752 | ||||
| Total liabilities and equity | $ | 364,801 | $ | 370,413 |
See accompanying notes.
-4-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)
| Fiscal quarter ended | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||||
| Net revenues | $ | 67,696 | $ | 76,525 | ||
| Costs of products sold | 42,631 | 43,474 | ||||
| Gross profit | 25,065 | 33,051 | ||||
| Selling, general, and administrative expenses | 20,291 | 20,448 | ||||
| Restructuring costs | 130 | — | ||||
| Operating income | 4,644 | 12,603 | ||||
| Other income (expense): | ||||||
| Interest expense | (461 | ) | (388 | ) | ||
| Other | 683 | (772 | ) | |||
| Other income (expense) | 222 | (1,160 | ) | |||
| Income before taxes | 4,866 | 11,443 | ||||
| Income tax expense | 1,574 | 3,117 | ||||
| Net earnings | 3,292 | 8,326 | ||||
| Less: net (loss) earnings attributable to noncontrolling interests | (20 | ) | 83 | |||
| Net earnings attributable to VPG stockholders | $ | 3,312 | $ | 8,243 | ||
| Basic earnings per share attributable to VPG stockholders | $ | 0.24 | $ | 0.61 | ||
| Diluted earnings per share attributable to VPG stockholders | $ | 0.24 | $ | 0.61 | ||
| Weighted average shares outstanding - basic | 13,541 | 13,495 | ||||
| Weighted average shares outstanding - diluted | 13,586 | 13,563 |
See accompanying notes.
-5-
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited - In thousands)
| Fiscal quarter ended | |||||
|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | ||||
| Net earnings | $ | 3,292 | $ | 8,326 | |
| Other comprehensive income (loss): | |||||
| Foreign currency translation adjustment | (5,341 | ) | 581 | ||
| Pension and other postretirement actuarial items, net of tax | (159 | ) | 105 | ||
| Other comprehensive (loss) income | (5,500 | ) | 686 | ||
| Total comprehensive (loss) income | (2,208 | ) | 9,012 | ||
| Less: comprehensive (loss) income attributable to noncontrolling interests | (20 | ) | 83 | ||
| Comprehensive income attributable to VPG stockholders | $ | (2,188 | ) | $ | 8,929 |
See accompanying notes.
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VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
| Three fiscal months ended | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||||
| Operating activities | ||||||
| Net earnings | $ | 3,292 | $ | 8,326 | ||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 3,199 | 2,854 | ||||
| Loss from extinguishment of debt | 30 | — | ||||
| (Gain) loss on disposal of property and equipment | (3 | ) | 1 | |||
| Share-based compensation expense | 379 | 514 | ||||
| Inventory write-offs for obsolescence | 631 | 489 | ||||
| Deferred income taxes | (233 | ) | 313 | |||
| Other | (1,137 | ) | (2,367 | ) | ||
| Net changes in operating assets and liabilities: | ||||||
| Accounts receivable, net | (4,956 | ) | 850 | |||
| Inventories, net | 1,449 | (1,507 | ) | |||
| Prepaid expenses and other current assets | (1,380 | ) | (3,484 | ) | ||
| Trade accounts payable | (617 | ) | 628 | |||
| Other current liabilities | 5,642 | 1,488 | ||||
| Net cash provided by operating activities | 6,296 | 8,105 | ||||
| Investing activities | ||||||
| Capital expenditures | (3,344 | ) | (3,334 | ) | ||
| Proceeds from sale of property and equipment | 15 | 29 | ||||
| Net cash used in investing activities | (3,329 | ) | (3,305 | ) | ||
| Financing activities | ||||||
| Principal payments on long-term debt | (33 | ) | (1,155 | ) | ||
| Repayments of principal upon termination of long-term borrowings | (3,352 | ) | — | |||
| Debt issuance costs | (402 | ) | — | |||
| Distributions to noncontrolling interests | (25 | ) | (34 | ) | ||
| Payments of employee taxes on certain share-based arrangements | (813 | ) | (795 | ) | ||
| Net cash used in financing activities | (4,625 | ) | (1,984 | ) | ||
| Effect of exchange rate changes on cash and cash equivalents | (2,521 | ) | 169 | |||
| Increase in cash and cash equivalents | (4,179 | ) | 2,985 | |||
| Cash and cash equivalents at beginning of period | 86,910 | 90,159 | ||||
| Cash and cash equivalents at end of period | $ | 82,731 | $ | 93,144 | ||
| Supplemental disclosure of investing transactions: | ||||||
| Capital expenditures purchased | $ | (3,178 | ) | $ | (1,986 | ) |
| Supplemental disclosure of financing transactions: | ||||||
| Non-cash extinguishment of long-term debt facility (see Note 7) | $ | (7,020 | ) | $ | — | |
| Non-cash refinancing of revolving facility (see Note 7) | $ | 7,020 | $ | — |
Capital expenditures accrued but not yet paid as of March 28, 2020 were $1,016 .
See accompanying notes.
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VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Equity
(Unaudited - In thousands, except share amounts)
| Three Fiscal Months Ended March 28, 2020 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common<br><br>Stock | Class B<br>Convertible<br>Common Stock | Treasury Stock | Capital in<br><br>Excess of<br><br>Par Value | Retained<br><br>Earnings | Accumulated<br><br>Other<br><br>Comprehensive<br><br>Income (Loss) | Total VPG, Inc.<br><br>Stockholders'<br><br>Equity | Noncontrolling<br><br>Interests | Total<br><br>Equity | ||||||||||||||||
| Balance at December 31, 2019 | $ | 1,312 | $ | 103 | $ | (8,765 | ) | $ | 197,125 | $ | 89,288 | $ | (37,703 | ) | $ | 241,360 | $ | 392 | $ | 241,752 | ||||
| Net earnings (loss) | — | — | — | — | 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 | ||||
| Three Fiscal Months Ended March 30, 2019 | ||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Common<br>Stock | Class B<br>Convertible<br>Common Stock | Treasury Stock | Capital in<br>Excess of<br>Par Value | Retained<br>Earnings | Accumulated<br>Other<br>Comprehensive<br>Income (Loss) | Total VPG, Inc.<br>Stockholders'<br>Equity | Noncontrolling<br>Interests | Total<br>Equity | ||||||||||||||||
| Balance at December 31, 2018 | $ | 1,307 | $ | 103 | $ | (8,765 | ) | $ | 196,666 | $ | 66,569 | $ | (37,465 | ) | $ | 218,415 | $ | 38 | $ | 218,453 | ||||
| Net earnings | — | — | — | — | 8,243 | — | 8,243 | 83 | 8,326 | |||||||||||||||
| Other comprehensive income | — | — | — | — | — | 686 | 686 | — | 686 | |||||||||||||||
| Share-based compensation expense | — | — | — | 514 | — | — | 514 | — | 514 | |||||||||||||||
| Restricted stock issuances (37,187shares) | 4 | — | — | (602 | ) | — | — | (598 | ) | — | (598 | ) | ||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-02 | — | — | — | — | 531 | — | 531 | — | 531 | |||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (34 | ) | (34 | ) | |||||||||||||
| Balance at March 30, 2019 | $ | 1,311 | $ | 103 | $ | (8,765 | ) | $ | 196,578 | $ | 75,343 | $ | (36,779 | ) | $ | 227,791 | $ | 87 | $ | 227,878 |
See accompanying notes.
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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, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020. The results of operations for the fiscal quarter ended March 28, 2020 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 2020 and 2019 end on the following dates:
| 2020 | 2019 | |
|---|---|---|
| Quarter 1 | March 28, | March 30, |
| Quarter 2 | June 27, | June 29, |
| Quarter 3 | September 26, | September 28, |
| Quarter 4 | December 31, | December 31, |
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments. In determining the amount of the allowance for credit losses, the Company considers historical loss data, customer specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The Company adopted this ASU, effective January 1, 2020, using the modified retrospective approach, and the effect on the Company's consolidated condensed financial statements and related disclosures was not material.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements (Topic 820)." This ASU modifies the disclosures on fair value measurements by removing the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The Company adopted this ASU effective January 1, 2020, and the effect on the Company's disclosures in its consolidated condensed financial statements was not material.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends Accounting Standards Codification ("ASC") 715 to add, remove and clarify disclosure requirements related to defined benefit and pension and other postretirement plans. The amendments in this ASU are effective
-9-
Note 1 – Basis of Presentation (continued)
for annual periods beginning after December 15, 2020 and early adoption is permitted. The Company is evaluating the standard to determine the impact on the consolidated condensed financial statements.
In December 2019, the FASB issued ASU 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 is evaluating the standard to determine the impact on the consolidated condensed financial statements.
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):
| Fiscal quarter ended <br> March 28, 2020 | Fiscal quarter ended <br> March 30, 2019 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Foil Technology<br>Products | Force<br>Sensors | Weighing and<br>Control Systems | Total | Foil Technology<br>Products | Force<br>Sensors | Weighing and<br>Control Systems | Total | |||||||||
| United States | $ | 11,934 | $ | 8,392 | $ | 8,889 | $ | 29,215 | $ | 16,909 | $ | 8,052 | $ | 5,033 | $ | 29,994 |
| United Kingdom | 950 | 1,980 | 3,712 | 6,642 | 841 | 3,177 | 4,344 | 8,362 | ||||||||
| Other Europe | 7,713 | 2,374 | 3,744 | 13,831 | 8,103 | 3,024 | 4,542 | 15,669 | ||||||||
| Israel | 2,955 | 97 | — | 3,052 | 2,979 | 119 | — | 3,098 | ||||||||
| Asia | 6,925 | 1,852 | 1,671 | 10,448 | 8,217 | 2,360 | 2,574 | 13,151 | ||||||||
| Canada | — | — | 4,508 | 4,508 | — | — | 6,251 | 6,251 | ||||||||
| Total | $ | 30,477 | $ | 14,695 | $ | 22,524 | $ | 67,696 | $ | 37,049 | $ | 16,732 | $ | 22,744 | $ | 76,525 |
The following table disaggregates net revenue from contracts with customers by market sector (in thousands). The Company revised its market sector categories beginning in 2020. Prior year data has been reclassified to reflect the current market sectors.
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Test & Measurement | $ | 14,345 | $ | 17,621 |
| Avionics, Military & Space | 6,160 | 8,115 | ||
| Transportation | 8,244 | 9,619 | ||
| Other Markets | 13,128 | 12,924 | ||
| Industrial Weighing | 12,467 | 14,437 | ||
| General Industrial | 4,039 | 5,622 | ||
| Steel | 9,313 | 8,187 | ||
| Total | $ | 67,696 | $ | 76,525 |
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.
-10-
Note 2 – Revenues (continued)
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, 2019 | $ | 3,937 | $ | 4,561 |
| Balance at March 28, 2020 | 4,218 | 5,908 | ||
| Increase | $ | 281 | $ | 1,347 |
The amount of revenue recognized during the three fiscal months ended March 28, 2020 that was included in the contract liability balance at December 31, 2019 was $2.3 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.
Note 3 – Acquisitions
Dynamic Systems Inc.
On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes, for a purchase price of $40.5 million, subject to customary adjustments, plus a potential earn out of up to an additional $3.0 million. DSI reports into the Company's Weighing and Control Systems segment. The following table summarizes the preliminary fair values assigned to the assets and liabilities of DSI as of November 1, 2019 (in thousands):
| Working capital ^(a)^ | $ | 6,874 | |
|---|---|---|---|
| Property and equipment | 1,727 | ||
| Long-term deferred income tax liability | (4,321 | ) | |
| Non-controlling interest | (299 | ) | |
| Intangible assets: | |||
| Patents and acquired technology | 10,250 | ||
| Customer relationships | 4,344 | ||
| Trade names | 3,300 | ||
| Total intangible assets | 17,894 | ||
| Fair value of acquired identifiable assets | 21,875 | ||
| Purchase price | $ | 40,481 | |
| Goodwill | $ | 18,606 |
^(a) Working capital accounts include accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, and accrued payroll.^
The fair value of the contingent consideration as of November 1, 2019 and March 28, 2020 was zero. The weighted average useful lives for the patents and acquired technology and customer relationships are 16 years, and 15 years, respectively. Most of the goodwill associated with DSI will be deductible for income tax purposes. The Company recorded acquisition costs associated with this transaction of $0.4 million during the fourth quarter of 2019.
Following is the supplemental consolidated financial results for the Company on an unaudited pro forma basis, as if the DSI acquisition had been consummated on January 1, 2019:
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Note 3 - Acquisitions ( continued)
| Fiscal quarter ended | ||
|---|---|---|
| March 30, 2019 | ||
| Pro forma net revenues | $ | 83,622 |
| Pro forma net earnings attributable to VPG stockholders | $ | 11,831 |
| Pro forma basic earnings per share attributable to VPG stockholders | $ | 0.88 |
| Pro forma diluted earnings per share attributable to VPG stockholders | $ | 0.87 |
Note 4 – 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, 2019 | $ | 35,018 | $ | 6,559 | $ | 18,606 | $ | 6,311 | $ | 3,542 | |||
| Foreign currency translation adjustment | (507 | ) | (500 | ) | (7 | ) | — | — | |||||
| Balance at March 28, 2020 | $ | 34,511 | $ | 6,059 | $ | 18,599 | $ | 6,311 | $ | 3,542 |
Note 5 – Leases
Effective January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date. The Company determines if an arrangement is or contains a lease at inception or modification of such agreement. The arrangement is or contains a lease if the contract conveys the right to control the use of the identified asset for a period in exchange for consideration.
Lease right of use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected term at commencement date. As the implicit rate is not determinable in most of the Company's leases, the Company's incremental borrowing rate is used as the basis to determine the present value of future lease payments. Refer to Note 7 for discussion of the Company's borrowing rate. The expected lease terms include options to extend or terminate. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. Some of these leases contain variable payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date and are therefore not included in our future minimum lease payments. Variable payments are expensed in the periods incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. Additionally, the Company elected the package of practical expedients permitted under the transition guidance, which allows the carryforward the historical lease classification. The Company also made an election to exclude from balance sheet reporting leases with initial terms of 12 months or less and to exclude non-lease components from lease right of use assets and corresponding liabilities.
The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to six years. The Company has no finance leases.
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Note 5 - Leases (continued)
Leases recorded on the balance sheet consist of the following (in thousands):
| Leases | Classification on Balance Sheet | March 28, 2020 | December 31, 2019 | ||
|---|---|---|---|---|---|
| Assets | |||||
| Operating lease right of use asset | Other Assets | $ | 8,143 | $ | 8,691 |
| Liabilities | |||||
| Operating lease - current | Other Accrued Expenses | $ | 2,628 | $ | 2,827 |
| Operating lease - non-current | Other Liabilities | $ | 5,333 | $ | 5,811 |
Other information related to lease term and discount rate is as follows:
| March 28, 2020 | ||
|---|---|---|
| Operating leases weighted average remaining lease term (in years) | 3.44 years | |
| Operating leases weighted average discount rate | 5.02 | % |
The components of lease expense are as follows (in thousands):
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Operating lease cost | $ | 874 | $ | 823 |
| Variable lease cost | — | — | ||
| Short-term lease cost | 23 | 27 | ||
| Total lease cost | $ | 897 | $ | 850 |
Right of use assets obtained in exchange for new operating lease liability during 2020 were $0.3 million. The cash paid for amounts included in the measurement of lease liabilities approximates our operating lease cost for the three months ended March 28, 2020.
Undiscounted maturities of operating lease payments as of March 28, 2020 are summarized as follows (in thousands):
| 2020 (excluding the three months ended March 28, 2020) | $ | 2,496 | |
|---|---|---|---|
| 2021 | 2,642 | ||
| 2022 | 1,653 | ||
| 2023 | 1,163 | ||
| 2024 | 742 | ||
| Thereafter | 538 | ||
| Total future minimum lease payments | $ | 9,234 | |
| Less: amount representing interest | (1,273 | ) | |
| Present value of future minimum lease payments | $ | 7,961 |
One of the Company's indirect wholly-owned subsidiaries entered into a lease agreement as tenant related to a property in Israel. Such lease agreement provides that we will lease a new building containing approximately 121,400 square feet. The Company expects to commence occupancy in the second half of 2020.
Note 6 – 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 March 28, 2020 was 32.3% compared to 27.2% for the fiscal quarter ended March 30, 2019.
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Note 6 - Income Taxes (continued)
The tax rate in the current fiscal quarter is higher than the prior year fiscal quarter 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 7 – Long-Term Debt
Long-term debt consists of the following (in thousands):
| March 28, 2020 | December 31, 2019 | |||||
|---|---|---|---|---|---|---|
| 2020 Credit Agreement - Revolving Facility | $ | 41,020 | $ | — | ||
| 2015 Credit Agreement - Revolving Facility | — | 34,000 | ||||
| 2015 Credit Agreement - U.S. Closing Date Term Facility | — | 2,038 | ||||
| 2015 Credit Agreement - U.S. Delayed Draw Term Facility | — | 4,982 | ||||
| 2015 Credit Agreement - Canadian Term Facility | — | 3,476 | ||||
| Other debt | 115 | 149 | ||||
| Deferred financing costs | (421 | ) | (112 | ) | ||
| Total long-term debt | 40,714 | 44,533 | ||||
| Less: current portion | 115 | 44,516 | ||||
| Long-term debt, less current portion | $ | 40,599 | $ | 17 |
2020 Credit Agreement
On March 20, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the “2020 Credit Agreement”) among the Company, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint lead arrangers and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility was revised to provide a secured revolving facility (the “2020 Revolving Facility”) in an aggregate principal amount 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, and a portion of which were used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows: (1) the “2015 U.S. Closing Date Term Facility” in an aggregate principal amount of $2.0 million; and (2) the "2015 U.S. Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million. 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
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Note 7 - Long-Term Debt (continued)
financial ratios. The financial maintenance covenants include interest coverage ratio and a leverage ratio. 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.
Note 8 – 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<br>and Other<br>Postretirement<br>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 | ) | Foreign Currency Translation Adjustment | Pension<br>and Other<br>Postretirement<br>Actuarial Items | Total | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||||
| Balance at January 1, 2019 | $ | (31,319 | ) | $ | (6,146 | ) | $ | (37,465 | ) | |||||||||||
| Other comprehensive loss before reclassifications | 581 | — | 581 | |||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 105 | 105 | |||||||||||||||||
| Balance at March 30, 2019 | $ | (30,738 | ) | $ | (6,041 | ) | $ | (36,779 | ) |
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 9).
Note 9 – 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 <br> March 28, 2020 | Fiscal quarter ended <br> March 30, 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Pension<br>Plans | OPEB<br>Plans | Pension<br>Plans | OPEB<br>Plans | |||||||
| Net service cost | $ | 99 | $ | 31 | $ | 83 | $ | 31 | ||
| Interest cost | 129 | 33 | 157 | 45 | ||||||
| Expected return on plan assets | (111 | ) | — | (133 | ) | — | ||||
| Amortization of actuarial losses | 77 | 34 | 50 | 39 | ||||||
| Net periodic benefit cost | $ | 194 | $ | 98 | $ | 157 | $ | 115 |
Note 10 – 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 March 28, 2020, the Company had reserved 387,201 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.
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Note 10 - Share-Based Compensation (continued)
On March 5, 2020, VPG’s three current executive officers were granted annual equity awards in the form of RSUs, of which 75% are performance-based. The awards have an aggregate target grant-date fair value of $1.2 million and were comprised of 44,269 RSUs. Twenty-five percent of these awards will vest on January 1, 2023, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2023, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and net earnings goals, each weighted equally.
On March 16, 2020, certain VPG employees were granted annual equity awards in the form of RSUs, of which 75% are performance-based. The awards have an aggregate grant-date fair value of $0.4 million and were comprised of 18,940 RSUs. Twenty-five percent of these awards will vest on January 1, 2023 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2023, 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 may be 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 | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Restricted stock units | $ | 379 | $ | 514 |
Note 11 – 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):
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Note 11 - Segment Information (continued)
| Fiscal quarter ended | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||||
| Net revenues: | ||||||
| Foil Technology Products | $ | 30,477 | $ | 37,049 | ||
| Force Sensors | 14,695 | 16,732 | ||||
| Weighing and Control Systems | 22,524 | 22,744 | ||||
| Total | $ | 67,696 | $ | 76,525 | ||
| Gross profit: | ||||||
| Foil Technology Products | $ | 11,201 | $ | 16,579 | ||
| Force Sensors | 3,572 | 5,061 | ||||
| Weighing and Control Systems | 10,292 | 11,411 | ||||
| Total | $ | 25,065 | $ | 33,051 | ||
| Reconciliation of segment operating income to consolidated results: | ||||||
| Foil Technology Products | $ | 5,384 | $ | 10,306 | ||
| Force Sensors | 1,204 | 2,535 | ||||
| Weighing and Control Systems | 4,668 | 6,575 | ||||
| Unallocated G&A expenses | (6,482 | ) | (6,813 | ) | ||
| Restructuring costs | (130 | ) | — | |||
| Operating income | $ | 4,644 | $ | 12,603 | ||
| 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 | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Foil Technology Products to Force Sensors and Weighing and Control Systems | $ | 724 | $ | 933 |
| Force Sensors to Foil Technology Products and Weighing and Control Systems | $ | — | $ | 427 |
| Weighing and Control Systems to Foil Technology Products and Force Sensors | $ | 87 | $ | 153 |
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Note 12 – 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 | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Numerator: | ||||
| Numerator for basic earnings per share: | ||||
| Net earnings attributable to VPG stockholders | $ | 3,312 | $ | 8,243 |
| Denominator: | ||||
| Denominator for basic earnings per share: | ||||
| Weighted average shares | 13,541 | 13,495 | ||
| Effect of dilutive securities: | ||||
| Restricted stock units | 45 | 68 | ||
| Dilutive potential common shares | 45 | 68 | ||
| Denominator for diluted earnings per share: | ||||
| Adjusted weighted average shares | 13,586 | 13,563 | ||
| Basic earnings per share attributable to VPG stockholders | $ | 0.24 | $ | 0.61 |
| Diluted earnings per share attributable to VPG stockholders | $ | 0.24 | $ | 0.61 |
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Note 13 – 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 | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||||
| Foreign exchange gain (loss) | $ | 900 | $ | (736 | ) | |
| Interest income | 67 | 155 | ||||
| Pension expense | (159 | ) | (158 | ) | ||
| Other | (125 | ) | (33 | ) | ||
| $ | 683 | $ | (772 | ) |
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended March 28, 2020, 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 and the British pound.
Note 14 – 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<br>Fair Value | Level 1<br>Inputs | Level 2<br>Inputs | Level 3<br>Inputs | ||||||
| March 28, 2020 | |||||||||
| Assets | |||||||||
| Assets held in rabbi trusts | $ | 4,727 | $ | 117 | $ | 4,610 | $ | — | |
| December 31, 2019 | |||||||||
| Assets | |||||||||
| Assets held in rabbi trusts | $ | 5,169 | $ | 53 | $ | 5,116 | $ | — |
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 March 28, 2020 and December 31, 2019, 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 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.
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Note 14 - Fair Value Measurements (continued)
The fair value of the long-term debt, excluding capitalized deferred financing costs, at March 28, 2020 and December 31, 2019 approximates its carrying value. The revolving debt and term loans are reset on a quarterly basis based on current market rates, plus a base rate as specified in the corresponding debt agreements. 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 whose carrying amounts reported in the consolidated condensed balance sheets approximate their fair values.
Note 15 – 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 $0.1 million and $0.0 million of restructuring costs during the fiscal quarter ended March 28, 2020 and March 30, 2019, 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 March 28, 2020 and December 31, 2019, respectively, is included in Other accrued expenses in the accompanying consolidated condensed balance sheets (in thousands):
| Balance at December 31, 2019 | $ | 604 | |
|---|---|---|---|
| Restructuring charges in 2020 | 130 | ||
| Cash payments | (380 | ) | |
| Foreign currency translation | (11 | ) | |
| Balance at March 28, 2020 | $ | 343 |
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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
The COVID-19 pandemic has resulted, and is likely to continue to result, in economic disruption and has adversely affected and will likely continue to adversely affect our business. Uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. As previously disclosed, the Company's force sensor manufacturing facility in Tianjin, China was closed for three weeks due to governmental restrictions related to the COVID-19 pandemic. The closure of our Tianjin facility ended in February 2020, but had a negative impact on our financial performance in the quarter ended March 28, 2020. Our force sensor manufacturing facility in India had also been operating with a significantly reduced workforce since late March 2020. The Indian government has allowed us to resume partial operations at such factory effective May 4, 2020, and we expect that the Indian government will allow businesses such as ours to resume full operations on May 17, 2020. As of the date of this filing, all of the Company's facilities continue to operate, at least partially, as we believe that our business is “critical,” “essential” or “life-sustaining” under applicable laws, orders and guidelines, although they are operating with reduced numbers of personnel and following social distancing protocols. Factors related to the COVID-19 response that have negatively impacted and may negatively impact our results of operations in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or our ability to procure from other manufacturers, the materials we need to produce the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home, including, notably, with respect to our manufacturing facility in India where a material portion of our force sensor components and products are made; limitations on the ability of commercial carriers to deliver our products to customers; and limitations on the ability of our customers to conduct their business and purchase our products and services. We expect that many of our customers have closed or significantly reduced their operations due to the COVID-19 pandemic, and such actions may result in customer orders from the first and second quarters of 2020 being delayed to the third or fourth quarter of 2020 or later. We also expect the operating results of our Force Sensors and Weighing and Control Systems segments in at least the second quarter of 2020 to be negatively impacted, potentially significantly, by the partial closure of our India force sensor manufacturing facility during March, April and a portion of May 2020 and softer demand across the majority of our Weighing and Control Systems markets due to the impact of COVID-19 on key end-markets, such as transportation and industrial weighing. In particular, and assuming a full reopening of our India force sensor manufacturing facility on May 17, 2020, which is the current date that the Indian government has given for a full reopening, we expect revenues from our Force Sensors segment to be reduced by $5 million to $7 million and operating profit to be impacted by $3.5 million in the second quarter
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of 2020. If the operations restrictions on our Indian facility are not lifted on May 17, 2020 as we expect, we anticipate an additional negative impact on our results of operation.
In light of the adverse effects of the COVID-19 pandemic, we are evaluating factors impacting our liquidity and taking actions to reduce costs and spending across our organization. This includes reducing hiring, adjusting salary programs, and limiting discretionary spending. We have also reduced anticipated spending on capital investment projects.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders. We are currently unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity and capital resources.
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 March 28, 2020 were $67.7 million versus $76.5 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended March 28, 2020 were $3.3 million, or $0.24 per diluted share, versus $8.2 million, or $0.61 per diluted share, for the comparable prior year period.
The results of operations for the fiscal quarters ended March 28, 2020 and March 30, 2019 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, and adjusted net earnings per diluted share. 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, and adjusted net earnings per diluted share 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 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.
| Gross Profit | Operating Income | Net Earnings Attributable to VPG Stockholders | Diluted Earnings Per share | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three fiscal months ended | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
| As reported - GAAP | 25,065 | 33,051 | 4,644 | 12,603 | $ | 3,312 | $ | 8,243 | $ | 0.24 | $ | 0.61 | ||||||||
| As reported - GAAP Margins | 37.0 | % | 43.2 | % | 6.9 | % | 16.5 | % | ||||||||||||
| Acquisition purchase accounting adjustments (a) | 515 | — | 515 | — | 515 | — | 0.04 | — | ||||||||||||
| Restructuring costs | — | 130 | — | 130 | — | 0.01 | — | |||||||||||||
| Less: Tax effect of reconciling items and discrete tax items | — | — | 7 | — | — | — | ||||||||||||||
| As Adjusted - Non GAAP | $ | 25,580 | $ | 33,051 | $ | 5,289 | $ | 12,603 | $ | 3,950 | $ | 8,243 | $ | 0.29 | $ | 0.61 | ||||
| As Adjusted - Non GAAP Margins | 37.8 | % | 43.2 | % | 7.8 | % | 16.5 | % | ||||||||||||
| (a) | Acquisition purchase accounting adjustments in 2020 include fair market value adjustments associated with inventory recorded as a component of costs of products sold. | |||||||||||||||||||
| --- | --- |
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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 2019 through the first quarter of 2020 (dollars in thousands):
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 1st Quarter | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2019 | 2019 | 2019 | 2020 | |||||||||||
| Net revenues | $ | 76,525 | $ | 70,870 | $ | 67,421 | $ | 69,142 | $ | 67,696 | |||||
| Gross profit margin | 43.2 | % | 40.4 | % | 38.3 | % | 35.0 | % | 37.0 | % | |||||
| End-of-period backlog | $ | 87,100 | $ | 83,400 | $ | 79,300 | $ | 90,900 | $ | 94,300 | |||||
| Book-to-bill ratio | 0.92 | 0.94 | 0.96 | 1.15 | 1.08 | ||||||||||
| Inventory turnover | 2.77 | 2.66 | 2.60 | 2.72 | 2.58 |
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| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 1st Quarter | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2019 | 2019 | 2019 | 2020 | |||||||||||
| Foil Technology Products | |||||||||||||||
| Net revenues | $ | 37,049 | $ | 32,999 | $ | 32,119 | $ | 29,636 | $ | 30,477 | |||||
| Gross profit margin | 44.7 | % | 43.6 | % | 37.3 | % | 34.9 | % | 36.7 | % | |||||
| End-of-period backlog | $ | 44,000 | $ | 42,100 | $ | 38,900 | $ | 44,600 | $ | 51,700 | |||||
| Book-to-bill ratio | 0.88 | 0.93 | 0.91 | 1.18 | 1.25 | ||||||||||
| Inventory turnover | 2.97 | 2.65 | 2.79 | 2.66 | 2.74 | ||||||||||
| Force Sensors | |||||||||||||||
| Net revenues | $ | 16,732 | $ | 16,349 | $ | 16,217 | $ | 15,059 | $ | 14,695 | |||||
| Gross profit margin | 30.2 | % | 26.9 | % | 30.4 | % | 24.2 | % | 24.3 | % | |||||
| End-of-period backlog | $ | 17,400 | $ | 16,400 | $ | 15,200 | $ | 17,100 | $ | 16,900 | |||||
| Book-to-bill ratio | 0.98 | 0.95 | 0.94 | 1.11 | 1.02 | ||||||||||
| Inventory turnover | 2.29 | 2.39 | 2.30 | 2.43 | 2.64 | ||||||||||
| Weighing and Control Systems | |||||||||||||||
| Net revenues | $ | 22,744 | $ | 21,522 | $ | 19,085 | $ | 24,447 | $ | 22,524 | |||||
| Gross profit margin | 50.2 | % | 45.6 | % | 46.6 | % | 41.6 | % | 45.7 | % | |||||
| End-of-period backlog | $ | 25,700 | $ | 24,900 | $ | 25,200 | $ | 29,200 | $ | 25,700 | |||||
| Book-to-bill ratio | 0.93 | 0.95 | 1.04 | 1.15 | 0.90 | ||||||||||
| Inventory turnover | 3.07 | 3.03 | 2.61 | 3.10 | 2.31 |
Net revenues for the first quarter of 2020 decreased 2.1% from the fourth quarter of 2019 mainly due to decreased volume in the Force Sensors and Weighing and Control Systems segments, partially offset by volume improvement in the Foil Technology Products segment. Net revenues decreased 11.5% from the first quarter of 2019 due to decreased volume in all of the reporting segments.
Net revenues in the Foil Technology Products reporting segment increased 2.8% compared to the fourth quarter of 2019 and decreased 17.7% from the first quarter of 2019. The sequential increase in revenue was attributable to precision resistor products in all regions for distribution and EMS customers, primarily in the avionics, military and space, as well as test and measurement end markets. Compared to the first quarter of 2019, the decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market. The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.
Net revenues in the Force Sensors reporting segment decreased 2.4% from the fourth quarter of 2019 and decreased 12.2% from the first quarter of 2019. The sequential decrease in revenue was attributable to distribution customers in the industrial weighing market, mainly in the Americas and Asia. Compared to the first quarter of 2019, the decrease in revenues was mainly due to lower volume from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.
Net revenues in the Weighing and Control Systems reporting segment decreased 7.9% from the fourth quarter of 2019 and decreased 1.0% from the first quarter of 2019. Sequentially, the lower net revenues are primarily attributable to a reduction in the steel product line in the Americas and in Asia for end user customers. Compared to the first quarter of 2019, the decrease in revenues are attributable to our KELK steel product line in the Americas and in Europe, onboard weighing product line for the transportation end market in Europe, and the European process weighing product line, mostly offset with the additional revenues of Dynamic Systems Inc. ("DSI"), which was acquired in November 2019.
Overall gross profit margin in the first quarter of 2020 increased 2% as compared to the fourth quarter of 2019 and decreased 6.2% from the first quarter of 2019.
Sequentially, the Foil Technology Products segment gross profit margin increased primarily due to higher volume. The Force Sensors segment gross profit margin was flat as the favorable impact from cost savings initiatives offset lower volume and a reduction in export grants. In the Weighing and Control Systems segment, the gross profit margin was 45.7% (48.0% excluding
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the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) compared to 41.6% (46.8% excluding the purchase accounting adjustment of $1.3 million related to the DSI acquisition). The increase was mainly due to manufacturing efficiencies which were partially offset by lower volume.
Compared to the first quarter of 2019, the Foil Technology Products reporting segment had a lower gross profit margin primarily due to lower volume, negative impact of foreign exchange rates and inventory reductions. The Force Sensors reporting segment decrease in gross profit margin was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives. In the Weighing and Control Systems segment, the gross profit margin of 45.7% (48.0% excluding the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) decreased from the first quarter of 2019 primarily due to unfavorable product mix.
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 recently signed a long-term lease for a state- of-the-art facility to be constructed in Israel to support our advanced sensors business.
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 2018 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. In 2017, we closed two leased facilities in the United States and moved to more cost effective locations.
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 acquisition significantly broadened our existing data acquisition offerings and opened new markets for us. Our most recent acquisition, of DSI, expands our position in the steel market. Along with our success in MEMS technology for on-board weighing, 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.
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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 (“SEC”) on March 11, 2020.
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.
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Effects of Foreign Exchange Rate on Operations
For the fiscal quarter ended March 28, 2020, exchange rates decreased net revenues by $0.6 million, and increased costs of products sold and selling, general, and administrative expenses by $0.4 million, when compared to the comparable prior year period.
Off-Balance Sheet Arrangements
As of March 28, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.
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Results of Operations
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Costs of products sold | 63.0 | % | 56.8 | % |
| Gross profit | 37.0 | % | 43.2 | % |
| Selling, general, and administrative expenses | 30.0 | % | 26.7 | % |
| Operating income | 6.9 | % | 16.5 | % |
| Income before taxes | 7.2 | % | 15.0 | % |
| Net earnings | 4.9 | % | 10.9 | % |
| Net earnings attributable to VPG stockholders | 4.9 | % | 10.8 | % |
| Effective tax rate | 32.3 | % | 27.2 | % |
Net Revenues
Net revenues were as follows (dollars in thousands):
| Fiscal quarter ended | |||||
|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | ||||
| Net revenues | $ | 67,696 | $ | 76,525 | |
| Change versus comparable prior year period | $ | (8,829 | ) | ||
| Percentage change versus prior year period | (11.5 | )% |
Changes in net revenues were attributable to the following:
| vs. prior year<br>quarter | ||
|---|---|---|
| Change attributable to: | ||
| Change in volume | (16.1 | )% |
| Change in average selling prices | 0.6 | % |
| Foreign currency effects | (0.8 | )% |
| Acquisitions | 4.8 | % |
| Net change | (11.5 | )% |
During the fiscal quarter ended March 28, 2020, net revenues decreased 11.5%, as compared to the comparable prior year period due to decreased volume in all of the reporting segments.
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Gross profit margin | 37.0 | % | 43.2 | % |
The gross profit margin for the fiscal quarter ended March 28, 2020 decreased 6.2% compared to the comparable prior year period, with all reporting segments contributing to the decline.
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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 | |||||
|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | ||||
| Net revenues | $ | 30,477 | $ | 37,049 | |
| Change versus comparable prior year period | $ | (6,572 | ) | ||
| Percentage change versus prior year period | (17.7 | )% |
Changes in Foil Technology Products segment net revenues were attributable to the following:
| vs. prior year<br>quarter | ||
|---|---|---|
| Change attributable to: | ||
| Change in volume | (18.1 | )% |
| Change in average selling prices | 1.1 | % |
| Foreign currency effects | (0.7 | )% |
| Net change | (17.7 | )% |
Net revenues decreased 17.7% for the fiscal quarter ended March 28, 2020 as compared to the comparable prior year period. This decrease in revenues was primarily attributable to precision resistor products in all regions for distribution, OEM and EMS customers, primarily in the test and measurement end market. The decrease was also reflected in the Americas and Asia for end customers in the avionics, military and space end market for the Pacific Instrument product line.
Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Gross profit margin | 36.7 | % | 44.7 | % |
The gross profit margin decreased 8.0% for the fiscal quarter ended March 28, 2020, when compared to the comparable prior year period primarily due to lower volume, negative impact of foreign exchange rates and inventory reductions.
Force Sensors
Net revenues of the Force Sensors segment were as follows (dollars in thousands):
| Fiscal quarter ended | |||||
|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | ||||
| Net revenues | $ | 14,695 | $ | 16,732 | |
| Change versus comparable prior year period | $ | (2,037 | ) | ||
| Percentage change versus prior year period | (12.2 | )% |
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Changes in Force Sensors segment net revenues were attributable to the following:
| vs. prior year<br>quarter | ||
|---|---|---|
| Change attributable to: | ||
| Change in volume | (11.8 | )% |
| Change in average selling prices | 0.4 | % |
| Foreign currency effects | (0.8 | )% |
| Net change | (12.2 | )% |
Net revenues decreased 12.2% for the fiscal quarter ended March 28, 2020, as compared to the comparable prior year period. The decrease for the fiscal quarter ended March 28, 2020 was attributable to lower revenues from distribution and OEM customers in the industrial weighing market, mainly in the Americas and in Europe.
Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Gross profit margin | 24.3 | % | 30.2 | % |
The gross profit margin for the fiscal quarter ended March 28, 2020 decreased 5.9% compared to the comparable prior year period. This decrease was primarily due to lower volume, a reduction in export grants, negative impact of foreign exchange, and inventory reductions, which was partially offset by cost savings initiatives.
Weighing and Control Systems
Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):
| Fiscal quarter ended | |||||
|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | ||||
| Net revenues | $ | 22,524 | $ | 22,744 | |
| Change versus comparable prior year period | $ | (220 | ) | ||
| Percentage change versus prior year period | (1.0 | )% |
Changes in Weighing and Control Systems segment net revenues were attributable to the following:
| vs. prior year<br>quarter | ||
|---|---|---|
| Change attributable to: | ||
| Change in volume | (15.9 | )% |
| Change in average selling prices | 0.0 | % |
| Foreign currency effects | (1.2 | )% |
| Acquisitions | 16.1 | % |
| Net change | (1.0 | )% |
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Net revenues decreased 1.0% for the fiscal quarter ended March 28, 2020, as compared to the comparable prior year period. For the fiscal quarter ended March 28, 2020, the decline in net revenues is attributable to our KELK steel product line in the Americas and in Europe, onboard weighing product line for the transportation end market in Europe, and the European process weighing product line, mostly offset with the additional revenues of DSI, which was acquired in November 2019.
Gross profit as a percentage of net revenues for the Weighing and Control Systems segment were as follows:
| Fiscal quarter ended | ||||
|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||
| Gross profit margin | 45.7 | % | 50.2 | % |
The gross profit margin for the fiscal quarter ended March 28, 2020 of 45.7% (48.0% excluding the purchasing accounting adjustments of $0.5 million related to the DSI acquisition) decreased from the first quarter of 2019 primarily due to unfavorable product mix.
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
| Fiscal quarter ended | ||||||
|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | |||||
| Total SG&A expenses | $ | 20,291 | $ | 20,448 | ||
| As a percentage of net revenues | 30.0 | % | 26.7 | % |
SG&A expenses for the fiscal quarter ended March 28, 2020 decreased compared to the comparable prior year period mainly due to lower personnel costs and commissions, offset by SG&A expenses related to DSI.
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 $0.1 million and $0.0 million of restructuring costs during the fiscal quarter ended March 28, 2020 and March 30, 2019, 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 March 28, 2020 was higher compared with interest expense in the comparable prior year periods mainly due higher outstanding borrowings in the current year from the acquisition of DSI.
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The following table analyzes the components of the line “Other” on the consolidated condensed statements of operations (in thousands):
| Fiscal quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | Change | |||||||
| Foreign exchange gain (loss) | $ | 900 | $ | (736 | ) | $ | 1,636 | ||
| Interest income | 67 | 155 | (88 | ) | |||||
| Pension expense | (159 | ) | (158 | ) | (1 | ) | |||
| Other | (125 | ) | (33 | ) | (92 | ) | |||
| $ | 683 | $ | (772 | ) | $ | 1,455 |
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended March 28, 2020, 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 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 March 28, 2020 was 32.3% compared to 27.2% for the fiscal quarter ended March 30, 2019. The tax rate in the current fiscal quarter is higher than the prior year fiscal quarter 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.
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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 restated credit agreement was used to refinance the Company’s existing revolving credit facility in the amount of $34 million and the Company’s existing term loans as follows: (1) the “2015 U.S. Closing Date Term Facility” in an aggregate principal amount of $2.0 million; (2) the "2015 U.S. Delayed Draw Term Facility" in an aggregate principal amount of $5.0 million. 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 March 28, 2020. If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.
Our other long-term debt is not significant and consists of zero percent interest rate debt held by our Japanese subsidiary of approximately $0.1 million at March 28, 2020 and $0.1 million at December 31, 2019.
Our business has historically generated significant cash flow. For the three fiscal months ended March 28, 2020, cash provided by operating activities was $6.3 million. Cash provided by operating activities for the three fiscal months ended March 30, 2019 was $8.1 million. Cash provided by operating activities for the three fiscal months ended March 28, 2020 was lower than the cash provided by operating activities for the three fiscal months ended March 30, 2019 due to a decrease in net earnings. Our net cash used in investing activities for the three fiscal months ended March 28, 2020 was comparable with the prior year. Our net cash used by financing activities for the three fiscal months ended March 28, 2020, reflects 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 March 28, 2020, was $3.0 million. We refer to the amount of cash provided by operating activities ($6.3 million) in excess of our capital expenditures ($3.3 million) and net of proceeds from the sale of assets ($0.0 million) as “adjusted free cash flow.”
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The following table summarizes the components of net cash at March 28, 2020 and December 31, 2019 (in thousands):
| March 28, 2020 | December 31, 2019 | |||||
|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 82,731 | $ | 86,910 | ||
| Third-party debt, including current and long-term: | ||||||
| Term loans | — | 10,496 | ||||
| Revolving debt | 41,020 | 34,000 | ||||
| Third-party debt held by Japanese subsidiary | 115 | 149 | ||||
| Deferred financing costs | (421 | ) | (112 | ) | ||
| Total third-party debt | 40,714 | 44,533 | ||||
| Net cash | $ | 42,017 | $ | 42,377 |
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.
Approximately 95% and 86% of our cash and cash equivalents balance at March 28, 2020 and December 31, 2019, respectively, was held by our non-U.S. subsidiaries.
See the following table for the percentage of cash and cash equivalents, by region, at March 28, 2020 and December 31, 2019:
| March 28, 2020 | December 31, 2019 | |||
|---|---|---|---|---|
| Israel | 30 | % | 23 | % |
| Asia | 25 | % | 7 | % |
| Europe | 16 | % | 28 | % |
| United States | 5 | % | 14 | % |
| United Kingdom | 16 | % | 17 | % |
| Canada | 8 | % | 11 | % |
| 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 March 28, 2020, to be indefinitely reinvested.
Our financial condition as of March 28, 2020 remains strong, with a current ratio (current assets to current liabilities) of 4.4 to 1.0, as compared to a ratio of 2.4 to 1.0 at December 31, 2019.
Cash paid for property and equipment for the three fiscal months ended March 28, 2020 was $3.3 million compared to $3.3 million in the comparable prior year period.
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Contractual Commitments
Our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 11, 2020, includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K.
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 (including Dynamic Systems, Inc.); 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 "coronavirus") 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 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 outbreak; 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, 2019. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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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, 2019, filed with the SEC on March 11, 2020.
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 March 28, 2020, 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.
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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, 2019, filed with the SEC on March 11, 2020. With the exception of the following, 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, 2019.
The COVID-19 outbreak could adversely impact our results of operations.
The impact of the COVID-19 outbreak and the spread of the novel coronavirus on a global basis is likely to adversely affect our business in a number of respects, although the extent, nature and timing of such impact cannot be predicted at this time. The COVID-19 outbreak has led countries around the world, as well as most states in the U.S., to implement restrictions relating to the operation of almost all types of businesses. The closure standards vary from jurisdiction to jurisdiction, but they typically require all but “critical”, “essential” or “life-sustaining” businesses to close all offices and facilities. We believe, based on the various standards published to date, that our businesses meet the requisite standard to remain open, at least partially, in all jurisdictions in which we operate, although there is no assurance that our decision to remain open will not be challenged. As of the date of this filing, all of our manufacturing and other facilities are operating, although some of them are operating at reduced capacity as a result of enacting procedures designed to prevent the spread of the virus, such as social distancing, reduced personnel and staggered shifts. Changing standards regarding what type of facilities are permitted to remain open, as well as evolving interpretations of existing standards, in both the United States and around the globe, could result in the closure of some or all of our facilities. In addition, while the government of India has allowed us to partially reopen our Indian manufacturing facility effective as of May 4, 2020, prior to that date such manufacturing facility, where a material portion of our force sensor products and components are made, had been open with a significantly reduced workforce in light of the business closure requirements and social distancing best practices. We also expect the operating results of our Force Sensors and Weighing and Control Systems segments in at least the second quarter of 2020 to be negatively impacted, potentially significantly, by the partial closure of our India force sensor manufacturing facility during March, April and a portion of May 2020 and softer demand across the majority of our Weighing and Control Systems markets due to the impact of COVID-19 on key end-markets, such as transportation and industrial weighing. In particular, and assuming a full reopening of our India force sensor manufacturing facility on May 17, 2020, which is the current date that the Indianan government has given for a full reopening, we expect revenues from our Force Sensors segment to be reduced by $5 million to $7 million and operating profit to be impacted by $3.5 million in the second quarter of 2020. If the operations restrictions on our Indian facility are not lifted on May 17, 2020 as we expect, we anticipate an additional negative impact on our results of operation.
To date, our supply chain has not experienced significant disruptions, and at this time we do not anticipate any such significant disruptions in the near term. However, our suppliers could be required by government authorities to temporarily cease operations in accordance with the various restrictions discussed above, might be limited in their production capacity due to complying with restrictions relating to the operation of businesses during the COVID-19 pandemic, or could suffer their own supply chain disruptions, impacting their ability to continue to supply us with the quantity of materials required by us.
If as a result of the COVID-19 outbreak governments take additional protective actions, or extend the time period for existing protective actions, it may have a material adverse impact on our business and operating results. This could include closures of our facilities or the closure of the facilities of our customers, suppliers, or other vendors in our supply chain. Any disruption of our supply chain or the businesses of our customers could adversely impact our business and results of operations. In addition, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets worldwide, resulting in an economic downturn that has adversely impacted many businesses, including ours. The extent and duration of the impact on the global economy and financial markets from the COVID-19 is difficult to predict, and the extent to which the COVID-19 will negatively affect us and the duration of any potential business disruption is uncertain. The impact to our business and results of operation will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 outbreak and the actions taken by authorities and other entities to contain the COVID-19 or treat its impact, and the impact of such actions, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our operating results.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
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Item 6. EXHIBITS
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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 5, 2020
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Exhibit
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of March 15, 2020 (the “Effective Date”), by and between Vishay Advanced Technologies, Ltd., a corporation organized under the laws of the State of Israel and a wholly-owned subsidiary of Vishay Precision Group, Inc. (“VPG”), a Delaware corporation (together with Vishay Advanced Technologies, Ltd, the “Company”), and Amir Tal (the “Executive”).
W I T N E S S E T H:
WHEREAS, Executive has been employed by the Company commencing from July 11, 2004 (the “Commencement Date of Employment”), according to an employment agreement dated July 11, 2004 (the “Prior Employment Agreement”); and
WHEREAS, the Company desires to continue to employ Executive and Executive desires to continue such employment; and
WHEREAS, the Company and Executive intend for this Agreement to document the terms and conditions of his continuing employment by the Company starting from the Effective Date, replacing the Prior Employment Agreement, which shall have no effect starting from that date.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
1.1. “Accrued Compensation” means (i) earned but unpaid base salary and (ii) unpaid expense reimbursements previously submitted to the Company in accordance with Section 5.2 of this Agreement.
1.2. “Board of Directors” or “Board” means the Board of Directors of VPG.
1.3. “Cause” means any of the following:
(a) Executive’s conviction of a felony or any other crime involving moral turpitude (whether or not involving the Company and/or any of its subsidiaries);
(b) any act or failure to act by Executive involving dishonesty, fraud, misrepresentation, theft or embezzlement of assets from the Company and/or any of its subsidiaries; or
(c) Executive’s (i) willful and repeated failure to substantially perform his duties under this Agreement (other than as a result of total or partial incapacity due to physical
or mental illness or injury) or (ii) willful and repeated failure to substantially comply with any policy of the Company applicable to Executive; provided, however, that a termination pursuant to this clause (c) will not become effective unless Executive fails to cure such failure to perform or comply within twenty (20) days after written notice thereof from the Company.
1.4. “Change in Control” shall have the meaning set forth in the Vishay Precision Group, Inc. 2010 Stock Incentive Program, as amended, as of the Effective Date.
1.5. “Code” means the Internal Revenue Code of 1986, as amended.
1.6. “Common Stock” shall have the meaning set forth in the Vishay Precision Group, Inc. 2010 Stock Incentive Program, as amended, as of the Effective Date.
1.7. “Competing Business” means any business or venture located anywhere in the world that is engaged in the manufacture and supply of resistive foil technology products such as resistive sensors, strain gages, ultra-precision foil resistors, current sensors, transducers/load cells, weighing modules, weighing systems and control systems, to the extent the Company or any subsidiary of the Company is engaged in such activities on the Date of Termination.
1.8. “Date of Termination” means (i) the effective date on which Executive’s employment by the Company is terminated by the Company or Executive, as the case may be, or (ii) if Executive’s employment by the Company terminates by reason of death, the date of Executive’s death. Notwithstanding the previous sentence, if Executive’s employment is terminated by Executive without Good Reason, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.
1.9. “Disability” means (i) the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as a result of which Executive is receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.
1.10. “Good Reason” means, without Executive’s express written consent, the occurrence of any of the following events:
(a) any material and adverse change in Executive’s titles, offices, duties or responsibilities (including reporting responsibilities) with respect to the Company from those set forth in this Agreement;
(b) a reduction in Executive’s Base Salary (as the same may be increased from time to time after the Effective Date);
(c) relocation of Executive’s principal place of performance to a location more than 50 kilometers from Holon, Israel or Mod’in Israel; or
(d) any other material breach of this Agreement by the Company.
Notwithstanding the foregoing, in order for an event or circumstance to constitute “Good Reason,” (i) Executive must provide the Company with Notice of Termination, describing the event or circumstance giving rise to Good Reason within 45 days after it has occurred, (ii) the Company shall have 45 days after receipt of such notice to cure the event or circumstance giving rise to Good Reason and (iii) if the Company fails to cure the event or circumstance giving rise to Good Reason, then Executive shall have the right to resign for Good Reason during the ninety (90) day period commencing immediately after the last day of the 45 day cure period.
1.11. “Non-Competition Period” means the period commencing upon the Date of Termination and continuing until the first anniversary of the Date of Termination or such lesser period as is determined by a court of competent jurisdiction pursuant to Section 7.5(d).
1.12. “Non-Solicitation Period” means the period commencing upon the Date of Termination and continuing until the first anniversary of the Date of Termination or such lesser period as is determined by a court of competent jurisdiction pursuant to Section 7.5(d).
1.13. “Notice of Termination” means a written notice of termination of Executive’s employment with the Company, signed by Executive, if to the Company, or by a duly authorized officer of the Company, if to Executive. In case of termination by the Executive for Good Reason or by the Company for Cause, such notice shall (i) indicate the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated; and (iii) specify the Date of Termination. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.
1.14. “Tax Ordinance” means the Israeli Income Tax Ordinance of 1961.
2. Employment; Term; Israeli Terms.
2.1. Employment. The Company hereby agrees to employ Executive, and Executive hereby accepts employment by the Company, in accordance with and subject to the terms and conditions set forth herein.
2.2. Term. This Agreement shall become effective as of March __, 2020. The “Initial Term” of this Agreement shall commence on March __, 2020 and continue until December 31, 2020, unless earlier terminated in accordance with the provisions of this Agreement; provided, however, that at the end of the Initial Term and at the end of each Extension Year (as defined herein), this Agreement shall automatically be extended for an additional one-year period (each such additional one-year period, an “Extension Year,” and, together with the Initial Term, until the Date of Termination, the “Term”), unless the Company or Executive gives notice to the other party at least ninety (90) days prior to the end of the Initial Term or the Extension Year, as applicable, of its
or his intention not to extend the Term, in which case the Term will end at the completion of such Initial Term or Extension Year, as applicable. An election not to extend the Term shall be deemed a termination of employment by the party so electing.
2.3. Israeli Terms. Notwithstanding anything in this Agreement to the contrary, the terms and conditions set forth in Exhibit A shall govern Executive’s employment terms and conditions under Israeli law and, to the extent of any inconsistency between the main body of this Agreement and Exhibit A, Exhibit A shall prevail.
3. Duties.
3.1. Position. During the Term, Executive shall serve as Senior Vice President and Chief Accounting Officer of the Company, reporting directly to the Company’s Chief Executive Officer.
3.2. Authority and Responsibility. Executive shall have such authority and responsibility as is customary for a Senior Vice President and Chief Accounting Officer of a multi-national corporation.
3.3. Activities. Excluding any periods of vacation, personal, sick leave and other permitted absences to which Executive is entitled according to this Agreement and Israeli law, during the Term, Executive shall devote his full professional attention and best efforts to the business and affairs of the Company. Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company, and not to do any act which would injure the business, interests or reputation of the Company, including, without limitation, engaging in any business activity that conflicts with the Executive’s duties to the Company or receiving any payment, compensation or benefit from any third party in connection, directly or indirectly, with the Executive’s employment by the Company. It shall not be considered a violation of the foregoing for Executive to (i) provide services to any subsidiaries or affiliates of the Company (which, for avoidance of doubt, shall be provided pursuant to this Agreement and without payment of additional consideration), (ii) serve on corporate, industry, civic or charitable boards or committees or (iii) manage personal investments, so long as such activities would be permitted under Section 7 and do not interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.
3.4. Place of Performance. Executive recognizes that his duties will require, at the Company’s expense, travel to domestic and international locations. In addition, while the Executive’s principal place of business shall be Israel, Executive recognizes that in performing services to the Company, he may be required to be present in the United States for substantial periods of time.
4. Compensation.
4.1. Base Salary. Effective January 1, 2020, the Company shall pay Executive a base salary, subject to annual review by the Compensation Committee of the Board of Directors (the “Compensation Committee”), of ₪ 834,247 per year, paid in 12 equal installments of NIS69,520.6 (as may be adjusted from time to time, the “Base Salary”). Such Base Salary includes any
remuneration for any work beyond standard working hours at the Company, including overtime work, and shall be paid in accordance with the Company’s standard salary policies as they exist from time to time, subject to such deductions, if any, as are required by law or elected by Executive.
4.2. Bonus.
(a) Beginning with the Company’s 2020 fiscal year and for each fiscal year thereafter during the Term, Executive shall be eligible to earn an annual performance bonus (“Bonus”), payable in cash, with a target equal to 50% of Base Salary (the “Target Bonus”). The actual amount of Bonus payable to Executive shall be determined by the Compensation Committee, and shall be based upon the Company’s achievement of certain corporate and/or individual performance goals to be established by the Compensation Committee in its sole discretion.
(b) For each fiscal year during the Term, any Bonus payable pursuant to this Section 4.2 shall be paid as soon as administratively practicable after the date that VPG files its Form 10-K with the Securities and Exchange Commission for the prior fiscal year; provided, however, that if VPG does not file such From 10-K on or before December 15^th^ of the fiscal year immediately following the fiscal year with respect to which the Bonus relates, no Bonus shall be paid in respect of such prior fiscal year.
(c) The Bonus, if paid, shall not be deemed to form part of the Executive's Base Salary for any purpose, including for determining pension contributions or other employment benefits. The Bonus is a limited and specific benefit and if paid shall not create any contractual or other right to receive any similar award, or benefit in lieu of any similar award, in the future.
4.3. Long-Term Equity Incentive. Effective each January 1 during the Term, the Company shall grant Executive an annual equity award under the Company’s 2010 Stock Incentive Program (or any successor plan or arrangement thereof) having a value approximately equal to 40% of Base Salary on such date (the “Annual Equity Grant”). In the event of the termination of Executive’s employment with the Company by the Company without Cause, by Executive for Good Reason, or as a result of Executive’s death or Disability, and subject to the Executive’s (or his legal representative’s execution in the case of death) executing and not revoking the Release contemplated in Section 6.3, any outstanding time-vested Annual Equity Grants awarded pursuant to this Section 4.3 shall immediately vest and any outstanding performance vested Annual Equity Grants awarded pursuant to this Section 4.3 shall vest on their normal vesting date to the extent the applicable performance criteria are realized. In the event of a Change in Control, all of such outstanding Annual Equity Grants shall immediately vest provided Executive is actively employed by the Company on the closing date of such event.
4.4. Non-application of the Working Hours and Rest Law. It is agreed between the parties that the position Executive is to hold within the Company is a management position and one which requires a special measure of personal trust, as such terms are defined in the Working Hours and Rest Law 5711 - 1951, as amended (the “Law”). In light of this relationship of trust, the provisions of the Law, or any other law amending or replacing such law,, will not apply to the performance by
Executive of his duties hereunder. The Executive acknowledges that the consideration set for him hereunder nevertheless includes within it consideration that would otherwise have been due to him pursuant to such law. Thus, Executive may be required, from time to time and according to the work load demanded of him, to work beyond the regular working hours or regular working days and Executive shall not be entitled to any further compensation other than as determined by the policy of the Company applicable to Executive or other than as specified in this Agreement.
4.5. Special Agreement. This Agreement is a personal agreement, and subject to any applicable law, the provisions of any current or future collective bargaining agreement, general or special, or arrangements or extension orders, any custom or practice, and/or any other agreements between the Company and its employees do not, and will not, apply to the employment of Executive.
5. Additional Rights.
5.1. Employee Benefits. The Executive will be eligible to participate in retirement/savings, health insurance, term life insurance, long term disability insurance and other employee benefit plans, policies or arrangements maintained by the Company for its Israeli employees generally, subject to the terms and conditions of such plans, policies or arrangements; provided, however, that this Agreement will not limit the Company’s ability to amend, modify or terminate such plans, policies or arrangements at any time for any reason.
5.2. Reimbursement of Expenses. In accordance with the Company’s standard reimbursement policies as they exist from time to time, the Company shall reimburse Executive for all reasonable and documented travel, business entertainment and other business expenses incurred by Executive in connection with the performance of his duties under this Agreement.
5.3. Vacation, Personal and Sick Days. Executive shall be entitled to vacation days, holidays, military reserve service, personal and sick days according to Israeli law and the Company’s policies for its senior executives, as in effect from time to time and based on his tenure from the Commencement Date of Employment.
5.4. Indemnification. Subject to any applicable law, the Company shall indemnify Executive in the scope permitted under its bylaws, as in effect from time to time, and similar of the scope of indemnification provided to other Directors and Officers in the Company.
6. Termination of Employment; Compensation Upon Termination.
6.1. Termination. Executive’s employment with the Company may be terminated prior to the end of the Term under the following circumstances:
(a) Death. Executive’s employment hereunder shall terminate immediately upon Executive’s death.
(b) Termination by the Company. The Company may terminate Executive’s employment with or without Cause, by Notice of Termination to Executive. A
termination of Executive’s employment due to Executive’s Disability, subject to applicable law,shall be equivalent to a termination by the Company without Cause.
(c) Termination by Executive. Executive may terminate his employment with or without Good Reason, by Notice of Termination to the Company.
6.2. Compensation Upon Termination.
(a) Termination by the Company Without Cause; Termination by Executive With Good Reason. In the event Executive’s employment with the Company is terminated by the Company without Cause or by Executive with Good Reason, and in partial consideration for the Executive’s obligations under Section 7 below, Executive shall be entitled to the following:
(i) A lump sum cash payment equal to all Accrued Compensation, such payment to be made within 15 days after the Date of Termination, but not more than 9 days after the end of the last month of employment.
(ii) Continued payment of Executive’s then current Base Salary for eighteen (18) months from the Date of Termination, to be paid in accordance with the Company’s standard payroll practices as in effect from time to time.
(iii) Payment of Executive’s Bonus pursuant to Section 4.2 hereof for the calendar year preceding the Date of Termination, if not previously paid, which shall be paid at such time as such Bonus would have been paid to Executive if not for Executive’s termination of employment, or if later, as soon as practicable following the date the Release described in Section 6.3 becomes irrevocable.
(iv) Payment of a pro-rata Target Bonus in an amount equal to the Target Bonus multiplied by a fraction, the numerator of which equals the number of days Executive was employed with the Company in the Company’s fiscal year of termination of employment through the Date of Termination, and the denominator of which is 365 (the “Pro-Rata Bonus”).
(b) Termination For Any Other Reason. In the event Executive’s employment with the Company is terminated for any reason other than as specified in Section 6.2(a), Executive shall be entitled to the following:
(i) A lump sum cash payment equal to all Accrued Compensation, such payment to be made within 15 days after the Date of Termination, but not more than 9 days after the end of the last month of employment.
(ii) Unless Executive is terminated by the Company for Cause, payment of Executive’s Bonus pursuant to Section 4.2 hereof for the calendar year preceding the Date of Termination, if not previously paid, which shall be paid at such time as such Bonus would have been paid to Executive if not for Executive’s termination of employment.
6.3. Release. Notwithstanding any provision of this Agreement, the payments and benefits described in Section 6.2(a) (other than Accrued Compensation) and Section 4.3 are
conditioned on Executive’s execution and delivery to the Company (and non-revocation) of a general release of claims against the Company and its affiliates (including, without limitation, any claims related to damage to Executive’s good reputation as a result of a termination of employment) in such form as the Company may reasonably require and in a manner consistent with the requirements of the Older Workers Benefit Protection Act (the “Release”). Subject to Section 8.8 below, the severance benefits described in Section 6.2(a) (other than Accrued Compensation) will begin to be paid or provided within 15 days following the date the Release becomes irrevocable, provided that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the effective date of the Executive’s termination of employment.
6.4. Additional Payments By the Company.
(a) It is the understanding of the parties hereto that neither the payments set forth in Section 6.2 nor any other payment under this Agreement are contingent upon or related to a change in control of the Company and all such payments are to be paid without regard to the occurrence of a change in control of the Company.
(b) Notwithstanding the foregoing and subject to applicable law, in view of the fact that if Executive’s employment were to terminate subsequent to a change in control of the Company, the Internal Revenue Service might assert that all or some such payments are contingent upon such change in control, the parties hereto agree as follows: In the event that the severance and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 6.3, would be subject to the excise tax imposed by Section 4999 of the Code, then such severance and other benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance and other benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 and the Israeli taxes imposed pursuant to the provisions of the Tax Ordinance, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance and other benefits under this Agreement, notwithstanding that all or some portion of such severance or other benefits may be taxable under Section 4999 of the Code and the Tax Ordinance. To the extent permitted under Section 409A of the Code without resulting in an excise tax to the Executive, the manner in which any such reduction shall be made shall be determined by the Executive; provided, however, that to the extent necessary to avoid an excise tax under Section 409A of the Code, Executive shall not have any discretion or role with respect to such reduction and instead, any reduction shall be made in the following manner: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i) equity-based compensation subject to Section 409A of the Code as deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code with any such reduction in either cash payments or equity compensation benefits being made pro rata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. Unless Executive and the Company otherwise agree in writing, any determination required under this section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose
determination shall be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. Executive and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this section.
(c) It is the understanding of the parties hereto that the payments set forth in Section 6.2 are in addition to any other entitlement the Executive may have under applicable law.
6.5. Notwithstanding anything herein to the contrary, upon termination of Executive’s employment with Company, all titles, positions, roles and responsibilities Executive holds with the Company and any of its subsidiaries shall immediately cease.
7. Restrictive Covenants.
7.1. Non-Competition. During his employment with the Company and the Non-Competition Period, Executive shall not, without the prior written consent of the Board, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including as an officer, director, employee, independent contractor, subcontractor, stockholder, member, manager, partner, principal, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business; provided, however, that nothing in this Agreement shall prevent Executive from (A) owning five percent (5%) or less of the stock or other securities of a publicly held corporation, so long as Executive does not in fact have the power to control, or direct the management of, and is not otherwise associated with, such corporation, or (B) performing services for an investment bank, investment advisor or investment fund that may, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, any Competing Business, provided that Executive shall not, directly or indirectly, have any responsibility whatsoever for, provide any services whatsoever to, or otherwise be connected or associated with such Competing Business. Notwithstanding the foregoing, if a company has separate divisions or subsidiaries, some of which conduct a Competing Business and some of which conduct other businesses which are not Competing Businesses, then the restrictions imposed hereunder with respect to Competing Businesses shall apply only to the divisions or subsidiaries of such company that conduct the Competing Businesses, provided that (A) Executive shall not, directly or indirectly, have any responsibility whatsoever for, provide any services whatsoever to, or otherwise be connected or associated with any Competing Business of the same company, and (B) Executive obtains the prior written consent of the Company, which consent shall not be unreasonably withheld.
7.2. Non-Solicitation. During his employment with the Company and the Non-Solicitation Period, Executive shall not, directly or indirectly:
(a) solicit any customer of the Company or any of its subsidiaries or affiliates to which Executive provided (or participated in a proposal to provide) services during the Term;
(b) hire, solicit for employment, or recruit any person who at the relevant time is or, within the preceding three months, was, an officer, director, employee, independent contractor, subcontractor, manager, partner, principal, consultant, or agent of the Company or any of its subsidiaries or affiliates, or induce or encourage any of the foregoing to terminate their employment, contractual or other relationship (as appropriate) with the Company or any of its subsidiaries, or attempt to do any of the foregoing either on Executive’s own behalf or for the benefit of any third person or entity;
(c) persuade or seek to persuade any customer of the Company or any of its subsidiaries or affiliates to cease to do business or to reduce the amount of business which the customer has customarily done or contemplates doing with the Company or such subsidiary or affiliate, whether or not the relationship with such customer was originally established in whole or in part through Executive’s efforts; or
(d) interfere in any manner in the relationship of the Company or any of its subsidiaries or affiliates with any of their respective customers, suppliers, or independent contractors, whether or not the relationship with such customer, supplier or independent contractor was originally established in whole or in part through Executive’s efforts.
7.3. Confidential Information. Executive agrees that he shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of Executive’s assigned duties hereunder and for the benefit of the Company and/or its subsidiaries or affiliates, either during the Term or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge or data in any form or media, whether documentary, written, oral or computer generated relating to the Company, any of its subsidiaries, affiliated companies or businesses, which shall have been obtained by Executive during Executive’s employment by Company or during the Term. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to Executive; (ii) becomes known to the public subsequent to disclosure to Executive through no wrongful act of Executive or any representative of Executive; or (iii) Executive is required to disclose by applicable law, regulation or legal process (subject to the below, provided that Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, Executive’s obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Further notwithstanding the foregoing, nothing in this Agreement prohibits Executive from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities
and Exchange Commission, the Congress, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation or from otherwise providing testimony pursuant to any valid legal process, subpoena or court order, entered by a tribunal or decision maker with the authority to compel the production of records or testimony. In connection with any such activity, Executive must identify any information that is confidential and request that the Regulator for confidential treatment of such information. Despite the foregoing, Executive is not permitted to reveal to any third party, including any governmental, law enforcement, or regulatory authority, information employee came to learn during the course of Executive’s employment with the Company that is protected from disclosure by any applicable privilege, including but not limited to the attorney-client privilege, attorney work product doctrine and/or other applicable legal privileges. The Company does not waive any applicable privileges or the right to continue to protect its privileged attorney-client information, attorney work product, and other privileged information. Notwithstanding any other provisions of this Agreement, pursuant to 18 USC Section 1833(b), Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Company trade secret that is made: (a) confidentially to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal, or subsequently thereafter, pursuant to a court or administrative order denying the filing under seal. If Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose a Company trade secret to the Executive’s attorney and use the trade secret information in related court proceedings, provided that Executive files any document containing the trade secret information under seal and does not disclose the trade secret, except pursuant to court order.
7.4. Non-Disparagement. Each of Executive and the Company (for purposes hereof, the Company shall mean only the executive officers and directors of the Company and not any other employees) agrees not to make any public statements that disparage the other party or, in the case of the Company, its respective affiliates, employees, officers, directors, products or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 7.4.
7.5. Acknowledgements Respecting Restrictive Covenants.
(a) Executive has carefully read and considered the provisions of this Section 7 and, having done so, agrees that:
(i) the restrictive covenants contained in this Section 7, including, without limitation, the scope and time period of such restrictions, are reasonable, fair and equitable in light of Executive’s duties and responsibilities under this Agreement and the benefits to be provided to him under this Agreement; and
(ii) such restrictive covenants are reasonably necessary to protect the legitimate business interests of the Company and its affiliates.
(b) The parties acknowledge that it is impossible to measure in money the damages that will accrue to one party in the event that the other party breaches any of the restrictive covenants contained in this Section 7 and that any such damages, in any event, would be inadequate and insufficient. Therefore, if one party breaches any restrictive covenant contained in this Section 7, the non-breaching party shall be entitled to an injunction restraining the breaching party from violating such restrictive covenant; provided, however, that when practically possible, a party must provide the other party with not less than five (5) days written notice prior to instituting an action or proceeding to enforce any restrictive covenant contained in this Section 7. If the non-breaching party shall institute any action or proceeding to enforce a restrictive covenant contained in this Section 7, the breaching party hereby waives, and agrees not to assert in any such action or proceeding, the claim or defense that the non-breaching party has an adequate remedy at law.
(c) In the event of a breach of any of the restrictive covenants contained in this Section 7, the parties agree that the non-breaching party, in addition to any injunctive relief as described in Section 7.5(b), shall be entitled to any other appropriate legal or equitable remedy.
(d) If any of the restrictive covenants contained in this Section 7 are deemed by a court of competent jurisdiction to be unenforceable by reason of their extent, duration or geographical scope or otherwise, the parties contemplate that the court shall revise such extent, duration, geographical scope or other provision but only to the extent required in order to render such restrictions enforceable, and enforce any such restriction in its revised form for all purposes in the manner contemplated hereby.
7.6. Special Consideration. Executive hereby acknowledges that the payments to Executive pursuant to Section 4 and Section 6 of this Agreement are in consideration of Executive’s agreement to be bound by and comply with the provisions of this Section 7.
8. Miscellaneous.
8.1. Key Man Insurance. Executive recognizes and acknowledges that the Company or its affiliates may seek and purchase one or more policies providing key man life insurance with respect to Executive, the proceeds of which would be payable to the Company or such affiliate. Executive hereby consents to the Company or its affiliates seeking and purchasing such insurance and will provide such information, undergo such medical examinations (at the Company’s expense), execute such documents and otherwise take any and all actions necessary or desirable in order for the Company or its affiliates to seek, purchase and maintain in full force and effect such policy or policies. The Company shall ensure that under no circumstances shall the results of any such medical examination shall be disclosed to any person or entity, including the Company, other than to the Executive and to the applicable insurance company for purposes of providing such insurance, which insurance company shall hold such results in the strictest confidence.
8.2. Notices. Any notice, consent, request or other communication made or given in accordance with this Agreement, including any Notice of Termination, shall be in writing and shall be sent either (i) by personal delivery to the party entitled thereto, (ii) by facsimile with confirmation of receipt, or (iii) by registered or certified mail, return receipt requested. The notice, consent request or other communication shall be deemed to have been received upon personal delivery,
upon confirmation of receipt of facsimile transmission, or, if mailed, three (3) days after mailing. Any notice, consent, request or other communication made or given in accordance with the Agreement shall be made to those listed below at their following respective addresses or at such other address as each may specify by notice to the other:
To the Company:
Vishay Precision Group, Inc. 3 Great Valley Parkway, Suite 150 Malvern, PA 19355 Attention: Chief Executive Officer Facsimile No.:
To Executive:
Amir Tal [personal address omitted]
8.3. No Mitigation. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment.
8.4. Successors.
(a) This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s heirs and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform if no such succession had taken place. As used in this Agreement, “the Company,” shall mean both such entity as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.
8.5. Complete Understanding; Amendment; Waiver. This Agreement constitutes the complete understanding between the parties with respect to the employment of Executive and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, including without limitation the Prior Employment Agreement, and no statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement shall not be altered, modified, amended or terminated except by a written instrument signed by each of the parties hereto. Any waiver of any term or provision hereof, or of the application of any such term or provision to any circumstances, shall be in writing signed by the party charged with giving such waiver. Waiver by either party hereto of any breach hereunder by the other party shall not operate as a waiver of any other breach, whether similar to or different from the breach waived. No delay on the part of the Company or Executive in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Executive of any such right or remedy shall preclude other or further exercise thereof.
8.6. Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) under this Agreement all taxes which, by applicable Israeli, U.S. federal, state, local or other law, the Company is required to withhold therefrom.
8.7. Section 409A. All payments to be made upon a termination of employment under the Agreement will only be made upon a “separation from service” under section 409A of the Code. In no event may Executive, directly or indirectly, designate the calendar year of payment. To the maximum extent permitted under section 409A of the Code and its corresponding regulations, the cash severance benefits payable under the Agreement are intended to meet the requirements of the short-term deferral exemption under section 409A of the Code and the “separation pay exception” under Treas. Reg. §1.409A-1(b)(9)(iii). For purposes of the application of Treas. Reg. § 1.409A-1(b)(4) (or any successor provision), each payment in a series of payments to Executive will be deemed a separate payment. If severance benefits payable under the Agreement constitute a “deferral of compensation” within the meaning of section 409A of the Code at the time of Executive’s termination of employment, then if Executive is a “specified employee” of a publicly-traded corporation, notwithstanding any other provision of the Agreement, payment of severance under the Agreement shall be delayed for a period of six months from the date of Executive’s separation from service. The accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six month period. If Executive dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A of the Code shall be paid to the personal representative of Executive’s estate within 60 days after the date of Executive’s death. Notwithstanding anything in the Agreement to the contrary or otherwise, except to the extent any expense, reimbursement or in-kind benefit provided pursuant to the Agreement does not constitute a “deferral of compensation” within the meaning of section 409A of the Code, and its implementing regulations and guidance, (i) the expenses eligible for reimbursement or in-kind benefits provided to Executive must be incurred during the term of the Agreement (or applicable survival period), (ii) the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive during any calendar year will not affect the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive in any other calendar year, (iii) the reimbursements for expenses for which Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred and (iv) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit.
8.8. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.
8.9. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, and the sole and exclusive place of jurisdiction in any matter arising out of or in connection with this Agreement shall be the regional labor court in Tel-Aviv.
8.10. Titles and Captions. All Section titles or captions in this Agreement are for convenience only and in no way define, limit, extend or describe the scope or intent of any provision hereof.
8.11. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original, and all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Executive has executed this Agreement and, pursuant to the authorization of the Board of Directors of the Company, the Company has caused this Agreement to be executed in their name and on their behalf, all as of the date above written.
VISHAY ADVANCED TECHNOLOGIES, LTD.
By: /s/ Ziv Shoshani
Name: Ziv Shoshani
Title: CEO and President
EXECUTIVE:
/s/ Amir Tal
Amir Tal
[Signature page to Tal Employment Agreement]
EXHIBIT A
| 1. | The Executive agrees to the following general undertakings: |
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| 1.1. | The Executive previously undertook and continues to undertake to comply with all Company disciplinary regulations, work rules, policies, procedures and objectives, as in effect from time to time, including the applicable Code of Ethics and Prevention of Sexual Harassment Rules (the "Rules"). As used in this Exhibit A, “Company” shall mean Vishay Advanced Technologies, Ltd. |
| --- | --- |
| 1.2. | The Executive consents, of his own free will and although not required to do so under law, that the information in the Employment Agreement and this Exhibit A and any information concerning the Executive gathered by the Company, will be held and managed by the Company or on its behalf, inter alia, on databases according to law, and that the Company shall be entitled to transfer such information to third parties, in Israel or abroad. The Company undertakes that the information will be used, and transferred for legitimate business purposes only. Without derogating from the generality of the above, such purposes may include human resources management and assessment of potential transactions, to the extent required while maintaining the Executive's right to privacy. |
| --- | --- |
The Company undertakes that the information will be used, and transferred for the purposes of operating the Company's business, to allow the Company to fulfill legal obligations and to maintain employment relationship with the Executive. Without derogating from the generality of the above, such purposes may include: HR administration, payroll, calculation and payment of wages, managing of relationships with third parties for pension funds, employees’ risk insurance, health care services, management of the company’s security, provide services and benefits to employees (such as welfare, transportation, catering, etc.), implementation of extraordinary operations relating to the Company or any of its affiliates, such as the assessment of potential transactions (including for the purpose of due diligence review), entering into joint venture agreements, compliance with law and regulatory obligations with regards to employees and trade unions and applicable labor.
Furthermore, the Company has been and will continue to be entitled to share the Executive's information in any of the following events: (a) if it will be requested to
do so in accordance with applicable law or as a response to a request made by an authorized or judicial authority; (b) in response to any subpoena, warrant or other legal process resulting from actions performed by the Executive or in the event of a dispute, claim, lawsuit, demand or legal proceedings initiated by the Executive against the Company and vice versa; and (c) if the Company will reorganize its business activity – including merging into a different legal entity – it shall be entitled to transfer the Executive's information to said entity, provide that the transferee takes upon himself all of the obligations under this Section.
Without derogating from the above, it is hereby acknowledged that the Executive is currently the Senior Vice President, Chief Accounting Officer of Vishay Precision Group Inc. and as such, he agrees that his Employment Agreement, and any other required details in respect of his employment with any entity in the Group (as defined below) may be disclosed and filed as public documents with the New York Stock Exchange and any other bodies as required by applicable regulatory and legal requirements. In particular, and without limitation, the Executive's compensation in respect of such position(s) are described each year in a proxy statement served at the Vishay Precision Group Inc. annual stockholder meeting. Accordingly, the Executive waives his right to privacy in respect of the above mentioned information.
| 1.3. | The Executive agrees that the Company may monitor his use of its Systems and copy, transfer and disclose all electronic communications and content transmitted by or stored in such Systems, in pursuit of the Company's legitimate business interests, all in accordance with the Company's policy as in force from time to time and subject to applicable law. For the purposes of this Section, the term "Systems" includes telephone, computers, computer system, internet server, electronic database and software, whether under the Executive's direct control or otherwise. |
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| 2. | The Executive's entitlements under the Employment Agreement shall be clarified as follows: |
| --- | --- |
| 2.1. | Israeli Notice of Termination / Payment in lieu of notice – For the sake of good order, notwithstanding any other provision in this Exhibit A or the Employment Agreement, the parties hereby clarify that each party may terminate the Employment Agreement at any time by providing the other party a prior written notice of 90 days and which, for the avoidance of doubt, shall not derogate from Section 6 of the Employment Agreement. For the avoidance of doubt, the definition of "Notice of Termination" |
| --- | --- |
set out in section 1.13 of the Employment Agreement shall be read and understood accordingly. The Company reserves the right to terminate the Executive's employment by making a payment to him of salary in lieu of any prior notice period as set out in the Employment Agreement. In such case, the Executive's employment shall be deemed to have ceased on the date of the receipt of such notice from the Company. In addition, the Company may instruct the Executive not to attend work during any prior notice period or any part of it.
| 2.2. | Vacation - The Executive shall be entitled to 23 working days' vacation in each calendar year. Vacation days may be carried forward from one calendar year to the next to the extent permitted by law, provided that the Executive uses at least 7 vacation days each year. |
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| 2.3. | Sick pay – The Executive shall be entitled to sick leave according to law. Notwithstanding the aforesaid, the Executive will be entitled to his full Base Salary from the first day of his sick leave. The Executive shall not be entitled to any compensation with respect to unused sick leave. |
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| 2.4. | Recuperation pay – The Executive shall be entitled to 10 days' recuperation pay in each calendar year. |
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| 2.5. | Car |
| --- | --- |
| 2.5.1. | The Company provides the Executive with a Company car (the "Company Car") determined by the Company at its sole discretion, with all maintenance and usage expenses paid by the Company subject to Company's policy and with the Executive to bear any and all liability and costs in relation to traffic, parking and other fines and any damage or other costs not covered by the Company Car insurance policy, including self-participation fee. |
| --- | --- |
| 2.5.2. | The Executive shall take good care of the Company Car and undertake not to allow others to use the Company Car, except for members of his immediate family and employees of the Company approved by the Company. |
| --- | --- |
| 2.5.3. | The Executive shall act in accordance with applicable law, the Company Car policy and any insurance policy applicable to the Company Car, all as in effect from time to time. |
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| 2.5.4. | The Company shall bear all taxes associated with this car benefit under any applicable law. |
| --- | --- |
| 2.5.5. | The Executive shall return the Company Car, and any keys thereto, to the Company no later than the termination date of his employment or at any other time as directed. The Executive shall have no rights of lien with respect to the Company Car. |
| --- | --- |
| 2.5.6. | The receipt of this car benefit is in place of any travel expenses to which the Executive would otherwise be entitled at law. |
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| 2.6. | Pension Arrangement – The Executive is entitled to contributions to a pension arrangement of his choice (the "Pension Arrangement"), at the following monthly rates: |
| --- | --- |
| 2.6.1. | The Company currently contributes: |
| --- | --- |
(a) 8.33% of the Base Salary towards the severance pay component; and
(b) 6.5% of the Base Salary towards the pension component. In the case the Executive is insured in a mangers insurance policy or a provident fund (which is not a pension fund), the said rate shall include the rate of contributions towards the disability insurance (ביטוח אבדן כושר עבודה), ensuring loss of earning payment of 75% of the Base Salary but no less than 5% towards the pension component, all subject to the terms of the Extension Order regarding the Increase of Pension Contributions - 2016 (the "Pension Order 2016"). In accordance with the terms of the Pension Order 2016, if the said rate shall not be sufficient to insure the Executive in disability insurance, the total rate of contributions shall increase up to 7.5% of the Base Salary.
| 2.6.2. | The Company shall also deduct 6% of the Base Salary to be paid on the Executive's account towards the Pension Arrangement. |
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| 2.6.3. | The Executive confirms that, in accordance with his choice, as previously notified to the Company, the names of the institution(s) and plan(s) to which contributions under Section 2.6.1 ,2.6.2 and 2.7 are The New Mivtachin Pension Fund, Hafenix Managers Insurance Policy and Altshuler Shaham Education Fund.. |
| --- | --- |
| 2.6.4. | In addition to any payments specified in Section 6 of the Employment Agreement, the Company and Executive agree to adopt the provisions of the "General Approval Regarding the Payments by Employers to Pension Funds and to Insurance Funds in Lieu of Payment of Severance Compensation", which was issued in accordance with the Severance Compensation Law, 1963 ("General Approval"). The General Approval is attached to this Agreement as Exhibit B. Executive represents, confirms and undertakes that under the provisions of the General Approval, all payments, which were made by the Company to the Executive’s Pension Arrangement shall be in lieu of payment of severance pay, if Employee shall be entitled to such, according to Section 14 of the Severance Compensation Law, 1963 and in accordance with the General Approval. |
| --- | --- |
| 2.6.5. | The Company waives all rights to have its payments refunded, unless the Executive’s right to severance pay is denied by a judgment according to sections 16 or 17 of the Severance Pay Law or in the event that the Executive withdraws monies from the Pension Arrangement in circumstances other than an Entitling Event, where an “Entitling Event” means death, disablement or retirement at the age of 60 or over. |
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| 2.7. | Further education fund |
| --- | --- |
| 2.7.1. | The Company shall make monthly Further Education Fund contributions as follows: 7.5% of Base Salary paid by the Company on its account and 2.5% of Base Salary to be deducted by the Company from such Base Salary to be paid on the Executive's account, in each case up to the ceiling |
| --- | --- |
recognized by the income tax authorities from time to time (the "Ceiling"), but not otherwise.
| 2.7.2. | In addition, the Company will make monthly payments equal to 7.5% of the part of the Base Salary exceeding the Ceiling directly to the Executive as a special increment, which shall not constitute part of the Executive's Base Salary for any intents or purposes (the "Special Increment"). Notwithstanding the above and as a gesture of good will, the Company will make contributions to the Executive's Pension Arrangement based also on the Special Increment. The Company shall send letters of release to the relevant insurers releasing to the Executive all amounts accumulated in the further education fun following the termination of his employment for any reason. |
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| 2.7.3. | The Executive shall bear any and all taxes applicable in connection with amounts payable by him and/or Company to the said Further Education Fund. |
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| 2.8. | Cell phone |
| --- | --- |
| 2.8.1. | The Company shall provide the Executive with a cell phone for his use in order to perform his obligations under this Employment Agreement. The Company shall pay the monthly charges for the cell phone, according to its policy, as in effect from time to time. |
| --- | --- |
| 2.8.2. | Without derogating from the generality of the above, the Executive specifically undertakes to use the cell phone abroad in accordance with Company's policy in this regard. |
| --- | --- |
| 2.8.3. | The Company shall bear all taxes applicable to the Executive in connection with the said cell phone. No later than the termination date of the Executive's employment for any reason, or earlier upon receipt of a written request by the Company, the Executive shall return possession of the cell phone to the Company. |
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| 3. | Intellectual Property undertakings |
| --- | --- |
| 3.1. | The Executive undertakes to disclose and shall promptly disclose, to the Company, all Intellectual Property which he has or which he may solely or jointly conceive, develop or reduce to practice or cause to be conceived, developed or reduced to practice during the course of and/or in connection with his employment with the Company and/or which use confidential information (as set out in the Employment Agreement) or other Group property (“Inventions”). |
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The term "Group" in this Exhibit A shall mean the Company and its affiliates, being persons or entities which control, are controlled by or are under common control with the Company now or in the future (individually and collectively referred to as the "Group").
| 3.2. | For the purposes of this Exhibit A, "Intellectual Property" shall include all intellectual property rights, whether or not patentable, including without limitation rights in algorithms, binary code, brands, business methods, business plans, computer programs, computer software, concepts, confidential information, content, databases, developments, firmware, composition of matter or materials, certification marks, collective marks, copyright, customer lists, data, designs (whether registered or unregistered), derivative works, discoveries, distributor lists, documents, domain names, file layouts, formulae, goodwill, ideas, improvements, industrial designs, information, innovations, inventions (including but not limited to Service Inventions as defined in Section 132 of the Patent Law-1967 (the "Patent Law")), integrated circuits, know-how, logos, look and feel, manufacturing information, mask works, materials, methods, moral rights, object code, original works of authorship, patents, patent applications, patent rights, including but not limited to any and all continuations, divisions, reissues, re-examinations or extensions, plans, processes, proprietary technology, reputation, research data, research results, research records, semiconductor chips, service marks, software, source code, specifications, statistical models, supplier lists, systems, techniques, technology, trade secrets, trademarks, trade dress, trade names, trade styles, technical information, utility models, and any rights analogous to the foregoing. |
|---|---|
| 3.3. | The Executive further confirms that all Inventions, and any and all rights, interests and title therein, have been and shall be the exclusive property of the Company and the Executive has not been and shall not be entitled to, and he has waived and hereby |
| --- | --- |
waives, now and in the future, any claim to any right, moral rights, compensation or reward, including any right to royalties in Service Inventions in accordance with the Patent Law, that he may have or have had in connection therewith and that all Inventions will be considered “works made for hire” as that term is defined in Section 101 of the United States Copyright Act (17 U.S.C. § 101). This clause, constitute an express waiver of any rights the Executive may have under Section 134 of the Patent Law.
| 3.4. | Without derogating from the Group's rights under this Undertaking or any law, the Executive agrees to assign, and automatically assign, to the Company and/or its designee, any and all rights, titles and interests in respect of any Inventions, to the extent that he may have or have had such rights, on a worldwide basis, and he has acknowledged and acknowledges now and in the future, the Company’s full and exclusive ownership in all such Inventions. The Executive shall, at any time hereafter, execute all documents and take all steps necessary to effectuate the assignment to the Company and/or its designee or to assist them to obtain the exclusive and absolute right, title and interest in and to all Inventions, including by the registration of patents or trademarks, protection of trade secrets, copyright, or any other applicable legal protection, and to protect the same against infringement by any third party, including by assisting in any legal action requested by the Group with respect to the foregoing. |
|---|---|
| 4. | The Employment Agreement together with this Exhibit A constitutes an “employee notice” as required under the Notice to the Employee and Job Candidate Law (Employment Conditions and Candidate Screening and Selection), 5762-2002 and the parties agree that they serve as a notification under this law. Nothing in the Employment Agreement as amended by this Exhibit A shall derogate from any right granted to the Executive under any law, extension order or collective agreement. The Company is not (and is not a member of an Employer's organization which is) party to a collective agreement which sets out the Executive's terms of employment. |
| --- | --- |
| 5. | Except as set forth herein, this Exhibit A shall not affect any provisions in the Employment Agreement, which shall remain in full force and effect. In the event of any inconsistency between the provisions of this Exhibit A and the terms of the Employment Agreement, the provisions of this Exhibit A shall prevail. |
| --- | --- |
| 6. | The Executive hereby confirms that he has complied with all of his undertakings according to the Employment Agreement and this Exhibit A from the commencement date of his employment by the Company. |
|---|
Exhibit B
General Order and Confirmation Regarding Payments of Employers to Pension Funds and Insurance Funds instead of Severance Pay
Pursuant to the power granted to me under section 14 of the Severance Pay Law 5723-1963 (“Law”) I hereby confirm that payments paid by an employer, commencing the date hereof, to an employee’s comprehensive pension fund into a provident fund which is not an insurance fund, as defined in the Income Tax Regulations (Registration and Management Rules of a Provident Fund) 5724-1964 (“Pension Fund”), or to a Manager’s Insurance Fund that includes the possibility of an allowance or a combination of payments to an Allowance Plan and to a plan which is not an Allowance Plan in an Insurance Fund (“Insurance Fund”), including payments which the employer paid by combination of payments to a Pension Fund and to an Insurance Fund whether there exists a possibility in the Insurance Fund to an allowance plan (“Employer Payments”), will replace the severance pay that the employee is entitled to for the salary and period of which the payments were paid (“Exempt Wages”) if the following conditions are satisfied:
(1) Employer Payments –
| (A) | for Pension Funds are not less than 14.33 % of the Exempt Wages or 12% of the Exempt Wages, if the employer pays for his employee an additional payment on behalf of the severance pay completion for a providence fund or Insurance Fund at the rate of 2.33% of the Exempt Wages. If an employer does not pay the additional 2.33% on top of the 12%, then the payment will constitute only 72% of the Severance Pay. |
|---|---|
| (B) | to the Insurance Fund are not less than one of the following: |
| --- | --- |
| (1) | 13.33% of the Exempt Wages if the employer pays the employee additional payments to insure his monthly income in case of work disability, in a plan approved by the Supervisor of the Capital Market, Insurance and Savings in the Finance Ministry, at the lower of, a rate required to insure 75% of the Exempt Wages or 2.5% of the Exempt Wages (“Disability Payment”). |
| --- | --- |
| (2) | 11% of the Exempt Wages if the employer pays an additional Disability Payment and in this case the Employer Payments will constitute only 72% of the employee’s severance pay; if, in addition to the abovementioned sum, the employer pays 2.33% of the Exempt Wages for the purpose of Severance Pay completion to providence fund or Insurance Funds, the Employer Payments will constitute 100% of the severance pay. |
| --- | --- |
| (2) | A written agreement must be made between the employer and employee no later than 3 months after the commencement of the Employer Payments that include – |
| --- | --- |
| (A) | the agreement of the employee to the arrangement pursuant to this confirmation which details the Employer Payments and the name of the Pension Fund or Insurance Fund; this agreement must include a copy of this confirmation; |
|---|---|
| (B) | an advanced waiver of the employer for any right that he could have to have his payments refunded unless the employee’s right to severance pay is denied by judgment according to sections 16 or 17 of the Law, and in case the employee withdrew monies from the Pension Fund or Insurance Fund not for an Entitling Event; for this matter, Entitling Event or purpose means death, disablement or retirement at the age of 60 or over. |
| --- | --- |
(3) This confirmation does not derogate from the employee’s entitlement to severance pay according to the Law, Collective Agreement, Extension Order or personal employment agreement, for any salary above the Exempt Wages.
Name of Employee: Amir Tal Signature: /s/ Amir Tal Date: March 15, 2020
Exhibit
Exhibit 31.1
CERTIFICATIONS
I, Ziv Shoshani, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Vishay Precision Group, Inc.; |
|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| --- | --- |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| --- | --- |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| --- | --- |
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|---|
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: May 5, 2020 |
|---|
| /s/ Ziv Shoshani |
| Ziv Shoshani |
| Chief Executive Officer |
Exhibit
Exhibit 31.2
CERTIFICATIONS
I, William M. Clancy, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Vishay Precision Group, Inc.; |
|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| --- | --- |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| --- | --- |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| --- | --- |
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|---|
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: May 5, 2020 |
|---|
| /s/ William M. Clancy |
| William M. Clancy |
| Chief Financial Officer |
Exhibit
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vishay Precision Group, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended March 28, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ziv Shoshani, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
| /s/ Ziv Shoshani | |
| --- | |
| Ziv Shoshani | |
| Chief Executive Officer | |
| May 5, 2020 |
Exhibit
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vishay Precision Group, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended March 28, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William M. Clancy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
| /s/ William M. Clancy | |
| --- | |
| William M. Clancy | |
| Chief Financial Officer | |
| May 5, 2020 |