Vishay Precision Group(VPG) - 2021 Q4 - Annual Report

PART I VPG is a global, diversified company specializing in precision measurement sensing technologies, operating across three segments: Sensors, Weighing Solutions, and Measurement Systems Item 1. Business Description Vishay Precision Group, Inc. (VPG) is a global, diversified company specializing in precision measurement sensing technologies, including sensors, weighing solutions, and measurement systems, focusing on "designed-in" products for various industries General Business Overview VPG specializes in precision measurement sensing technologies, providing "designed-in" products for mission-critical applications across diverse industries - VPG specializes in precision measurement sensing technologies, including sensors, weighing solutions, and measurement systems, which are 'designed-in' by customers for mission-critical or high-value data applications across diverse industries like industrial, test and measurement, transportation, and medical[14][15] Company History VPG was spun off from Vishay Intertechnology, Inc. in 2010, subsequently expanding its global presence through strategic acquisitions - VPG was spun off from Vishay Intertechnology, Inc. on July 6, 2010, inheriting its foundational Bulk Metal® foil resistors and foil strain gages technology[16] - Since becoming independent, VPG has expanded its global manufacturing, sales, and distribution network through several acquisitions, with facilities in countries including Canada, China, France, Germany, India, Israel, Japan, Sweden, Taiwan, the UK, and the US[18] Key Business Vision and Strategies VPG aims to be a leading provider of precision measurement sensing technologies, focusing on leveraging core technologies, accelerating organic growth, and acquiring complementary products - VPG's vision is to be a leading provider of precision measurement sensing technologies, delivering accuracy, reliability, and repeatability to make customers' products safer, smarter, and more productive[19] - The company's strategy focuses on leveraging core technologies, achieving accelerated organic growth, and acquiring complementary precision measurement sensing products[19] - Key strategic initiatives include optimizing core competencies (technical expertise, brands, operational excellence, M&A), driving organic growth through 'design wins' and R&D, and expanding through strategic acquisitions beyond traditional vertical integration[19][21][24][27] - Recent acquisitions include KELK (2013), Stress-Tek (2015), Pacific Instruments (2016), Dynamic Systems Inc. (DSI) (2019), and Diversified Technical Systems, Inc. (DTS) (2021), expanding capabilities in metals, transportation, aerospace, and safety testing[28][29][30][31][32] VPG Brand Portfolio by Segment | Sensors | Weighing Solutions | Measurement Systems | | :------------------ | :------------------ | :------------------ | | VPG Foil Resistors | VPG Transducers | KELK | | - Alpha Electronics | - Celtron | Dynamic Systems Inc. or Gleeble | | - Powertron | - Revere | DTS | | - Vishay Foil Resistors | - Sensortronics | Pacific Instruments | | Micro-Measurements | - Tedea-Huntleigh | | | | VPG Onboard Weighing| | | | - Stress-tek | | | | - Vulcan | | | | - BLH Nobel | | Business Segments and Products VPG realigned its reporting segments in Q4 2021 into Sensors, Weighing Solutions, and Measurement Systems, each offering specialized products and expertise - In Q4 2021, VPG realigned its reporting segments into Sensors, Weighing Solutions, and Measurement Systems, each with distinct strategies and expertise[36] - The Sensors segment includes precision resistors (VPG Foil Resistors, Alpha Electronics, Powertron, Bulk Metal®) and strain gages (Micro-Measurements), primarily based on resistive foil technology for high precision and stability in various markets[37][39][40][41] - The Weighing Solutions segment offers load cells and force measurement transducers (VPG Transducers, Celtron, Revere, Sensortronics, Tedea-Huntleigh), on-board weighing systems (VPG Onboard Weighing, TruckWeigh, VanWeigh), and process weighing systems (Stress-Tek, Vulcan, BLH Nobel) for industrial and commercial use[43][44][45][47][48] - The Measurement Systems segment provides specialized systems for steel production (KELK), materials development (DSI/Gleeble®), and safety testing (Pacific Instruments, DTS) for industries like steel, aerospace, automotive, and military[50][51][52][53][54] Qualifications and Specifications Many VPG products must meet stringent military, aerospace, and legal metrology specifications, requiring continuous testing and reporting - Many VPG products, especially foil resistors and sensors, must meet stringent military (DLA, European), aerospace (NASA, ESA), and legal metrology (NTEP, OIML) specifications, requiring continuous testing and reporting[55][56][57][58] Manufacturing Operations VPG operates global manufacturing facilities with ISO 9001 and AS9100 certifications, investing in automation to reduce costs - VPG operates principal manufacturing facilities globally, including Israel, the United States, Canada, India, China, Germany, and Japan, with investments in capacity and automation to reduce costs[59][61] - All major manufacturing facilities have ISO 9001 Quality Management Systems, and the main foil resistors site is AS9100 certified[60] Sources of Supplies VPG relies on a limited number of suppliers for certain specialized materials, maintaining safety stock for critical items - While most materials are widely available, certain specialized materials for sensors are sourced from a limited number of suppliers, with safety stock maintained for critical items[62] - A portion of Weighing Solutions and Measurement Systems products rely on strain gages produced by the Sensors segment[63] Inventory and Backlog VPG maintains inventory for standardized components and includes only open orders for shipment within the next twelve months in its backlog - VPG maintains inventory for standardized components and includes only open orders for shipment within the next twelve months in its backlog, which is subject to customer cancellations or rescheduling[64][65] Customers and Marketing VPG serves a diversified customer base across various industries and geographies, with sales primarily driven by dedicated sales forces and Field Application Engineers - The customer base is diversified across industries (industrial, test and measurement, steel, medical, agriculture, consumer) and geographies, with no single customer accounting for more than 10% of net revenues[66] - Sales are primarily driven by dedicated sales forces, including Field Application Engineers (FAEs), who provide technical and application support and inform new product design[67] Competition VPG competes in fragmented markets based on product capability, quality, proprietary technology, service, and reputation, facing a wide range of competitors - VPG competes in fragmented markets based on product capability, quality, proprietary technology, service, and reputation, facing competitors ranging from small local firms to large international companies[68][69] - Key competitors include KOA, Bourns, Vishay Intertechnology, TT Electronics, Susumu, Isabellenhute, Caddock, Flat Dashi (foil resistors); HBK, Tokyo Sokki Kenkyujo Co., Ltd (TML), Kyowa, Zemic (foil strain gages); HBK, Zemic, Utilcell, Flintec, Hardy Instruments, Mettler-Toledo (load cells); Air-Weigh, Vehicle Weighing Systems, MOBA, AMCS (onboard weighing); and ABB, Siemens, Haehne, Dalian, IMS, Fuji, Kistler (measurement systems)[70] Research and Development R&D is crucial for VPG's innovative products and manufacturing techniques, with design centers globally linked to sales to meet customer needs - R&D is crucial for VPG's innovative products, manufacturing techniques, and proprietary resistive metal foil technology, with design centers strategically located globally to monitor market needs[71][72][73] - Close linkage between R&D staff and sales force (engineers) ensures customer needs and specifications drive future initiatives, aiming to expand VPG's position and improve financial performance[74][75] Patents and Licenses VPG protects its technology through patents, trade secrets, and confidentiality agreements, though no single patent is individually material - VPG protects its technology through patents, trade secrets, unpatented know-how, and confidentiality agreements with employees and consultants, though no single patent is individually material[76][78] - The ability to compete depends on maintaining proprietary technology, but there's no assurance of patent protection or enforcement in all countries, especially where IP laws are less stringent[77][109][110] Environmental, Social and Governance (ESG) VPG has an Environmental, Health and Safety Policy and launched a corporate ESG program in 2022, built on four pillars - VPG has an Environmental, Health and Safety Policy and launched a corporate ESG program in 2022, built on four pillars: Our People, Our Environment, Our Governance, and Our Products[79][80] Human Capital As of December 31, 2021, VPG employed approximately 2,600 full-time employees globally, with a focus on diversity, competitive compensation, and talent strategy - As of December 31, 2021, VPG employed approximately 2,600 full-time employees, with about 79% located outside the United States[81] - The company supports diversity, monitors compensation and benefits for competitiveness, and implements a worldwide talent strategy including workforce and succession planning[82] - COVID-19 impacts were mitigated by safety guidelines and remote work, with no employee strikes or work stoppages reported[83] Information about Executive Officers This section provides a table listing VPG's executive officers as of March 4, 2022, including their ages and positions Executive Officers as of March 4, 2022 | Name | Age | Positions | | :-------------- | :-- | :-------------------------------------- | | Ziv Shoshani | 55 | Chief Executive Officer, President, and Director | | William M. Clancy | 59 | Executive Vice President and Chief Financial Officer | | Amir Tal | 52 | Senior Vice President and Chief Accounting Officer | Company Information and Website VPG files reports with the SEC and provides company information, including SEC filings and corporate governance documents, on its investor relations website - VPG files reports with the SEC (www.sec.gov) and provides company information, including SEC filings and corporate governance documents, on its investor relations website (ir.vpgsensors.com)[87][88][89] Item 1A. Risk Factors This section outlines significant risks that could materially and adversely affect VPG's business, financial condition, and results of operations Risks Related to Our Business VPG faces various business risks, including labor shortages, long development cycles for specialty products, economic cyclicality, and raw material price volatility - A shortage of qualified labor, particularly manufacturing plant production workers in the United States, Israel, and Japan, could adversely affect VPG's ability to produce and meet customer demand[95] - VPG must expend significant resources to obtain 'design wins' for specialty products, with long development and testing periods (typically 12-24 months) before realizing substantial revenue, risking unrecovered NRE costs if products are not adopted[24][114][115] - The cyclical nature of VPG's industrial business makes it susceptible to economic downturns, potentially leading customers to defer or cancel orders, and capacity constraints during upturns could result in lost market share[118][119][120] - The complexity of sophisticated measurement systems may lead to costly corrections for design flaws, potentially reducing profit margins or causing losses[122] - VPG's results are sensitive to raw material availability, quality, and cost, especially for certain specialized metals, with price volatility potentially impacting margins or requiring inventory write-downs[123][124] Risks Relating to Our Operations Outside the United States VPG's international operations are exposed to risks from manufacturing transfers, Brexit uncertainties, trade regulations, foreign currency fluctuations, and anti-corruption laws - Shifting manufacturing to lower-cost regions (e.g., India, China, Israel) and increasing automation may incur significant initial expenses, production inefficiencies, and labor unrest, potentially impacting operating results[139][140] - VPG's European operations are exposed to political, economic, and legal uncertainties from Brexit, including foreign currency exchange rate volatility (pound sterling, euro vs. U.S. dollar)[141][142][143] - Global operations are subject to risks from tariffs, trade regulations (e.g., Section 232, Section 301 tariffs on Chinese imports), and political/economic instability in countries like Israel, India, and China, which could harm revenues and operations[144][145][146][147] - VPG is exposed to foreign currency exchange rate risks, particularly where costs are paid in local currencies (e.g., Israeli shekel, Indian rupee) but sales are in U.S. dollars, potentially impacting operating profit[148][149][150][151] - Global operations are subject to anti-corruption laws (e.g., U.S. Foreign Corrupt Practices Act), with violations potentially leading to severe sanctions, business disruption, and reputational damage[152] Risks Relating to Our Common Stock Class B convertible common stock holders, particularly Mrs. Ruta Zandman and related parties, maintain significant voting control, which can influence corporate decisions and acquisition proposals - Holders of Class B convertible common stock, particularly Mrs. Ruta Zandman and related parties, have effective voting control (34.5% of total voting power as of Dec 31, 2021), enabling them to influence director elections and prevent change-of-control transactions[153] - Certain provisions in VPG's certificate of incorporation and bylaws, such as restrictions on changing board size or calling special meetings, may discourage unsolicited acquisition proposals[154] General Risk Factors VPG faces general risks including the need for additional capital, challenges in attracting and retaining talent, IT system vulnerabilities, and the impact of unexpected global events - VPG may require additional capital for business growth, which might not be available on favorable terms, potentially leading to equity dilution or restrictive debt covenants[155][156] - Future success depends on attracting and retaining highly qualified technical, managerial, marketing, finance, and administrative personnel in a competitive market[157][158] - VPG is exposed to risks from interruptions to IT systems and cyber-attacks, which could disrupt operations, lead to loss of sensitive information, and result in financial liability or reputational damage[159][160][161] - Unexpected events like natural disasters, war, or civil unrest could disrupt global operations and adversely affect results[162] - The market price of VPG's common stock has experienced significant fluctuations and may continue to be volatile due to various factors, potentially leading to costly litigation or reduced market liquidity[164][165][167] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments were reported[168] Item 2. Properties VPG operates approximately 20 principal locations globally, including owned and leased facilities for manufacturing and administration - VPG has approximately 20 principal locations globally, comprising both owned and leased facilities for manufacturing and administrative offices[169] Principal Locations and Available Space (Approx. Square Feet) | Location | Reporting Segment | Approx. Available Space (square feet) | | :------------------------ | :------------------------- | :------------------------------------ | | Owned Locations | | | | Wendell, North Carolina USA | Sensors | 147,000 | | Chennai, India | Weighing Solutions | 129,000 | | Holon, Israel | Sensors | 97,000 | | Bradford, United Kingdom | Weighing Solutions | 75,000 | | Kent, Washington | Weighing Solutions | 47,000 | | Akita, Japan | Sensors | 46,000 | | Poestenkill, New York | Measurement Systems | 32,000 | | Chartres, France | Weighing Solutions | 11,000 | | Basingstoke, United Kingdom | Weighing Solutions/Sensors | 11,000 | | Third-Party Leased Locations | | | | Modi'in, Israel | Sensors | 121,400 | | Toronto, Canada | Measurement Systems | 65,000 | | Seal Beach, California | Measurement Systems | 49,000 | | Tianjin, People's Republic of China | Weighing Solutions | 34,000 | | Omer, Israel | Sensors | 24,000 | | Holon, Israel | Sensors | 18,000 | | Concord, California USA | Measurement Systems | 16,000 | | Taipei, Republic of China (Taiwan) | Weighing Solutions/Measurement Systems | 13,000 | | Teltow, Germany | Sensors | 11,000 | | Degerfors, Sweden | Measurement Systems | 10,000 | | Malvern, Pennsylvania USA | Corporate | 8,000 | - Management believes properties and equipment are in good operating condition and adequate for present needs, with no anticipated difficulty in renewing leases or finding alternative facilities[170] Item 3. Legal Proceedings VPG is involved in routine legal proceedings incidental to its business, but management believes their disposition will not have a material adverse effect on the company's financial position or operations - VPG is subject to various routine legal proceedings, but management does not expect them to have a material adverse effect on the business or financial results[171] Item 4. Mine Safety Disclosures This item is not applicable to VPG's operations - Mine Safety Disclosures are not applicable to the registrant[172] PART II This section focuses on VPG's common equity market, financial performance analysis, market risks, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities VPG's common stock is listed on the NYSE under 'VPG', with Class B convertible common stock holders retaining significant voting control, and dividends declared equally across both classes - VPG's common stock is listed on the New York Stock Exchange under the symbol VPG[174] - The company has two classes of common stock: common stock (one vote per share) and Class B convertible common stock (ten votes per share)[175] - As of March 4, 2022, Class B convertible common stock holders held approximately 45.0% of the company's voting power, with Mrs. Ruta Zandman and related parties controlling about 34.5% of total voting power as of December 31, 2021[175] - Dividends or distributions must be declared in the same amount per share for both common stock classes, and stock splits/combinations must be equal[174] Cumulative Total Stockholder Return (12/31/16 - 12/31/21) | | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | | :-------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | | Vishay Precision Group, Inc. | 100.00 | 133.07 | 159.95 | 179.90 | 166.56 | 196.40 | | Russell 2000 Index | 100.00 | 114.65 | 102.02 | 128.06 | 153.62 | 176.39 | | Peer Group beg 2021 | 100.00 | 120.24 | 112.65 | 151.44 | 161.57 | 181.29 | Item 6. [Reserved] This item is intentionally left blank Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of VPG's business, financial performance, and operational strategies for the years ended December 31, 2021, 2020, and 2019 Overview VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems for mission-critical applications - VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems, with products designed for mission-critical applications across various industries[180][181] Impact of COVID-19 on our Business As of March 4, 2022, all VPG facilities are operating without limitations, but ongoing economic disruption from the pandemic may still adversely affect future business and financial results - As of March 4, 2022, all VPG facilities are operating without limitations, implementing COVID-19 best practices, but ongoing economic disruption from the pandemic may still adversely affect future business and financial results[182] Overview of Financial Results In Q4 2021, VPG adopted an operationally diversified structure with three reporting segments, reporting significant growth in net revenues and earnings in 2021 - In Q4 2021, VPG adopted an operationally diversified structure with three reporting segments: Sensors, Weighing Solutions, and Measurement Systems, each with distinct strategies[183][184] GAAP Financial Performance (2021 vs. 2020) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | | Net Revenues | 317,919 | 269,812 | | Gross Profit | 125,142 | 104,271 | | Gross Profit Margin | 39.4% | 38.6% | | Operating Income | 27,372 | 22,657 | | Operating Margin | 8.6% | 8.4% | | Net Earnings Attributable to VPG Stockholders | 20,221 | 10,787 | | Diluted Earnings Per Share | 1.48 | 0.79 | - Non-GAAP measures (adjusted gross profits, operating income, net earnings, EBITDA) are used to evaluate core operating results, excluding items like acquisition purchase accounting, acquisition costs, COVID-19 impact, start-up costs, impairment, restructuring, and foreign exchange gains/losses[186][187][188][189][190] Financial Metrics VPG evaluates business performance using net revenues, gross profit margin, backlog, book-to-bill ratio, and inventory turnover, with a book-to-bill ratio greater than one indicating future revenue growth - VPG uses net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover to evaluate business performance and future direction[191] - Backlog includes open orders for shipment in the next twelve months but is not necessarily indicative of future results due to potential cancellations or rescheduling[193] - A book-to-bill ratio greater than one indicates demand exceeding current revenues and manufacturing capacities, suggesting future revenue growth[194] Quarterly Financial Metrics (Q4 2020 - Q4 2021) | Metric | 4th Quarter 2020 | 1st Quarter 2021 | 2nd Quarter 2021 | 3rd Quarter 2021 | 4th Quarter 2021 | | :---------------------- | :--------------- | :--------------- | :--------------- | :--------------- | :--------------- | | Net revenues ($ thousands) | 75,445 | 70,589 | 75,339 | 81,974 | 90,017 | | Gross profit margin | 38.1% | 40.5% | 39.6% | 38.8% | 38.7% | | End-of-period backlog ($ thousands) | 87,600 | 100,700 | 130,900 | 146,700 | 150,500 | | Book-to-bill ratio | 0.93 | 1.21 | 1.40 | 1.21 | 1.06 | | Inventory turnover | 2.86 | 2.67 | 2.64 | 2.55 | 2.82 | Segment Net Revenues (Q4 2020 - Q4 2021) | Segment | 4th Quarter 2020 ($ thousands) | 4th Quarter 2021 ($ thousands) | YoY Change (%) | | :------------------ | :----------------------------- | :----------------------------- | :------------- | | Sensors | 31,875 | 34,149 | 7.1% | | Weighing Solutions | 29,546 | 32,071 | 8.5% | | Measurement Systems | 14,024 | 23,797 | 69.7% | Optimize Core Competence VPG leverages its deep technical expertise, strong brands, and operational excellence to develop advanced sensors and achieve production cost savings through manufacturing transfers and automation - VPG's core competencies include deep technical expertise, strong brands, customer relationships, operational excellence, management team development, and a proven M&A strategy[205] - The Sensors segment developed advanced sensors with enhanced strain gage capabilities, reduced size, and lower power consumption, leveraging unique foil technology and automated manufacturing for improved quality and margins[206] - VPG aims for significant production cost savings by transferring and expanding manufacturing to countries like India, China, and Israel, benefiting from efficiencies and incentives, as seen in load cell product transitions[208] Acquisition Strategy VPG plans to continue strategic acquisitions to grow and expand segments, broadening its focus beyond traditional vertical integration to include diverse precision measurement solutions - VPG plans to continue strategic acquisitions to grow and expand segments, broadening its focus beyond traditional vertical integration to include diverse precision measurement solutions (force, weight, pressure, torque, tilt, motion, acceleration)[209][210] Research and Development R&D is a key driver for VPG's innovative products, new sales, and improved profitability, with expenditures of $17.2M in 2021 - R&D is a key driver for introducing innovative products, generating new sales, and improving profitability, with expenditures of $17.2M in 2021, $12.6M in 2020, and $12.1M in 2019[211] Cost Management VPG seeks to control operating costs through plant automation and relocating manufacturing to more cost-effective locations, with restructuring costs primarily related to employee termination and exit costs - VPG seeks to control operating costs through plant automation and relocating manufacturing to more cost-effective locations, aiming for efficiency and tighter operational controls[212] - Restructuring costs were $0.1M in 2021, $0.9M in 2020, and $2.3M in 2019, primarily for employee termination and other exit costs related to manufacturing transitions to India and China[214] Foreign Currency VPG is exposed to foreign currency exchange rate risks, with subsidiaries using various functional currencies, impacting net revenues and costs - VPG is exposed to foreign currency exchange rate risks, with subsidiaries using either local currency (Europe, Canada, some Asia) or U.S. dollar (Israel, some Asia) as functional currency[216][217][219] - In 2021, exchange rate impacts increased net revenues by $5.3M and costs by $8.7M; in 2020, net revenues increased by $0.9M and costs by $2.8M[220] Critical Accounting Policies and Estimates Key accounting policies requiring significant management judgment include inventory valuation, business combinations, goodwill and intangible asset impairment, pension benefits, and income taxes - Key accounting policies requiring significant management judgment and estimates include inventory valuation (lower of cost or market), business combinations (fair value allocation of acquired assets/liabilities), goodwill and indefinite-lived intangible asset impairment testing, pension and other postretirement benefits (actuarial assumptions), and income taxes (deferred tax asset realization and uncertain tax positions)[221][222][223][224][229][234][235][236] - Goodwill and indefinite-lived trademarks are tested for impairment annually, with a qualitative assessment option; in 2021, an interim impairment test on the instrumentation reporting unit resulted in a $1.1M goodwill and $0.1M indefinite-lived intangible trade name impairment[224][225][226] - Pension and other postretirement benefit accounting relies on critical assumptions like discount rates and expected long-term rates of return on plan assets, reviewed annually with independent actuaries[229][230][231][232] - Income tax accounting involves assessing the likelihood of realizing deferred tax assets and evaluating uncertain tax positions, with significant judgment required for valuation allowances and tax liability calculations[234][235][236] Results of Operations – Years Ended December 31, 2021, 2020, and 2019 VPG's financial performance for 2021, 2020, and 2019 shows significant net revenue growth in 2021, driven by increased volume and acquisitions, despite higher SG&A and acquisition costs Statement of Operations Captions as % of Net Revenues | Metric | 2021 | 2020 | 2019 | | :-------------------------------------- | :---- | :---- | :---- | | Costs of products sold | 60.6% | 61.4% | 60.7% | | Gross profit | 39.4% | 38.6% | 39.3% | | Selling, general, and administrative expenses | 30.0% | 29.0% | 28.0% | | Operating income | 8.6% | 8.4% | 10.1% | | Income before taxes | 8.2% | 6.8% | 9.3% | | Net earnings | 6.4% | 4.0% | 7.9% | | Net earnings attributable to VPG stockholders | 6.4% | 4.0% | 7.8% | | Effective tax rate | 21.1% | 41.0% | 15.7% | Net Revenues and Changes (2021 vs. 2020 vs. 2019) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Net revenues | 317,919 | 269,812 | 283,958 | | Change versus prior year | 48,107 | (14,146) | N/A | | Percentage change versus prior year | 17.8% | (5.0)% | N/A | | Change attributable to: | | | | | Change in volume | 7.8% | (10.0)% | | | Change in average selling prices | 0.5% | 0.3% | | | Foreign currency effects | 2.4% | 0.2% | | | Acquisitions | 7.1% | 4.5% | | | Net change | 17.8% | (5.0)% | | - Gross profit margin increased by 0.8% in 2021 over 2020, primarily due to improvements in Weighing Solutions and Measurement Systems, partially offset by Sensors segment's start-up costs in Israel[242] Segment Net Revenues (2021 vs. 2020 vs. 2019) | Segment | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :------------------ | :----------------- | :----------------- | :----------------- | | Sensors | 127,861 | 120,754 | 121,827 | | Weighing Solutions | 125,390 | 101,386 | 119,854 | | Measurement Systems | 64,668 | 47,672 | 42,277 | - SG&A expenses increased by $17.0M in 2021 compared to 2020, driven by DTS acquisition-related expenses, higher personnel costs, and unfavorable foreign currency impacts[258] - Impairment charges for goodwill and indefinite-lived intangibles were $1.2M in 2021 and $2.4M in 2020, with no impairment in 2019[260] - Interest expense decreased in 2021 ($1.2M) compared to 2020 ($1.4M) due to more favorable borrowing rates[265] - The effective tax rate was 21.1% in 2021, down from 41.0% in 2020, primarily due to changes in valuation allowances related to the DTS acquisition in 2021 and DSI in 2020[268] Financial Condition, Liquidity, and Capital Resources VPG maintains sufficient liquidity through cash and credit facilities, with a significant portion of cash held by non-U.S. subsidiaries and projected capital expenditures for capacity expansion - VPG believes current cash, credit facilities, and projected cash from operations will meet liquidity needs for at least the next 12 months[271] - The 2020 Revolving Facility provides $75.0M in secured credit, terminating March 20, 2025, used for working capital and general corporate purposes, with $61.0M outstanding at Dec 31, 2021[272][273][274][443] Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity | 2021 ($M) | 2020 ($M) | | :-------------------------- | :-------- | :-------- | | Operating Activities | 33.5 | 35.3 | | Investing Activities | (64.0) | (21.8) | | Financing Activities | 18.8 | (5.0) | - Approximately 87% of cash and cash equivalents were held by non-U.S. subsidiaries at December 31, 2021, with the majority of foreign operating income indefinitely reinvested[277][278] Net Cash Position (2021 vs. 2020) | Metric | Dec 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | | :---------------------- | :------------------------- | :------------------------- | | Cash and cash equivalents | 84,335 | 98,438 | | Total third-party debt | 60,714 | 40,644 | | Net cash | 23,621 | 57,794 | - Adjusted free cash flow for 2021 was $16.7M, calculated as cash from operating activities minus capital expenditures and net of asset sales proceeds[280] - Capital expenditures for 2022 are projected at $32.4M, including $11.8M for Sensors segment capacity expansion and $13.7M for building projects, mainly in Asia[282] Inflation Inflation typically does not significantly impact VPG's operations as product prices can be adjusted to reflect cost increases, subject to competitive conditions - Inflation typically does not significantly impact VPG's operations as product prices can be adjusted to reflect cost increases, subject to competitive conditions[284] Recent Accounting Pronouncements Refer to Note 1 of the consolidated financial statements for a discussion of recent accounting pronouncements - Refer to Note 1 of the consolidated financial statements for a discussion of recent accounting pronouncements[285] Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, inflation, supply chain issues, and acquisitions - The report contains forward-looking statements subject to risks and uncertainties, including economic conditions, inflation, supply chain issues, acquisitions, new product development, foreign currency, political instability, and COVID-19 impacts[286][287] Item 7A. Quantitative and Qualitative Disclosures About Market Risk VPG is exposed to market risks from fluctuations in foreign currency exchange rates, interest rates, and commodity prices, which are managed through internal policies without speculative derivative instruments - VPG is exposed to financial risks from foreign currency exchange rates, interest rates, and commodity prices, managed through internal policies that prohibit speculative derivative instruments[288] - A 50 basis point increase or decrease in interest rates would impact annualized net earnings by approximately $0.1M in 2021 and $0.2M in 2020, based on debt and cash positions[291] - A hypothetical 10% adverse movement in foreign currency exchange rates (relative to the U.S. dollar) would impact net earnings by approximately $3.0M in 2021 and $2.3M in 2020[294] - A 10% increase or decrease in raw material costs subject to commodity price risk would decrease or increase net earnings by $1.9M in 2021 and $1.5M in 2020, assuming no impact on selling prices[298] Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and supplementary data, which are included elsewhere in the report starting on page F-1 - The required financial statements are included starting on page F-1 of the report[299] Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - No changes in or disagreements with accountants on accounting and financial disclosure were reported[300] Item 9A. Controls and Procedures VPG's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with the independent registered public accounting firm concurring - VPG's CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021, ensuring timely and accurate reporting[301] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[304] - The assessment of internal control over financial reporting excluded the acquired Diversified Technical Systems, Inc. (DTS) for 2021, which constituted 4.4% of total assets and 6.0% of net revenues[305][311] - Brightman Almagor Zohar & Co., the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of VPG's internal control over financial reporting as of December 31, 2021[306][309] Item 9B. Other Information There is no other information to report under this item - No other information was reported[317] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections were reported[318] PART III This section details corporate governance, executive compensation, security ownership, related party transactions, and accounting fees Item 10. Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance, including codes of conduct, is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[320] - The company has adopted codes of conduct, constituting 'codes of ethics' for its principal executive, financial, and accounting officers, available on its website[321] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information on executive compensation is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[322] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information on security ownership and related stockholder matters is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[323] Item 13. Certain Relationships and Related Party Transactions, and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information on related party transactions and director independence is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[324] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[325] PART IV This section lists exhibits, financial statement schedules, and confirms no Form 10-K summary is provided Item 15. Exhibits, Financial Statement Schedules This section lists the consolidated financial statements filed with the report and provides a comprehensive index of exhibits, including corporate documents, various agreements, and certifications - The consolidated financial statements for the year ended December 31, 2021, are filed as part of this report[328] - All financial statement schedules not required or inapplicable have been omitted[328] - A detailed list of exhibits is provided, including corporate governance documents, various agreements (e.g., separation, tax, trademark license, supply, patent license, lease, stock purchase, employment, indemnification), and certifications[328][329][330][331] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[333] SIGNATURES This section contains the required signatures for the Annual Report on Form 10-K, affirming authorization and responsibility for the report - The report is duly signed on behalf of Vishay Precision Group, Inc. by its President and Chief Executive Officer, Ziv Shoshani, and other directors and officers, as of March 4, 2022[336][337][339][340] FINANCIAL STATEMENTS This section presents the consolidated financial statements and related notes for VPG Index to Consolidated Financial Statements This section provides an index to the consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, Equity, and Notes to Consolidated Financial Statements - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, Equity, and Notes to Consolidated Financial Statements[342] Report of Independent Registered Public Accounting Firm Brightman Almagor Zohar & Co. issued an unqualified opinion on VPG's consolidated financial statements and internal control over financial reporting, highlighting critical audit matters related to goodwill and intangible asset valuations - Brightman Almagor Zohar & Co. (Deloitte Global Network) issued an unqualified opinion on VPG's consolidated financial statements for the three years ended December 31, 2021[344] - The firm also issued an unqualified opinion on the effectiveness of VPG's internal control over financial reporting as of December 31, 2021, based on COSO criteria[345] - Critical audit matters included the significant judgments in estimating the fair value of goodwill and indefinite-lived intangible assets for the DSI reporting unit (carrying amounts of $16.9M and $3.3M, respectively, as of Dec 31, 2021)[349][350][351][352] - Another critical audit matter was the fair value of intangible assets acquired in the DTS acquisition (technology $13.2M, customer relationships $8.1M, trade names $2.4M), which involved significant management estimates and assumptions[353][354] Consolidated Balance Sheets The consolidated balance sheets present VPG's financial position as of December 31, 2021, and 2020, detailing assets, liabilities, and equity, with significant increases in total assets and long-term debt due to acquisitions Consolidated Balance Sheet Highlights (2021 vs. 2020) | Metric | Dec 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | YoY Change ($ thousands) | | :-------------------------- | :------------------------- | :------------------------- | :----------------------- | | Total current assets | 234,943 | 221,886 | 13,057 | | Property and equipment, net | 81,220 | 75,016 | 6,204 | | Goodwill | 45,830 | 31,105 | 14,725 | | Intangible assets, net | 52,437 | 32,039 | 20,398 | | Total assets | 461,889 | 401,887 | 60,002 | | Total current liabilities | 64,628 | 47,547 | 17,081 | | Long-term debt | 60,714 | 40,626 | 20,088 | | Total liabilities | 184,847 | 144,030 | 40,817 | | Total equity | 277,042 | 257,857 | 19,185 | - Goodwill increased by $14.7M and intangible assets by $20.4M in 2021, largely due to the acquisition of DTS[359] - Long-term debt increased by $20.1M in 2021, primarily from borrowings on the revolving credit facility to fund the DTS acquisition[360] Consolidated Statements of Operations The consolidated statements of operations present VPG's financial performance for the years ended December 31, 2021, 2020, and 2019, showing significant growth in net revenues and net earnings in 2021 Consolidated Statements of Operations (2021, 2020, 2019) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Net revenues | 317,919 | 269,812 | 283,958 | | Costs of products sold | 192,777 | 165,541 | 172,341 | | Gross profit | 125,142 | 104,271 | 111,617 | | Selling, general, and administrative expenses | 95,273 | 78,256 | 79,622 | | Acquisition costs | 1,198 | — | 443 | | Impairment of goodwill and indefinite-lived intangibles | 1,223 | 2,440 | — | | Operating income | 27,372 | 22,657 | 28,648 | | Income before taxes | 25,912 | 18,309 | 26,440 | | Income tax expense | 5,469 | 7,509 | 4,145 | | Net earnings | 20,443 | 10,800 | 22,295 | | Net earnings attributable to VPG stockholders | 20,221 | 10,787 | 22,188 | | Diluted earnings per share attributable to VPG stockholders | 1.48 | 0.79 | 1.63 | - Net revenues increased by 17.8% in 2021, reaching $317.9M, primarily due to increased volume across all segments and the DTS acquisition[240][362] - Net earnings attributable to VPG stockholders nearly doubled in 2021 to $20.2M, up from $10.8M in 2020, resulting in diluted EPS of $1.48[362] Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income show VPG's net earnings adjusted for other comprehensive income (loss) items, primarily foreign currency translation adjustments and pension actuarial items Consolidated Statements of Comprehensive Income (2021, 2020, 2019) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Net earnings | 20,443 | 10,800 | 22,295 | | Foreign currency translation adjustment | (4,684) | 5,169 | 558 | | Pension and other postretirement actuarial items | 2,347 | (137) | (796) | | Other comprehensive income (loss) | (2,337) | 5,032 | (238) | | Comprehensive income | 18,106 | 15,832 | 22,057 | | Comprehensive income attributable to VPG stockholders | 17,884 | 15,819 | 21,950 | - In 2021, VPG reported a net earnings of $20.4M, but a foreign currency translation adjustment of $(4.7)M and pension actuarial gains of $2.3M resulted in a total comprehensive income of $18.1M[364] Consolidated Statements of Cash Flows The consolidated statements of cash flows detail VPG's cash generation and usage for operating, investing, and financing activities for the years ended December 31, 2021, 2020, and 2019 Consolidated Statements of Cash Flows (2021, 2020, 2019) | Cash Flow Activity | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Net cash provided by operating activities | 33,537 | 35,313 | 30,932 | | Net cash used in investing activities | (64,046) | (21,810) | (51,062) | | Net cash (used in) provided by financing activities | 18,816 | (5,031) | 16,476 | | Effect of exchange rate changes on cash and cash equivalents | (2,410) | 3,056 | 405 | | (Decrease) increase in cash and cash equivalents | (14,103) | 11,528 | (3,249) | | Cash and cash equivalents at end of year | 84,335 | 98,438 | 86,910 | - Net cash provided by operating activities was $33.5M in 2021, slightly down from $35.3M in 2020[365] - Net cash used in investing activities significantly increased to $64.0M in 2021, primarily due to the $47.2M purchase of DTS[365] - Net cash provided by financing activities was $18.8M in 2021, including $20.0M from the revolving facility for the DTS acquisition[365] Consolidated Statements of Equity The consolidated statements of equity present changes in VPG's equity for the years ended December 31, 2021, 2020, and 2019, showing an increase in total VPG stockholders' equity to $277.1M in 2021 Consolidated Statements of Equity Highlights (2021, 2020, 2019) | Metric | Dec 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :-------------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Common stock | 1,322 | 1,317 | 1,312 | | Class B convertible common stock | 103 | 103 | 103 | | Treasury stock | (8,765) | (8,765) | (8,765) | | Capital in excess of par value | 199,151 | 197,764 | 197,125 | | Retained earnings | 120,296 | 100,075 | 89,288 | | Accumulated other comprehensive loss | (35,008) | (32,671) | (37,703) | | Total VPG stockholders' equity | 277,099 | 257,823 | 241,360 | - Total VPG stockholders' equity increased by $19.3M in 2021, primarily driven by net earnings of $20.2M and share-based compensation expense of $2.2M, partially offset by other comprehensive loss[366] Notes to Consolidated Financial Statements This comprehensive section provides detailed disclosures on VPG's accounting policies, financial statement components, and other relevant information, covering background, segment reporting, revenue recognition, critical estimates, acquisitions, goodwill, restructuring, income taxes, debt, equity, pensions, share-based compensation, commitments, leases, segment data, EPS, fair value, related parties, and subsequent events Note 1 – Background and Summary of Significant Accounting Policies VPG is a global, diversified company specializing in precision measurement sensing technologies, with consolidated financial statements reflecting a Q4 2021 segment realignment and critical accounting policies for income taxes, inventory, business combinations, and goodwill impairment - V