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Section 1: 10-Q (10-Q)

Document
 

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 
September 28, 2019
¨
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 November 5, 2019, the registrant had 12,497,735 shares of its common stock and 1,025,158 shares of its Class B convertible common stock outstanding.

 



VISHAY PRECISION GROUP, INC.
FORM 10-Q
September 28, 2019
CONTENTS
 
 
Page Number
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Consolidated Condensed Balance Sheets
– September 28, 2019 (Unaudited) and December 31, 2018
 
 
 
 
Consolidated Condensed Statements of Operations
(Unaudited) – Fiscal Quarters Ended September 28, 2019 and September 29, 2018
 
 
 
 
Consolidated Condensed Statements of Operations
(Unaudited) – Nine Fiscal Months Ended September 28, 2019 and September 29, 2018
6
 
 
 
 
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited) – Fiscal Quarters Ended September 28, 2019 and September 29, 2018
 
 
 
 
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited) – Nine Fiscal Months Ended September 28, 2019 and September 29, 2018
8
 
 
 
 
Consolidated Condensed Statements of Cash Flows
(Unaudited) – Nine Fiscal Months Ended September 28, 2019 and September 29, 2018
 
 
 
 
Consolidated Condensed Statements of Equity
(Unaudited) – Fiscal Quarters Ended September 28, 2019 and September 29, 2018
10
 
 
 
 
Consolidated Condensed Statements of Equity
(Unaudited) – Nine Fiscal Months Ended September 28, 2019 and September 29, 2018
11
 
 
 
 
Notes to Unaudited Consolidated Condensed Financial Statements
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
 
SIGNATURES

-2-



PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Balance Sheets
(In thousands)

September 28, 2019

December 31, 2018

(Unaudited)

 
Assets
 

 
Current assets:
 

 
Cash and cash equivalents
$
101,299


$
90,159

Accounts receivable, net
44,430


53,156

Inventories:
 

 
Raw materials
18,894


18,052

Work in process
23,792


22,007

Finished goods
21,431


22,182

Inventories, net
64,117


62,241


 

 
Prepaid expenses and other current assets
15,081


9,314

Total current assets
224,927


214,870


 

 
Property and equipment, at cost:
 

 
Land
3,368


3,390

Buildings and improvements
51,750


51,055

Machinery and equipment
110,047


105,840

Software
9,310


8,532

Construction in progress
2,565


2,157

Accumulated depreciation
(117,712
)

(111,555
)
Property and equipment, net
59,328


59,419

 
 

 
Goodwill
16,318


16,141

 
 

 
Intangible assets, net
16,703


17,656

 
 

 
Other assets
27,482


18,297

Total assets
$
344,758

 
$
326,383

 
 
 
 

Continues on the following page.
-3-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Balance Sheets (continued)
(In thousands)

September 28, 2019

December 31, 2018

(Unaudited)

 
Liabilities and equity
 

 
Current liabilities:
 

 
Trade accounts payable
$
8,804


$
11,461

Payroll and related expenses
15,695


17,757

Other accrued expenses
19,199


17,031

Income taxes
2,798


3,879

Current portion of long-term debt
4,996


4,654

Total current liabilities
51,492


54,782

 
 

 
Long-term debt, less current portion
18,676


22,421

Deferred income taxes
2,200


2,200

Other liabilities
20,866


13,545

Accrued pension and other postretirement costs
14,873


14,982

Total liabilities
108,107


107,930

 
 

 
Commitments and contingencies



 
 

 
Equity:
 

 
Common stock
1,312


1,307

Class B convertible common stock
103


103

Treasury stock
(8,765
)
 
(8,765
)
Capital in excess of par value
197,381


196,666

Retained earnings
85,417


66,569

Accumulated other comprehensive loss
(38,909
)

(37,465
)
Total Vishay Precision Group, Inc. stockholders' equity
236,539


218,415

Noncontrolling interests
112


38

Total equity
236,651


218,453

Total liabilities and equity
$
344,758


$
326,383



See accompanying notes.
-4-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)
 
Fiscal quarter ended
 
September 28, 2019
 
September 29, 2018
Net revenues
$
67,421

 
$
75,490

Costs of products sold
41,631

 
44,910

Gross profit
25,790

 
30,580

 
 
 
 
Selling, general, and administrative expenses
19,057

 
19,721

Restructuring costs
547

 
228

Operating income
6,186

 
10,631

 
 
 
 
Other income (expense):
 
 
 
Interest expense
(324
)
 
(413
)
Other
547

 
(172
)
Other income (expense)
223

 
(585
)
 
 
 
 
Income before taxes
6,409

 
10,046

 
 
 
 
Income tax expense
1,879

 
2,479

 
 
 
 
Net earnings
4,530

 
7,567

Less: net earnings attributable to noncontrolling interests
21

 
20

Net earnings attributable to VPG stockholders
$
4,509

 
$
7,547

 
 
 
 
Basic earnings per share attributable to VPG stockholders
$
0.33

 
$
0.56

Diluted earnings per share attributable to VPG stockholders
$
0.33

 
$
0.56

 
 
 
 
Weighted average shares outstanding - basic
13,523

 
13,474

Weighted average shares outstanding - diluted
13,607

 
13,534


















See accompanying notes.
-5-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
Net revenues
$
214,816

 
$
222,812

Costs of products sold
127,366

 
132,361

Gross profit
87,450

 
90,451

 
 
 
 
Selling, general, and administrative expenses
59,401

 
60,030

Executive severance costs
611

 

Restructuring costs
547

 
289

Operating income
26,891

 
30,132

Other income (expense):
 
 
 
Interest expense
(1,071
)
 
(1,333
)
Other
(385
)
 
(1,093
)
Other income (expense)
(1,456
)
 
(2,426
)
 
 
 
 
Income before taxes
25,435

 
27,706

 
 
 
 
Income tax expense
6,999

 
7,498

 
 
 
 
Net earnings
18,436

 
20,208

Less: net earnings (loss) attributable to noncontrolling interests
119

 
(20
)
Net earnings attributable to VPG stockholders
$
18,317

 
$
20,228

 
 
 
 
Basic earnings per share attributable to VPG stockholders
$
1.36

 
$
1.51

Diluted earnings per share attributable to VPG stockholders
$
1.35

 
$
1.50

 
 
 
 
Weighted average shares outstanding - basic
13,512

 
13,431

Weighted average shares outstanding - diluted
13,588

 
13,519



See accompanying notes.
-6-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited - In thousands)
 
Fiscal quarter ended
 
September 28, 2019
 
September 29, 2018
Net earnings
$
4,530

 
$
7,567

 
 
 
 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(2,559
)
 
124

Pension and other postretirement actuarial items, net of tax
(21
)
 
175

Other comprehensive (loss) income
(2,580
)
 
299

 
 
 
 
Total comprehensive income
1,950

 
7,866

 
 
 
 
Less: comprehensive income attributable to noncontrolling interests
21

 
20

 
 
 
 
Comprehensive income attributable to VPG stockholders
$
1,929

 
$
7,846





































See accompanying notes.
-7-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited - In thousands)
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
Net earnings
$
18,436

 
$
20,208

 
 
 
 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(1,608
)
 
(2,393
)
Pension and other postretirement actuarial items, net of tax
164

 
544

Other comprehensive loss
(1,444
)
 
(1,849
)
 
 
 
 
Comprehensive income
16,992

 
18,359

 
 
 
 
Less: comprehensive income (loss) attributable to noncontrolling interests
119

 
(20
)
 
 
 
 
Comprehensive income attributable to VPG stockholders
$
16,873

 
$
18,379



See accompanying notes.
-8-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
Operating activities
 
 
 
Net earnings
$
18,436

 
$
20,208

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
8,639

 
7,939

Gain on disposal of property and equipment
(100
)
 
(146
)
Share-based compensation expense
1,592

 
1,172

Inventory write-offs for obsolescence
1,937

 
1,633

Deferred income taxes
605

 
1,584

Other
(829
)
 
536

Net changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
8,348

 
(8,128
)
Inventories, net
(4,138
)
 
(6,935
)
Prepaid expenses and other current assets
(5,788
)
 
(2,600
)
Trade accounts payable
(1,353
)
 
(1,342
)
Other current liabilities
(2,727
)
 
4,031

Net cash provided by operating activities
24,622

 
17,952

 
 
 
 
Investing activities
 
 
 
Capital expenditures
(8,621
)
 
(9,966
)
Proceeds from sale of property and equipment
265

 
169

Net cash used in investing activities
(8,356
)
 
(9,797
)
 
 
 
 
Financing activities
 
 
 
Principal payments on long-term debt
(3,461
)
 
(4,728
)
Proceeds from revolving facility

 
22,000

Payments on revolving facility

 
(19,000
)
Distributions to noncontrolling interests
(45
)
 
(101
)
Payments of employee taxes on certain share-based arrangements
(854
)
 
(801
)
Net cash used in financing activities
(4,360
)
 
(2,630
)
Effect of exchange rate changes on cash and cash equivalents
(766
)
 
(1,189
)
Increase in cash and cash equivalents
11,140

 
4,336

 
 
 
 
Cash and cash equivalents at beginning of period
90,159

 
74,292

Cash and cash equivalents at end of period
$
101,299

 
$
78,628

 
 
 
 
Supplemental disclosure of investing transactions:
 
 
 
Capital expenditures purchased
$
(7,383
)
 
$
(7,599
)
Supplemental disclosure of non-cash financing transactions:
 
 
 
Conversion of exchangeable notes to common stock
$

 
$
(2,794
)

Capital expenditures accrued but not yet paid as of September 28, 2019 were $613.

See accompanying notes.
-9-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Equity
(Unaudited - In thousands, except share amounts)

 
Fiscal quarter ended 
 September 28, 2019
 
Common
Stock
 
Class B
Convertible
Common Stock
 
Treasury Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total VPG Inc.
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at June 29, 2019
$
1,312

 
$
103

 
$
(8,765
)
 
$
196,875

 
$
80,908

 
$
(36,329
)
 
$
234,104

 
$
138

 
$
234,242

Net earnings

 

 

 

 
4,509

 

 
4,509

 
21

 
4,530

Other comprehensive income

 

 

 

 

 
(2,580
)
 
(2,580
)
 

 
(2,580
)
Share-based compensation expense

 

 

 
506

 

 

 
506

 

 
506

Restricted stock issuances

 

 

 

 

 

 

 

 

Cumulative effect adjustment for adoption of ASU 2016-02

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(47
)
 
(47
)
Balance at September 28, 2019
$
1,312

 
$
103

 
$
(8,765
)
 
$
197,381

 
$
85,417

 
$
(38,909
)
 
$
236,539

 
$
112

 
$
236,651


 
Fiscal quarter ended 
 September 29, 2018
 
Common
Stock
 
Class B
Convertible
Common Stock
 
Treasury Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total VPG Inc.
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at June 30, 2018
$
1,307

 
$
103

 
$
(8,765
)
 
$
195,668

 
$
55,604

 
$
(37,598
)
 
$
206,319

 
$
(21
)
 
$
206,298

Net earnings

 

 
 
 

 
7,547

 


 
7,547

 
20

 
7,567

Other comprehensive income

 

 

 

 

 
299

 
299

 

 
299

Share-based compensation expense

 

 

 
371

 

 

 
371

 

 
371

Restricted stock issuances

 

 

 

 

 

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 
28

 
28

Balance at September 29, 2018
$
1,307

 
$
103

 
$
(8,765
)
 
$
196,039

 
$
63,151

 
$
(37,299
)
 
$
214,536

 
$
27

 
$
214,563



See accompanying notes.
-10-



VISHAY PRECISION GROUP, INC.
Consolidated Condensed Statements of Equity
(Unaudited - In thousands, except share amounts)
 
Nine Fiscal Months Ended September 28, 2019
 
Common
Stock
 
Class B
Convertible
Common Stock
 
Treasury Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total VPG, Inc.
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2018
$
1,307

 
$
103

 
$
(8,765
)
 
$
196,666

 
$
66,569

 
$
(37,465
)
 
$
218,415

 
$
38

 
$
218,453

Net earnings

 

 

 

 
18,317

 

 
18,317

 
119

 
18,436

Other comprehensive income

 

 

 

 

 
(1,444
)
 
(1,444
)
 

 
(1,444
)
Share-based compensation expense

 

 

 
1,592

 

 

 
1,592

 

 
1,592

Restricted stock issuances (48,482 shares)
5

 

 

 
(877
)
 

 

 
(872
)
 

 
(872
)
Cumulative effect adjustment for adoption of ASU 2016-02

 

 

 

 
531

 

 
531

 

 
531

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(45
)
 
(45
)
Balance at September 28, 2019
$
1,312

 
$
103

 
$
(8,765
)
 
$
197,381

 
$
85,417

 
$
(38,909
)
 
$
236,539

 
$
112

 
$
236,651


 
Nine Fiscal Months Ended September 29, 2018
 
Common
Stock
 
Class B
Convertible
Common Stock
 
Treasury Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total VPG, Inc.
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2017
$
1,288

 
$
103

 
$
(8,765
)
 
$
192,904

 
$
43,076

 
$
(35,450
)
 
$
193,156

 
$
148

 
$
193,304

Net earnings

 

 

 

 
20,228

 

 
20,228

 
(20
)
 
20,208

Other comprehensive income

 

 

 

 

 
(1,849
)
 
(1,849
)
 

 
(1,849
)
Share-based compensation expense

 

 

 
1,172

 

 

 
1,172

 

 
1,172

Restricted stock issuances (59,038 shares)
7

 

 

 
(819
)
 

 

 
(812
)
 

 
(812
)
Common stock issuance from conversion of exchangeable notes (123,808 shares)
12

 

 

 
2,782

 

 

 
2,794

 

 
2,794

Cumulative effect adjustment for adoption of ASU 2016-16

 

 

 

 
(153
)
 

 
(153
)
 

 
(153
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(101
)
 
(101
)
Balance at September 29, 2018
$
1,307

 
$
103

 
$
(8,765
)
 
$
196,039

 
$
63,151

 
$
(37,299
)
 
$
214,536

 
$
27

 
$
214,563


See accompanying notes.
-11-



Vishay Precision Group, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1 – Basis of Presentation
Background
Vishay Precision Group, Inc. (“VPG” or the “Company”) is 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, 2018 and 2017 and for each of the three years in the period ended December 31, 2018, included in VPG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 14, 2019. The results of operations for the fiscal quarter ended September 28, 2019 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 2019 and 2018 end on the following dates: 
 
2019
 
2018
Quarter 1
March 30,
 
March 31,
Quarter 2
June 29,
 
June 30,
Quarter 3
September 28,
 
September 29,
Quarter 4
December 31,
 
December 31,
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, “Leases (Topic 842),” a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases.  The core principle of this ASU will require lessees to present the assets and liabilities that arise from leases on their balance sheets.  In July 2018, the FASB issued ASU No. 2018-11 "Leases (Topic 842), Targeted Improvements," which provides additional implementation guidance on the previously issued ASU. The Company adopted the new lease standard as of January 1, 2019 using the modified retrospective method. Refer to Note 4 for additional details.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Act") related to items in accumulated other comprehensive income ("AOCI") that the FASB refers to as having been stranded in AOCI.  The Company adopted ASU 2018-02 effective January 1, 2019, and elected not to reclassify the income tax effects from AOCI to retained earnings.
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 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 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

-12-

Note 1 – Basis of Presentation (continued)

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 amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is evaluating the standard to determine the impact on the consolidated condensed financial statements.
Note 2 – Revenues
Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied, which generally occurs with the transfer of control of our products. For certain contracts with post-shipment obligations, revenue is recognized when the post-shipment obligation is satisfied. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing post-shipment obligations. Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Given the specialized nature of the Company's products, the Company generally does not allow product returns. Shipping and handling costs are recorded to Costs of product sold when control of the product has transferred to the customer. The Company offers standard product warranties. Warranty related costs continue to be recognized as expense when the products are sold.

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 
 September 28, 2019
 
Fiscal quarter ended 
 September 29, 2018
 
Foil Technology
Products
 
Force
Sensors
 
Weighing and
Control Systems
 
Total
 
Foil Technology
Products
 
Force
Sensors
 
Weighing and
Control Systems
 
Total
United States
$
13,737

 
$
9,008

 
$
5,223

 
$
27,968

 
$
16,011

 
$
9,842

 
$
6,289

 
$
32,142

United Kingdom
762

 
2,554

 
3,650

 
6,966

 
905

 
2,995

 
3,738

 
7,638

Other Europe
8,262

 
2,475

 
3,116

 
13,853

 
8,224

 
2,248

 
4,261

 
14,733

Israel
2,768

 
127

 

 
2,895

 
2,951

 
116

 

 
3,067

Asia
6,590

 
2,053

 
1,836

 
10,479

 
7,821

 
2,401

 
1,053

 
11,275

Canada

 

 
5,260

 
5,260

 

 

 
6,635

 
6,635

Total
$
32,119

 
$
16,217

 
$
19,085

 
$
67,421

 
$
35,912

 
$
17,602

 
$
21,976

 
$
75,490


 
Nine Fiscal Months Ended September 28, 2019
 
Nine Fiscal Months Ended September 29, 2018
 
Foil Technology
Products
 
Force
Sensors
 
Weighing and
Control Systems
 
Total
 
Foil Technology
Products
 
Force
Sensors
 
Weighing and
Control Systems
 
Total
United States
$
43,748

 
$
25,557

 
$
16,150

 
$
85,455

 
$
44,863

 
$
30,864

 
$
17,690

 
$
93,417

United Kingdom
2,436

 
8,265

 
12,228

 
22,929

 
2,818

 
9,047

 
11,008

 
22,873

Other Europe
25,212

 
8,456

 
11,931

 
45,599

 
23,699

 
8,248

 
14,161

 
46,108

Israel
9,019

 
330

 

 
9,349

 
7,792

 
402

 

 
8,194

Asia
21,752

 
6,690

 
6,726

 
35,168

 
25,096

 
7,627

 
4,885

 
37,608

Canada

 

 
16,316

 
16,316

 

 

 
14,612

 
14,612

 
$
102,167

 
$
49,298

 
$
63,351

 
$
214,816

 
$
104,268

 
$
56,188

 
$
62,356

 
$
222,812


The following table disaggregates net revenue from contracts with customers by market sector (in thousands):

-13-

Note 2 – Revenues (continued)


 
Fiscal quarter ended
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Test & Measurement
$
17,215

 
$
18,969

 
$
55,189

 
$
57,346

Avionics, Military & Space
5,310

 
7,354

 
17,553

 
18,920

Medical
2,953

 
2,719

 
8,240

 
7,693

Precision Weighing
22,275

 
23,151

 
69,679

 
70,799

Force Measurement
12,958

 
16,170

 
42,766

 
50,435

Steel
6,710

 
7,127

 
21,389

 
17,619

Total
$
67,421

 
$
75,490

 
$
214,816

 
$
222,812



Arrangements with Multiple Performance Obligations

Contracts with our customers can include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price which is determined based on the prices charged to customers when sold on a standalone basis.

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. For contracts that have a financing component, the term between invoicing and when payment is due is not significant.

The outstanding contract assets and liability accounts were as follows (in thousands):
 
Contract Asset
 
Contract Liability
 
Unbilled Revenue
 
Accrued Customer Advances
Balance at December 31, 2018
$
964

 
$
5,328

Balance at September 28, 2019
1,826

 
4,693

Increase/(decrease)
$
862

 
$
(635
)

The amount of revenue recognized during the nine fiscal months ended September 28, 2019 that was included in the contract liability balance at December 31, 2018 was $4.5 million.
Note 3 – Goodwill
The change in the carrying amount of goodwill by segment is as follows (in thousands):
 
Total
 
Weighing and Control Systems Segment
 
Foil Technology Products Segment
 
 
 
KELK Acquisition
 
Stress-Tek Acquisition
 
Pacific Acquisition
Balance at December 31, 2018
$
16,141

 
$
6,288

 
$
6,311

 
$
3,542

Foreign currency translation adjustment
177

 
177

 

 

Balance at September 28, 2019
$
16,318

 
$
6,465

 
$
6,311

 
$
3,542


Note 4 – 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

-14-

Note 4 – Leases (continued)


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. 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 those leases with initial terms of 12 months or less.
The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to seven years. The Company recorded a $0.5 million adjustment to opening retained earnings related to the remaining deferred gain recorded as part of the Karmiel, Israel sale leaseback.
Leases recorded on the balance sheet consist of the following (in thousands):
Leases
 
Classification on Balance Sheet
 
September 28, 2019
 
 
 
 
 
 Assets
 
 
 
 
 Operating lease right of use asset
 
Other Assets
 
$
8,808

 
 
 
 
 
 Liabilities
 
 
 
 
 Operating lease - current
 
Other Accrued Expenses
 
$
2,694

 Operating lease - non-current
 
Other Liabilities
 
$
6,277

Other information related to lease term and discount rate is as follows:
 
September 28, 2019
 Operating leases weighted average remaining lease term (in years)
4.2

 Operating leases weighted average discount rate
5.1
%

The components of lease expense are as follows (in thousands):
 
Fiscal quarter ended
 
Nine fiscal months ended
 
September 28, 2019
 
September 28, 2019
 Operating lease cost
$
866

 
$
2,501

 Variable lease cost
5

 
14

 Short-term lease cost
7

 
66

 Total lease cost
$
878

 
$
2,581


Right of use assets obtained in exchange for new operating lease liability during 2019 were $0.2 million. The cash paid for amounts included in the measurement of lease liabilities approximates our operating lease cost for the nine months ended September 28, 2019.





-15-

Note 4 – Leases (continued)



Undiscounted maturities of operating lease payments as of September 28, 2019 are summarized as follows (in thousands):
2019 (excluding the nine months ended September 28, 2019)
$
832

2020
2,822

2021
2,151

2022
1,422

2023
1,149

Thereafter
1,336

 Total future minimum lease payments
$
9,712

 Less: amount representing interest
(741
)
 Present value of future minimum lease payments
$
8,971

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 April 2020.
Note 5 – Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. In 2017, the Company had provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. The financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net $0.8 million increase in tax expense caused by a decrease in the transition tax and an increase in the valuation allowance.

Beginning in 2018, the 2017 Tax Act also subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries, while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. In 2018, the Company had elected to recognize tax expense related to GILTI in the year the tax is incurred. The U.S. tax on GILTI income was fully offset by foreign tax credits associated with GILTI and U.S. operating losses exclusive of GILTI.
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 September 28, 2019 was 29.3% compared to 24.7% for the fiscal quarter ended September 29, 2018. The effective tax rate for the nine fiscal months ended September 28, 2019 was 27.5% compared to 27.1% for the nine fiscal months ended September 29, 2018. 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 tax rate in the current nine fiscal month period is higher than the prior year nine fiscal month period primarily due to discrete items.
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.

-16-


Note 6 – Long-Term Debt
Long-term debt consists of the following (in thousands):
 
September 28, 2019
 
December 31, 2018
2015 Credit Agreement - Revolving Facility
$
12,000

 
$
12,000

2015 Credit Agreement - U.S. Closing Date Term Facility
2,270

 
2,967

2015 Credit Agreement - U.S. Delayed Draw Term Facility
5,550

 
7,253

2015 Credit Agreement - Canadian Term Facility
3,806

 
4,798

Other debt
185

 
279

Deferred financing costs
(139
)
 
(222
)
Total long-term debt
23,672

 
27,075

Less: current portion
4,996

 
4,654

Long-term debt, less current portion
$
18,676

 
$
22,421


Note 7 – Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in thousands):
 
Foreign Currency Translation Adjustment
 
Pension
and Other
Postretirement
Actuarial Items
 
Total
Balance at January 1, 2019
$
(31,319
)
 
$
(6,146
)
 
$
(37,465
)
Other comprehensive income before reclassifications
(781
)
 

 
(781
)
Amounts reclassified from accumulated other comprehensive income (loss)
(827
)
 
164

 
(663
)
Balance at September 28, 2019
$
(32,927
)
 
$
(5,982
)
 
$
(38,909
)
 
Foreign Currency Translation Adjustment
 
Pension
and Other
Postretirement
Actuarial Items
 
Total
Balance at January 1, 2018
$
(27,390
)
 
$
(8,060
)
 
$
(35,450
)
Other comprehensive loss before reclassifications
(2,393
)
 

 
(2,393
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
544

 
544

Balance at September 29, 2018
$
(29,783
)
 
$
(7,516
)
 
$
(37,299
)
Reclassification of foreign currency translation adjustment for a gain on liquidation of a subsidiary is included in other income (expense) other (see Note 12). Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 8).
Note 8 – Pension and Other Postretirement Benefits
Employees of VPG participate in various defined benefit pension and other postretirement benefit ("OPEB") plans. 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):

-17-

Note 8 – Pension and Other Postretirement Benefits (continued)


 
Fiscal quarter ended 
 September 28, 2019
 
Fiscal quarter ended 
 September 29, 2018
 
Pension
Plans
 
OPEB
Plans
 
Pension
Plans
 
OPEB
Plans
Net service cost
$
82

 
$
32

 
$
135

 
$
27

Interest cost
154

 
45

 
171

 
38

Expected return on plan assets
(130
)
 

 
(138
)
 

Amortization of actuarial losses
50

 
39

 
128

 
44

Net periodic benefit cost
$
156

 
$
116

 
$
296

 
$
109


 
Nine fiscal months ended September 28, 2019
 
Nine fiscal months ended September 29, 2018
 
Pension
Plans
 
OPEB
Plans
 
Pension
Plans
 
OPEB
Plans
Net service cost
$
247

 
$
94

 
$
410

 
$
81

Interest cost
468

 
135

 
521

 
114

Expected return on plan assets
(395
)
 

 
(421
)
 

Amortization of actuarial losses
150

 
117

 
389

 
132

Net periodic benefit cost
$
470

 
$
346

 
$
899

 
$
327




Note 9 – Share-Based Compensation
The Amended and Restated Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At September 28, 2019, the Company had reserved 417,502 shares of common stock for future grants of equity awards (restricted stock, unrestricted stock, restricted stock units ("RSUs"), or stock options) pursuant to the Plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others.
On March 13, 2019, VPG’s three then-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 $1.8 million and were comprised of 51,814 RSUs. Twenty-five percent of these awards will vest on January 1, 2022, subject to the executives’ continued employment. The performance-based portion of the RSUs will also vest on January 1, 2022, subject to the executives' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “free cash” and adjusted net earnings goals, each weighted equally.
On March 20, 2019, 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 12,445 RSUs. Twenty-five percent of these awards will vest on January 1, 2022 subject to the employees' continued employment. The performance-based portion of the RSUs will also vest on January 1, 2022, subject to the employees' continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings and cash flow goals, each weighted equally.

On May 16, 2019, the Board of Directors approved the issuance of an aggregate of 8,244 RSUs to the independent board members of the Board of Directors and to the non-executive Chairman of the Board of Directors. The awards have an aggregate grant-date fair value of $0.3 million and will vest on the earlier of VPG's next Annual Stockholders Meeting or May 16, 2020, subject to the directors' continued service on the Board of Directors.

Vesting of equity awards may be subject to acceleration under certain circumstances.

-18-

Note 9 – Share-Based Compensation (continued)


The amount of compensation cost related to share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. VPG determines compensation cost for RSUs based on the grant-date fair value of the underlying common stock. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met. The following table summarizes share-based compensation expense recognized (in thousands):
 
Fiscal quarter ended
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Restricted stock units
$
506

 
$
371

 
$
1,592

 
$
1,172

Note 10 – Segment Information
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications.
VPG evaluates reporting segment performance based on multiple performance measures including third party net revenues, gross profits and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring costs, executive severance costs, and other items is meaningful because it provides insight with respect to the intrinsic operating results of VPG. The following table sets forth reporting segment information (in thousands):

-19-

Note 10 – Segment Information (continued)


 
Fiscal quarter ended
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net third-party revenues:
 
 
 
 
 
 
 
Foil Technology Products
$
32,119

 
$
35,912

 
$
102,167

 
$
104,268

Force Sensors
16,217

 
17,602

 
49,298

 
56,188

Weighing and Control Systems
19,085

 
21,976

 
63,351

 
62,356

Total
$
67,421

 
$
75,490

 
$
214,816

 
$
222,812

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
Foil Technology Products
$
11,970

 
$
15,779

 
$
42,943

 
$
46,136

Force Sensors
4,932

 
4,557

 
14,385

 
15,487

Weighing and Control Systems
8,888

 
10,244

 
30,122

 
28,828

Total
$
25,790

 
$
30,580

 
$
87,450

 
$
90,451

 
 
 
 
 
 
 
 
Reconciliation of segment operating income to consolidated results:
 
 
 
 
 
 
 
Foil Technology Products
$
6,259

 
$
10,304

 
$
25,185

 
$
29,073

Force Sensors
2,726

 
2,214

 
7,300

 
8,174

Weighing and Control Systems
4,808

 
5,589

 
16,426

 
14,423

Unallocated G&A expenses
(7,060
)
 
(7,248
)
 
(20,862
)
 
(21,249
)
Executive severance costs

 

 
(611
)
 

Restructuring costs
(547
)
 
(228
)
 
(547
)
 
(289
)
Consolidated condensed operating income
$
6,186

 
$
10,631

 
$
26,891

 
$
30,132

 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 

Force Sensors
$
(429
)
 
$
(228
)
 
$
(429
)
 
$
(289
)
Corporate/Other
(118
)
 

 
(118
)
 

 
$
(547
)
 
$
(228
)
 
$
(547
)
 
$
(289
)
 
 
 
 
 
 
 
 
Executive severance costs:
 
 
 
 
 
 
 
Corporate/Other
$

 
$

 
$
(611
)
 
$

 
$

 
$

 
$
(611
)
 
$

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
 
Nine fiscal months ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Foil Technology Products to Force Sensors and Weighing and Control Systems
$
1,011

 
$
819

 
$
3,018

 
$
2,976

Force Sensors to Foil Technology Products and Weighing and Control Systems
$
369

 
$
332

 
$
980

 
$
1,048

Weighing and Control Systems to Foil Technology Products and Force Sensors
$
75

 
$
128

 
$
373

 
$
423



-20-



Note 11 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share):

Fiscal quarter ended

Nine fiscal months ended

September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Numerator:
 
 
 

 
 
 
Numerator for basic earnings per share:
 
 
 

 
 
 
Net earnings attributable to VPG stockholders
$
4,509

 
$
7,547


$
18,317

 
$
20,228


 
 
 

 
 
 
Adjustment to the numerator for net earnings:
 
 
 

 
 
 
Interest savings assuming conversion of dilutive exchangeable notes, net of tax

 



 
5


 
 
 

 
 
 
Numerator for diluted earnings per share:
 
 
 

 
 
 
Net earnings attributable to VPG stockholders
$
4,509

 
$
7,547


$
18,317

 
$
20,233

 
 
 
 

 
 
 
Denominator:
 
 
 

 
 
 
Denominator for basic earnings per share:
 
 
 

 
 
 
Weighted average shares
13,523

 
13,474


13,512

 
13,431

 
 
 
 

 
 
 
Effect of dilutive securities:
 
 
 

 
 
 
Exchangeable notes

 



 
30

Restricted stock units
84

 
60


76

 
58

Dilutive potential common shares
84

 
60


76

 
88

 
 
 
 

 
 
 
Denominator for diluted earnings per share:
 
 
 

 
 
 
Adjusted weighted average shares
13,607

 
13,534


13,588

 
13,519

 
 
 
 

 
 
 
Basic earnings per share attributable to VPG stockholders
$
0.33

 
$
0.56


$
1.36

 
$
1.51

 
 
 
 

 
 
 
Diluted earnings per share attributable to VPG stockholders
$
0.33

 
$
0.56


$
1.35

 
$
1.50



-21-



Note 12 – Additional Financial Statement Information
Other Income (Expense) Other
The caption “Other” on the consolidated condensed statements of operations consists of the following (in thousands):