Note 15 – Subsequent Events
Acquisition of Dynamic Systems Inc.
On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a specialized provider of dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes, for a purchase price of $41.0 million, subject to customary adjustments, plus a potential earn out of up to an additional $3.0 million. DSI will report into the Company's Weighing and Control Systems segment.
Accordion Exercise
On October 23, 2019, VPG exercised all of the $15.0 million accordion feature (the “Accordion”) of its revolving credit facility (the “Revolving Credit Facility”). The exercise of the Accordion increases the aggregate principal amount available under the Revolving Credit Facility to $45.0 million.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
VPG is an internationally recognized designer, manufacturer and marketer of sensors, and sensor-based measurement systems, as well as specialty resistors and strain gages based upon our proprietary technology. We provide precision products and solutions, many of which are “designed-in” by our customers, specializing in the growing markets of stress, force, weight, pressure, and current measurements. A significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure. We believe this strategy results in higher quality, more cost effective and focused solutions for our customers. Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality. Our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies, sensors, assemblies, and systems.
The Company also has a long heritage of innovation in precision foil resistors, foil strain gages, and sensors that convert mechanical inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products. Our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary, highly automated environment. Precision sensors are essential to the accurate measurement, resolution and display of force, weight, pressure, torque, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplaces. This expertise served as a foundation for our expansion into strain gage instrumentation, load cells, transducers, weighing modules, and complete systems for process control and on-board weighing. Although our products are typically used in the industrial market, our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications.
The precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus, including medical, agricultural, transportation, industrial, avionics, military, and space applications. We believe that as original equipment manufacturers (“OEMs”) continue a drive to make products “smarter,” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and/or response. We believe this offers a substantial growth opportunity for our products and expertise.
VPG reports in three product segments: the Foil Technology Products segment, the Force Sensors segment, and the Weighing and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistor and strain gage operating segments. The Force Sensors reporting segment is comprised of transducers, load cells, and modules. The Weighing and Control Systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing, force control and force measurement for a variety of uses such as process control on-board weighing applications.
Net revenues for the fiscal quarter ended September 28, 2019 were $67.4 million versus $75.5 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended September 28, 2019 were $4.5 million, or $0.33 per diluted share, versus $7.5 million, or $0.56 per diluted share, for the comparable prior year period.
Net revenues for the nine fiscal months ended September 28, 2019 were $214.8 million versus $222.8 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the nine fiscal months ended September 28, 2019 were $18.3 million, or $1.35 per diluted share, versus $20.2 million, or $1.50 per diluted share, for the comparable prior year period.
The results of operations for the fiscal quarters ended September 28, 2019 and September 29, 2018 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance with U.S. generally accepted accounting principles ("GAAP") including adjusted operating income, adjusted operating income margin, adjusted net earnings and adjusted net earnings per diluted share. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Such non-GAAP measures do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these measures are meaningful because they provide insight with respect to intrinsic operating results. The reconciling items presented below represent significant charges or credits which are important to understanding our intrinsic operations.
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Fiscal quarter ended
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Nine fiscal months ended
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September 28, 2019
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September 29, 2018
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|
September 28, 2019
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September 29, 2018
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Operating income
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$
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6,186
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|
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$
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10,631
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|
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$
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26,891
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|
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$
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30,132
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Operating margin
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9.2
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%
|
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14.1
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%
|
|
12.5
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%
|
|
13.5
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%
|
|
|
|
|
|
|
|
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Reconciling items affecting operating margin
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|
|
|
|
|
|
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Executive severance costs
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—
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|
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—
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|
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611
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|
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—
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Restructuring costs
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547
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|
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228
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|
|
547
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289
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Adjusted operating income
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$
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6,733
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$
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10,859
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$
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28,049
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|
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$
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30,421
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Adjusted operating margin
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10.0
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%
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14.4
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%
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13.1
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%
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13.7
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%
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|
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Fiscal quarter ended
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Nine fiscal months ended
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September 28, 2019
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September 29, 2018
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September 28, 2019
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September 29, 2018
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Net earnings attributable to VPG stockholders
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$
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4,509
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$
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7,547
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$
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18,317
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$
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20,228
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|
|
|
|
|
|
|
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Reconciling items affecting operating margin
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|
|
|
|
|
|
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Executive severance costs
|
—
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|
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—
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|
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611
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|
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—
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Restructuring costs
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547
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|
|
228
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|
|
547
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|
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289
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Less reconciling items affecting income tax expense
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|
|
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Tax effect of reconciling items
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80
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|
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35
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|
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80
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|
|
44
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Adjusted net earnings attributable to VPG stockholders
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$
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4,976
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$
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7,740
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$
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19,395
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|
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$
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20,473
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|
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|
|
|
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Adjusted net earnings per diluted share
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$
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0.37
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|
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$
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0.57
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|
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$
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1.43
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|
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$
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1.51
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|
|
|
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|
|
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Weighted average shares outstanding - diluted
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13,607
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13,534
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13,588
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13,519
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Financial Metrics
We utilize several financial measures and metrics to evaluate performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover.
Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is a function of net revenues, but also reflects our cost-cutting programs and our ability to contain fixed costs.
End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, backlog is not necessarily indicative of the results expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period compared with the amount of product shipped during that period. A book-to-bill ratio that is greater than one indicates that revenues may increase in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand and may foretell declining sales. The book-to-bill ratio is also impacted by the timing of orders, particularly from our project-based product lines.
We focus on inventory turnover as a measure of how well we manage our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the third quarter of 2018 through the third quarter of 2019 (dollars in thousands):
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3rd Quarter
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4th Quarter
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1st Quarter
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2nd Quarter
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3rd Quarter
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2018
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2018
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2019
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2019
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2019
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Net revenues
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$
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75,490
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|
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$
|
76,982
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|
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$
|
76,525
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|
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$
|
70,870
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|
|
$
|
67,421
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|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
40.5
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%
|
|
40.0
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%
|
|
43.2
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%
|
|
40.4
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%
|
|
38.3
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%
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|
|
|
|
|
|
|
|
|
|
End-of-period backlog
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$
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99,400
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|
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$
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93,400
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|
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$
|
87,100
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|
|
$
|
83,400
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|
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$
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79,300
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|
|
|
|
|
|
|
|
|
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Book-to-bill ratio
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0.98
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|
0.93
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|
|
0.92
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|
|
0.94
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|
|
0.96
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|
|
|
|
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Inventory turnover
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2.74
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|
|
2.89
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|
|
2.77
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|
|
2.66
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|
|
2.60
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3rd Quarter
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4th Quarter
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1st Quarter
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2nd Quarter
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3rd Quarter
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2018
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2018
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2019
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2019
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2019
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Foil Technology Products
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Net revenues
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$
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35,912
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$
|
36,741
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|
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$
|
37,049
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$
|
32,999
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|
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$
|
32,119
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Gross profit margin
|
43.9
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%
|
|
42.0
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%
|
|
44.7
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%
|
|
43.6
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%
|
|
37.3
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%
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End-of-period backlog
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$
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53,100
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|
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$
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48,700
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$
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44,000
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|
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$
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42,100
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|
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$
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38,900
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Book-to-bill ratio
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0.95
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|
0.88
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|
|
0.88
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|
|
0.93
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|
|
0.91
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Inventory turnover
|
2.83
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|
|
3.07
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|
|
2.97
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|
|
2.65
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|
|
2.79
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|
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|
|
|
|
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Force Sensors
|
|
|
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|
|
|
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Net revenues
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$
|
17,602
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|
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$
|
16,998
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|
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$
|
16,732
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|
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$
|
16,349
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|
|
$
|
16,217
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|
Gross profit margin
|
25.9
|
%
|
|
26.6
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%
|
|
30.2
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%
|
|
26.9
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%
|
|
30.4
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%
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End-of-period backlog
|
$
|
16,800
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|
|
$
|
17,700
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|
|
$
|
17,400
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|
|
$
|
16,400
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|
|
$
|
15,200
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|
Book-to-bill ratio
|
0.98
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|
|
1.05
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|
|
0.98
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|
|
0.95
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|
|
0.94
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|
Inventory turnover
|
2.26
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|
|
2.34
|
|
|
2.29
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|
|
2.39
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|
|
2.30
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|
|
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|
Weighing and Control Systems
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|
|
|
|
|
|
|
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Net revenues
|
$
|
21,976
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|
|
$
|
23,243
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|
|
$
|
22,744
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|
|
$
|
21,522
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|
|
$
|
19,085
|
|
Gross profit margin
|
46.6
|
%
|
|
46.8
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%
|
|
50.2
|
%
|
|
45.6
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%
|
|
46.6
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%
|
End-of-period backlog
|
$
|
29,500
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|
|
$
|
27,000
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|
|
$
|
25,700
|
|
|
$
|
24,900
|
|
|
$
|
25,200
|
|
Book-to-bill ratio
|
1.02
|
|
|
0.92
|
|
|
0.93
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|
|
0.95
|
|
|
1.04
|
|
Inventory turnover
|
3.35
|
|
|
3.36
|
|
|
3.07
|
|
|
3.03
|
|
|
2.61
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Net revenues for the third quarter of 2019 decreased 4.9% from the second quarter of 2019 mainly due to decreased volume in all of the reporting segments. Net revenues decreased 10.7% from the third quarter of 2018 due to decreased volume in all of the reporting segments.
Net revenues in the Foil Technology Products reporting segment decreased 2.7% compared to the second quarter of 2019 and decreased 10.6% from the third quarter of 2018. The sequential decrease in revenues was attributable to Pacific Instruments products for end user customers in the avionics, military and space market in the Americas and strain gage products for test and measurement applications, primarily in Europe. We also saw a decrease in precision resistor foil products in all regions for test and measurement applications. Compared to the third quarter of 2018, the lower revenues are attributable to Pacific Instruments products in the Americas for end user customers in the avionics, military and space market and strain gage products for test and measurement applications, primarily in the Americas. This was partially offset by a revenue increase in the Advanced Sensors products primarily in the Americas.
Net revenues in the Force Sensors reporting segment decreased 0.8% from the second quarter of 2019 and decreased 7.9% from the third quarter of 2018. The sequential decrease in revenues was mainly attributable to OEM customers for precision weighing applications in the Americas and Asia, partially offset by an increase in revenues from OEM customers for medical and agriculture applications in the Americas. Compared to the third quarter of 2018, the decrease in revenues was mainly due to lower volume from OEM customers, primarily in the Americas.
Net revenues in the Weighing and Control Systems reporting segment decreased 11.3% from the second quarter of 2019 and decreased 13.2% from the third quarter of 2018. Sequentially, the lower net revenues are primarily attributable to a decrease in the process weighing products in Europe, and in on-board weighing products mainly in Europe and the Americas. Compared to the third quarter of 2018, the improved revenues are attributable to the steel product line in Europe, the on board weighing products in Europe and the Americas and the process weighing products in the Americas and Europe.
Overall gross profit margin in the third quarter of 2019 decreased 2.1% as compared to the second quarter of 2019 and decreased 2.2% from the third quarter of 2018.
Sequentially, the Foil Technology Products segment gross profit margin decreased primarily due to a decrease in volume. This was partially offset by increases in the gross profit margin for Force Sensors and Weighing and Controls Systems segments. The Force Sensors segment gross profit margin increased due to manufacturing efficiencies and a one-time charge recorded in the second quarter of 2019. The increase in gross profit margin in the Weighing and Control Systems segment was mainly due to manufacturing efficiencies partially offset by lower volume.
Compared to the third quarter of 2018, the Foil Technology Products reporting segment had a lower gross profit margin primarily due to a decrease in volume, the impact of negative exchange rates, and an increase in wages and manufacturing costs. The Force Sensors reporting segment had a higher gross profit margin primarily due to an increase in export grants in India, the impact of positive exchange rates and manufacturing efficiencies partially offset by a decrease in volume. The gross profit margin for the Weighing and Control Systems reporting segment was flat.
Optimize Core Competence
The Company’s core competency and key value proposition is providing customers with proprietary foil technology products and precision measurement sensors and sensor-based systems. Our foil technology resistors and strain gages are recognized as global market leading products that provide high precision and high stability over extreme temperature ranges, and long life. Our force sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision measurements of force, weight, pressure, torque, tilt, motion, and acceleration. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes
Our foil technology research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers “design in” these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we recently signed a long term lease for a state of the art facility to be constructed in Israel to move forward with our advanced sensors business.
Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function.
We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India and Israel, where we can benefit from lower labor costs, improved efficiencies, or available tax and other government-sponsored incentives.
Acquisition Strategy
On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a specialized provider of dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes. DSI expands our position in the steel market, and offers opportunities for growth by leveraging our sales capabilities and market presence, and by expanding DSI’s product line.
We expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments. Historically, our growth and acquisition strategy has been largely focused on vertical product integration, using our foil strain gages in our force sensor products, and incorporating those products into our weighing and control systems. The acquisitions of Stress-Tek, Inc. ("Stress-Tek") and the George Kelk Corporation ("KELK"), each of which employ our foil strain gages to manufacture load cells for their systems, continued this strategy. Additionally, the KELK acquisition resulted in the acquisition of certain optical sensor technology. The Pacific Instruments acquisition significantly broadened our existing data acquisition offerings and opened new markets for us. Along with our success in MEMS technology for on-board weighing, we expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Research and Development
Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance.
Cost Management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation.
Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2019.
We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
Goodwill
We test the goodwill in each of our reporting units for impairment at least annually, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.
Foreign Currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. U.S. GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular
country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have subsidiaries that fall into each of these categories.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the period. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated condensed statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency.
Effects of Foreign Exchange Rate on Operations
For the fiscal quarter ended September 28, 2019, exchange rates decreased net revenues by $0.8 million, and increased costs of products sold and selling, general, and administrative expenses by $0.5 million, when compared to the comparable prior year period. For the nine fiscal months ended September 28, 2019, exchange rates decreased net revenues by $5.1 million, and costs of products sold and selling, general, and administrative expenses by $5.4 million when compared to the comparable prior year period.
Off-Balance Sheet Arrangements
As of September 28, 2019 and December 31, 2018, we did not have any off-balance sheet arrangements.
Results of Operations
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Costs of products sold
|
61.7
|
%
|
|
59.5
|
%
|
|
59.3
|
%
|
|
59.4
|
%
|
Gross profit
|
38.3
|
%
|
|
40.5
|
%
|
|
40.7
|
%
|
|
40.6
|
%
|
Selling, general, and administrative expenses
|
28.3
|
%
|
|
26.1
|
%
|
|
27.7
|
%
|
|
26.9
|
%
|
Operating income
|
9.2
|
%
|
|
14.1
|
%
|
|
12.5
|
%
|
|
13.5
|
%
|
Income before taxes
|
9.5
|
%
|
|
13.3
|
%
|
|
11.8
|
%
|
|
12.4
|
%
|
Net earnings
|
6.7
|
%
|
|
10.0
|
%
|
|
8.6
|
%
|
|
9.1
|
%
|
Net earnings attributable to VPG stockholders
|
6.7
|
%
|
|
10.0
|
%
|
|
8.5
|
%
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
Effective tax rate
|
29.3
|
%
|
|
24.7
|
%
|
|
27.5
|
%
|
|
27.1
|
%
|
Net Revenues
Net revenues were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Net revenues
|
$
|
67,421
|
|
|
$
|
75,490
|
|
|
$
|
214,816
|
|
|
$
|
222,812
|
|
Change versus comparable prior year period
|
$
|
(8,069
|
)
|
|
|
|
$
|
(7,996
|
)
|
|
|
Percentage change versus prior year period
|
(10.7
|
)%
|
|
|
|
(3.6
|
)%
|
|
|
Changes in net revenues were attributable to the following:
|
|
|
|
|
|
|
|
vs. prior year
quarter
|
|
vs. prior year-
to-date
|
Change attributable to:
|
|
|
|
Change in volume
|
(10.2
|
)%
|
|
(2.1
|
)%
|
Change in average selling prices
|
0.7
|
%
|
|
0.8
|
%
|
Foreign currency effects
|
(1.2
|
)%
|
|
(2.3
|
)%
|
Net change
|
(10.7
|
)%
|
|
(3.6
|
)%
|
During the fiscal quarter ended September 28, 2019, net revenues decreased 10.7%, as compared to the comparable prior year period mainly due to decreased volume in all of the reporting segments.
During the nine fiscal months ended September 28, 2019, net revenues decreased 3.6% as compared to the comparable prior year period, with volume improvements in the Weighing and Control Systems reporting segments being offset by decreased volume in the Foil Technology Products and Force Sensors reporting segments.
Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Gross profit margin
|
38.3
|
%
|
|
40.5
|
%
|
|
40.7
|
%
|
|
40.6
|
%
|
The gross profit margin for the fiscal quarter ended September 28, 2019 decreased 2.2% compared to the comparable prior year period. Improvements in the gross profit margin in the Force Sensors reporting segment were offset by decreased gross profit margin in the Foil Technology Products reporting segment. The Weighing and Control Systems reporting segment gross profit margin was flat.
The gross profit margin for nine fiscal months ended September 28, 2019 increased 0.1% primarily due to improved gross profit margins from the Force Sensors and Weighing and Control Systems reporting segments, partially offset by decreased gross profit margin in the Foil Technology Products reporting segment.
Segments
Analysis of revenues and gross profit margins for each of our reportable segments is provided below.
Foil Technology Products
Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Net revenues
|
$
|
32,119
|
|
|
$
|
35,912
|
|
|
$
|
102,167
|
|
|
$
|
104,268
|
|
Change versus comparable prior year period
|
$
|
(3,793
|
)
|
|
|
|
$
|
(2,101
|
)
|
|
|
Percentage change versus prior year period
|
(10.6
|
)%
|
|
|
|
(2.0
|
)%
|
|
|
Changes in Foil Technology Products segment net revenues were attributable to the following:
|
|
|
|
|
|
|
|
vs. prior year
quarter
|
|
vs. prior year-
to-date
|
Change attributable to:
|
|
|
|
Change in volume
|
(10.8
|
)%
|
|
(1.4
|
)%
|
Change in average selling prices
|
0.7
|
%
|
|
0.7
|
%
|
Foreign currency effects
|
(0.5
|
)%
|
|
(1.3
|
)%
|
Net change
|
(10.6
|
)%
|
|
(2.0
|
)%
|
Net revenues decreased 10.6% for the fiscal quarter ended September 28, 2019 as compared to the comparable prior year period. This was mainly attributable to lower revenues from Pacific Instruments products in the Americas for end user customers in the avionics, military and space market and strain gage products for test and measurement applications, primarily in the Americas. This was partially offset by a revenue increase in the Advanced Sensors products primarily in the Americas.
Net revenues decreased 2.0% for the nine fiscal months ended September 28, 2019 as compared to the comparable prior year period. Lower volume from Pacific Instruments products in the Americas, for end user customers in avionics, military and space market, and strain gage products in the force measurement market, primarily in Asia and the Americas were partially offset by higher volume from Advanced Sensors products in the test and measurement market, primarily in Asia. Unfavorable exchange rate impacts, mainly from the Euro also contributed to the net revenue decrease.
Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Gross profit margin
|
37.3
|
%
|
|
43.9
|
%
|
|
42.0
|
%
|
|
44.2
|
%
|
The gross profit margin decreased 6.6% for the fiscal quarter ended September 28, 2019, when compared to the comparable prior year period primarily due to a decrease in volume, the impact of negative exchange rates, and an increase in wages and manufacturing costs.
The gross profit margin decreased 2.2% for the nine fiscal months ended September 28, 2019 when compared to the comparable prior year period primarily due to a decrease in volume, the unfavorable exchange rate impacts, and higher manufacturing costs, including head count and wage increases.
Force Sensors
Net revenues of the Force Sensors segment were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Net revenues
|
$
|
16,217
|
|
|
$
|
17,602
|
|
|
$
|
49,298
|
|
|
$
|
56,188
|
|
Change versus comparable prior year period
|
$
|
(1,385
|
)
|
|
|
|
$
|
(6,890
|
)
|
|
|
Percentage change versus prior year period
|
(7.9
|
)%
|
|
|
|
(12.3
|
)%
|
|
|
Changes in Force Sensors segment net revenues were attributable to the following:
|
|
|
|
|
|
|
|
vs. prior year
quarter
|
|
vs. prior year-
to-date
|
Change attributable to:
|
|
|
|
Change in volume
|
(6.8
|
)%
|
|
(11.4
|
)%
|
Change in average selling prices
|
0.0
|
%
|
|
1.0
|
%
|
Foreign currency effects
|
(1.1
|
)%
|
|
(1.9
|
)%
|
Net change
|
(7.9
|
)%
|
|
(12.3
|
)%
|
Net revenues decreased 7.9% for the fiscal quarter ended September 28, 2019, as compared to the comparable prior year period. The decrease for the fiscal quarter ended September 28, 2019 was attributable to lower revenues from OEM customers, primarily in the Americas.
Net revenues decreased 12.3% for the nine fiscal months ended September 28, 2019 compared to the comparable prior year period from OEM customers in the force measurement market, primarily in the Americas and in the precision weighing market, primarily in Europe. Unfavorable exchange rate impacts, primarily from the Euro, also contributed to the decrease in net revenues.
Gross profit as a percentage of net revenues for the Force Sensors segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Gross profit margin
|
30.4
|
%
|
|
25.9
|
%
|
|
29.2
|
%
|
|
27.6
|
%
|
The gross profit margin for the fiscal quarter ended September 28, 2019 increased 4.5% compared to the comparable prior year period primarily due to an increase in export grants in India, the impact of positive exchange rates and manufacturing efficiencies partially offset by a decrease in volume.
The gross profit margin for the nine fiscal months ended September 28, 2019 increased 1.6% compared to the comparable prior year period due to an increase in export grants in India, lower manufacturing costs, including lower headcount, and favorable exchange rate impacts partially offset by the decrease in volume.
Weighing and Control Systems
Net revenues of the Weighing and Control Systems segment were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Net revenues
|
$
|
19,085
|
|
|
$
|
21,976
|
|
|
$
|
63,351
|
|
|
$
|
62,356
|
|
Change versus comparable prior year period
|
$
|
(2,891
|
)
|
|
|
|
$
|
995
|
|
|
|
Percentage change versus prior year period
|
(13.2
|
)%
|
|
|
|
1.6
|
%
|
|
|
Changes in Weighing and Control Systems segment net revenues were attributable to the following:
|
|
|
|
|
|
|
|
vs. prior year
quarter
|
|
vs. prior year-
to-date
|
Change attributable to:
|
|
|
|
Change in volume
|
(12.1
|
)%
|
|
5.1
|
%
|
Change in average selling prices
|
1.1
|
%
|
|
0.9
|
%
|
Foreign currency effects
|
(2.2
|
)%
|
|
(4.4
|
)%
|
Net change
|
(13.2
|
)%
|
|
1.6
|
%
|
Net revenues decreased 13.2% for the fiscal quarter ended September 28, 2019, as compared to the comparable prior year period. For the fiscal quarter ended September 28, 2019, the decline in net revenues is attributable to the steel product line in Europe, the on board weighing products in Europe and the Americas and the process weighing products in the Americas and Europe. Unfavorable exchange rate impacts with the Swedish krone, the Euro, and the Great Britain pound also contributed to the decrease in net revenues.
Net revenues increased 1.6% for the nine fiscal months ended September 28, 2019 as compared to the comparable prior year period. Higher revenues attributable to the steel product line in Europe were partially offset by lower revenues from the on board weighing products in Europe and the Americas. Unfavorable exchange rate impacts with the Canadian dollar, Swedish krone, the Euro, the Chinese renminbi, and the British pound also contributed to the decrease in net revenues.
Gross profit as a percentage of net revenues for the Weighing and Control Systems segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Gross profit margin
|
46.6
|
%
|
|
46.6
|
%
|
|
47.5
|
%
|
|
46.2
|
%
|
The gross profit margin for the fiscal quarter ended September 28, 2019 was flat, compared to the comparable prior year period.
The gross profit margin for nine fiscal months ended September 28, 2019 increased 1.3%, compared to the comparable prior year period and was mainly due to the volume improvements in the steel product line.
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
Nine fiscal months ended
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
Total SG&A expenses
|
$
|
19,057
|
|
|
$
|
19,721
|
|
|
$
|
59,401
|
|
|
$
|
60,030
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
28.3
|
%
|
|
26.1
|
%
|
|
27.7
|
%
|
|
26.9
|
%
|
SG&A expenses for the fiscal quarter ended September 28, 2019 decreased compared to the comparable prior year period. Higher personnel costs, including wage increases and higher headcount, were offset by bonus reserve adjustments.
SG&A expenses for the nine fiscal months ended September 28, 2019 decreased compared to the comparable prior year period. Higher personnel costs, including wage increases and higher headcount, were offset by bonus reserve adjustments and favorable exchange rate impacts.
Executive Severance Costs
During the second fiscal quarter of 2019, the Company recorded $0.6 million of severance costs associated with the resignation of an executive officer of the Company. The severance costs consisted of payments and other benefits as specified in the executive officer's resignation agreement.
Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges.
The Company recorded $0.5 million and $0.2 million of restructuring costs during the fiscal quarter ended September 28, 2019 and September 29, 2018, respectively, and $0.5 million and $0.3 million for the nine fiscal months ended September 28, 2019 and September 29, 2018, respectively. Restructuring costs were comprised primarily of employee terminations costs, including severance and statutory retirement allowances, and were incurred in connections with various cost reduction programs.
Other Income (Expense)
Interest expense for the fiscal quarter and nine fiscal months ended September 28, 2019 was lower compared with interest expense in the comparable prior year periods. This was mainly due lower interest rates and to lower incremental borrowings on our revolving credit facility in 2019 as compared to the prior year.
The following table analyzes the components of the line “Other” on the consolidated condensed statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Change
|
Foreign exchange (loss) gain
|
$
|
(306
|
)
|
|
$
|
19
|
|
|
$
|
(325
|
)
|
Interest income
|
181
|
|
|
120
|
|
|
61
|
|
Pension expense
|
(157
|
)
|
|
(263
|
)
|
|
106
|
|
Other
|
829
|
|
|
(48
|
)
|
|
877
|
|
|
$
|
547
|
|
|
$
|
(172
|
)
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine fiscal months ended
|
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Change
|
Foreign exchange (loss) gain
|
$
|
(1,360
|
)
|
|
$
|
(431
|
)
|
|
$
|
(929
|
)
|
Interest income
|
519
|
|
|
354
|
|
|
165
|
|
Pension expense
|
(470
|
)
|
|
(773
|
)
|
|
303
|
|
Other
|
926
|
|
|
(243
|
)
|
|
1,169
|
|
|
$
|
(385
|
)
|
|
$
|
(1,093
|
)
|
|
$
|
708
|
|
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. For the fiscal quarter ended September 28, 2019, the change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Israeli shekel and the Euro. For the nine fiscal months ended September 28, 2019, change in foreign exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Israeli shekel and Canadian dollar.
Included in Other for the fiscal quarter ended and nine fiscal months September 28, 2019 is a one-time $0.8 million gain on liquidation of one of the Company's subsidiaries.
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.
Financial Condition, Liquidity, and Capital Resources
We believe that our current cash and cash equivalents, credit facilities and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months.
In December 2015, we entered into a second amended and restated credit agreement. The terms of our credit agreement provide for the following facilities: (1) a secured revolving facility of $45.0 million (which includes an increase of $15.0 million that we exercised on October 23, 2019), the proceeds of which can be used for working capital and general corporate purposes, with a sublimit of $10.0 million for letters of credit; (2) a secured closing date term facility of $4.5 million for the Company; (3) a secured delayed draw term facility of $11.0 million for the Company; and (4) a secured term facility of $9.5 million for Vishay Precision Group Canada ULC ("VPG Canada"), our Canadian subsidiary. The credit agreement terminates on December 30, 2020. The term loans are being repaid in quarterly installments.
According to our credit agreement, borrowings under all facilities bear interest at either, upon our option, (1) a base rate which is the greater of the agent’s prime rate, the Federal Funds rate, or a LIBOR floor, plus a margin of 0.25% or (2) LIBOR plus, depending upon our leverage ratio, an interest rate margin ranging from 2.00% to 3.50%. We are also required to pay a quarterly fee of 0.30% per annum to 0.50% per annum on the unused portion of the secured revolving facility, which is determined based on our leverage ratio each quarter. Additional customary fees apply with respect to letters of credit.
The obligations of VPG and the guarantors under our credit agreement are secured by substantially all the assets (excluding real estate) of VPG, and by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of our domestic subsidiaries and the assets (excluding real estate) of the guarantors. The VPG Canada term facility is secured by substantially all the assets of VPG Canada, and by a secured guarantee of VPG and our domestic subsidiaries. The credit agreement restricts us from paying cash dividends, and requires us to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. We were in compliance with these covenants at September 28, 2019. If we are not in compliance with any of these covenant restrictions, the credit agreement could be terminated by the lenders, and all amounts outstanding pursuant to the credit agreement could become immediately payable.
During the first quarter of 2018, a holder of the Company's exchangeable notes exercised its option to exchange the remaining $2.8 million principal amount of the notes for 123,808 shares of VPG common stock at a contractual put/call rate of $22.57 per share. Following this transaction, all exchangeable notes were canceled and VPG had no further obligations pursuant to such notes.
Our other long-term debt is not significant and consists of zero percent interest rate debt held by our Japanese subsidiary of approximately $0.2 million at September 28, 2019 and $0.3 million at December 31, 2018.
Due to our strong product portfolio and market position, our business has historically generated operating cash flow. For the nine fiscal months ended September 28, 2019, cash provided by operating activities was $24.6 million. Cash provided by operating activities for the nine fiscal months ended September 29, 2018 was $18.0 million.
Free cash generated during the nine fiscal months ended September 28, 2019, was $16.3 million. We refer to the amount of cash provided by operating activities ($24.6 million) in excess of our capital expenditures ($8.6 million) and net of proceeds from the sale of assets ($0.3 million) as “free cash.”
The following table summarizes the components of net cash (debt) at September 28, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
101,299
|
|
|
$
|
90,159
|
|
|
|
|
|
Third-party debt, including current and long-term:
|
|
|
|
Term loans
|
11,626
|
|
|
15,018
|
|
Revolving debt
|
12,000
|
|
|
12,000
|
|
Third-party debt held by Japanese subsidiary
|
185
|
|
|
279
|
|
Deferred financing costs
|
(139
|
)
|
|
(222
|
)
|
Total third-party debt
|
23,672
|
|
|
27,075
|
|
Net cash (debt)
|
$
|
77,627
|
|
|
$
|
63,084
|
|
Measurements such as "free cash" and "net cash (debt)" do not have uniform definitions and are not recognized in accordance with U.S. GAAP. Such measures should not be viewed as alternatives to U.S. GAAP measures of performance or liquidity. However, management believes that “free cash” is a meaningful measure of our ability to fund acquisitions and repay debt, as well as to measure performance under certain of our equity compensation awards. In addition, management believes that an analysis of “net cash (debt)” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.
Approximately 94% and 93% of our cash and cash equivalents balance at September 28, 2019 and December 31, 2018, respectively, was held by our non-U.S. subsidiaries.
See the following table for the percentage of cash and cash equivalents, by region, at September 28, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 31, 2018
|
Israel
|
43
|
%
|
|
35
|
%
|
Asia
|
22
|
%
|
|
28
|
%
|
Europe
|
11
|
%
|
|
13
|
%
|
United States
|
6
|
%
|
|
7
|
%
|
United Kingdom
|
10
|
%
|
|
12
|
%
|
Canada
|
8
|
%
|
|
5
|
%
|
|
100
|
%
|
|
100
|
%
|
We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries. As a result of the 2017 Tax Act, the Company reassessed its assertion with respect to the indefinite reinvestment for certain of Company’s foreign subsidiaries and recorded a deferred tax liability of approximately $1.8 million of withholding tax associated with the planned cash distribution of approximately $25.5 million. As of September 28, 2019, the remaining planned cash distribution amount is approximately $15.9 million with a remaining deferred tax liability of approximately $1.6 million. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.
If we should require more capital in the United States than is generated by our domestic operations, and the planned dividend noted above, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 28, 2019, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $1.6 million noted above.
Our financial condition as of September 28, 2019 remains strong, with a current ratio (current assets to current liabilities) of 4.4 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2018.
Cash paid for property and equipment for the nine fiscal months ended September 28, 2019 was $8.6 million compared to $10.0 million in the comparable prior year period. Capital expenditures for the nine fiscal months ended September 28, 2019 are comprised of projects mainly related to the expansion of the business.
Contractual Commitments
Our Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 14, 2019, includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K.
Safe Harbor Statement
From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated.
Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies (including DSI); the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic and military instability in the countries in which we operate; difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; significant developments from the recent and potential changes in tariffs and trade regulation; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.