Notes to Consolidated Financial Statements
Note 1 – Background and Summary of Significant Accounting Policies
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.
Principles of Consolidation
The consolidated financial statements include the accounts of the individual entities in which the Company maintained a controlling financial interest. For those subsidiaries in which the Company’s ownership is less than 100 percent, the outside stockholders’ interests are shown as noncontrolling interests in the accompanying consolidated balance sheets.
All transactions, accounts, and profits between individual members comprising the Company have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Revenue Recognition
The Company derives substantially all of its revenue from product sales. The Company recognizes the vast majority of its sales at a point-in-time. It utilizes the core principle of recognizing revenue when the Company satisfies performance obligations as evidenced by the transfer of control of its products to the customer.
Such revenues are derived from purchase orders and/or contracts with customers. Each contract has the promise to transfer the control of the products, each of which is individually distinct and is considered the identified performance obligation. As part of the decision to enter into each contract, the Company evaluates the customer’s credit risk, but its contracts do not have any significant financing components, as payment is generally due net 30 to 60 days after delivery. In accordance with contract terms, revenue from the Company’s product sales is recognized at the time of product shipment from its facilities or delivery to the customer location, as determined by the agreed upon shipping terms.
Under the terms of some of its contracts, the Company may be required to perform certain installation services. These installation services are performed at the time of product delivery or at some point thereafter. The installation services do not significantly modify the product provided, and although the Company may be required contractually to provide these services, the installation services could be performed by a third party or the customer. Thus, these installation services are a distinct performance obligation. In most of the applicable contracts, this installation service element is immaterial in the context of the agreement. When the installation services are accounted for as a separate performance obligation, the Company allocates the transaction price to this element based on its relative standalone selling price.
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. Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue. See Note 2 for further details on Revenues.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to expense for research and development was $12.1 million, $11.8 million, and $11.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
Note 1 – Background and Summary of Significant Accounting Policies (continued)
method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes such assets will "more likely than not" be realized. In making this determination, the Company considers all positive and negative evidence, including historic earnings, projected future income, and cost-effective tax-planning strategies. When the Company determines that its ability to realize deferred tax assets is not "more likely than not", the Company adjusts its deferred tax asset valuation allowance, which increases income tax expense.
The Company records uncertain tax positions on the basis of a two-step process in which the Company first determines whether it is "more likely than not" that the tax positions will be sustained based on the technical merits of the position and then measures those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have all the necessary information available to prepare and analyze the accounting treatment for the proper recognition of the tax impact of the 2017 Tax Act. In accordance with SAB 118 guidance, the Company had recorded the provisional tax impacts related to the deemed distribution of foreign earnings and the expense for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net increase in tax expense of $0.8 million.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less when purchased. Highly liquid investments with maturities greater than three months are classified as short-term investments. There were no investments classified as short-term investments at December 31, 2019 or 2018.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends and an evaluation of the impact of current and projected economic conditions. The Company evaluates the past-due status of its trade receivables based on contractual terms of sale. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts was $0.6 million and $0.5 million at December 31, 2019 and 2018, respectively. Bad debt expense was $0.1 million, $0.0 million, and $0.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market based on net realizable value. Inventories are adjusted for estimated excess and obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the straight-line method based upon the estimated useful lives of the assets. Machinery and equipment are being depreciated over useful lives of seven to ten years. Buildings and building improvements are being depreciated over useful lives of twenty to forty years or the lease term. Software is being depreciated over useful lives of three to five years. Construction in progress is not depreciated until the assets are placed in service. Depreciation expense was $10.1 million, $8.9 million, and $8.7 million for the years ended December 31, 2019, 2018, and 2017, respectively, which included software depreciation expense of $0.6 million, $0.5 million, and $0.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Note 1 – Background and Summary of Significant Accounting Policies (continued)
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, property, plant and equipment, as well as income taxes. These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining if it is necessary to perform the quantitative goodwill impairment test. However, if we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing it against its carrying amount. We estimate the fair value of our steel and on-board weighing reporting units using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.
The Company's required goodwill annual impairment test is completed as of the first day of the fourth fiscal quarter each year. As more fully described in Note 4 to the consolidated financial statements, the 2019 annual impairment test resulted in no impairment. The 2018 annual impairment test resulted in an impairment charge in the fourth quarter of 2018. The 2017 annual impairment test resulted in no impairment.
The indefinite-lived trade names are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified. As more fully described in Note 4, the annual impairment test for 2019 resulted in no impairment. The 2018 annual impairment test resulted in the Company recording an impairment charge in the fourth quarter of 2018. The 2017 annual impairment test resulted in no impairment.
Definite-lived intangible assets, such as customer relationships, patents and acquired technology, non-competition agreements, and certain trade names are amortized on a straight-line method over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven to twenty years. Customer relationships are being amortized over useful lives of five to fifteen years. Trade names are being amortized over useful lives of seven to ten years. Non-competition agreements are being amortized over periods of five to ten years. The Company continually evaluates the reasonableness of the useful lives of these assets. Additionally, the Company reviews the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition.
Impairment of Long-Lived Assets
The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based
Note 1 – Background and Summary of Significant Accounting Policies (continued)
on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived intangible assets, are determined in a similar manner, except that fair market values are reduced for disposal costs.
Foreign Currency Translation
The Company has significant operations outside of the United States. The Company's operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. The Company’s 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 subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation adjustments do not impact the consolidated statements of operations and are reported as a separate component of accumulated other comprehensive loss within the statement of comprehensive income. Foreign currency transaction gains and losses are included in the results of operations.
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 consolidated statements of operations.
Share-Based Compensation
Compensation costs related to share-based payments are recognized in the consolidated financial statements. The amount of compensation cost is measured based on the grant-date fair value of the equity instruments issued. For service-based awards, compensation cost is recognized over the period that an officer, employee, or non-employee director provides service in exchange for the award. The Company recognizes forfeitures as they occur. For performance based awards, the Company recognizes compensation cost for awards that are expected to vest based on whether performance criteria are expected to be met. For options and restricted stock units subject to graded vesting, the Company recognizes expense over the service period for each separately vesting portion of the award as if the award was comprised of multiple awards.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
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 requires lessees to present the assets and liabilities that arise from leases on their balance sheets. The Company adopted this ASU effective January 1, 2019 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. See Note 12- Leases.
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.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments in this ASU are effective for annual periods beginning after December 15, 2019 and early adoption is permitted. The effect on the Company's consolidated financial statements and related disclosures is not expected to be material.
Note 1 – Background and Summary of Significant Accounting Policies (continued)
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 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 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 financial statements.
Note 2 – Revenues
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Foil Technology
Products
|
|
Force
Sensors
|
|
Weighing and
Control Systems
|
|
Total
|
United States
|
$
|
56,393
|
|
|
$
|
33,695
|
|
|
$
|
24,227
|
|
|
$
|
114,315
|
|
United Kingdom
|
3,181
|
|
|
10,450
|
|
|
15,576
|
|
|
29,207
|
|
Other Europe
|
32,328
|
|
|
10,811
|
|
|
16,860
|
|
|
59,999
|
|
Israel
|
12,401
|
|
|
415
|
|
|
—
|
|
|
12,816
|
|
Asia
|
27,500
|
|
|
8,986
|
|
|
8,331
|
|
|
44,817
|
|
Canada
|
—
|
|
|
—
|
|
|
22,804
|
|
|
22,804
|
|
|
$
|
131,803
|
|
|
$
|
64,357
|
|
|
$
|
87,798
|
|
|
$
|
283,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Foil Technology
Products
|
|
Force
Sensors
|
|
Weighing and
Control Systems
|
|
Total
|
United States
|
$
|
61,132
|
|
|
$
|
39,955
|
|
|
$
|
23,818
|
|
|
$
|
124,905
|
|
United Kingdom
|
3,666
|
|
|
11,787
|
|
|
14,296
|
|
|
29,749
|
|
Other Europe
|
31,431
|
|
|
10,678
|
|
|
18,741
|
|
|
60,850
|
|
Israel
|
11,028
|
|
|
517
|
|
|
—
|
|
|
11,545
|
|
Asia
|
33,752
|
|
|
10,249
|
|
|
7,442
|
|
|
51,443
|
|
Canada
|
—
|
|
|
—
|
|
|
21,302
|
|
|
21,302
|
|
|
$
|
141,009
|
|
|
$
|
73,186
|
|
|
$
|
85,599
|
|
|
$
|
299,794
|
|
Note 2 – Revenues (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Foil Technology
Products
|
|
Force
Sensors
|
|
Weighing and
Control Systems
|
|
Total
|
United States
|
$
|
52,032
|
|
|
$
|
34,108
|
|
|
$
|
19,523
|
|
|
$
|
105,663
|
|
United Kingdom
|
3,173
|
|
|
12,187
|
|
|
11,127
|
|
|
26,487
|
|
Other Europe
|
26,322
|
|
|
8,793
|
|
|
17,312
|
|
|
52,427
|
|
Israel
|
6,673
|
|
|
635
|
|
|
—
|
|
|
7,308
|
|
Asia
|
28,073
|
|
|
9,723
|
|
|
7,288
|
|
|
45,084
|
|
Canada
|
—
|
|
|
—
|
|
|
17,381
|
|
|
17,381
|
|
|
$
|
116,273
|
|
|
$
|
65,446
|
|
|
$
|
72,631
|
|
|
$
|
254,350
|
|
The following table disaggregates net revenue by market sector(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Test & Measurement
|
$
|
69,594
|
|
|
$
|
76,735
|
|
|
$
|
64,798
|
|
|
Avionics, Military & Space
|
23,975
|
|
|
26,743
|
|
|
22,378
|
|
|
Medical
|
10,863
|
|
|
9,868
|
|
|
8,769
|
|
|
Precision Weighing
|
91,001
|
|
|
93,734
|
|
|
81,439
|
|
|
Force Measurement
|
55,648
|
|
|
66,551
|
|
|
53,503
|
|
|
Steel
|
32,877
|
|
|
26,163
|
|
|
23,463
|
|
|
|
$
|
283,958
|
|
|
$
|
299,794
|
|
|
$
|
254,350
|
|
|
Contract Assets & Liabilities
Contract assets are established when revenues are recognized prior to a contractual payment due from the customer. When a payment becomes due based on the contract terms, the Company will reduce the contract asset and record a receivable. Contract liabilities are deferred revenues that are recorded when cash payments are received or due in advance of our performance obligations. Our payment terms vary by the type and location of the products offered. The term between invoicing and when payment is due is not significant.
The outstanding contract assets and liability accounts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Contract Asset
|
|
Contract Liability
|
|
Unbilled Revenue
|
|
Accrued Customer Advances
|
December 31, 2018
|
$
|
964
|
|
|
$
|
5,328
|
|
December 31, 2019
|
$
|
3,937
|
|
|
$
|
4,561
|
|
Increase ( decrease)
|
$
|
2,973
|
|
|
$
|
(767
|
)
|
Included in the contract asset at December 31, 2019 is $2.1 million attributable to the acquisition of DSI. The amount of revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018 was $5.1 million.
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for contracts that have a duration of one year or less and for contracts that are substantially complete. The Company treats shipping and handling activities as fulfillment costs.
Note 3 – Acquisition Activity
Dynamic Systems Inc.
On November 1, 2019, VPG completed the acquisition of New York-based Dynamic Systems Inc. ("DSI"), a provider of specialized dynamic thermal-mechanical test and simulation systems used to develop new metal alloys and optimize production processes, for a purchase price of $40.5 million, subject to customary adjustments, plus a potential earn out of up to an additional $3.0 million. DSI reports into the Company's Weighing and Control Systems segment. The following table summarizes the preliminary fair values assigned to the assets and liabilities of DSI as of November 1, 2019 (in thousands):
|
|
|
|
|
Working capital (a)
|
$
|
6,874
|
|
Property and equipment
|
1,727
|
|
Long-term deferred income tax liability
|
(4,321
|
)
|
Non-Controlling interest
|
(299
|
)
|
Intangible assets:
|
|
Patents and acquired technology
|
10,250
|
|
Customer relationships
|
4,344
|
|
Trade names
|
3,300
|
|
Total intangible assets
|
17,894
|
|
Fair value of acquired identifiable assets and liabilities
|
21,875
|
|
Purchase price
|
40,481
|
|
Goodwill
|
$
|
18,606
|
|
(a) Working capital accounts include accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, and accrued payroll.
The fair value of the contingent consideration is zero. The weighted average useful lives for the patents and acquired technology and customer relationships are 16 years, and 15 years, respectively. Most of the goodwill associated with DSI will be deductible for income tax purposes.
The Company recorded acquisition costs of associated with this transaction in its consolidated statements of operation as follows (in thousands):
|
|
|
|
|
|
Year ended December 31, 2019
|
Accounting and legal fees
|
$
|
214
|
|
Appraisal fees
|
13
|
|
Other
|
216
|
|
|
$
|
443
|
|
Following are the supplemental consolidated financial results for the Company on a unaudited pro forma basis, as if the DSI acquisition had been consummated on January 1, 2018 (unaudited):
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
Pro forma net revenues
|
$
|
298,085
|
|
|
$
|
314,437
|
|
|
|
|
|
Pro forma net earnings attributable to VPG stockholders
|
$
|
22,775
|
|
|
$
|
23,821
|
|
|
|
|
|
Pro forma basic earnings per share attributable to VPG stockholders
|
$
|
1.69
|
|
|
$
|
1.77
|
|
Pro forma diluted earnings per share attributable to VPG stockholders
|
$
|
1.68
|
|
|
$
|
1.76
|
|
Note 4 – Goodwill and Other Intangible Assets
The Company performed the first step of the impairment test as of the first day of the fiscal 2019 fourth quarter by calculating the fair value of the reporting units and comparing it against its carrying amount. The Company estimated the fair value of our steel and on-board weighing reporting units using the income approach and a market approach to valuation. The income approach to valuation uses our estimates of the future cash flows of the reporting unit discounted to their net present value using a discount rate determined using the capital asset pricing model and adjusted for the forecast risk inherent in our projections of future cash flows. The income approach to valuation is dependent on inputs from management such as expected revenue growth, profitability, capital expenditures, and working capital requirements. The market approach to valuation uses the market capitalization of public companies similar to the reporting unit to calculate an implied EBITDA multiple, and we apply that calculated EBITDA multiple to the expected EBITDA of the reporting unit to estimate the fair value of the reporting unit, after consideration of appropriate control premiums. We weigh the results of the income approach and the market approach to arrive at the estimated fair value of the reporting unit. We estimate the fair value of our instrumentation reporting unit using the income approach. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the reporting unit fair value.After completing the impairment test, the Company determined the fair value exceeded the carrying value for all reporting units.
For the year ended December 31, 2018, the carrying value of the instrumentation reporting unit exceeded the fair value and the Company recorded an impairment charge of $2.5 million. The impairment was primarily from lower margins on the forecasted projections due to product mix related to the Pacific acquisition. The impairment test for the remaining reporting units resulted in the fair value exceeding the carrying value, passing the quantitative impairment test.
The Company's analysis in 2017 resulted in the fair value exceeding the carrying value for all reporting units.
The determination of the fair value of the reporting unit and the allocation of that value to individual assets and liabilities within the reporting unit requires the Company to make significant estimates and assumptions. These estimates and assumptions include the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the Company competes, the discount rate, terminal growth rates, and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charges.
The change in the carrying amount of goodwill by segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Weighing and Control Systems Segment
|
|
Foil Technology Products Segment
|
|
|
|
KELK Acquisition
|
|
DSI Acquisition
|
|
Stress-Tek Acquisition
|
|
Pacific Instruments
|
Balance at January 1, 2018
|
$
|
19,181
|
|
|
$
|
6,828
|
|
|
$
|
—
|
|
|
$
|
6,311
|
|
|
$
|
6,042
|
|
Impairment charges
|
(2,500
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,500
|
)
|
Foreign currency translation adjustment
|
(540
|
)
|
|
(540
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2018
|
16,141
|
|
|
6,288
|
|
|
—
|
|
|
6,311
|
|
|
3,542
|
|
Goodwill acquired
|
18,606
|
|
|
|
|
18,606
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustment
|
271
|
|
|
271
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2019
|
$
|
35,018
|
|
|
$
|
6,559
|
|
|
$
|
18,606
|
|
|
$
|
6,311
|
|
|
$
|
3,542
|
|
Note 4 – Goodwill and Other Intangible Assets (continued)
Intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Intangible assets subject to amortization
|
|
|
|
(Definite-lived):
|
|
|
|
Patents and acquired technology
|
$
|
19,504
|
|
|
$
|
9,067
|
|
Customer relationships
|
25,690
|
|
|
20,941
|
|
Trade names
|
1,690
|
|
|
1,674
|
|
Non-competition agreements
|
11,745
|
|
|
11,820
|
|
|
58,629
|
|
|
43,502
|
|
Accumulated amortization:
|
|
|
|
Patents and acquired technology
|
(4,718
|
)
|
|
(4,103
|
)
|
Customer relationships
|
(11,727
|
)
|
|
(10,399
|
)
|
Trade names
|
(1,690
|
)
|
|
(1,674
|
)
|
Non-competition agreements
|
(11,717
|
)
|
|
(11,748
|
)
|
|
(29,852
|
)
|
|
(27,924
|
)
|
Net intangible assets subject to amortization
|
$
|
28,777
|
|
|
$
|
15,578
|
|
|
|
|
|
Intangible assets not subject to amortization
|
|
|
|
(Indefinite-lived):
|
|
|
|
Trade names
|
5,421
|
|
|
2,078
|
|
|
$
|
34,198
|
|
|
$
|
17,656
|
|
Certain intangible assets are subject to foreign currency translation.
In conjunction with the acquisition of DSI on November 1, 2019 (See Note 3), the Company allocated $14.6 million for the purchase price to definite-lived intangibles assets and $3.3 million to indefinite-lived intangible assets at December 31, 2019. The Company has determined that the trade name is an indefinite-lived intangibles asset.
The Company performed an impairment test on the indefinite-lived trade names as of the first day of the fiscal 2019 fourth quarter and determined there was no impairment. In 2018, the Company recorded an impairment charge of $0.3 million related to the Pacific acquisition. The impairment was primarily from lower margins on the forecasted projections due to product mix. The value of the trade names was determined using an income approach, where the Company estimated the future cash flows associated with the trade names and discounted those cash flows back to their net present value. Due to the decline in cash flows as a result of the lower margins, the Company reduced the royalty rate, under the relief of royalty method, when performing the income approach valuation. The Company's annual impairment test on the indefinite-lived trade names in 2017 resulted in no impairment.
Amortization expense was $1.7 million, $1.7 million, and $1.9 million, for the years ended December 31, 2019, 2018, and 2017, respectively. Amortization expense in 2019 included $0.2 million related to the DSI acquisition.
Estimated annual amortization expense for each of the next five years is as follows (in thousands):
|
|
|
|
|
2020
|
$
|
2,465
|
|
2021
|
2,416
|
|
2022
|
2,415
|
|
2023
|
2,311
|
|
2024
|
2,279
|
|
Note 5 – 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 restructuring costs of $2.3 million, $0.3 million, and $2.0 million during the years ended December 31, 2019, 2018, and 2017, respectively. In 2019, restructuring costs included $1.2 million of employee termination costs, including severance and statutory retirement allowances incurred in connection with various cost reduction programs, and $1.1 million of other exit costs, including asset write downs and an impairment of a right of use asset associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities in India and China. In 2018 and 2017, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.
The following table summarizes the activity to date related to these programs in the accrued restructuring liability, which is comprised of the activity associated primarily with the employee termination costs . The accrued restructuring liability balance as of December 31, 2019 and 2018, respectively, is included in other accrued expenses in the accompanying consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
159
|
|
|
$
|
254
|
|
|
$
|
1,333
|
|
Restructuring charges
|
1,559
|
|
|
289
|
|
|
2,044
|
|
Adjustment for adoption of ASU 2016-02
|
(69
|
)
|
|
—
|
|
|
—
|
|
Cash payments
|
(1,064
|
)
|
|
(384
|
)
|
|
(3,122
|
)
|
Foreign currency translation
|
19
|
|
|
—
|
|
|
(1
|
)
|
Balance at end of year
|
$
|
604
|
|
|
159
|
|
|
254
|
|
Note 6 – Income Taxes
For financial reporting purposes, income before taxes includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
$
|
(7,405
|
)
|
|
$
|
(7,897
|
)
|
|
$
|
(3,552
|
)
|
Foreign
|
33,845
|
|
|
41,886
|
|
|
24,115
|
|
|
$
|
26,440
|
|
|
$
|
33,989
|
|
|
$
|
20,563
|
|
The expense (benefit) for income taxes is comprised of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
453
|
|
|
$
|
189
|
|
|
$
|
(425
|
)
|
State and local
|
(130
|
)
|
|
162
|
|
|
89
|
|
Foreign
|
6,378
|
|
|
8,982
|
|
|
4,615
|
|
|
6,701
|
|
|
9,333
|
|
|
4,279
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(2,638
|
)
|
|
197
|
|
|
(257
|
)
|
State and local
|
(123
|
)
|
|
(35
|
)
|
|
(1
|
)
|
Foreign
|
205
|
|
|
849
|
|
|
2,148
|
|
|
(2,556
|
)
|
|
1,011
|
|
|
1,890
|
|
Total income tax expense
|
$
|
4,145
|
|
|
$
|
10,344
|
|
|
$
|
6,169
|
|
A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Tax at statutory rate
|
$
|
5,553
|
|
|
$
|
7,138
|
|
|
$
|
7,197
|
|
State income taxes, net of U.S. federal tax benefit
|
(21
|
)
|
|
89
|
|
|
93
|
|
Effect of foreign operations
|
(109
|
)
|
|
611
|
|
|
(1,137
|
)
|
Change in valuation allowance
|
(646
|
)
|
|
498
|
|
|
(397
|
)
|
Change in unrecognized tax benefits, net
|
650
|
|
|
258
|
|
|
105
|
|
Impairment of goodwill
|
—
|
|
|
525
|
|
|
—
|
|
Specialty tax credits
|
(176
|
)
|
|
(295
|
)
|
|
(139
|
)
|
Statutory rate changes
|
(249
|
)
|
|
272
|
|
|
(470
|
)
|
Effect of foreign exchange
|
(1,152
|
)
|
|
321
|
|
|
(1,292
|
)
|
Loss of benefit of U.S. net operating loss (a)
|
967
|
|
|
—
|
|
|
—
|
|
Excess tax benefits related to share based compensation (a)
|
(357
|
)
|
|
—
|
|
|
—
|
|
2017 Tax Act:
|
|
|
|
|
|
|
|
|
Effects of U.S. tax reform
|
—
|
|
|
(135
|
)
|
|
11,311
|
|
Change in valuation allowance
|
—
|
|
|
945
|
|
|
(9,093
|
)
|
Other
|
(315
|
)
|
|
117
|
|
|
(9
|
)
|
Total income tax expense
|
$
|
4,145
|
|
|
$
|
10,344
|
|
|
$
|
6,169
|
|
Note 6 – Income Taxes (continued)
(a) Amounts for 2017 and 2018 are included in Other and fell below the 5% threshold.
On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changed U.S. tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled.
Also on December 22, 2017, the SEC staff issued SAB 118 which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, 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. This amount included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017. As of December 31, 2019, the remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million. In accordance with SAB 118, 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.
The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize tax expense related to GILTI in the year the tax is incurred.
The Company recognized approximately $12.9 million and $15.6 million of GILTI income for the years ended December 31, 2019 and 2018, respectively. The U.S. tax on the GILTI income was fully offset by foreign tax credits associated with GILTI and U.S. operating losses exclusive of GILTI. Any excess foreign tax credits associated with GILTI are lost and cannot be carried forward to future years. The Company would have generated a net operating loss for U.S. federal income tax purposes but for the effects of the GILTI provision.
Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Note 6 – Income Taxes (continued)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Pension and other postretirement costs
|
$
|
3,770
|
|
|
$
|
3,600
|
|
Inventories
|
2,095
|
|
|
2,103
|
|
Net operating/capital loss and interest carryforwards
|
11,895
|
|
|
9,536
|
|
Tax credit carryforwards
|
1,431
|
|
|
748
|
|
Deferred compensation
|
2,865
|
|
|
2,009
|
|
Other accruals and reserves
|
3,362
|
|
|
3,547
|
|
Book over tax depreciation
|
—
|
|
|
12
|
|
Total gross deferred tax assets
|
25,418
|
|
|
21,555
|
|
Less: valuation allowance
|
(14,867
|
)
|
|
(14,455
|
)
|
|
10,551
|
|
|
7,100
|
|
Deferred tax liabilities:
|
|
|
|
Tax over book depreciation
|
(290
|
)
|
|
—
|
|
Investment in subsidiary
|
(1,845
|
)
|
|
(1,983
|
)
|
Intangible assets, including tax deductible goodwill
|
(5,745
|
)
|
|
(884
|
)
|
Total gross deferred tax liabilities
|
(7,880
|
)
|
|
(2,867
|
)
|
|
|
|
|
Net deferred tax assets
|
$
|
2,671
|
|
|
$
|
4,233
|
|
In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to uncertainty regarding the realization of these assets. Throughout 2018 and 2019, the Company reassessed its ability to realize its U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek, Pacific and DSI was also considered in determining the realization of the U.S. deferred tax assets. Other aspects, such as operating results, additional interest expense and additional tax deductions related to the Stress-Tek acquisition, were also considered. The Company also considered positive evidence such as tax planning strategies and the projected benefits of our restructuring efforts. However, there was insufficient positive evidence to overcome the negative evidence.
In November 2019, the Company acquired Dynamic Systems, Inc. ("DSI"), a U.S. company. DSI's opening balance sheet included $17 million of gross deferred tax liabilities, including $4.1 million of indefinite-lived liabilities. The acquisition contributed to a $2.5 million net reduction in valuation allowance and current tax benefit for the Company. This reduction in the valuation allowance will be adjusted going forward.
Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable. We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient positive evidence of realization exists. At December 31, 2019 and 2018, the valuation allowance on U.S. deferred tax assets was approximately $11.8 million and $12.3 million, respectively. The net change in valuation allowance was approximately $(0.6) million.
The valuation allowance related to state taxes was $0.8 million and $1.0 million expense for the years ended December 31, 2019 and 2018, respectively.
The Company also has valuation allowances of $3.1 million and $2.2 million at December 31, 2019 and 2018, respectively, with respect to certain foreign net operating loss and capital loss carryforwards.
Note 6 – Income Taxes (continued)
Significant valuation allowances are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
Jurisdiction
|
2019
|
|
2018
|
U.S. federal
|
$
|
3,395
|
|
|
$
|
4,240
|
|
U.S. state (net of U.S. federal tax benefit)
|
8,411
|
|
|
8,057
|
|
Israel - capital losses
|
2,457
|
|
|
1,457
|
|
The following table summarizes significant net operating losses and credit carryforwards as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
Jurisdiction
|
2019
|
|
Expiring
|
U.S. foreign tax credit
|
1,431
|
|
|
2025-2039
|
U.S state net operating losses
|
92,407
|
|
|
2023-2039
|
Israel capital losses
|
10,684
|
|
|
No expiration
|
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $159.0 million at December 31, 2019 compared to $143.0 million at December 31, 2018. As a result of the 2017 Tax Act, in 2017 the Company had provided for a deferred tax liability of approximately $1.8 million of withholding tax associated with a planned cash distribution of approximately $25.5 million. As of December 31, 2019, other than the planned cash distribution of $14.1 million, substantially all of the remaining undistributed earnings are considered to be indefinitely reinvested and accordingly no provision has been made with respect to these earnings for incremental foreign income taxes, state income taxes or foreign withholding taxes. If those earnings were distributed to the U.S., the Company could be subject to incremental foreign income taxes, state income taxes, and withholding taxes. Determination of the amount of unrecognized deferred tax liability is not practicable because of the uncertainty regarding the timing of any such distribution and the impact on existing valuation allowances. In addition to the $1.5 million, additional withholding taxes of approximately $17.5 million are estimated to be payable upon remittance of the remaining previously unremitted earnings as of December 31, 2019.
Net income taxes paid were $11.1 million, $7.3 million, and $4.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties.
Note 6 – Income Taxes (continued)
The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
912
|
|
|
$
|
823
|
|
|
$
|
772
|
|
Addition based on tax positions related to current year
|
144
|
|
|
189
|
|
|
163
|
|
Addition based on tax positions related to prior years
|
668
|
|
|
182
|
|
|
—
|
|
Reduction based on tax positions related to prior years
|
(32
|
)
|
|
(98
|
)
|
|
(12
|
)
|
Currency translation adjustments
|
3
|
|
|
(28
|
)
|
|
14
|
|
Reduction for payments made
|
(134
|
)
|
|
—
|
|
|
—
|
|
Reduction for lapses of statute of limitations
|
(206
|
)
|
|
(156
|
)
|
|
(114
|
)
|
Balance before indemnification receivable
|
1,355
|
|
|
912
|
|
|
823
|
|
Receivable from Vishay Intertechnology for indemnification
|
—
|
|
|
—
|
|
|
(12
|
)
|
Balance at end of year
|
$
|
1,355
|
|
|
$
|
912
|
|
|
$
|
811
|
|
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to the unrecognized tax benefits noted above, for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, the Company accrued total penalties and interest of $0.0 million, $0.1 million and $0.1 million, respectively, none of which was included in the indemnification receivable. As of December 31, 2019, December 31, 2018 and December 31, 2017, accrued penalties and interest were $0.1 million, $0.1 million and $0.1 million, respectively.
Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018, and 2017 is $1.4 million, $0.9 million, and $0.8 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2 million may be necessary in 2019. As of December 31, 2019, the Company anticipates that it is reasonably possible that it will reverse up to $0.1 million of its current unrecognized tax benefits within the calendar year due to the expiration of the statute of limitations in certain jurisdictions. None of the unrecognized tax benefits the Company expects to reverse in 2020 due to statute lapses are covered by the Tax Matters Agreement.
The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis. The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally range from 3 to 10 years.
During the 2nd and 3rd quarters of 2019, the Company concluded tax examinations in Taiwan and Belgium, respectively, for two of its subsidiaries, covering the years 2016 and 2017. The conclusion of the tax examinations resulted in no significant change in tax.
During the fourth quarter of 2018, the Company concluded a tax examination in Germany for one of its subsidiaries, covering the years 2015 and 2016. The conclusion of the tax examination resulted in no significant change in tax.
During the fourth quarter of 2017, the Company concluded a tax examination in Japan for one of its subsidiaries, covering the years 2014 through 2016. The conclusion of the tax examination resulted in no significant change in tax.
The Company is subject to ongoing income tax audits, administrative appeals and judicial proceedings in India spanning a number of years.
Note 7 – Long-Term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
2015 Credit Agreement - Revolving Facility
|
$
|
34,000
|
|
|
$
|
12,000
|
|
2015 Credit Agreement - U.S. Closing Date Term Facility
|
2,038
|
|
|
2,967
|
|
2015 Credit Agreement - U.S. Delayed Draw Term Facility
|
4,982
|
|
|
7,253
|
|
2015 Credit Agreement - Canadian Term Facility
|
3,476
|
|
|
4,798
|
|
Other debt
|
149
|
|
|
279
|
|
Deferred financing costs
|
(112
|
)
|
|
(222
|
)
|
|
44,533
|
|
|
27,075
|
|
Less: current portion
|
44,516
|
|
|
4,654
|
|
|
$
|
17
|
|
|
$
|
22,421
|
|
2015 Credit Agreement
On December 30, 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “2015 Credit Agreement”) among the Company, VPG Canada, the lenders, Citizens Bank, National Association and Wells Fargo Bank, National Association as joint book-runners and JPMorgan Chase Bank, National Association as agent for such lenders (the “Agent”), pursuant to which the terms of the Company’s multi-currency, secured credit facility were revised and expanded to provide for the following facilities: (1) a secured revolving facility (the “2015 Revolving Facility”) in an aggregate principal amount of $30.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its U.S. and Canadian subsidiaries, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which was used to fund the Stress-Tek and Pacific acquisitions; (2) a secured closing date term facility for the Company (the “2015 U.S. Closing Date Term Facility”) in an aggregate principal amount of $4.5 million, the proceeds of which were used by the Company to refinance indebtedness under its existing term loan; (3) a secured delayed draw term facility for the Company (the "2015 U.S. Delayed Draw Term Facility") in an aggregate principal amount of $11.0 million, the proceeds of which were used to fund a portion of the Stress-Tek acquisition; and (4) a secured term facility for VPG Canada (the “2015 Canadian Term Facility”) in an aggregate principal amount of $9.5 million, the proceeds of which were used by VPG Canada to refinance indebtedness under its existing term loan. The aggregate principal amount of the 2015 Revolving Facility may be increased by a maximum of $15.0 million upon the request of the Company, subject to the terms of the 2015 Credit Agreement. The 2015 Credit Agreement terminates on December 30, 2020. The term loans are being repaid in quarterly installments.
Interest payable on amounts borrowed under the 2015 Revolving Facility, the 2015 U.S. Closing Date Term Facility, the 2015 U.S. Delayed Draw Term Facility, and the 2015 Canadian Term Facility (collectively, the “Facilities”) is based upon, at the Company’s option, (1) the greatest of: the Agent’s prime rate, the Federal Funds rate, or a LIBOR floor (the “Base Rate”), or (2) LIBOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company’s leverage ratio, an interest rate margin ranging from 2.00% to 3.50% per annum is added to the applicable LIBOR rate to determine the interest payable on the Facilities. The Company is required to pay a quarterly commitment fee of 0.30% per annum to 0.50% per annum on the unused portion of the 2015 Revolving Facility, which is determined based on the Company’s leverage ratio each quarter. Additional customary fees apply with respect to letters of credit. The total interest rates at December 31, 2019 and December 31, 2018, were 3.97% and 4.82%, respectively, for the 2015 Revolving and U.S. Delayed Draw Term Facilities and 3.97% and 4.82%, respectively, for the 2015 U.S. Closing Date Term and 2015 Canadian Term Facilities.
The obligations of the Company and VPG Canada under the 2015 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries and of the Company (with respect to the 2015 Canadian Term Facility). The obligations of the Company and the guarantors under the 2015 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2015 Canadian Term Facility is secured by substantially all the assets of VPG Canada and by a secured guarantee by the Company and its domestic subsidiaries. The 2015 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include a tangible net worth ratio, a leverage ratio, and a fixed charges coverage ratio. The Company was in compliance with its financial maintenance covenants at December 31, 2019. If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.
Note 7 – Long-Term Debt (continued)
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.
Other Lines of Credit
In addition to the 2015 Revolving Facility discussed above, certain subsidiaries of the Company had committed short-term lines of credit with a foreign bank aggregating approximately $3.0 million and $3.0 million at December 31, 2019 and 2018, respectively. The Company had outstanding letters of credit under these short-term lines of credit of $0.9 million and $0.9 million at December 31, 2019 and 2018, respectively.
Other Debt
Other debt consists of debt held by VPG’s Japanese subsidiary and is payable monthly over the next 2 years at a zero percent interest rate.
Aggregate annual maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
2020
|
$
|
44,628
|
|
2021
|
17
|
|
2022
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
Thereafter
|
—
|
|
Interest paid on third-party debt was $1.4 million, $1.6 million, and $1.7 million during the years ended December 31, 2019, 2018, and 2017, respectively.
Note 8 – Stockholders’ Equity
The Company’s Class B convertible common stock carries ten votes per share. The common stock carries one vote per share. Class B shares are transferable only to certain permitted transferees while the common stock is freely transferable. Class B shares are convertible on a one-for-one basis at any time into shares of common stock. Transfers of Class B shares other than to permitted transferees result in the automatic conversion of the Class B shares into common stock.
The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B convertible common stock if it grants such dividends or distributions in the same amount per share with respect to the other class of stock. As discussed in Note 7, the Company is restricted from paying cash dividends. Stock dividends or distributions, on any class of stock, are payable only in shares of stock of that class. Shares of either common stock or Class B convertible common stock cannot be split, divided, or combined unless the other is also split, divided, or combined equally.
The Board of Directors is authorized, without further stockholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock in one or more series. The Board of Directors may fix or alter the designation, preferences, rights and any qualification, limitations, restrictions of the shares of any series, including the dividend rights, dividend rates, conversion rights, voting rights, redemption terms and prices, liquidation preferences and the number of shares constituting any series. No shares of the Company’s preferred stock are currently outstanding.
Note 8 – Stockholders’ Equity (continued)
Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Before-Tax
Amount
|
|
Tax
Effect
|
|
Net-of-Tax
Amount
|
|
Ending
Balance
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement actuarial items
|
$
|
(7,145
|
)
|
|
$
|
(1,465
|
)
|
|
$
|
112
|
|
|
$
|
(1,353
|
)
|
|
$
|
(8,498
|
)
|
Reclassification adjustment for recognition of actuarial items
|
|
|
583
|
|
|
(145
|
)
|
|
438
|
|
|
438
|
|
Foreign currency translation adjustment
|
(33,192
|
)
|
|
5,654
|
|
|
148
|
|
|
5,802
|
|
|
(27,390
|
)
|
|
$
|
(40,337
|
)
|
|
$
|
4,772
|
|
|
$
|
115
|
|
|
$
|
4,887
|
|
|
$
|
(35,450
|
)
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement actuarial items
|
$
|
(8,060
|
)
|
|
$
|
1,392
|
|
|
$
|
(18
|
)
|
|
$
|
1,374
|
|
|
$
|
(6,686
|
)
|
Reclassification adjustment for recognition of actuarial items
|
|
|
685
|
|
|
(145
|
)
|
|
540
|
|
|
540
|
|
Foreign currency translation adjustment
|
(27,390
|
)
|
|
(3,857
|
)
|
|
(72
|
)
|
|
(3,929
|
)
|
|
(31,319
|
)
|
|
$
|
(35,450
|
)
|
|
$
|
(1,780
|
)
|
|
$
|
(235
|
)
|
|
$
|
(2,015
|
)
|
|
$
|
(37,465
|
)
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement actuarial items
|
$
|
(6,146
|
)
|
|
$
|
(1,310
|
)
|
|
$
|
194
|
|
|
$
|
(1,116
|
)
|
|
$
|
(7,262
|
)
|
Reclassification adjustment for recognition of actuarial items
|
|
|
359
|
|
|
(39
|
)
|
|
320
|
|
|
320
|
|
Foreign currency translation adjustment
|
(31,319
|
)
|
|
(290
|
)
|
|
21
|
|
|
(269
|
)
|
|
(31,588
|
)
|
Reclassification adjustment for foreign currency translation
|
|
|
827
|
|
|
$
|
—
|
|
|
827
|
|
|
827
|
|
|
$
|
(37,465
|
)
|
|
$
|
(414
|
)
|
|
$
|
176
|
|
|
$
|
(238
|
)
|
|
$
|
(37,703
|
)
|
Reclassification of foreign currency translation adjustment for gain on liquidation of a subsidiary is included in other income (expense) other ( See Note 15). Reclassifications of pension and other postretirement actuarial items out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (see Note 9).
Note 9 – Pensions and Other Postretirement Benefits
Defined Benefit Plans
Employees of the Company participate in various defined benefit pension and other postretirement benefit plans.
U.S. Pension Plan
The Vishay Precision Group Non-Qualified Retirement Plan, like all nonqualified plans, is considered to be unfunded. The Company maintains a nonqualified trust, referred to as a “rabbi” trust, to fund benefits under this plan. Rabbi trust assets are subject to creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent assets within the consolidated balance sheets. The assets held in the rabbi trust are invested in money market funds and company-owned life insurance policies. The consolidated balance sheets include assets held in trust related to the nonqualified pension plan of $1.7 million at December 31, 2019 and $1.6 million at December 31, 2018, and the related liabilities of $2.4 million and $2.2 million at December 31, 2019 and 2018, respectively.
The Vishay Precision Group Non-Qualified Retirement Plan is frozen. Accordingly, no new employees may participate in the plan, no further participant contributions are permitted, and no further benefits accrue. Benefits accumulated prior to the freezing of the U.S. pension plan will be paid to employees upon retirement, and the Company will likely need to make additional cash contributions to the rabbi trust to fund this accumulated benefit obligation.
Note 9 – Pensions and Other Postretirement Benefits (continued)
Non-U.S. Pension Plans
The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries consistent with local practices. Pension benefits earned are generally based on years of service and compensation during active employment.
In 2018, the Company undertook several measures to de-risk the UK pension plan. The first measure was to freeze the plan, with no new participants permitted and no further benefits accrue. The second measure was to execute an enhanced transfer value exercise to transfer pension benefits outside of the plan. As s result, the Company incurred $0.7 million of expense related to these de-risking measures.
Other Postretirement Benefit Plans
In the U.S., the Company maintains two unfunded non-pension other postretirement benefit plans (“OPEB”) which are funded as costs are incurred. These plans provide medical and death benefits to retirees.
The following table sets forth a reconciliation of the benefit obligation, plan assets, and funded status related to pension and other postretirement benefit plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
23,922
|
|
|
$
|
4,645
|
|
|
$
|
28,617
|
|
|
$
|
4,726
|
|
Service cost (adjusted for actual employee contributions)
|
336
|
|
|
126
|
|
|
477
|
|
|
108
|
|
Interest cost
|
620
|
|
|
180
|
|
|
686
|
|
|
152
|
|
Contributions by participants
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Actuarial (gains) losses
|
2,170
|
|
|
(131
|
)
|
|
(1,568
|
)
|
|
(97
|
)
|
Benefits paid
|
(856
|
)
|
|
(187
|
)
|
|
(1,042
|
)
|
|
(244
|
)
|
Curtailments and settlements
|
(25
|
)
|
|
—
|
|
|
(3,362
|
)
|
|
—
|
|
Plan amendments and other
|
573
|
|
|
—
|
|
|
1,107
|
|
|
—
|
|
Currency translation
|
531
|
|
|
—
|
|
|
(1,014
|
)
|
|
—
|
|
Benefit obligation at end of year
|
$
|
27,271
|
|
|
$
|
4,633
|
|
|
$
|
23,922
|
|
|
$
|
4,645
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
14,501
|
|
|
$
|
—
|
|
|
$
|
17,454
|
|
|
$
|
—
|
|
Actual return on plan assets
|
1,338
|
|
|
—
|
|
|
(343
|
)
|
|
—
|
|
Company contributions
|
1,032
|
|
|
187
|
|
|
1,495
|
|
|
244
|
|
Contributions by participants
|
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Benefits paid
|
(856
|
)
|
|
(187
|
)
|
|
(1,042
|
)
|
|
(244
|
)
|
Curtailments and settlements
|
(25
|
)
|
|
—
|
|
|
(2,429
|
)
|
|
—
|
|
Plan amendments and other
|
|
|
|
—
|
|
|
202
|
|
|
—
|
|
Currency translation
|
430
|
|
|
—
|
|
|
(857
|
)
|
|
—
|
|
Fair value of plan assets at end of year
|
$
|
16,420
|
|
|
$
|
—
|
|
|
$
|
14,501
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
$
|
(10,851
|
)
|
|
$
|
(4,633
|
)
|
|
$
|
(9,421
|
)
|
|
$
|
(4,645
|
)
|
Amounts recognized in the consolidated balance sheets consist of the following pre-tax amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Accrued pension and other postretirement costs
|
$
|
(10,851
|
)
|
|
$
|
(4,633
|
)
|
|
$
|
(9,421
|
)
|
|
$
|
(4,645
|
)
|
Note 9 – Pensions and Other Postretirement Benefits (continued)
Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes with respect to the obligations and from the difference between expected returns and actual returns on plan assets. Actuarial items consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Unrecognized net actuarial loss
|
$
|
6,500
|
|
|
$
|
1,808
|
|
|
$
|
5,237
|
|
|
$
|
2,095
|
|
Unrecognized prior service cost
|
62
|
|
|
|
|
|
9
|
|
|
—
|
|
Unamortized transition obligation
|
1
|
|
|
|
|
|
2
|
|
|
—
|
|
|
$
|
6,563
|
|
|
$
|
1,808
|
|
|
$
|
5,248
|
|
|
$
|
2,095
|
|
The following table sets forth additional information regarding the projected and accumulated benefit obligations for the pension plans (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Accumulated benefit obligation, all plans
|
$
|
26,100
|
|
|
$
|
23,040
|
|
Plans for which the accumulated benefit obligation exceeds plan assets:
|
|
|
|
|
|
Projected benefit obligation
|
$
|
25,800
|
|
|
$
|
22,552
|
|
Accumulated benefit obligation
|
25,158
|
|
|
22,155
|
|
Fair value of plan assets
|
14,983
|
|
|
13,256
|
|
Unrecognized gains and losses are amortized into future net periodic pension cost using the 10% corridor method over the expected remaining service life of the employee group. The following table sets forth the components of net periodic cost of pension and other postretirement benefit plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Annual service cost
|
$
|
336
|
|
|
$
|
126
|
|
|
$
|
498
|
|
|
$
|
108
|
|
|
$
|
548
|
|
|
$
|
96
|
|
Less: employee contributions
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
35
|
|
|
—
|
|
Net service cost
|
336
|
|
|
126
|
|
|
477
|
|
|
108
|
|
|
513
|
|
|
96
|
|
Interest cost
|
620
|
|
|
180
|
|
|
686
|
|
|
152
|
|
|
674
|
|
|
142
|
|
Expected return on plan assets
|
(517
|
)
|
|
—
|
|
|
(549
|
)
|
|
—
|
|
|
(536
|
)
|
|
—
|
|
Amortization of actuarial losses
|
202
|
|
|
156
|
|
|
507
|
|
|
177
|
|
|
463
|
|
|
119
|
|
Amortization of transition obligation
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Curtailment and settlement losses
|
—
|
|
|
—
|
|
|
708
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
642
|
|
|
$
|
462
|
|
|
$
|
1,830
|
|
|
$
|
437
|
|
|
$
|
1,115
|
|
|
$
|
357
|
|
See Note 8 for the pre-tax, tax effect, and after tax amounts included in other comprehensive income during the years ended December 31, 2019, 2018, and 2017. The estimated actuarial items that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2020 is $0.4 million.
The following weighted-average assumptions were used to determine benefit obligations at December 31 of the respective years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Discount rate
|
1.96
|
%
|
|
2.97
|
%
|
|
2.61
|
%
|
|
3.99
|
%
|
Rate of compensation increase
|
1.20
|
%
|
|
N/A
|
|
|
3.08
|
%
|
|
N/A
|
|
Expected return on plan assets
|
3.56
|
%
|
|
N/A
|
|
|
2.70
|
%
|
|
N/A
|
|
Note 9 – Pensions and Other Postretirement Benefits (continued)
The following weighted-average assumptions were used to determine the net periodic pension costs for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Discount rate
|
2.61
|
%
|
|
3.99
|
%
|
|
2.42
|
%
|
|
3.33
|
%
|
Rate of compensation increase
|
3.08
|
%
|
|
N/A
|
|
|
2.66
|
%
|
|
N/A
|
|
Expected return on plan assets
|
2.70
|
%
|
|
N/A
|
|
|
3.46
|
%
|
|
N/A
|
|
Health care trend rate
|
N/A
|
|
|
5.27
|
%
|
|
N/A
|
|
|
17.25
|
%
|
The health care trend ultimate rate is 3.90% per the terms of the plan. The impact of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit cost and postretirement benefit obligation is not material.
The plans’ expected return on assets is based on management’s expectation of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions.
The investment mix between equity securities and fixed income securities is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. The target allocation of plan assets approximates the actual allocation of plan assets at December 31, 2019 and 2018.
Plan assets are comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Pension
Plans
|
|
OPEB
Plans
|
|
Pension
Plans
|
|
OPEB
Plans
|
Equity securities
|
48
|
%
|
|
—
|
|
50
|
%
|
|
—
|
Fixed income securities
|
42
|
%
|
|
—
|
|
37
|
%
|
|
—
|
Cash and cash equivalents
|
10
|
%
|
|
—
|
|
13
|
%
|
|
—
|
Total
|
100
|
%
|
|
—
|
|
100
|
%
|
|
—
|
The Company maintains defined benefit retirement plans in certain of its subsidiaries. The assets of the plans are measured at fair value.
Equity securities held by the defined benefit retirement plans consist of equity securities that are valued based on quoted market prices on the last business day of the year. The fair value measurement of the equity securities is considered a Level 1 measurement within the fair value hierarchy.
Fixed income securities held by the defined benefit retirement plans consist of government bonds and corporate notes that are valued based on quoted market prices on the last business day of the year. The fair value measurement of the fixed income securities is considered a Level 1 measurement within the fair value hierarchy.
Cash held by the defined benefit retirement plans consists of deposits on account in various financial institutions. The carrying amount of the cash approximates its fair value. A summary of the Company’s pension plan assets for each fair value hierarchy level are as follows for the periods presented (see Note 16 for further description of the levels within the fair value hierarchy (in thousands)):
Note 9 – Pensions and Other Postretirement Benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
Fair value measurements at reporting date using:
|
|
Total Fair Value
|
|
Level 1 Inputs
|
|
Level 2 Inputs
|
|
Level 3 Inputs
|
Defined benefit pension plan assets
|
|
|
|
|
|
|
|
Equity securities
|
$
|
7,796
|
|
|
$
|
7,796
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed income securities
|
6,975
|
|
|
6,975
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents
|
1,649
|
|
|
1,649
|
|
|
—
|
|
|
—
|
|
|
$
|
16,420
|
|
|
$
|
16,420
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
Fair value measurements at reporting date using:
|
|
Total Fair Value
|
|
Level 1 Inputs
|
|
Level 2 Inputs
|
|
Level 3 Inputs
|
Defined benefit pension plan assets
|
|
|
|
|
|
|
|
Equity securities
|
$
|
7,221
|
|
|
$
|
7,221
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed income securities
|
5,309
|
|
|
5,309
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents
|
1,971
|
|
|
1,971
|
|
|
—
|
|
|
—
|
|
|
$
|
14,501
|
|
|
$
|
14,501
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Estimated future benefit payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension
Plans
|
|
OPEB
Plans
|
2020
|
$
|
921
|
|
|
$
|
294
|
|
2021
|
1,038
|
|
|
338
|
|
2022
|
1,005
|
|
|
353
|
|
2023
|
1,569
|
|
|
292
|
|
2024
|
1,052
|
|
|
328
|
|
2024 - 2027
|
7,205
|
|
|
1,412
|
|
The Company anticipates making contributions to its funded and unfunded pension and postretirement benefit plans of approximately $1.5 million during 2020.
Other Retirement Obligations
The Company participates in various other defined contribution plans based on local law or custom. The Company periodically makes contributions to these plans. At December 31, 2019 and 2018, the consolidated balance sheets include $0.9 million and $1.3 million, respectively, within accrued pension and other postretirement costs related to these plans.
Most of the Company’s U.S. employees are eligible to participate in 401(k) savings plans which provide company matching under various formulas. The Company’s matching expense for the plans was $0.7 million, $0.7 million, and $0.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. No material amounts are included in the consolidated balance sheets related to unfunded 401(k) contributions.
Certain key employees participate in a nonqualified deferred compensation plan, which allows these employees to defer a portion of their compensation until retirement, or elect shorter deferral periods. The accompanying consolidated balance sheets include a liability within other noncurrent liabilities related to these deferrals. The Company maintains a nonqualified trust, referred to as a “rabbi” trust, to fund payments under this plan. Rabbi trust assets are subject to creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent assets within the consolidated balance sheets. The assets held in the rabbi trust are invested in money market funds and company-owned life insurance policies. The consolidated balance sheets include assets held in trust related to the nonqualified deferred compensation plan of $3.5 million at December 31, 2019 and $3.1 million at December 31, 2018, and the related liabilities of $4.9 million and $4.2 million at December 31, 2019 and 2018, respectively.
Note 10 – Share-Based Compensation
The Amended and Restated Vishay Precision Group, Inc. Stock Incentive Plan (as amended and restated, the “Plan”) permits the issuance of up to 1,000,000 shares of common stock. At December 31, 2019, the Company had reserved 417,602 shares of common stock for future grant of equity awards (restricted stock, unrestricted stock, restricted stock units (“RSUs”), or stock options). If any outstanding awards are forfeited by the holder, the underlying shares would be available for future grants under the Plan.
Restricted Stock Units
Pursuant to the Plan, the Company issued RSUs to board members, executive officers, and certain employees of the Company during 2019. 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. Compensation cost is recognized over the period that the participant provides service in exchange for the award. The Company recognizes compensation cost for RSUs that are expected to vest and for which performance criteria are expected to be met.
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 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 “adjusted free cash flow” and net earnings goals, each weighted equally. The awards issued in 2018 and 2017 have similar allocations and vesting criteria.
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 target 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 employee's continued employment and the satisfaction of certain performance objectives relating to three-year cumulative earnings goals and cash flow goals.
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 the 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.
RSU activity is presented below (number of RSUs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Number
of
RSUs
|
|
Weighted
Average
Grant-date
Fair Value
|
|
Number
of
RSUs
|
|
Weighted
Average
Grant-date
Fair Value
|
|
Number
of
RSUs
|
|
Weighted
Average
Grant-date
Fair Value
|
Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
265
|
|
|
$
|
17.64
|
|
|
417
|
|
|
$
|
14.57
|
|
|
377
|
|
|
$
|
14.04
|
|
Granted
|
73
|
|
|
35.27
|
|
|
74
|
|
|
28.20
|
|
|
98
|
|
|
16.75
|
|
Vested
|
(75
|
)
|
|
15.27
|
|
|
(86
|
)
|
|
16.75
|
|
|
(58
|
)
|
|
14.78
|
|
Forfeited
|
(51
|
)
|
|
11.49
|
|
|
(140
|
)
|
|
14.70
|
|
|
—
|
|
|
—
|
|
End of year
|
212
|
|
|
$
|
25.97
|
|
|
265
|
|
|
$
|
17.64
|
|
|
417
|
|
|
$
|
14.57
|
|
Note 10 – Share-Based Compensation (continued)
The fair value of the RSUs vested during 2019 is $2.5 million. Included in the 2019 and 2018 activity are RSU's forfeited as a result of performance objectives not being met. These awards are therefore available for future grants under the Plan.
RSUs with performance-based vesting criteria are expected to vest as follows (number of RSUs in thousands):
|
|
|
|
|
|
|
|
|
|
|
Vesting Date
|
|
Expected to Vest
|
|
Not Expected to Vest
|
|
Total
|
January 1, 2020
|
|
53
|
|
|
5
|
|
|
58
|
|
January 1, 2021
|
|
35
|
|
|
14
|
|
|
49
|
|
January 1, 2022
|
|
3
|
|
|
45
|
|
|
48
|
|
Share-Based Compensation Expense
The following table summarizes pre-tax share-based compensation expense recognized (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Restricted stock units
|
$
|
1,336
|
|
|
$
|
1,799
|
|
|
$
|
1,499
|
|
Share-based compensation expense is recognized ratably over the vesting period of the awards and for RSUs with performance criteria, is recognized for RSU's that are expected to vest and for which performance criteria are expected to be met.
During 2019, it was also determined that certain performance objectives associated with awards granted in 2017, 2018 and 2019 were not likely to be fully met, necessitating a reversal of certain compensation expense associated with those awards. As a net result, adjustments decreasing share based compensation expense totaling $0.8 million were recorded during the year based on anticipated performance levels.
During 2017, it was determined that certain performance objectives associated with awards granted in 2015 were likely to be met, when share based compensation expense related to these performance objectives had been reduced in prior years. This necessitated an increase to share-based compensation expense associated with those awards in 2017. However, it was also determined that certain performance objectives associated with awards granted in 2016 and 2017 were not likely to be fully met, necessitating a reversal of certain compensations expense associated with those awards. As a net result, adjustments increasing share based compensation expense totaling $0.4 million were recorded during the year based on anticipated performance levels.
The deferred tax benefit on share-based compensation expense was $0.1 million, $0.0 million, and $0.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
As of December 31, 2019, the Company had $1.2 million of unrecognized share-based compensation expense related to share-based awards that will be recognized over a weighted-average period of approximately 1.4 years.
Note 11 – Commitments, Contingencies, and Concentrations
Litigation
The Company is subject to various legal proceedings that constitute ordinary, routine litigation incidental to its business. The Company is of the opinion that the disposition of these proceedings will not have a material adverse effect on its business or its financial condition, results of operations, and cash flows.
Executive Employment Agreements
The Company has employment agreements with its executive officers which outline base salary, incentive compensation, and equity-based compensation. The employment agreements with the Company's executive officers also provide for incremental compensation in the event of termination without cause or resignation for good reason.
Sources of Supplies
Although most materials incorporated in the Company’s products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers.
Note 11 – Commitments, Contingencies, and Concentrations (continued)
Some of the most highly specialized materials for the Company’s sensors are sourced from a single vendor. The Company maintains a safety stock inventory of certain critical materials at its facilities.
Certain metals used in the manufacture of the Company’s products are traded on active markets, and can be subject to significant price volatility.
Market Concentrations
No single customer comprises greater than 5% of net revenues.
The vast majority of the Company’s products are used in the broad industrial market, with selected uses in military and aerospace, medical, agriculture, and construction. Within the broad industrial segment, the Company’s products serve wide applications in the waste management, bulk hauling, logging, scale manufacturing, engineering systems, pharmaceutical, oil, chemical, steel, paper, and food industries.
Credit Risk Concentrations
Financial instruments with potential credit risk consist principally of cash and cash equivalents, accounts receivable, and notes receivable. The Company maintains cash and cash equivalents with various major financial institutions. Concentrations of credit risk with respect to receivables are generally limited due to the Company’s large number of customers and their dispersion across many countries and industries. At December 31, 2019 and 2018, the Company had no significant concentrations of credit risk.
Geographic Concentrations
At December 31, 2019 and 2018, a significant percentage of the Company’s cash and cash equivalents are held outside the United States. See the following table for the percentage of cash and cash equivalents by region at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Asia
|
23
|
%
|
|
28
|
%
|
United States
|
7
|
%
|
|
7
|
%
|
Israel
|
28
|
%
|
|
35
|
%
|
Europe
|
14
|
%
|
|
13
|
%
|
United Kingdom
|
17
|
%
|
|
12
|
%
|
Canada
|
11
|
%
|
|
5
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
Note 12 - Leases
Effective January 1, 2019 the Company adopted the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date. The Company determines if an arrangement is or contains a lease at inception or modification of such agreement. The arrangement is or contains a lease if the contract conveys the right to control the use of the identified asset for a period in exchange for consideration.
Lease right of use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected term at commencement date. As the implicit rate is not determinable in most of the Company's leases, the Company's incremental borrowing rate is used as the basis to determine the present value of future lease payments. Refer to Note 7 for discussion of the Company's borrowing rate. The expected lease terms include options to extend or terminate. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. Some of these leases contain variable payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date and are therefore not included in our future minimum lease payments. Variable payments are expensed in the periods incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. Additionally, the Company elected the package of practical expedients permitted under the transition guidance, which allows the carryforward the historical lease classification. The Company also made an election to exclude from balance sheet reporting leases with initial terms of 12 months or less and to exclude non-lease components from lease right of use assets and corresponding liabilities.
The Company primarily leases office and manufacturing facilities in addition to vehicles, which have remaining terms of less than one year to seven years. The Company has no finance leases. 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
|
|
December 31, 2019
|
Assets
|
|
|
|
|
Operating lease right of use asset
|
|
Other Assets
|
|
$
|
8,691
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Operating lease - current
|
|
Other Accrued Expenses
|
|
$
|
2,827
|
|
Operating lease - non-current
|
|
Other Liabilities
|
|
$
|
5,811
|
|
Other information related to lease term and discount rate is as follows:
|
|
|
|
|
December 31, 2019
|
Operating leases weighted average remaining lease term (in years)
|
4.0 years
|
|
Operating leases weighted average discount rate
|
5.05
|
%
|
The components of lease expense are as follows (in thousands):
|
|
|
|
|
|
Year Ended
|
|
December 31, 2019
|
Operating lease cost
|
$
|
3,376
|
|
Variable lease cost
|
44
|
|
Short-term lease cost
|
87
|
|
Total lease cost
|
$
|
3,507
|
|
Right of use assets obtained in exchange for new operating lease liability during 2019 were $0.3 million. The cash paid for amounts included in the measurement of lease liabilities approximates our operating lease cost for the year ended December 31, 2019.
Note 12 - Leases ( continued)
Undiscounted maturities of operating lease payments as of December 31, 2019 are summarized as follows (in thousands):
|
|
|
|
|
2020
|
$
|
3,349
|
|
2021
|
2,563
|
|
2022
|
1,580
|
|
2023
|
1,201
|
|
2024
|
769
|
|
Thereafter
|
576
|
|
Total future minimum lease payments
|
$
|
10,038
|
|
Less: amount representing interest
|
(1,400
|
)
|
Present value of future minimum lease payments
|
$
|
8,638
|
|
One of the Company's indirect wholly-owned subsidiaries enter into a lease agreement as tenant related to a property in Israel. Such lease agreement provides that we will lease a new building of approximately 121,400 square feet. The Company expects to commence occupancy in the second half of 2020.
Rent expense on operating leases prior to adoption of ASC 842 was $3.6 million and $3.6 million for the years ended December 31, 2018 and 2017, respectively.
The following are the future minimum lease payments (excluding related party leases as described in Note 17) with initial or remaining noncancellable lease terms in excess of one year as of December 31, 2018 ( in thousands):
|
|
|
|
|
2019
|
$
|
3,580
|
|
2020
|
2,126
|
|
2021
|
997
|
|
2022
|
725
|
|
2023
|
503
|
|
Thereafter
|
336
|
|
Total lease payments
|
$
|
8,267
|
|
Note 13 – Segment and Geographic Data
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 and on-board weighing applications.
VPG evaluates reporting segment performance based on multiple performance measures including gross profits, revenues, and operating income, exclusive of certain items. Management believes that evaluating segment performance, excluding items such as restructuring and severance costs, and other items is meaningful because it provides insight with respect to the intrinsic operating results of VPG. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). Reporting segment assets are the owned or allocated assets used by each segment. Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products.
Note 13 – Segment and Geographic Data (continued)
The following table sets forth reporting segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foil Technology
Products
|
|
Force
Sensors
|
|
Weighing and
Control Systems
|
|
Corporate/
Other
|
|
Total
|
2019
|
|
|
|
|
|
|
|
|
|
Net third-party revenues
|
$
|
131,803
|
|
|
$
|
64,357
|
|
|
$
|
87,798
|
|
|
$
|
—
|
|
|
$
|
283,958
|
|
Intersegment revenues
|
4,067
|
|
|
1,068
|
|
|
463
|
|
|
(5,598
|
)
|
|
—
|
|
Gross profit
|
53,292
|
|
|
18,022
|
|
|
40,303
|
|
|
—
|
|
|
111,617
|
|
Segment operating income (loss)
|
29,873
|
|
|
8,643
|
|
|
21,058
|
|
|
(30,926
|
)
|
|
28,648
|
|
Acquisition costs
|
—
|
|
|
—
|
|
|
443
|
|
|
—
|
|
|
443
|
|
Executive severance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
611
|
|
|
611
|
|
Restructuring costs
|
86
|
|
|
2,041
|
|
|
—
|
|
|
166
|
|
|
2,293
|
|
Depreciation and amortization expense
|
5,870
|
|
|
2,442
|
|
|
2,200
|
|
|
1,283
|
|
|
11,795
|
|
Capital expenditures
|
7,011
|
|
|
2,237
|
|
|
1,243
|
|
|
38
|
|
|
10,529
|
|
Total assets
|
116,920
|
|
|
75,885
|
|
|
158,597
|
|
|
19,011
|
|
|
370,413
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net third-party revenues
|
$
|
141,009
|
|
|
$
|
73,186
|
|
|
$
|
85,599
|
|
|
$
|
—
|
|
|
$
|
299,794
|
|
Intersegment revenues
|
3,878
|
|
|
1,365
|
|
|
577
|
|
|
(5,820
|
)
|
|
—
|
|
Gross profit
|
61,562
|
|
|
20,001
|
|
|
39,704
|
|
|
—
|
|
|
121,267
|
|
Segment operating income (loss)
|
38,404
|
|
|
10,514
|
|
|
20,508
|
|
|
(32,203
|
)
|
|
37,223
|
|
Impairment of goodwill and indefinite-lived intangibles
|
2,820
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,820
|
|
Restructuring costs
|
—
|
|
|
289
|
|
|
—
|
|
|
—
|
|
|
289
|
|
Depreciation and amortization expense
|
5,173
|
|
|
2,323
|
|
|
2,121
|
|
|
1,014
|
|
|
10,631
|
|
Capital expenditures
|
9,239
|
|
|
2,483
|
|
|
1,370
|
|
|
147
|
|
|
13,239
|
|
Total assets
|
132,918
|
|
|
82,637
|
|
|
95,954
|
|
|
14,874
|
|
|
326,383
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net third-party revenues
|
$
|
116,272
|
|
|
$
|
65,446
|
|
|
$
|
72,632
|
|
|
$
|
—
|
|
|
$
|
254,350
|
|
Intersegment revenues
|
2,316
|
|
|
1,346
|
|
|
911
|
|
|
(4,573
|
)
|
|
—
|
|
Gross profit
|
47,755
|
|
|
18,192
|
|
|
32,336
|
|
|
—
|
|
|
98,283
|
|
Segment operating income (loss)
|
26,426
|
|
|
9,274
|
|
|
14,770
|
|
|
(27,982
|
)
|
|
22,488
|
|
Restructuring costs
|
85
|
|
|
849
|
|
|
602
|
|
|
508
|
|
|
2,044
|
|
Depreciation and amortization expense
|
4,946
|
|
|
2,537
|
|
|
2,133
|
|
|
1,010
|
|
|
10,626
|
|
Capital expenditures
|
4,519
|
|
|
4,297
|
|
|
823
|
|
|
453
|
|
|
10,092
|
|
Total assets
|
119,175
|
|
|
77,756
|
|
|
97,007
|
|
|
12,613
|
|
|
306,551
|
|
Note 13 – Segment and Geographic Data (continued)
The “Corporate/Other” column for segment operating income (loss) includes unallocated selling, general, and administrative expenses and certain items which management excludes from segment results when evaluating segment performance, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Unallocated selling, general, and administrative expenses
|
$
|
(27,579
|
)
|
|
$
|
(29,094
|
)
|
|
$
|
(25,938
|
)
|
Acquisition costs
|
(443
|
)
|
|
—
|
|
|
—
|
|
Impairment of goodwill and indefinite-lived intangibles
|
—
|
|
|
(2,820
|
)
|
|
—
|
|
Executive severance costs
|
(611
|
)
|
|
—
|
|
|
—
|
|
Restructuring costs
|
(2,293
|
)
|
|
(289
|
)
|
|
(2,044
|
)
|
|
$
|
(30,926
|
)
|
|
$
|
(32,203
|
)
|
|
$
|
(27,982
|
)
|
The following geographic data includes property and equipment based on physical location (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
Property and Equipment - Net
|
2019
|
|
2018
|
United States
|
$
|
12,009
|
|
|
$
|
10,933
|
|
United Kingdom
|
4,011
|
|
|
3,960
|
|
Other Europe
|
1,498
|
|
|
1,430
|
|
Israel
|
22,903
|
|
|
22,682
|
|
Asia
|
19,118
|
|
|
19,090
|
|
Canada and Other
|
1,731
|
|
|
1,324
|
|
|
$
|
61,270
|
|
|
$
|
59,419
|
|
Note 14 – Earnings Per Share
Basic earnings per share are computed using the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding, adjusted to include the potentially dilutive effect of stock options and restricted stock units (see Note 10), and other potentially dilutive securities.
Note 14 – Earnings Per Share (continued)
The following table sets forth the computation of basic and diluted earnings per share attributable to VPG stockholders (in thousands, except earnings per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share:
|
|
|
|
|
|
Net earnings attributable to VPG stockholders
|
$
|
22,188
|
|
|
$
|
23,646
|
|
|
$
|
14,345
|
|
Adjustment to the numerator for net earnings:
|
|
|
|
|
|
Interest savings assuming conversion of dilutive exchangeable notes, net of tax
|
—
|
|
|
6
|
|
|
24
|
|
Numerator for diluted earnings per share:
|
|
|
|
|
|
Net earnings attributable to VPG stockholders
|
$
|
22,188
|
|
|
$
|
23,652
|
|
|
$
|
14,369
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
Weighted average shares
|
13,515
|
|
|
13,439
|
|
|
13,262
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Exchangeable notes
|
—
|
|
|
22
|
|
|
145
|
|
Restricted stock units
|
82
|
|
|
74
|
|
|
64
|
|
Dilutive potential common shares
|
82
|
|
|
96
|
|
|
209
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
Adjusted weighted average shares
|
13,597
|
|
|
13,535
|
|
|
13,471
|
|
|
|
|
|
|
|
Basic earnings per share attributable to VPG stockholders
|
$
|
1.64
|
|
|
$
|
1.76
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to VPG stockholders
|
$
|
1.63
|
|
|
$
|
1.75
|
|
|
$
|
1.07
|
|
Note 15 – Additional Financial Statement Information
The caption “Other” on the consolidated statements of operations consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Foreign exchange loss
|
$
|
(1,638
|
)
|
|
$
|
(279
|
)
|
|
$
|
(724
|
)
|
Interest income
|
622
|
|
|
506
|
|
|
167
|
|
Pension expense
|
(643
|
)
|
|
(1,682
|
)
|
|
(863
|
)
|
Other
|
958
|
|
|
(41
|
)
|
|
1,337
|
|
|
$
|
(701
|
)
|
|
$
|
(1,496
|
)
|
|
$
|
(83
|
)
|
Note 15 – Additional Financial Statement Information (continued)
Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in foreign exchange gains/(losses) during the period, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel, the Euro, India Rupee and the Canadian dollar.
Pension expense represents the net periodic benefit cost excluding the service cost. In 2018, the Company recognized a settlement loss of $0.7 million related to measures taken to de-risk the UK pension schemes as discussed in Note 9 to the consolidated financial statements.
Included in Other for the year ended December 31, 2019, is a one-time $0.8 million gain on liquidation of one of the Company's subsidiaries.
Included within Other, for the year ended December 31, 2017, is net proceeds of $1.5 million related to a lease termination payment at the Company's Tianjin, People's Republic of China location. The relocation of operation in Tianjin was completed in 2018.
Other accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Customer advance payments
|
$
|
4,561
|
|
|
$
|
5,328
|
|
Accrued restructuring
|
604
|
|
|
159
|
|
Goods received, not yet invoiced
|
1,561
|
|
|
1,819
|
|
Accrued taxes, other than income taxes
|
1,167
|
|
|
2,293
|
|
Accrued commissions
|
2,149
|
|
|
2,203
|
|
Accrued professional fees
|
1,082
|
|
|
1,775
|
|
Lease liability - current
|
2,827
|
|
|
—
|
|
Other
|
5,002
|
|
|
3,454
|
|
|
$
|
18,953
|
|
|
$
|
17,031
|
|
Israeli Severance Pay
The Israeli Severance Pay Law, 1963 ("Severance Pay Law"), specifies that employees of our Israeli subsidiary are entitled to severance payment, following the termination of their employment. Under the Severance Pay Law, the severance payment is calculated as one month salary for each year of employment, or a portion thereof.
Part of the subsidiary's liability for severance pay is covered by the provisions of Section 14 of the Severance Pay Law ("Section 14"). Under Section 14 employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, contributed on their behalf to their insurance funds. Payments in accordance with Section 14 release the subsidiary from any future severance payments in respect of those employees. As a result, the Company does not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as an asset in the Company's balance sheet.
For the subsidiary's employees in Israel who are not subject to Section 14, the Company calculated the liability for severance pay pursuant to the Severance Pay Law based on the most recent salary of these employees multiplied by the number of years of employment as of the balance sheet date. The Company recorded as expenses the increase in the severance liability, net of earnings (losses) from the related investment fund. The subsidiary's liability was partially funded by monthly payments deposited with insurers and the value of these deposits is recorded as an asset on the Company's balance sheet. Any unfunded amounts would be paid from operating funds and are covered by a provision established by the subsidiary. The accompanying consolidated balance sheets at December 31, 2019 and December 31, 2018 include a $8.0 million and $7.7 million liability, respectively, associated with Israeli severance requirements in other liabilities.
Executive Severance
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 separation agreement.
Note 16 – Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the Company’s own assumptions.
An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
Fair value measurements at reporting date using:
|
|
Total Fair Value
|
|
Level 1 Inputs
|
|
Level 2 Inputs
|
|
Level 3 Inputs
|
Assets:
|
|
|
|
|
|
|
|
Assets held in rabbi trusts
|
$
|
5,169
|
|
|
$
|
53
|
|
|
$
|
5,116
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
Fair value measurements at reporting date using:
|
|
Total Fair Value
|
|
Level 1 Inputs
|
|
Level 2 Inputs
|
|
Level 3 Inputs
|
Assets:
|
|
|
|
|
|
|
|
Assets held in rabbi trusts
|
$
|
4,641
|
|
|
$
|
87
|
|
|
$
|
4,554
|
|
|
$
|
—
|
|
The Company maintains nonqualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and nonqualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale money market funds at December 31, 2019 and December 31, 2018, and company-owned life insurance assets. The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the year. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts. The fair value measurement of the marketable securities held in the rabbi trust is considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.
The fair value of the long-term debt, excluding capitalized deferred financing costs at December 31, 2019 and December 31, 2018 approximates its carrying value, as the revolving debt and term loans are reset quarterly based on current market rates, plus a base rate as specified in the 2015 Credit Agreement. The fair value measurement of long-term debt is considered a Level 2 measurement.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the consolidated balance sheets approximate their fair values.
Note 17 – Related Party Transactions
Until July 6, 2010, VPG was part of Vishay Intertechnology, and the assets and liabilities consisted of those that Vishay Intertechnology attributed to its precision measurement and foil resistor businesses. Following the spin-off on July 6, 2010, VPG is an independent, publicly-traded company, and Vishay Intertechnology does not retain any ownership interest in VPG, although a common group of stockholders control a significant portion of the voting power of each company and the companies have three common board members.
Subsequent to the spin-off, VPG and Vishay Intertechnology continue to share certain manufacturing locations. VPG owns one location in Japan at which it leases space to Vishay Intertechnology. Vishay Intertechnology owns one location in the United States, at which it leases space to VPG. Lease receipts and payments related to the shared facilities are immaterial.
Note 18 – Subsequent Events
Executive RSU grant
On March 5, 2020, VPG’s three current executive officers were granted annual equity awards in the form of RSUs, of which 75% are performance-based. The awards have an aggregate target grant-date fair value of $1.2 million and were comprised of 44,269 RSUs. Twenty-five percent of these awards will vest on January 1, 2023, subject to the executives continued employment. The performance-based portion of the RSUs will also vest on January 1, 2023, subject to the executives continued employment and the satisfaction of certain performance objectives relating to three-year cumulative “adjusted free cash flow” and net earnings goals.
Note 19 – Summary of Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
2019
|
|
2018
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
76,525
|
|
|
$
|
70,870
|
|
|
$
|
67,421
|
|
|
$
|
69,142
|
|
|
$
|
73,091
|
|
|
$
|
74,231
|
|
|
$
|
75,490
|
|
|
$
|
76,982
|
|
Gross profit
|
33,051
|
|
|
28,609
|
|
|
25,790
|
|
|
24,167
|
|
|
28,505
|
|
|
31,366
|
|
|
30,580
|
|
|
30,816
|
|
Operating income
|
12,603
|
|
|
8,102
|
|
|
6,186
|
|
|
1,757
|
|
|
8,186
|
|
|
11,315
|
|
|
10,631
|
|
|
7,091
|
|
Net earnings
|
8,326
|
|
|
5,580
|
|
|
4,530
|
|
|
3,859
|
|
|
4,958
|
|
|
7,683
|
|
|
7,567
|
|
|
3,437
|
|
Less: net earnings attributable to noncontrolling interests
|
83
|
|
|
15
|
|
|
21
|
|
|
(12
|
)
|
|
(30
|
)
|
|
(10
|
)
|
|
20
|
|
|
19
|
|
Net earnings attributable to VPG stockholders
|
8,243
|
|
|
5,565
|
|
|
4,509
|
|
|
3,871
|
|
|
4,988
|
|
|
7,693
|
|
|
7,547
|
|
|
3,418
|
|
Per Share Data: (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.61
|
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
|
$
|
0.37
|
|
|
$
|
0.57
|
|
|
$
|
0.56
|
|
|
$
|
0.25
|
|
Diluted earnings per share
|
$
|
0.61
|
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
$
|
0.57
|
|
|
$
|
0.56
|
|
|
$
|
0.25
|
|
Certain Items Recorded during the Quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition purchase accounting adjustments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisition costs
|
—
|
|
|
—
|
|
|
—
|
|
|
443
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Executive severance costs
|
—
|
|
|
611
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impairment of goodwill and indefinite-lived intangibles
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,820
|
|
UK pension settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
673
|
|
Restructuring costs
|
—
|
|
|
—
|
|
|
547
|
|
|
1,746
|
|
|
—
|
|
|
61
|
|
|
228
|
|
|
—
|
|
Tax effect of reconciling items and discrete tax items
|
—
|
|
|
—
|
|
|
80
|
|
|
3,663
|
|
|
—
|
|
|
9
|
|
|
35
|
|
|
(377
|
)
|
|
|
(a)
|
The Company reports interim financial information for the 13-week periods beginning on a Sunday and ending on a Saturday, except for the first fiscal quarter, which always begins on January 1, and the fourth fiscal quarter, which always ends on December 31. The first, second, third, and fourth quarters of 2019 ended on March 30, June 29, September 28, and December 31, respectively. The first, second, third, and fourth quarters of 2018 ended on March 31, June 30, September 29, and December 31, respectively.
|
|
|
(b)
|
Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.
|