Overview
VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems. Many of our precision measurement sensing products and solutions are "designed-in" by our customers, and address growing applications across a diverse array of industries and markets. Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality, and we employ an operationally diversified structure to manage our businesses. Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement technologies help ensure and deliver required levels of quality of mission-critical or high-value data. Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end products. Our precision measurement solutions are used across a wide variety of end markets upon which we focus, including industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space, and consumer product applications. The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive. As the functionality of customers products increases, and they integrate more precision measurement sensors and related systems into their solutions in order to link the mechanical and physical world with digital control and/or response, we believe this will offer substantial growth opportunities for our products and expertise.
Impact of COVID-19 on our business
As ofMarch 4, 2022 , all of the Company's facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible. Nonetheless, given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic, the ongoing economic disruption may adversely affect the Company's business and financial results in future periods.
Overview of financial results
In the fourth quarter of fiscal 2021, we formally adopted an operationally diversified structure and strategy, through which each of VPG's business segments maintains and deploys distinct go-to-market strategies, technical expertise, capital requirements, and acquisition opportunities. We use an operationally diversified strategy and structure to be close to our customers and to leverage our high-level engineering expertise to optimize and enhance the performance of our customers' solutions. We seek to maximize the performance and value of our businesses by leveraging our accumulated experience, methodologies, and expertise in driving operational excellence across our functional areas, as well as in the allocation of capital and investment. VPG reports in three product segments: Sensors segment, Weighing Solutions segment, and Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing. Net revenues for the year endedDecember 31, 2021 were$317.9 million compared to net revenues of$269.8 million for the year endedDecember 31, 2020 . Net earnings attributable to VPG stockholders for the year endedDecember 31, 2021 were$20.2 million , or$1.48 per diluted share, compared to$10.8 million , or$0.79 per diluted share, for the year endedDecember 31, 2020 . The results of operations for the years endedDecember 31, 2021 and 2020 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance withU.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating results for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non- - 27 - -------------------------------------------------------------------------------- GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company's performance and in comparing the Company's financial performance to that of its peer companies and competitors. Management believes that the Company's non-GAAP measures are regarded as supplemental to its GAAP financial results. The items affecting comparability are (dollars in thousands, except per share amounts): Net Earnings Attributable to Gross Profit Operating Income VPG Stockholders Diluted Earnings Per share Fiscal Year Ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 As reported - GAAP 125,142 104,271 27,372 22,657$ 20,221 $ 10,787 $ 1.48 $ 0.79 As reported - GAAP Margins 39.4 % 38.6 % 8.6 % 8.4 % Acquisition purchase accounting adjustments (a) 2,775 569 2,775 569 2,775 569 0.20 0.04 Acquisition costs (b) 1,198 - 1,198 - 0.09 - COVID-19 impact (c) (66) 434 (574) (366) (574) (366) (0.04) (0.03) Start-up costs (d) 3,174 - 3,174 - 3,174 - 0.23 - Impairment of goodwill and indefinite-lived intangibles 1,223 2,440 1,223 2,440 0.09 0.18 Restructuring costs 76 918 76 918 0.01 0.07 Foreign exchange (gain)/loss (e) 109 2,246 0.01 0.16 Less: Tax effect of reconciling items and discrete tax items (f) 2,596 (1,381) 0.20 (0.11) As Adjusted - Non GAAP$ 131,025 $ 105,274 $
35,244
As adjusted – Non-GAAP margins
41.2 % 39.0 % 11.1 % 9.7 % Year ended December 31, 2021 December 31, 2020 Net earnings attributable to VPG stockholders $ 20,221 $ 10,787 Interest Expense 1,230 1,366 Income tax expense 5,469 7,509 Depreciation 11,684 10,064 Amortization 3,312 2,443 EBITDA $ 41,916 $ 32,169 EBITDA MARGIN 13.2 % 11.9 % Impairment of goodwill and indefinite-lived intangibles 1,223 2,440 Acquisition purchase accounting adjustments (a) 2,775 569 Acquisition costs (b) 1,198 - Restructuring costs 76 918 COVID-19 impact (c) (574) (366) Start-up costs (d) 3,174 - Foreign exchange loss (e) 109 2,246 ADJUSTED EBITDA 49,897 37,976 ADJUSTED EBITDA MARGIN 15.7 % 14.1 %
(a) Acquisition-related accounting adjustments include fair market value adjustments associated with inventory recognized as a component of cost of goods sold.
(b) Acquisition costs related to the acquisition of DTS in 2021.
(c) The impact of COVID-19 corresponds to the net impact for the Company of the costs incurred due to the COVID-19 pandemic, net of government subsidies received.
(d) Start-up costs in 2021 are associated with the ramp-up of our new manufacturing facility in
(e) Impact of foreign currency exchange rates on assets and liabilities. In 2020, the change in the dollar-shekel exchange rate, particularly in the fourth quarter of 2020, resulted in an unfavorable foreign exchange impact primarily related to the shekel-denominated lease liability for a new facility inIsrael .
(f) Included in the discrete items for 2021 is a
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Financial measures
We utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover. Gross profit margin is gross profit shown as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is clearly a function of net revenues, but also reflects our cost-cutting programs and our ability to contain fixed costs. End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers' forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods. Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities, and it indicates that we may generate increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales. We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital. The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, the end-of-period backlog, the book-to-bill ratio, and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2020 and through the fourth quarter of 2021 (dollars in thousands): 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2020 2021 2021 2021 2021 Net revenues$ 75,445 $ 70,589 $ 75,339 $ 81,974 $ 90,017 Gross profit margin 38.1 % 40.5 % 39.6 % 38.8 % 38.7 % End-of-period backlog$ 87,600 $ 100,700 $ 130,900 $ 146,700 $ 150,500 Book-to-bill ratio 0.93 1.21 1.40 1.21 1.06 Inventory turnover 2.86 2.67 2.64 2.55 2.82 - 29 -
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4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2020 2021 2021 2021 2021 Sensors Net revenues$ 31,875 $ 31,815 $ 31,176 $ 30,721 $ 34,149 Gross profit margin 37.5 % 40.3 % 38.9 % 31.1 % 32.1 % End-of-period backlog$ 42,800 $ 47,400 $ 59,200 $ 70,100 $ 72,900 Book-to-bill ratio 0.93 1.19 1.38 1.37 1.11 Inventory turnover 3.22 3.06 2.90 3.14 3.53 Weighing Solutions Net revenues$ 29,546 $ 30,968 $ 31,675 $ 30,676 $ 32,071 Gross profit margin 33.3 % 38.0 % 37.2 % 37.2 % 34.0 % End-of-period backlog$ 31,000 $ 35,700 $ 41,100 $ 42,600 $ 41,800 Book-to-bill ratio 1.10 1.16 1.16 1.06 0.98 Inventory turnover 2.81 2.89 2.78 2.47 2.63 Measurement Systems Net revenues$ 14,024 $ 7,806 $ 12,488 $ 20,577 $ 23,797 Gross profit margin 49.5 % 51.4 % 47.1 % 52.8 % 54.7 % End-of-period backlog$ 13,800 $ 17,600 $ 30,600 $ 34,000 $ 35,800 Book-to-bill ratio 0.56 1.48 2.03 1.18 1.08 Inventory turnover 2.26 1.32 1.85 1.92 2.18 Net revenues for the fourth quarter of 2021 increased 9.8% from the net revenues of$82.0 million reported in the third quarter of 2021, and increased 19.3% from$75.4 million for the comparable prior year period. Net revenues in the Sensors segment of$34.1 million in the fourth quarter of 2021 increased 11.2% from$30.7 million in the third quarter of 2021, and increased 7.1% from$31.9 million in the fourth quarter of 2020. The year over year increase in revenues was primarily attributable to an increase in our sales of precision resistors in the test and measurement and other markets, partially offset by lower sales in the avionics, military and space market. Sequentially, the increase in revenues reflected higher precision resistor sales in the test and measurement and avionics, military and space markets, and an increase mainly in our advanced sensors product line, primarily in our consumer-related markets. Net revenues in the Weighing Solutions segment of$32.1 million in the fourth quarter of 2021 increased 4.5% compared to revenues of$30.7 million in the third quarter of 2021. The sequential increase in revenues was primarily attributable to higher sales in the process weighing product lines, partially offset by lower sales in our on-board weighing product lines. Net revenues in the fourth quarter of 2021 increased 8.5% compared to$29.5 million in the fourth quarter of 2020 mainly due to an increase in our OEM customers in the construction equipment market and an increase in our process weighing product line, partially offset by lower sales of our on-board weighing product lines. Net revenues in the Measurement Systems segment of$23.8 million in the fourth quarter of 2021 increased 15.6% from$20.6 million in the third quarter of 2021 and increased 69.7% from$14.0 million in the fourth quarter of 2020. The sequential increase in revenue was primarily attributable to higher KELK steel related sales and DTS products. The year-over-year increase in revenues was primarily attributable to the acquisition of DTS and higher KELK and DSI steel-related sales.
Gross profit margin for the fourth quarter of 2021 decreased by 0.1% compared to the third quarter of 2021 and increased by 0.6% compared to the fourth quarter of 2020.
Sequentially, gross profit margins improved in the Sensors and Measurement Systems segments and decreased in the Weighing Solutions segment. In the Sensors segment, the increase in gross profit margin was primarily due to an increase in volume, partially offset by unfavorable foreign exchange rates, wage increases, and labor inefficiencies. In the Weighing Solutions segment, the decline in gross profit margin was primarily due to an unfavorable product mix, reduction of inventory, and higher material costs, partially offset by an increase in volume. In the Measurement Systems segment, gross profit margin increased due to higher volume, which was partially offset by unfavorable product mix and inventory reductions. Compared to the fourth quarter of 2020, gross profit margins decreased in the Sensors segment and increased in the Weighing Solutions and Measurement Systems segments. In the Sensors segment, the decrease in gross profit margin was primarily due - 30 - -------------------------------------------------------------------------------- to unfavorable foreign exchange rates, wage increases, and labor inefficiencies, partially offset by an increase in volume. In the Weighing Solutions segment, the increase in gross profit margin was primarily due to higher volume. In the Measurement Systems segment, gross profit margin increased primarily due to higher revenue coming from DTS, which was acquired onJune 1, 2021 .
Optimize base skill
The Company's core competencies include our innovative deep technical and applications-specific expertise to add value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes. Our Sensors segment research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers "design in" these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we signed a long-term lease for a state-of-the-art facility that has been constructed inIsrael . We fully transitioned to this facility in the third quarter of fiscal 2021. Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function. We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such asIndia ,China , andIsrael , where we can benefit from improved efficiencies or available tax and other government-sponsored incentives. In the past several years, we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities inIndia andChina , which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. Acquisition Strategy We expect to continue to make strategic acquisitions where opportunities present themselves to grow and expand our segments. Historically, our growth and acquisition strategy had been largely focused on vertical product integration, using our foil strain gages in our load cell products, and incorporating those products into our weighing solutions. In recent years, we widened our acquisition strategy to include a broader set of precision measurement systems and product companies. We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision measurement solutions, including in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Research and development
Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and improve profitability. We plan to continue to expand our position as a leading supplier of precision sheet technology products. We believe that our R&D efforts should provide us with a variety of opportunities to leverage technology, products and our manufacturing base to ultimately improve our financial performance. The amount allocated to cumulative research and development expenses
Cost management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation. - 31 - -------------------------------------------------------------------------------- Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A "Risk Factors" of this Annual Report on Form 10-K. The Company recorded restructuring costs of$0.1 million ,$0.9 million , and$2.3 million during the years endedDecember 31, 2021 , 2020, and 2019, respectively. In 2021 and 2020, restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances. 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 associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities inIndia andChina . We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
Foreign currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries.U.S. GAAP requires that entities identify the "functional currency" of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary's functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company's operations generally would have the parent company's currency as its functional currency. We have subsidiaries that fall into each of these categories.
Foreign subsidiaries that use the local currency as their functional currency
Our operations inEurope ,Canada , and certain locations inAsia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity.
For subsidiaries whose local currency is the functional currency, revenues and expenses are converted at the average exchange rate for the year. While the translation of income and expenditure into
Foreign subsidiaries that use the
Our operations inIsrael and certain locations inAsia primarily generate cash inU.S. dollars, and accordingly, these subsidiaries utilize theU.S. dollar as their functional currency. For those foreign subsidiaries where theU.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured intoU.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business inU.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.
Exchange rate effects on transactions
For the year endedDecember 31, 2021 , exchange rate impacts increased net revenues by$5.3 million and increased costs of products sold and selling, general, and administrative expenses by$8.7 million . For the year endedDecember 31, 2020 , exchange rate impacts increased net revenues by$0.9 million and increased costs of products sold and selling, general, and administrative expenses by$2.8 million .
Significant Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. Here we identify a number of policies that involve significant management judgments or estimates.
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Inventories
We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based upon net realizable value. The valuation of our inventories requires management to make costing and market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.
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. Different valuations approaches are used to value different types of intangible assets. The Company primarily uses the income approach in the valuation of intangible assets. The income approach to valuation is based on the present value of future cash flows attributable to each identifiable intangible asset. This approach to valuation requires management to make significant estimates and assumptions including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, and customer relationships. These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.Goodwill and Other Indefinite-lived Intangible AssetsGoodwill 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. At the beginning of 2021, we had five reporting units to which goodwill was allocated: steel, on-board weighing, instrumentation, DSI, and DTS. For the steel and on-board weighing goodwill reporting units, we performed the qualitative assessment, which included assessment of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other entity specific events which could impact the reporting unit. Based on this review, it was determined that the fair value of each of those reporting units was in excess of its carrying value and therefore no quantitative impairment test was required. During the second quarter of 2021, due to updated financial projections, we performed a quantitative impairment test on our instrumentation reporting unit's goodwill and indefinite-lived intangible trade name. Based on this review, we recorded an impairment charge which eliminated that remaining goodwill associated with this reporting unit and reduced the value of the indefinite-lived trade-name. For the DSI goodwill reporting unit, the Company performed the quantitative impairment test. In estimating the fair value of our DSI reporting unit the Company used the income approach. The income approach to valuation requires management to make significant estimates and assumptions related to future revenues, profitability, working capital requirements and selection of discount rate and long term growth rate. Changes in these estimates and assumptions could have a significant impact on the fair value of the reporting units. 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 goodwill and indefinite-lived trade name allocated the DTS goodwill reporting unit is still provisional as ofDecember 31, 2021 and therefore will be tested in the following year's annuals impairment test. The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or 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.
Pension and other post-employment benefits
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two - 33 -
-------------------------------------------------------------------------------- critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan-specific basis, as appropriate. Our defined benefit plans are concentrated inthe United States ,Japan and theUnited Kingdom . Plans in these countries comprise approximately 88% of our retirement obligations atDecember 31, 2021 . We utilize published long-term high-quality bond indices to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to reflect the timing of expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively be settled. For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider 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 expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred. We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheets.
Income taxes
We are subject to income taxes inthe United States and numerous foreign jurisdictions. Our annual effective tax rate is based on pre-tax earnings, statutory tax rates and enacted tax laws. Significant judgments and estimates must be made in determining our consolidated income tax expense as presented in our financial statements. We must assess the likelihood that we will realize deferred tax assets which requires significant judgment. If we determine that deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to a level that is expected to be realized. If we subsequently determine that realization of a deferred tax asset becomes "more likely than not", the valuation allowance will be reversed. Any change in valuation allowances could have a significant impact on our financial results. The calculation of our tax liabilities involves an assessment of uncertainties in the application of complex tax laws and regulations in multiple jurisdictions. We record a benefit from an uncertain tax position when it is "more likely than not" that a tax return position will be sustained upon examination, including resolutions of any related appeals or litigation based on the technical merits of the position. If the position is not "more likely than not" to be sustained, a liability for the tax return position is established. We adjust the liability when our judgment changes as a result of the evaluation of new information. The ultimate tax due in a jurisdiction may result in a payment that is materially different from our most recent estimate of the liability. Further judgment is required in determining whether an uncertain tax position is effectively settled. Any change in the analysis will impact income tax expense. We consider the earnings of most of our non-U.S. subsidiaries to be indefinitely invested outsidethe United States based on our estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment of foreign subsidiary earnings. As a result of the Tax Cut and Jobs Act, in 2017 the Company had recorded a deferred tax liability of approximately$1.8 million of withholding tax associated with a planned distribution of approximately$25.5 million of previously unremitted earnings. As ofDecember 31, 2021 , the planned distribution amount is approximately$14.1 million with a remaining deferred tax liability of approximately$1.5 million . In addition, we estimate that additional withholding taxes of approximately$22.5 million would be payable upon the distribution of the balance of our previously unremitted earnings atDecember 31, 2021 . If we decide to distribute any portion of the balance of our unremitted earnings tothe United States from a foreign country, we would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outsidethe United States .
Additional income tax information is included in Note 6 to our Consolidated Financial Statements.
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Results of operations – Years ended
Results of operations by business segment for the years ended
The captions for the income statement as a percentage of net income and effective tax rates were as follows:
Years ended December 31, 2021 2020 2019 Costs of products sold 60.6 % 61.4 % 60.7 % Gross profit 39.4 % 38.6 % 39.3 % Selling, general, and administrative expenses 30.0 % 29.0 % 28.0 % Operating income 8.6 % 8.4 % 10.1 % Income before taxes 8.2 % 6.8 % 9.3 % Net earnings 6.4 % 4.0 % 7.9 % Net earnings attributable to VPG stockholders 6.4 % 4.0 % 7.8 % Effective tax rate 21.1 % 41.0 % 15.7 % Net Revenues
Net revenues were as follows (in thousands of dollars):
Years ended December 31, 2021 2020 2019 Net revenues$ 317,919 $ 269,812 $ 283,958 Change versus prior year$ 48,107 $ (14,146)
Percentage change from prior year 17.8% (5.0)%
The variations in net income are attributable to the following items:
2021 vs. 2020 2020 vs. 2019 Change attributable to: Change in volume 7.8 % (10.0) % Change in average selling prices 0.5 % 0.3 % Foreign currency effects 2.4 % 0.2 % Acquisitions 7.1 % 4.5 % Net change 17.8 % (5.0) % During the year endedDecember 31, 2021 , net revenues increased 17.8% over the prior year. Volume increased across all reporting segments, with the most significant increase coming from the industrial weighing, transportation, and other markets in the Weighing Solutions reporting segment. Net revenues in the Measurement Systems segment increased mainly due to the acquisition of DTS onJune 1, 2021 . During the year endedDecember 31, 2020 , net revenues decreased 5.0% over the prior year. Volume decreased across all reporting segments, with the most significant declines coming from the industrial weighing market in the Weighing Solutions reporting segment, the transportation market and KELK for the steel market in the Measurement Systems reporting segment, and the precision resistor foil for the test and measurement market in the Sensors reporting segment. This was partially offset by an increase in revenues attributable to the addition of DSI in the Measurement Systems reporting segment. - 35 - --------------------------------------------------------------------------------
Gross margin
Gross margin as a percentage of net revenue was as follows:
Years ended December 31, 2021 2020 2019 Gross profit margin 39.4 % 38.6 % 39.3 % The gross profit margin for the year endedDecember 31, 2021 increased 0.8% over the prior year. The increase in gross profit margin was primarily due to improved gross profit margins in the Weighing Solutions and Measurement Systems reporting segments, partially offset by decreased gross profit margins in the Sensors reporting segment, which were impacted by start-up costs association with the new manufacturing facility inIsrael . The gross profit margin for the year endedDecember 31, 2020 decreased 0.7% over the prior year. The reduction in gross profit margin was primarily due to lower volume in the Weighing Solutions and Measurement Systems reporting segments, and negative impacts of foreign currency exchange rates of$1.0 million , partially offset by manufacturing efficiencies, primarily from the Sensors reporting segment.
segments
The revenue and gross profit margin analysis for our reportable segments is shown below.
Sensors
The net revenues of the Sensors segment were as follows (in thousands of dollars):
Years ended December 31, 2021 2020 2019 Net revenues$ 127,861 $ 120,754 $ 121,827 Change versus prior year$ 7,107 $ (1,073)
Percentage change from previous year 5.9% (0.9)%
Changes in the Sensors segment’s net revenues are attributable to the following items:
2021 vs. 2020 2020 vs. 2019 Change attributable to: Change in volume 4.5 % (1.8) % Change in average selling prices 0.8 % 0.4 % Foreign currency effects 0.6 % 0.5 % Net change 5.9 % (0.9) % For the year endedDecember 31, 2021 , net revenues increased 5.9% as compared to the prior year, due to increases in our net revenues from the advanced sensors product line, primarily in our test and measurement and general industrial markets and in net revenues from our precision resistor products in the test and measurement market. These increases were partially offset by declines in net revenues from our precision resistor products in our avionics, military and space market and net revenues from strain gage products in our other markets. For the year endedDecember 31, 2020 , net revenues decreased 0.9% as compared to the prior year. Increases in our net revenues from the advanced sensors product line, primarily in our consumer-related markets, and net revenues from our precision resistor products in the avionics, military and space market, were offset by declines in net revenues from our precision resistor products in the test and measurement market and net revenues from strain gage products in our general industrial market. Gross profit as a percentage of net revenues for the Sensors segment was as follows: Years ended December 31, 2021 2020 2019 Gross profit margin 35.6 % 39.3 % 40.4 % - 36 -
-------------------------------------------------------------------------------- For the year endedDecember 31, 2021 , the gross profit margin decreased 3.7% as compared to the prior year primarily due to manufacturing inefficiencies with the start-up up our new production facility inIsrael . For the year endedDecember 31, 2020 , the gross profit margin decreased 1.1% as compared to the prior year primarily due to lower volume from products in the test and measurement and general industrial market segments, unfavorable product mix and negative impacts from foreign currency exchange rates, primarily from the Israeli shekel. Weighing Solutions Net revenues of the Weighing Solutions segment were as follows (dollars in thousands): Years ended December 31, 2021 2020 2019 Net revenues$ 125,390 $ 101,386 $ 119,854 Change versus prior year$ 24,004 $ (18,468)
Percentage change from previous year 23.7% (15.4)%
Changes in Weighing Solutions segment net revenues were attributable to the following: 2021 vs. 2020 2020 vs. 2019 Change attributable to: Change in volume 19.5 % (15.7) % Change in average selling prices 0.3 % 0.0 % Foreign currency effects 3.9 % 0.3 % Net change 23.7 % (15.4) % For the year endedDecember 31, 2021 , net revenues increased 23.7% from the prior year reflecting improved volume in our force sensors products, which were significantly impacted in 2020 by production limitations due to the COVID-19 pandemic. During 2020, our manufacturing facility inIndia operated at partial capacity as a result of government mandated restrictions untilJuly 1, 2020 , when restrictions were lifted. Our on-board weighing products also contributed higher volume mainly in the transportation market. For the year endedDecember 31, 2020 , net revenues decreased 15.4% from the prior year mainly reflecting the impact of the COVID-19 pandemic on ourIndia facility, where production was limited. The manufacturing facility inIndia operated at partial capacity as a result of government mandated restrictions untilJuly 1, 2020 , when restrictions were lifted. By the end of the third quarter of 2020, the facility was back to running at pre-pandemic capacity. Gross profit as a percentage of net revenues for the Weighing Solutions segment was as follows: Years ended December 31, 2021 2020 2019 Gross profit margin 36.6 % 31.8 % 33.9 % For the year endedDecember 31, 2021 , the gross profit margin increased 4.8% as compared to the prior year primarily due to improved volume in our force sensors and on-board weighing products. For the year endedDecember 31, 2020 , the gross profit margin decreased 2.1% as compared to the prior year primarily due to volume declines resulting from the government mandated restrictions, partially offset by cost savings initiatives.
Measurement systems
Net revenues of the Measurement Systems segment were as follows (dollars in thousands): Years ended December 31, 2021 2020 2019 Net revenues$ 64,668 $ 47,672 $ 42,277 Change versus prior year$ 16,996 $ 5,395
Percentage change from previous year 35.7% 12.8%
- 37 - -------------------------------------------------------------------------------- Changes in Measurement Systems segment net revenues were attributable to the following: 2021 vs. 2020 2020 vs. 2019 Change attributable to: Change in volume 1.5 % (17.8) % Change in average selling prices 0.3 % 0.5 % Foreign currency effects 4.3 % (0.3) % Acquisitions 29.6 % 30.4 % Net change 35.7 % 12.8 % For the year endedDecember 31, 2021 , net revenues increased 35.7% as compared to the prior year. The revenues generated by DTS in our transportation market and steel-related sales from DSI were partially offset by lower KELK steel-related sales and lower Pacific-related sales in our avionics, military and space market. For the year endedDecember 31, 2020 , net revenues increased 12.8% as compared to the prior year. The revenues generated by DSI were partially offset by lower volume KELK steel-related sales. Gross profit as a percentage of net revenues for the Measurement Systems segment was as follows: Years ended December 31, 2021 2020 2019 Gross profit margin 52.2 % 51.4 % 51.5 % For the year endedDecember 31, 2021 , the gross profit margin increased 0.8% from the prior year. Volume improvements partially offset the negative impacts of the purchase accounting adjustments recorded in 2021 in connection with the DTS acquisition. For the year endedDecember 31, 2020 , the gross profit margin decreased 0.1% from the prior year. Volume declines were partially offset by government subsidies received inCanada , which resulted in gross profit margin remaining fairly flat compared to the prior year. We also recorded less purchase accounting adjustments in 2020 as compared to 2019, which had a positive impact to the gross profit margin.
Selling, general and administrative expenses
Selling, general, and administrative ("SG&A") expenses were as follows (dollars in thousands): Years ended December 31, 2021 2020 2019 Total SG&A expenses$ 95,273 $ 78,256 $ 79,622
as a percentage of net revenues 30.0% 29.0% 28.0%
SG&A expenses for the year endedDecember 31, 2021 increased$17.0 million as compared to the prior year due to SG&A expenses related to the acquisition of DTS, higher personnel costs and unfavorable foreign currency exchange rate impacts, mainly from the Israeli shekel. SG&A expenses for the year endedDecember 31, 2020 decreased$1.4 million as compared to the prior year due to lower travel costs, personnel costs, commissions, and professional fees, partially offset by SG&A expenses related to DSI, and unfavorable foreign currency exchange rate impacts, mainly from the Israeli shekel.
Impairment of
For the year endedDecember 31, 2021 , as a result of our interim impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a$1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets. See our critical accounting policies and Note 4 for further discussion. For the year endedDecember 31, 2020 , as a result of our required annual impairment test performed on goodwill and indefinite-lived intangible assets, we recorded a$2.4 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets. For the year endedDecember 31, 2019 , there was no impairment on goodwill and indefinite-lived intangible assets. - 38 - --------------------------------------------------------------------------------
Executive severance costs
During 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 officers resignation agreement. Restructuring Costs Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods, or to reverse part of the previously recorded charges. The Company recorded restructuring costs of$0.1 million ,$0.9 million , and$2.3 million during the years endedDecember 31, 2021 , 2020, and 2019 respectively. In 2021 and 2020, 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. 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 associated with the closure and downsizing of facilities as part of the manufacturing transitions of the Company's force sensors products to facilities inIndia andChina . Acquisition Costs For the year endedDecember 31, 2021 , we recorded acquisition costs in our consolidated statements of operations of$1.2 million in connection with the acquisition of DTS. There were no acquisition costs recorded in our consolidated statements of operations for the year endedDecember 31, 2020 . For the year endedDecember 31, 2019 , we recorded acquisition costs in our consolidated statements of operations of$0.4 million in connection with the acquisitions of DSI. Other Income (Expense) Interest Expense The Company recorded interest expense of$1.2 million ,$1.4 million and$1.5 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively. Interest expense was lower in 2021 compared to 2020 mainly due to more favorable borrowing rates during 2021. Interest expense in 2020 was lower as compared to 2019 mainly due to the lower debt balances during 2020 and the favorable borrowing rates negotiated with the 2020 Restated and Amended Revolving Credit Facility inMarch 2020 . Other
The following table analyzes the components of the “Other” line of the consolidated statements of income (in thousands):
Years ended December 31, 2021 2020 Change Foreign exchange loss$ (110) $ (2,246) $ 2,136 Interest income 252 246 6 Pension expense (468) (738) 270 Other 96 (244) 340$ (230) $ (2,982) $ 2,752 Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in foreign exchange gains / (losses) for the year endedDecember 31, 2021 , as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel. Additionally in 2021, there were favorable foreign exchange impacts from the Japanese yen and the Canadian dollar. - 39 -
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Years ended December 31, 2020 2019 Change Foreign exchange loss$ (2,246) $ (1,638) $ (608) Interest income 246 622 (376) Pension expense (738) (643) (95) Other (244) 958 (1,202)$ (2,982) $ (701) $ (2,281) Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in foreign exchange gains / (losses) for the year endedDecember 31, 2020 , as compared to the prior year period, was primarily due to fluctuations in the Israeli shekel. The change in the dollar-shekel exchange rate, particularly in the fourth quarter of 2020, resulted in an unfavorable foreign exchange impact primarily related to the shekel-denominated lease liability for a new Sensors facility inIsrael . Included within Other, for the year endedDecember 31, 2019 , is net proceeds of$0.8 million related to a liquidation of a foreign subsidiary.
Income taxes
Our effective tax rate for the year endedDecember 31, 2021 was 21.1%, as compared to 41.0% for the year endedDecember 31, 2020 and 15.7% for the year endedDecember 31, 2019 . Our effective tax rate was lower in 2021 compared to 2020 primarily due to changes in valuation allowances as result of the completion of purchase accounting of DSI in 2020 and the acquisition of DTS in 2021. Our effective tax rate in 2020 was higher as compared to 2019 primarily due to a net increase in valuation allowance on deferred tax assets as a result of our acquisition of DSI, reserves for impairment of certain intangible assets, foreign currency, and changes in the geographical mix of income. We reassessed our ability to realize ourU.S. deferred tax assets during 2021 and have concluded that realization of those deferred tax assets is still not "more likely than not". Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions as compared to theU.S. federal statutory tax rate, and the relative amount of income earned in each jurisdiction. The tax rate is also impacted by discrete items that vary from year to year and may not be indicative of the tax rate on continuing operations. The following items had the most significant impact on the difference between the statutoryU.S. federal income tax rate and our effective tax rate:
2021
•8.1% increase related to the effects of foreign operations primarily related to the difference between theU.S. statutory rate and foreign tax rates. •4.6% decrease related to a decrease in valuation allowance, primarily as a result of the acquisition of DTS •1.5% decrease related to state income taxes •1.3% decrease related to specialty tax credits 2020 •13.4% increase related to an increase in valuation allowance, primarily a result of the completion of purchase accounting for DSI •5.8% increase related to the loss of the benefit of current yearU.S. net operating loss as a result of the Tax Cuts and Jobs Act ("2017 Tax Act") enacted onDecember 22, 2017 and the effects of GILTI. •4.0% increase related to the effects of foreign operations primarily related to the difference between theU.S. statutory rate and foreign tax rates. •2.8% increase related to the impairment of certain intangible assets. •1.9% decrease related to foreign currency primarily attributable to our operations inChina ,India ,Israel andTaiwan . •1.4% decrease related to specialty tax credits.
2019
•4.4% decrease related to foreign currency primarily attributable to our operations inIsrael andIndia . •2.4% decrease related to a reduction in valuation allowance. This reduction was primarily a result of the acquisition of DSI •1.4% decrease related to stock compensation. •2.5% increase related to changes in reserves for uncertain tax positions. •3.7% increase related to the loss of the benefit of current yearU.S. net operating loss as a result of the 2017 Tax Act and the effects of GILTI. Additional information about income taxes is included in Note 6 to our consolidated financial statements. - 40 - --------------------------------------------------------------------------------
Financial position, liquidity and capital resources
Refer to Item 7. "Financial Condition, Liquidity, and Capital Resources" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a comparison of the year endedDecember 31, 2020 to the year endedDecember 31, 2019 . We believe that our current cash and cash equivalents, credit facilities, and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months. OnMarch 20, 2020 , the Company entered into a Third Amended and Restated Credit Agreement (the "2020 Credit Agreement") among the Company, the lenders named therein,Citizens Bank , National Association andWells Fargo Bank, National Association as joint lead arrangers andJPMorgan 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 to provide a secured revolving facility (the "2020 Revolving Facility") in an aggregate principal amount of$75.0 million , with a sublimit of$10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement. The proceeds of the 2020 Revolving Facility may be used on an ongoing basis for working capital and general corporate purposes. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of$25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. The 2020 Credit Agreement terminates onMarch 20, 2025 . Interest payable on amounts borrowed under the 2020 Revolving Facility is based upon, at the Company's option, (1) the greatest of: the Agent's prime rate, the Federal Funds rate, or a LIBOR floor (the "Base Rate"), or (2) LIBOR or CDOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company's leverage ratio, an interest rate margin ranging from 1.50% to 2.75% per annum is added to the applicable LIBOR or CDOR rate to determine the interest payable on the LIBOR or CDOR loans. The Company is required to pay a quarterly fee of 0.25% per annum to 0.40% per annum on the unused portion of the 2020 Revolving Facility, which is determined based on the Company's leverage ratio each quarter. Additional customary fees apply with respect to letters of credit. The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company's domestic subsidiaries. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include an interest coverage ratio and a leverage ratio. The Company was in compliance with its financial maintenance covenants atDecember 31, 2021 . If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable. Our other long-term debt is not significant and consisted of zero interest rate debt held by one of our Japanese subsidiaries which was fully paid off in 2021. See Note 7 to our consolidated financial statements for additional details. Our business has historically generated significant cash flow. Our cash provided by operating activities for the year endedDecember 31, 2021 was$33.5 million as compared to$35.3 million for the year endedDecember 31, 2020 . Our net cash used in investing activities for the year endedDecember 31, 2021 was$64.0 million , which includes$47.2 million for the purchase of DTS, compared to$21.8 million for the year endedDecember 31, 2020 . Our net cash provided by financing activities for the year endedDecember 31, 2021 was$18.8 million which includes the borrowing on the 2020 credit facility for the acquisition of DTS, as compared to net cash used for financing activities of$5.0 million for the year endedDecember 31, 2020 .
Approximately 87% and 90% of our cash and cash equivalents balance at
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December 31, 2021 2020 Asia 24 % 18 % United States 13 % 10 % Israel 25 % 26 % Europe 18 % 16 % United Kingdom 12 % 18 % Canada 8 % 12 % Total 100 % 100 % We earn a significant amount of our operating income outsidethe United States , the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If we should require more capital inthe United States than is generated by our domestic operations, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital inthe United States through debt or equity issuances. These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the undistributed earnings of our foreign subsidiaries, as ofDecember 31, 2021 , to be indefinitely reinvested. For the year endedDecember 31, 2021 , we generated adjusted free cash flow of$16.7 million . We define "adjusted free cash flow," a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating activities ($33.5 million ) in excess of our capital expenditures ($17.1 million ) and net of proceeds from the sale of assets ($0.2 million ).
The following table summarizes the components of net cash as at
and to
December 31, 2021 2020 Cash and cash equivalents$ 84,335 $ 98,438 Third-party debt, including current and long-term Revolving debt 61,000
41,000
Third-party debt held by Japanese subsidiary - 18 Deferred financing costs (286) (374) Total third-party debt 60,714 40,644 Net cash$ 23,621 $ 57,794 Measurements such as "adjusted free cash flow" and "net cash" do not have uniform definitions and are not recognized in accordance withU.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that "adjusted free cash flow" is a meaningful measure of our ability to fund acquisitions, and that an analysis of "net cash" assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies. Our financial condition as ofDecember 31, 2021 is strong, with a current ratio (current assets to current liabilities) of 3.6 to 1.0, as compared to a current ratio of 4.7 to 1.0 atDecember 31, 2020 . Cash paid for property and equipment for the year endedDecember 31, 2021 andDecember 31, 2020 was$17.1 million and$22.9 million , respectively. Capital spending for 2021 was comprised of building projects related to capacity expansion inIsrael and other projects related to the normal maintenance of business, cost reduction programs, and some carryover projects from 2020. Capital expenditures for 2022 are expected to be approximately$32.4 million , which includes approximately$11.8 - 42 - --------------------------------------------------------------------------------
million euros in capital goods for capacity expansion in the Sensors reporting segment and planned construction projects of approximately
From
Inflation
Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.
Recent accounting pronouncements
See Note 1 to our Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements From time to time, information provided by us, including, but not limited to, statements in this Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , or other statements made by or on our behalf, may contain or constitute "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated. Such statements (including those regarding our new corporate strategy), are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; impact of inflation, global labor and supply chain challenges; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies; the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate; difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; significant developments from the recent and potential changes in tariffs and trade regulation; our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter-in-place orders and business closures and the related impact on resource allocations, manufacturing and supply chains; the Company's status as a "critical", "essential" or "life-sustaining" business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority; the Company's ability to execute its business continuity, operational and budget plans in light of the COVID-19 pandemic; and other factors affecting our operations, markets, products, services, and prices that are set forth in this Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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