Vishay Precision (VPG) 10-Q 2011 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

	(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended October 1, 2011
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______

Commission File Number 1-34679

VISHAY PRECISION GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware	27-0986328
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification Number)
3 Great Valley Parkway, Suite 150
Malvern, PA 19355	484-321-5300
(Address of Principal Executive Offices)	(Registrant’s Area Code and Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x (Do not check if smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of November 9, 2011, the registrant had 12,320,618 shares of its common stock and 1,025,176 shares of its Class B common stock outstanding.

VISHAY PRECISION GROUP, INC.

FORM 10-Q
OCTOBER 1, 2011

CONTENTS

			Page
			Number
PART I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Condensed Balance Sheets
		– October 1, 2011 (Unaudited) and December 31, 2010	3
		Combined and Consolidated Condensed Statements of Operations
		(Unaudited) – Fiscal Quarters Ended October 1, 2011 and
		October 2, 2010	5
		Combined and Consolidated Condensed Statements of Operations
		(Unaudited) – Nine Fiscal Months Ended October 1, 2011 and
		October 2, 2010	6
		Combined and Consolidated Condensed Statements of Cash Flows
		(Unaudited) – Nine Fiscal Months Ended October 1, 2011 and
		October 2, 2010	7
		Consolidated Condensed Statement of Equity (Unaudited)	8
		Notes to Combined and Consolidated Condensed Financial Statements
		(Unaudited)	9
	Item 2.	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
	Item 4.	Controls and Procedures	39
PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 3.	Defaults Upon Senior Securities	40
	Item 4.	[Removed and Reserved]	40
	Item 5.	Other Information	40
	Item 6.	Exhibits	41
		SIGNATURES	42

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
VISHAY PRECISION GROUP, INC.
Consolidated Condensed Balance Sheets
(In thousands)

	October 1,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	83,318		$	82,245
Accounts receivable, net		37,482			33,988
Inventories:
Raw materials		15,461			14,361
Work in process		15,036			15,360
Finished goods		19,455			18,616
Inventories, net		49,952			48,337
Deferred income taxes		4,004			4,022
Prepaid expenses and other current assets		10,315			5,540
Total current assets		185,071			174,132
Property and equipment, at cost
Land		2,617			1,991
Buildings and improvements		42,353			40,036
Machinery and equipment		71,822			68,566
Software		4,476			4,274
Projects in process		6,357			2,282
Accumulated depreciation		(76,184	)		(70,402	)
Net property and equipment		51,441			46,747
Intangible assets, net		12,289			14,500
Other assets		13,251			13,334
Total assets	$	262,052		$	248,713

Continues on following page

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

	October 1,			December 31,
	2011			2010
	(Unaudited)
Liabilities and equity
Current liabilities:
Trade accounts payable	$	13,967		$	11,537
Notes payable to banks		1,293			85
Payroll and related expenses		12,659			12,554
Other accrued expenses		9,291			8,680
Income taxes		2,405			4,847
Current portion of long-term debt		188			-
Total current liabilities		39,803			37,703
Long-term debt		11,535			11,692
Deferred income taxes		3,833			4,212
Other liabilities		7,498			7,468
Accrued pension and other postretirement costs		10,887			10,708
Total liabilities		73,556			71,783
Commitments and contingencies
Equity:
Common stock		1,232			1,231
Class B convertible common stock		103			103
Capital in excess of par value		180,748			180,142
Retained earnings		15,470			5,894
Accumulated other comprehensive income (loss)		(9,238	)		(10,585	)
Total Vishay Precision Group, Inc. stockholders' equity		188,315			176,785
Noncontrolling interests		181			145
Total equity		188,496			176,930
Total liabilities and equity	$	262,052		$	248,713

See accompanying notes.

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VISHAY PRECISION GROUP, INC.
Combined and Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)

	Fiscal quarter ended
	October 1,			October 2,
	2011			2010
Net revenues	$	60,037		$	51,608
Costs of products sold		38,845			32,466
Gross profit		21,192			19,142
Selling, general, and administrative expenses		16,482			14,356
Operating income		4,710			4,786
Other income (expense):
Interest expense		(70	)		(31	)
Other		(763	)		(427	)
Other income (expense) - net		(833	)		(458	)
Income before taxes		3,877			4,328
Income tax expense		639			1,698
Net earnings		3,238			2,630
Less: net (loss) earnings attributable to
noncontrolling interests		(62	)		11
Net earnings attributable to VPG stockholders	$	3,300		$	2,619
Basic earnings per share attributable to VPG stockholders	$	0.25		$	0.20
Diluted earnings per share attributable to VPG stockholders	$	0.24		$	0.19
Weighted average shares outstanding - basic		13,346			13,332
Weighted average shares outstanding - diluted		13,831			13,779

See accompanying notes.

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VISHAY PRECISION GROUP, INC.
Combined and Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)

	Nine fiscal months ended
	October 1,			October 2,
	2011			2010
Net revenues	$	181,695		$	152,697
Costs of products sold		117,403			96,525
Gross profit		64,292			56,172
Selling, general, and administrative expenses		49,898			41,394
Operating income		14,394			14,778
Other income (expense):
Interest expense		(227	)		(347	)
Other		(629	)		(387	)
Other income (expense) - net		(856	)		(734	)
Income before taxes		13,538			14,044
Income tax expense		3,911			5,544
Net earnings		9,627			8,500
Less: net earnings attributable to
noncontrolling interests		51			70
Net earnings attributable to VPG stockholders/parent	$	9,576		$	8,430
Basic earnings per share attributable to VPG stockholders/parent	$	0.72		$	0.63
Diluted earnings per share attributable to VPG stockholders/parent	$	0.69		$	0.61
Weighted average shares outstanding - basic		13,342			13,332
Weighted average shares outstanding - diluted		13,820			13,779

See accompanying notes.

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VISHAY PRECISION GROUP, INC.
Combined and Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)

	Nine fiscal months ended
	October 1,			October 2,
	2011			2010
Operating activities
Net earnings	$	9,627		$	8,500
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization		8,425			7,784
Loss (gain) on disposal of property and equipment		20			(8	)
Share based compensation expense		718			172
Inventory write-offs for obsolescence		1,149			1,027
Other		(3,084	)		5,128
Net changes in operating assets and liabilities:
Accounts receivable		(2,940	)		(10,649	)
Inventories		(2,793	)		(3,254	)
Prepaid expenses and other current assets		(4,816	)		(4,025	)
Trade accounts payable		2,464			4,155
Payable to related party		-			3,870
Other current liabilities		930			7,328
Net cash provided by operating activities		9,700			20,028
Investing activities
Capital expenditures		(10,347	)		(5,481	)
Proceeds from sale of property and equipment		143			57
Net cash used in investing activities		(10,204	)		(5,424	)
Financing activities
Principal payments on long-term debt and capital leases		(90	)		(189	)
Net changes in short-term borrowings		1,326			664
(Distributions to) contributions from noncontrolling interests		(15	)		3
Transactions with Vishay Intertechnology		-			3,493
Net cash provided by financing activities		1,221			3,971
Effect of exchange rate changes on cash and cash equivalents		356			(377	)
Increase in cash and cash equivalents		1,073			18,198
Cash and cash equivalents at beginning of period		82,245			63,192
Cash and cash equivalents at end of period	$	83,318		$	81,390

See accompanying notes.

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

			Class B						Accumulated
			Convertible		Capital in				Other			Total VPG Inc.
	Common		Common		Excess of		Retained		Comprehensive			Stockholders'		Noncontrolling			Total
	Stock		Stock		Par Value		Earnings		Income (Loss)			Equity		Interests			Equity
Balance at December 31, 2010	$	1,231	$	103	$	180,142	$	5,894	$	(10,585	)	$	176,785	$	145		$	176,930
Net earnings		-		-		-		9,576		-			9,576		51			9,627
Foreign currency
translation adjustment		-		-		-		-		1,316			1,316		-			1,316
Pension and other postretirement
actuarial items (net of tax)		-		-		-		-		31			31		-			31
Comprehensive income													10,923		51			10,974
Share based compensation expense		-		-		357		-		-			357		-			357
Restricted stock
issuances (13,810 shares)		1		-		249		-		-			250		-			250
Conversion from Class B
to common stock (20 shares)		-		-		-		-		-			-		-			-
Distribution to
noncontrolling interests		-		-		-		-		-			-		(15	)		(15	)
Balance at October 1, 2011	$	1,232	$	103	$	180,748	$	15,470	$	(9,238	)	$	188,315	$	181		$	188,496

See accompanying notes.

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Vishay Precision Group, Inc.
Notes to Combined and Consolidated Condensed Financial Statements (Unaudited)

Note 1 – Basis of Presentation

Background

Vishay Precision Group, Inc. (“VPG” or the “Company”) is an internationally recognized designer, manufacturer and marketer of sensors based on resistive foil technology and sensor-based systems specializing in the growing markets of stress, force, weight, pressure, and current measurements. The Company provides vertically integrated products and solutions that are all based upon its proprietary foil technology. These products are marketed under a variety of brand names that are characterized as having a very high level of precision and quality. The global operations enable the Company to produce a wide variety of products in strategically effective geographical locations that also optimize its resources for specific technologies, sensors, assemblies and systems. The Company reports in two segments: the Foil Technology Products segment and the Weighing Modules and Control Systems segment. The Foil Technology Products segment is comprised of ultra-high precision foil resistors and foil strain gages. This segment’s products are sold to third-party customers and are utilized in the manufacture of the vertically integrated modules and systems that comprise the Weighing Modules and Control Systems segment.

On July 6, 2010, Vishay Intertechnology, Inc. (“Vishay Intertechnology”) completed the spin-off of VPG through a tax-free stock dividend to Vishay Intertechnology’s stockholders. See Note 2 to our combined and consolidated condensed financial statements.

Carve-out Basis of Presentation

Until July 6, 2010, VPG was part of Vishay Intertechnology and its assets and liabilities consisted of those that Vishay Intertechnology attributed to its precision measurement and foil resistor businesses.

Prior to July 6, 2010, the VPG business was conducted by various direct and indirect subsidiaries of Vishay Intertechnology. The accompanying combined and consolidated condensed financial statements for periods prior to July 6, 2010 have been derived from Vishay Intertechnology’s historical accounting records and are presented on a carve-out basis.

Before effecting the spin-off, all assets and liabilities associated with the precision measurement and foil resistor businesses of Vishay Intertechnology were contributed to VPG.

For periods prior to July 6, 2010, the combined and consolidated condensed statements of operations include all revenues and expenses directly attributable to VPG, including costs for facilities, functions, and services used by VPG at shared sites and costs for certain functions and services performed by centralized Vishay Intertechnology organizations outside of the defined scope of VPG and directly charged to VPG based on usage. The results of operations also include allocations of (i) costs for administrative functions and services performed on behalf of VPG by centralized staff groups within Vishay Intertechnology, (ii) Vishay Intertechnology general corporate expenses, (iii) pension and other postemployment benefit costs, (iv) interest expense, and (v) current and deferred income taxes. See Note 2 for a description of the allocation methodologies utilized.

All of the allocations and estimates in the accompanying combined and consolidated condensed financial statements for periods prior to July 6, 2010, are based on assumptions that VPG and Vishay Intertechnology management believe are reasonable, and reasonably approximate the historical costs that VPG would have incurred as a separate entity for the same level of service or support. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if VPG had been operated as a separate entity.

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Note 1 – Basis of Presentation (continued)

Carve-out Basis of Presentation (continued)

Since the spin-off, VPG is incurring incremental costs both to replace Vishay Intertechnology support and to function as an independent, publicly-traded company.

Actual costs incurred had VPG been a stand-alone company for periods prior to July 6, 2010, would have depended on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. Following the spin-off, VPG is performing these functions using its own resources or purchasing these services.

Accounting Policies

In the ordinary course of business, we use collar options in order to mitigate the risk of potential losses from foreign currency exposures when purchasing Israeli Shekels to fund activities in Israel. This exposure results from our Israeli operations utilizing the U.S. dollar as their functional currency. We do not utilize derivatives or other financial instruments for trading or other speculative purposes.

We record all derivatives in the balance sheet as either assets or liabilities at fair value. We have not designated any derivatives as hedges for accounting purposes, and as such the changes in the fair value of derivatives are recognized in current period earnings as a component of other income (expense). We do not offset the fair value of derivative instruments with cash collateral held with or received from the same counterparty under a master netting arrangement. In determining fair value, we consider both the counterparty credit risk and our own credit worthiness. To determine our own credit risk we estimate our own credit rating by benchmarking the price of outstanding debt to publicly-available comparable data from rated agencies. Using the estimated rating, our credit risk was quantified by reference to publicly–traded debt with a corresponding rating.

Interim Financial Statements

These unaudited combined and consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements and therefore do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented. These financial statements should be read in conjunction with the combined and consolidated financial statements and notes thereto as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010, included in VPG’s Annual Report Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 24, 2011. The results of operations for the fiscal quarter and nine fiscal months ended October 1, 2011 are not necessarily indicative of the results to be expected for the full year.

VPG reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31. The four fiscal quarters in 2011 and 2010 end on the following dates:

	2011	2010
Quarter 1	April 2nd	April 3rd
Quarter 2	July 2nd	July 3rd
Quarter 3	October 1st	October 2nd
Quarter 4	December 31st	December 31st

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-5, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The Accounting Standards Update (“ASU”) requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. The ASU is effective for the Company for interim and annual periods beginning after January 1, 2012. The adoption of the ASU is not expected to have any effect on the Company’s financial position, results of operations, or liquidity.

-10-

Note 2 – Related Party Transactions

Through July 6, 2010, VPG had significant agreements, transactions, and relationships with Vishay Intertechnology operations outside the defined scope of the VPG business. While these transactions are not necessarily indicative of the terms VPG would have achieved had it been a separate entity, management believes they are reasonable.

Historically, VPG used the corporate services of Vishay Intertechnology to fulfill a variety of functions including treasury, tax, legal, internal audit, human resources, and risk management. Subsequent to the spin-off, VPG is an independent, publicly traded company, and is incurring additional costs associated with being an independent, publicly traded company. These additional costs are not reflected in VPG’s historical combined and consolidated condensed financial statements for periods prior to July 6, 2010.

Sales Organizations

Prior to the spin-off, a portion of VPG’s Foil Technology products were sold by the Vishay Intertechnology worldwide sales organization, which operates through regionally-based legal entities. The third-party sales of these products are presented in the combined and consolidated condensed financial statements as if they were made by VPG, although legal entities outside of the defined scope of VPG actually made these sales. Third-party sales made through the Vishay Intertechnology worldwide sales organization totaled $0.0 million and $6.6 million for the fiscal quarter and nine fiscal months ended October 2, 2010, respectively.

The selling entities received selling commissions on these sales. Commission rates were set at the beginning of each year based on budgeted selling expenses expected to be incurred by the Vishay Intertechnology sales organization. Commission expense charged to VPG by the Vishay Intertechnology worldwide sales organization was $0.0 million and $0.3 million for the fiscal quarter and nine fiscal months ended October 2, 2010, respectively.

The net cash generated by these transactions was retained by the Vishay Intertechnology selling entity and is presented in the combined and consolidated condensed statements of cash flows as a financing activity in the caption “Transactions with Vishay Intertechnology.”

These sales activities were transitioned to VPG’s dedicated sales forces effective June 1, 2010.

Shared Facilities

VPG and Vishay Intertechnology shared certain manufacturing and administrative sites. Costs were allocated based on relative usage of the respective facilities.

Subsequent to the spin-off, VPG and Vishay Intertechnology continue to share certain manufacturing locations. VPG owns one location in Israel and one location in Japan, at which it initially leased space to Vishay Intertechnology. Vishay Intertechnology vacated the Israel facility during the fourth quarter of 2010 and continues to lease space from VPG in Japan. Vishay Intertechnology owns one location in Israel and one location in the United States, at which it leases space to VPG.

Administrative Service Sharing Agreements

Through July 6, 2010, the combined and consolidated condensed financial statements include transactions with other Vishay Intertechnology operations involving administrative services (including expenses primarily related to personnel, insurance, logistics, other overhead functions, corporate IT support, and network communications support) that were provided to VPG by Vishay Intertechnology operations outside the defined scope of VPG. Amounts charged to the Company for these services were $0.0 million and $1.1 million for the fiscal quarter and nine fiscal months ended October 2, 2010, respectively. VPG assumed the responsibility for these functions, either internally or by purchasing these services from third-party vendors, following the spin-off.

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Note 2 – Related Party Transactions (continued)

Allocated Corporate Overhead Costs

Through July 6, 2010, the costs of certain services, including charges for services such as accounting matters for all SEC filings, investor relations, tax services, cash management, legal services, and risk management on a global basis, that were provided by the Vishay Intertechnology corporate office to VPG have been reflected in the combined and consolidated condensed financial statements as selling general and administrative expenses in the accompanying combined and consolidated condensed statements of operations.

The total amount of allocated costs was $0.0 million and $1.1 million for the fiscal quarter and nine fiscal months ended October 2, 2010, respectively. These costs were allocated to VPG on the ratio of revenues attributed to the VPG business to total revenues and represent management’s reasonable allocation of the costs incurred. However, these amounts are not representative of the costs necessary for VPG to operate as an independent, publicly traded company.

Interest Charges

As previously described, through July 6, 2010, VPG had significant agreements, transactions, and relationships with Vishay Intertechnology operations outside the defined scope of the VPG business. Through July 6, 2010, the combined and consolidated condensed financial statements include charges for interest based on the prevailing interest rate of Vishay Intertechnology’s revolving credit facility, or if greater, an interest rate required by local tax authorities. Interest expense on the net amount payable to affiliates was $0.0 million and $0.3 million during the fiscal quarter and nine fiscal months ended October 2, 2010. Of these amounts, $0.0 million and $0.2 million during the fiscal quarter and nine fiscal months ended October 2, 2010, respectively, was not historically charged by Vishay Intertechnology to VPG. The remaining interest expense was charged to VPG and paid in accordance with local statutory requirements.

Commitments, Contingencies, and Concentrations

Relationships with Vishay Intertechnology after Spin-Off

In connection with the spin-off, on July 6, 2010, the Company and its subsidiaries entered into several agreements with Vishay Intertechnology and its subsidiaries that govern the relationship of the parties following the spin-off.

Transition Services Agreement

Under the terms of a transition services agreement dated July 6, 2010, Vishay Intertechnology agreed to provide to VPG, for a fee, specified support services for a period of up to 18 months after the spin-off. Under this agreement, Vishay Intertechnology continues to provide to VPG certain information technology support services for the Company’s foil resistor business. As of October 1, 2011, $0.5 million has been paid to Vishay Intertechnology for transition services and it is estimated that an additional $0.1 million will be paid in the fourth quarter of 2011.

Lease Agreements

Subsequent to the spin-off, VPG and Vishay Intertechnology continue to share certain manufacturing locations.

Future minimum lease payments by VPG for these facilities are estimated as follows (in thousands):

Remainder of 2011	$	38
2012		152
2013		152
2014		152
2015		76
Thereafter		-

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Note 2 – Related Party Transactions (continued)

Commitments, Contingencies, and Concentrations (continued)

Future minimum lease receipts from Vishay Intertechnology for these shared facilities are estimated as follows (in thousands):

Remainder of 2011	$	10
2012		39
2013		39
2014		39
2015		19
Thereafter		-

Supply Agreements

After the spin-off, VPG and Vishay Intertechnology each will require certain products manufactured by the other for manufacture and sale of its respective products. VPG and Vishay Intertechnology have entered into multiple supply agreements pursuant to which one party will be obligated to supply to the other certain products described in the supply agreements, up to a maximum aggregate quantity for each product, at pricing set forth in the supply agreements. The term of each supply agreement is perpetual unless sooner terminated. Either party may terminate the supply agreement at any time upon written notice to the other party at least one year prior to the requested date of termination. The parties will negotiate in good faith as to the pricing for each product on an annual basis taking into account ascertainable market inputs. The aggregate purchase price of products purchased from Vishay Intertechnology is not considered material.

Note 3 – Income Taxes

VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology which is based on a current projection of full-year earnings before taxes amongst different taxing jurisdictions and adjusted for the impact of discrete quarterly items. The effective tax rate for the fiscal quarter ended October 1, 2011 was 16.5% versus 39.2% for the fiscal quarter ended October 2, 2010. The change in the effective tax rate is the result of a shift in the geographic mix of pretax earnings and the recording of a $0.2 million discrete tax benefit relating to changes in foreign exchange and financial asset positions. The effective tax rate for the nine fiscal months ended October 1, 2011 was 28.9% versus 39.5% for the nine fiscal months ended October 2, 2010. The change in the effective tax rate is the result of a shift in the geographic mix of pretax earnings and the recording of a net cumulative tax benefit of $0.1 million. The net tax benefit is primarily derived from losses associated with foreign exchange and financial assets offset by deferred tax reductions due to statutory rate changes.

Income taxes for VPG for the fiscal quarter and nine fiscal months ended October 1, 2011 and October 2, 2010, as presented in these combined and consolidated condensed financial statements, are calculated on a separate tax return basis. VPG’s operations related to the six fiscal months ended July 3, 2010 were included in Vishay Intertechnology’s U.S. federal and certain state tax returns and United Kingdom “group relief” available to entities under common control has been claimed. Vishay Intertechnology’s global tax model was developed based on its entire portfolio of businesses. Accordingly, tax results as presented for VPG for the six fiscal months ended July 3, 2010, in these financial statements are not necessarily indicative of future performance and do not necessarily reflect the results that VPG would have generated as an independent, publicly traded company for the period presented.

Prior to the spin-off, certain dedicated entities had taxes payable to the local taxing authorities, but VPG did not maintain taxes payable to/from parent in those jurisdictions where the taxable incomes are combined or offset. Accordingly, VPG was deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. These settlements were reflected as changes in parent net investment.

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Note 3 – Income Taxes (continued)

The provision for income taxes consists of provisions for federal, state, and foreign income taxes. The effective tax rates for the periods ended October 1, 2011 and October 2, 2010 reflect VPG’s expected tax rate on reported income before income tax and tax adjustments. VPG operates in an international environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting VPG’s earnings and the applicable tax rates in the various locations in which VPG operates.

The Company and its subsidiaries are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. VPG establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when VPG believes that certain positions might be challenged despite its belief that the tax return positions are supportable. VPG adjusts these reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company has joint and several liability with Vishay Intertechnology to multiple tax authorities up through the spin-off date. However, under the terms of the Tax Matters Agreement, Vishay Intertechnology has agreed to assume this liability and any similar liability for U.S. federal, state or local and foreign income taxes that are determined on a separate company, consolidated, combined, unitary or similar basis for each taxable period in which VPG was a part of Vishay Intertechnology’s affiliated group prior to July 6, 2010. Penalties and tax-related interest expense are reported as a component of income tax expense. The Company anticipates $0.6 million to $0.8 million of unrecognized tax benefits to be reversed within the next twelve months of the reporting date due to the expiration of statute of limitations in certain jurisdictions. This reversal will not have an impact to tax expense as the unrecognized tax benefits are a part of the indemnification from Vishay Intertechnology.

Note 4 – Long-Term Debt

Long-term debt consists of the following (in thousands):

	October 1,		December 31,
	2011		2010
Credit facility - revolving debt	$	-	$	-
Exchangeable unsecured notes, due 2102		9,958		9,958
Other debt		1,765		1,734
		11,723		11,692
Less current portion		188		-
	$	11,535	$	11,692

-14-

Note 4 – Long-Term Debt(continued)

Credit Facility

On October 14, 2010, the Company entered into a Credit Agreement (“Credit Agreement”) among the Company, the lenders, RBS Citizens, National Association as joint book-runner and JPMorgan Chase Bank, National Association as agent for such lenders (“the Agent”), pursuant to which the lenders have made available to the Company a multi-currency, secured credit facility. The credit facility consists of a secured revolving facility (“Revolving Facility”) in an aggregate principal amount of $25.0 million with sublimits of (i) $5.25 million which can be used for letters of credit, and (ii) up to $5.0 million which can be used for loans outstanding for up to 5 business days (“Swing Loans”). The Revolving Facility terminates on October 14, 2013.

Interest payable on the Revolving Facility is based upon the Agent’s prime rate, the Federal Funds Rate, or LIBOR (“Base Rate”). Depending upon the Company’s leverage ratio or the type of advance, an interest rate margin ranging from 0.00% to 2.75% per annum is added to the applicable Base Rate to determine the interest payable on the Revolving Facility. The Company paid a one-time fee on the commitment and is required to pay a quarterly fee of 0.30% per annum to 0.50% per annum on the unused portion of the 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 under the Revolving Facility are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by all of the Company’s domestic subsidiaries. The obligations of the Company and the guarantors under the Revolving Facility are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 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. There is a provision in the Credit Agreement that if the Company is in default of more than $1.5 million in debt elsewhere, which is not cured, the credit facility could default.

The financial maintenance covenants include (a) a leverage ratio of not more than 2.5 to 1.0; and (b) a fixed charges coverage ratio of not less than 2.5 to 1.0. The Company was in compliance with all covenants at October 1, 2011 and December 31, 2010. The leverage ratio and fixed charges ratio were 0.4 to 1.0 and 25.5 to 1.0, respectively at October 1, 2011. The leverage ratio and fixed charges ratio were 0.4 to 1.0 and 30.0 to 1.0, respectively at December 31, 2010. The Company expects to continue to be in compliance with these covenants based on current projections. If the Company is not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

The Credit Agreement is structured to permit the Company to enter into a second secured revolving credit facility of up to a maximum principal amount not to exceed $15.0 million (or the equivalent thereof in Israeli shekels to be determined at the time the facility is entered into), on terms and conditions reasonably satisfactory to the Agent and secured separately by assets of the Company’s subsidiaries based primarily in Israel.

-15-

Note 4 – Long-Term Debt(continued)

Exchangeable Unsecured Notes, due 2102

By reason of the spin-off, Vishay Intertechnology was required to take action so that the existing exchangeable notes of Vishay Intertechnology were deemed exchanged as of the date of the spin-off, for a combination of new notes of Vishay Intertechnology and notes issued by VPG.

VPG assumed the liability for an aggregate $10.0 million principal amount of exchangeable notes effective July 6, 2010. The maturity date of the notes is December 13, 2102.

The notes are subject to a put and call agreement under which the holders may at any time put the notes to the Company in exchange for 441,176 shares of the Company’s common stock in the aggregate, and the Company may call the notes in exchange for cash or for shares of its common stock at any time after January 1, 2018. The put/call rate of the VPG notes is $22.57 per share of common stock.

The notes bear interest at LIBOR. Interest is payable quarterly on March 31, June 30, September 30, and December 31 of each calendar year.

Other Debt

Other debt consists of debt held by VPG’s Japanese subsidiary. The subsidiary had a revision in the payment terms on this debt, which is now payable monthly over the next 10 years beginning in April of 2011.

Note 5 – Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes the following components (in thousands):

	Fiscal quarter ended						Nine fiscal months ended
	October 1,			October 2,			October 1,		October 2,
	2011			2010			2011		2010
Net earnings	$	3,238		$	2,630		$	9,627	$	8,500
Other comprehensive income (loss):
Foreign currency translation
adjustment		(1,674	)		4,899			1,316		(46	)
Pension and other postretirement
adjustments, net of tax		33			(61	)		31		49
Total other comprehensive income (loss)		(1,641	)		4,838			1,347		3
Comprehensive income		1,597			7,468			10,974		8,503
Less: Comprehensive income (loss)
attributable to noncontrolling interests		(62	)		11			51		70
Comprehensive income attributable
to VPG stockholders	$	1,659		$	7,457		$	10,923	$	8,433

-16-

Note 6 – Pension and Other Postretirement Benefits

Defined Benefit Plans

Employees of VPG participate in various defined benefit pension and other postretirement benefit plans.

Prior to July 6, 2010, certain employees of VPG in the United States and the United Kingdom have participated in defined benefit pension and other postretirement plans sponsored by Vishay Intertechnology. The annual cost of the Vishay Intertechnology defined benefit plans was allocated to all of the participating businesses based upon a specific actuarial computation, and accordingly, is reflected in the accompanying combined and consolidated condensed statements of operations.

VPG assumed most of the obligations for employees in the United States and the United Kingdom that were employed by VPG after the spin-off, and accordingly, those obligations are included in VPG’s consolidated condensed balance sheets. An allocation of plan assets is also reflected in the disclosures below for the periods prior to July 6, 2010. Plan assets were transferred to VPG as of the spin-off and invested in money market funds and company-owned life insurance policies.

Vishay Intertechnology’s principal qualified U.S. pension plan, the Vishay Retirement Plan (“VRP”), was frozen effective January 1, 2009 and participants no longer accrue benefits. Given the frozen nature of the VRP, participants who became employees of VPG at the spin-off became terminated, vested participants of the VRP as of the spin-off date and Vishay Intertechnology retained the related pension obligations.

Employees who participated in the Vishay Nonqualified Retirement Plan who became employees of VPG at the spin-off transferred into the newly created Vishay Precision Group Nonqualified Retirement Plan. The Vishay Nonqualified Retirement Plan was frozen effective January 1, 2009. Accordingly, the Vishay Precision Group Nonqualified Retirement Plan is also frozen and participants do not continue to accrue benefits.

The Vishay Precision Group Nonqualified Retirement Plan, like all nonqualified plans, is considered to be unfunded. VPG 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. Effective July 6, 2010, Vishay Intertechnology deposited an allocation of assets into a newly created rabbi trust for VPG. The consolidated condensed balance sheets include these rabbi trust assets of $1.3 million at October 1, 2011 and $1.4 million at December 31, 2010, which approximate the pension liability at those dates.

-17-

Note 6 – Pension and Other Postretirement Benefits (continued)

The following table sets forth the components of net periodic cost of pension and other postretirement benefit plans (in thousands):

	Fiscal quarter ended					Fiscal quarter ended
	October 1, 2011					October 2, 2010
	Pension			OPEB		Pension			OPEB
	Plans			Plans		Plans			Plans
Net service cost	$	126		$	9	$	63		$	9
Interest cost		225			34		203			34
Expected return on plan assets		(153	)		-		(128	)		-
Amortization of actuarial losses		1			11		2			8
Net periodic benefit cost	$	199		$	54	$	140		$	51
	Nine fiscal months ended					Nine fiscal months ended
	October 1, 2011					October 2, 2010
	Pension			OPEB		Pension			OPEB
	Plans			Plans		Plans			Plans
Net service cost	$	374		$	29	$	187		$	27
Interest cost		675			104		605			102
Expected return on plan assets		(459	)		-		(381	)		-
Amortization of actuarial losses		2			35		7			24
Net periodic benefit cost	$	592		$	168	$	418		$	153

Other Retirement Obligations

Prior to July 6, 2010, certain key employees participated in a nonqualified deferred compensation plan sponsored by Vishay Intertechnology. These employees transferred to a newly created nonqualified deferred compensation plan of VPG. The accompanying consolidated condensed balance sheets include a liability within other noncurrent liabilities related to these deferrals. Vishay Intertechnology maintained 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. Effective July 6, 2010, Vishay Intertechnology deposited an allocation of assets into a newly created rabbi trust for VPG. The consolidated condensed balance sheets include these rabbi trust assets of $2.7 million at October 1, 2011 and $2.6 million at December 31, 2010, which amounts approximate VPG’s liability under this plan at those dates.

-18-

Note 7 – Share Based Compensation

Effective July 6, 2010, the Company’s Board of Directors and Vishay Intertechnology (as the Company’s sole stockholder prior to the spin-off) approved the adoption of the Vishay Precision Group, Inc. 2010 Stock Incentive Program (as amended, the “2010 Program”). The 2010 Program permits the grant of up to 500,000 shares of restricted stock, unrestricted stock, restricted stock units (“RSUs”), and stock options to officers, employees and non-employee directors. At October 1, 2011, the Company had reserved 324,361 shares of common stock for future grant of equity awards, pursuant to the 2010 Program. If any outstanding awards are forfeited by the holder or cancelled by the Company, the underlying shares would be available for regrant to others.

Stock Options

In connection with the spin-off, VPG agreed to issue certain replacement awards to VPG employees holding equity-based awards of Vishay Intertechnology based on VPG’s common stock. The vesting schedule, expiration date, and other terms of these awards are generally the same as those of the Vishay Intertechnology equity-based awards they replaced.

The following table summarizes the Company’s stock option activity (number of options in thousands):

	2011
				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual
	Options	Price		Life
Outstanding:
Balance at January 1, 2011	32	$	18.03
Granted	-		-
Exercised	-		-
Cancelled/expired	-		-
Balance at October 1, 2011	32	$	18.03	4.73
Vested and
expected to vest	32	$	18.03
Exercisable:
End of period	24	$	18.37

The pretax intrinsic value (the difference between the closing stock price of VPG’s common stock on the last trading day of the fiscal quarter of $13.18 per share and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on October 1, 2011 is not material. No options were exercised during the fiscal quarter or nine fiscal months ended October 1, 2011.

-19-

Note 7 – Share Based Compensation (continued)

Restricted Stock Units

The VPG Board of Directors agreed to grant “founders’ equity” awards pursuant to the 2010 Program to directors and executive officers. The fair value of the awards to directors is recognized over a three year vesting schedule. The fair value of the awards to the executive officers is vested on July 6, 2013. Each RSU entitles the recipient to receive a share of common stock when the RSU vests. 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.

On June 2, 2011, the VPG Board of Directors approved the issuance of 3,036 restricted stock units to the three independent board members and to the non-executive Chairman of the Board. 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. The compensation cost with respect to the awards is recognized ratably over the one year vesting period of such awards.

VPG’s three executive officers are entitled to annual performance-based equity awards in the form of RSUs. Performance criteria include measures of operating margin and EBITDA of the Company. In addition, for 2011, the chief technical officer has a number of personal objectives that must be achieved in order to receive his full award. If the performance criteria are met, the RSUs are granted, and thereafter the RSUs vest 25% on the date of grant and the balance in annual installments over the three subsequent years. The awards relating to 2010 performance had an aggregate target grant-date fair value of $0.6 million. All performance goals were met for the 2010 awards, resulting in the granting of 35,949 RSUs on March 15, 2011. One quarter of the awards vested on that date. The remaining RSUs will vest ratably over the next three years. The awards with respect to 2011 performance have an aggregate target grant-date fair value of $0.7 million and will be determined and granted during the fiscal year ending December 31, 2012. The Company recognizes compensation cost for RSUs that are expected to vest and expects performance criteria to be met.

VPG’s chief executive officer was granted 3,765 RSUs on March 15, 2011 at a grant-date fair value of $11.53. These awards vest in equal amounts on May 28, 2011, May 28, 2012, and May 28, 2013. These RSUs were granted in replacement of corresponding restricted stock units of Vishay Intertechnology that were cancelled in connection with the spin-off from Vishay Intertechnology.

RSU activity as of October 1, 2011 is presented below (number of RSUs in thousands):

			Weighted
	Number		Average
	of		Grant-date
	RSUs		Fair Value
Outstanding:
Balance at January 1, 2011	101		$	15.79
Granted	43			16.40
Vested	(15	)		15.49
Cancelled	-			-
Balance at October 1, 2011	129		$	16.03

-20-

Note 7 – Share Based Compensation (continued)

Share Based Compensation Expense

The following table summarizes share based compensation expense recognized (in thousands):

	Fiscal quarter ended				Nine fiscal months ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Stock options	$	5	$	3	$	15	$	23
Restricted stock units		159		24		464		32
Restricted stock units (performance based)		78		73		239		73
Other		-		-		-		44
Total	$	242	$	100	$	718	$	172

-21-

Note 8 – Segment Information

VPG reports in two segments: the Foil Technology Products segment and the Weighing Modules and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistors and strain gage operating segments and the Weighing Modules and Control Systems reporting segment is comprised of the transducers/load cells and weighing systems operating segments.

VPG evaluates reporting segment performance based on 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 intrinsic operating results of VPG.

	Fiscal quarter ended						Nine fiscal months ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010
Net third-party revenues:
Foil Technology Products	$	28,407		$	25,557		$	85,614		$	75,038
Weighing Modules & Control Systems		31,630			26,051			96,081			77,659
Total	$	60,037		$	51,608		$	181,695		$	152,697
Gross profit:
Foil Technology Products	$	12,238		$	11,548		$	38,066		$	36,054
Weighing Modules & Control Systems		8,954			7,594			26,226			20,118
Total	$	21,192		$	19,142		$	64,292		$	56,172
Segment operating income (loss):
Foil Technology Products	$	7,926		$	7,628		$	24,654		$	24,613
Weighing Modules & Control Systems		3,683			3,000			9,530			4,964
Unallocated G&A expenses		(6,899	)		(5,842	)		(19,790	)		(14,799	)
Combined and consolidated condensed operating income	$	4,710		$	4,786		$	14,394		$	14,778

Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. Intersegment sales from the Foil Technology Products segment to the Weighing Modules and Control Systems segment were $0.5 million during each of the fiscal quarters ended October 1, 2011 and October 2, 2010, and $1.6 million and $1.3 million during the nine fiscal months ended October 1, 2011 and October 2, 2010, respectively.

-22-

Note 9 – Earnings Per Share

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

	Fiscal quarter ended				Nine fiscal months ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Numerator:
Numerator for basic earnings per share:
Net earnings attributable to VPG
stockholders/parent	$	3,300	$	2,619	$	9,576	$	8,430
Adjustment to the numerator for net earnings:
Interest savings assuming conversion of
dilutive exchangeable notes, net of tax		4		9		14		9
Numerator for diluted earnings per share:
Net earnings attributable to VPG
stockholders/parent	$	3,304	$	2,628	$	9,590	$	8,439
Denominator:
Denominator for basic earnings per share:
Weighted average shares		13,346		13,332		13,342		13,332
Effect of dilutive securities:
Exchangeable notes		441		441		441		441
Employee stock options		1		1		1		1
Restricted stock units		43		5		36		5
Dilutive potential common shares		485		447		478		447
Denominator for diluted earnings per share:
Adjusted weighted average shares		13,831		13,779		13,820		13,779
Basic earnings per share attributable to VPG
stockholders/parent	$	0.25	$	0.20	$	0.72	$	0.63
Diluted earnings per share attributable to VPG
stockholders/parent	$	0.24	$	0.19	$	0.69	$	0.61

-23-

Note 9 – Earnings Per Share (continued)

Diluted earnings per share for the periods presented do not reflect the following weighted average potential common shares, as the effect would be antidilutive (in thousands):

	Fiscal quarter ended		Nine fiscal months ended
	October 1,	October 2,	October 1,	October 2,
	2011	2010	2011	2010
Exchangeable notes:
Exchangeable Unsecured Notes, due 2102	-	-	-	-
Weighted average employee stock options	18	18	18	18
Weighted average warrants	630	630	630	630
Weighted average other	-	19	-	19

Note 10 – Additional Financial Statement Information

The caption “other” on the combined and consolidated condensed statements of operations consists of the following (in thousands):

	Fiscal quarter ended						Nine fiscal months ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010
Foreign exchange loss	$	(686	)	$	(538	)	$	(769	)	$	(423	)
Interest income		169			61			340			233
Other		(246	)		50			(200	)		(197	)
	$	(763	)	$	(427	)	$	(629	)	$	(387	)

Other accrued expenses consist of the following (in thousands):

	October 1,		December 31,
	2011		2010
Goods received, not yet invoiced	$	3,082	$	2,861
Other		6,209		5,819
	$	9,291	$	8,680

-24-

Note 11 – Fair Value Measurements

ASC Topic 820 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):

				Fair value measurements at reporting date using:
	Total			Level 1		Level 2			Level 3
	Fair Value			Inputs		Inputs			Inputs
October 1, 2011
Assets:
Assets held in rabbi trusts	$	3,985		$	1,064	$	2,921		$	-
Liabilities
Derivative contracts	$	(443	)	$	-	$	(443	)	$	-
December 31, 2010
Assets:
Assets held in rabbi trusts	$	3,943		$	778	$	3,165		$	-

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 October 1, 2011 and December 31, 2010 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 period. 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.

We have entered into two derivative contracts, focusing on the Israeli Shekel, through July of 2012. The notional amount of the derivative contracts is approximately 60.5 million Shekels and has a fair value of $0.4 million as of October 1, 2011. These are foreign currency collar instruments, wherein the weighted minimal hedged rate is 3.53 Shekels per USD and the maximum hedged rate is 3.64 Shekels per USD. The Company has recorded a net loss on these contracts of $0.5 million and $0.4 million for the fiscal quarter ended and nine fiscal months ended October 1, 2011, respectively. These losses are recorded on the income statement as part of other income (expense).  There were no derivative contracts outstanding during 2010.

In determining fair value of derivative instruments, we consider both the counterparty credit risk and our own credit worthiness. To determine our own credit risk we estimate our own credit rating by benchmarking the price of outstanding debt to publicly-available comparable data from rated agencies. Using the estimated rating, our credit risk was quantified by reference to publicly–traded debt with a corresponding rating. We have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements using significant unobservable inputs (Level 3) as of October 1, 2011.

The fair value of the long-term debt at October 1, 2011 and December 31, 2010, is approximately $8.0 million and $10.4 million, respectively. The Company estimates the fair value of its long-term debt using a combination of quoted market prices for similar financing arrangements and expected future payments discounted at risk-adjusted rates.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, long-term notes receivable, short-term notes payable, and accounts payable. The carrying amounts for these financial instruments reported in the combined and consolidated balance sheets approximate their fair values.

-25-

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

VPG is an internationally recognized designer, manufacturer and marketer of sensors based on resistive foil technology and sensor-based systems specializing in the growing markets of stress, force, weight, pressure, and current measurements. We provide vertically integrated products and solutions that are primarily based upon our proprietary foil technology. These products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality. Our global operations enable us to produce a wide variety of products in strategically effective geographical locations that also optimize our resources for specific technologies, sensors, assemblies and systems. We report in two segments: the Foil Technology Products segment and the Weighing Modules and Control Systems segment. The Foil Technology Products segment is comprised of ultra-high precision foil resistors and foil strain gages. This segment’s products are sold to third-party customers and are utilized in the manufacture of the vertically integrated modules and systems that comprise our Weighing Modules and Control Systems segment.

The Company’s products are sense elements, components, and transducers that convert mechanical inputs into an electronic signal for display, processing, interpretation, or control by our instrumentation and systems products. Precision sensors are essential to the accurate measurement, resolution and display of force, weight, pressure, tilt, motion, or acceleration, especially in the legal-for-trade, commercial, and industrial marketplace in a wide variety of applications. Our products are not typically used in the consumer market.

The precision sensor market is being influenced by the significant increase in intelligent products across virtually all end markets, including medical, agricultural, transportation, industrial, avionics, military, and space applications. We believe that as original equipment manufacturers (“OEMs”) strive to make products “smarter”, they are generally integrating more sensors to link the analog/physical world with digital control and/or response.

Until July 6, 2010, our business was part of Vishay Intertechnology, and our assets and liabilities consisted of those that Vishay Intertechnology attributed to its precision measurement and foil resistor businesses. Following the spinoff on July 6, 2010, we are an independent, publicly traded company, and Vishay Intertechnology does not retain any ownership interest in us.

VPG reports in two segments: the Foil Technology Products segment and the Weighing Modules and Control Systems segment. The Foil Technology Products reporting segment is comprised of the foil resistors and strain gage operating segments, which include strain gages, ultra-precision foil resistors, and current sensors. The Weighing Module and Control Systems reporting segment is comprised of the transducers/load cells and weighing systems operating segments, which include transducers/load cells, instruments, weighing modules, and complete systems for process control or on-board weighing applications.

Net revenues for the fiscal quarter ended October 1, 2011 were $60.0 million versus $51.6 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter ended October 1, 2011 were $3.3 million, or $0.24 per diluted share, versus $2.6 million, or $0.19 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended October 1, 2011 were $181.7 million versus $152.7 million for the comparable prior year period. Net earnings attributable to VPG stockholders/parent for the nine fiscal months ended October 1, 2011 were $9.6 million, or $0.69 per diluted share, versus $8.4 million, or $0.61 per diluted share, for the comparable prior year period.

-26-

We have seen a steady increase in demand for our products over the first nine months of 2011. This growth came from both of our reportable segments resulting in higher revenues as compared to the prior year periods.

Financial Metrics

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 computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is primarily 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 third quarter of 2010 and through the third quarter of 2011 (dollars in thousands):

	3rd Quarter			4th Quarter			1st Quarter			2nd Quarter			3rd Quarter
	2010			2010			2011			2011			2011
Net revenues	$	51,608		$	54,827		$	59,525		$	62,133		$	60,037
Gross profit margin		37.1	%		38.2	%		35.3	%		35.6	%		35.3	%
End-of-period backlog	$	42,200		$	40,300		$	47,100		$	48,500		$	45,900
Book-to-bill ratio		1.04			0.97			1.09			1.02			0.97
Inventory turnover		2.88			2.87			3.17			3.27			3.11

See “Financial Metrics by Segment” below for net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover broken out by segment.

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Net revenues have increased on a sequential basis due to an increase in demand in both segments, with the exception of the third quarter of 2011. The third quarter historically reflects the seasonal slowdown in Europe.

Gross margins in the third quarter of 2011 were relatively unchanged from the second quarter of 2011. The fluctuation sequentially, particularly from the fourth quarter of 2010 to the third quarter of 2011, was due to favorable adjustments booked in the fourth quarter of 2010 as follows: (1) an inventory revaluation adjustment, (2) a warranty reserve adjustment and (3) a physical inventory adjustment. These were one-time adjustments in that quarter, which therefore impact the comparability with the 2011 quarters. The gross margins in the third quarter of 2011, when compared to the third quarter of 2010, were also negatively impacted by higher manufacturing costs and an unfavorable product mix.

Financial Metrics by Segment

The following table shows net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover broken out by segment for the five quarters beginning with the third quarter of 2010 and through the third quarter of 2011 (dollars in thousands):

	3rd Quarter			4th Quarter			1st Quarter			2nd Quarter			3rd Quarter
	2010			2010			2011			2011			2011
Foil Technology Products
Net revenues	$	25,557		$	26,519		$	28,178		$	29,030		$	28,407
Gross profit margin		45.2	%		46.6	%		44.3	%		46.0	%		43.1	%
End-of-period backlog	$	21,200		$	20,500		$	24,800		$	25,300		$	24,000
Book-to-bill ratio		1.04			0.98			1.13			1.01			0.97
Inventory turnover		3.81			3.56			3.71			3.60			3.65
Weighing Modules and
Control Systems
Net revenues	$	26,051		$	28,308		$	31,347		$	33,103		$	31,630
Gross profit margin		29.2	%		30.4	%		27.2	%		26.4	%		28.3	%
End-of-period backlog	$	21,000		$	19,800		$	22,300		$	23,200		$	21,900
Book-to-bill ratio		1.04			0.97			1.06			1.02			0.97
Inventory turnover		2.42			2.53			2.88			3.08			2.81

Acquisition Strategy

We have a vertical product integration strategy to grow our weighing modules and control systems business and to promote our sophisticated products that integrate the precision measurement components that we design and produce.

As part of our growth strategy, we seek to expand through acquisition of other manufacturers of products that are similar or complementary to our existing product portfolio, particularly manufacturers who have established positions in major markets, reputations for product quality and reliability, and product lines with which we have substantial marketing and technical expertise. We also explore opportunities to acquire smaller targets to gain market share, effectively penetrate different geographic markets, enhance new product development, or grow our high margin niche market businesses.

We expect to continue our program of strategic acquisitions, particularly where opportunities present themselves to grow our Weighing Modules and Control Systems market segment. Upon completion of acquisitions, we seek to reduce selling, general, and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies.

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There is no assurance that we will be able to identify and acquire suitable acquisition candidates at price levels and on terms and conditions we consider acceptable.

Research and Development

Research and development will continue to play a key role in our efforts to introduce innovative products for new sales and to improve profitability. To that end, we expect to increase our R&D expenditures to fill our product development pipeline and lay the foundation for future sales growth. We expect to continue to expand our position as a leading supplier of resistive foil technology and sensor-based systems. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base and, ultimately, our financial performance.

Cost Management

To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing from higher-labor-cost countries to lower-labor-cost countries, such as Costa Rica, India, Israel, the People’s Republic of China, and the Republic of China (Taiwan). This will enable us to become more efficient and cost competitive, while maintaining tighter control over operations.

A primary tenet of our business strategy is expansion through acquisitions. In addition to the primary objective of enhancing our strategy of vertical product integration, our acquisition strategy includes a focus on reducing selling, general, and administrative expenses and achieving significant production cost savings at acquired companies. The plant closure and employee termination costs subsequent to acquisitions are also integral to our cost reduction programs.

We evaluate potential restructuring projects based on an expected payback period. The payback period represents the number of years of annual cost savings necessary to recover the initial cash outlay for severance and other exit costs plus the noncash expenses recognized for asset write-downs. In general, a restructuring project must have a payback of less than 3 years to be considered beneficial.

These production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We anticipate that we will realize the benefits of our restructuring through lower labor costs and other operating expenses in future periods. However, these strategies to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. We did not initiate any new restructuring programs during 2010 or during the fiscal quarter or nine fiscal months ended October 1, 2011.

We are presently executing plans to further reduce our costs by consolidating additional manufacturing operations with our expansion into India. The plans will require us to incur restructuring and severance costs in future periods. However, after implementing these plans, we do not anticipate significant restructuring and severance costs for our business except in the context of acquisition integration.

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.

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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. generally accepted accounting principles (“GAAP”) require that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have subsidiaries that fall into each of these categories.

Foreign Subsidiaries Which Use the Local Currency as the Functional Currency

We finance our operations in Europe and certain locations in Asia 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 those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.

Foreign Subsidiaries Which Use the U.S. Dollar as the Functional Currency

Our operations in Israel and certain locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. For the fiscal quarter ended October 1, 2011, exchange rate impacts were favorable to net revenues by $2.5 million and unfavorable to costs of products sold and selling general and administrative expenses by $2.7 million when compared to the comparable prior year period. For the nine fiscal months ended October 1, 2011, exchange rate impacts were favorable to net revenues by $6.6 million and unfavorable to costs of products sold and selling general and administrative expenses by $7.5 million when compared to the comparable prior year period.

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Results of Operations

Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:

	Fiscal quarter ended				Nine fiscal months ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Costs of products sold	64.7	%	62.9	%	64.6	%	63.2	%
Gross profit	35.3	%	37.1	%	35.4	%	36.8	%
Selling, general, and administrative expenses	27.5	%	27.8	%	27.5	%	27.1	%
Operating income	7.8	%	9.3	%	7.9	%	9.7	%
Income before taxes	6.5	%	8.4	%	7.5	%	9.2	%
Net earnings	5.4	%	5.1	%	5.3	%	5.6	%
Net earnings attributable to VPG stockholders/parent	5.5	%	5.1	%	5.3	%	5.5	%
_______
Effective tax rate	16.5	%	39.2	%	28.9	%	39.5	%

Net Revenues

Net revenues were as follows (dollars in thousands):

	Fiscal quarter ended					Nine fiscal months ended
	October 1,			October 2,		October 1,			October 2,
	2011			2010		2011			2010
Net revenues	$	60,037		$	51,608	$	181,695		$	152,697
Change versus comparable
prior year period	$	8,429				$	28,998
Percentage change versus
prior year period		16.3	%				19.0	%

Changes in net revenues were attributable to the following:

	vs. prior year		vs. prior year-
	quarter		to-date
Change attributable to:
Change in volume	11.1	%	15.3	%
Change in average selling prices	0.0	%	-0.9	%
Foreign currency effects	4.7	%	4.3	%
Other	0.5	%	0.3	%
Net change	16.3	%	19.0	%

During the fiscal quarter and nine fiscal months ended October 1, 2011, our sales volume increased in both of our reportable segments, as compared to the comparable prior year periods.

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Gross Profit and Margins

Gross profit margin for the fiscal quarter ended October 1, 2011 was 35.3% as compared to 37.1% for the fiscal quarter ended October 2, 2010. Volume increases were offset by higher variable and fixed manufacturing costs. Gross profit margin for the nine fiscal months ended October 1, 2011 was 35.4% as compared to 36.8% for the nine fiscal months ended October 2, 2010. Volume increases and a favorable impact from exchange rates were offset by higher variable and manufacturing fixed costs and an unfavorable product mix.

Segments

Analysis of revenues and gross profit margins for our reportable segments is provided below.

Foil Technology Products

Net revenues of the Foil Technology Products segment were as follows (dollars in thousands):

	Fiscal quarter ended					Nine fiscal months ended
	October 1,			October 2,		October 1,			October 2,
	2011			2010		2011			2010
Net revenues	$	28,407		$	25,557	$	85,614		$	75,038
Change versus comparable
prior year period	$	2,850				$	10,576
Percentage change versus
prior year period		11.2	%				14.1	%

Changes in Foil Technology Products segment net revenues were attributable to the following:

	vs. prior year		vs. prior year-
	quarter		to-date
Change attributable to:
Change in volume	5.8	%	9.7	%
Change in average selling prices	0.4	%	0.0	%
Foreign currency effects	4.3	%	4.0	%
Other	0.7	%	0.4	%
Net change	11.2	%	14.1	%

Gross profit as a percentage of net revenues for the Foil Technology Products segment was as follows:

	Fiscal quarter ended				Nine fiscal months ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Gross margin percentage	43.1	%	45.2	%	44.5	%	48.0	%

For the fiscal quarter and nine fiscal months ended October 1, 2011, the gross margin percentage decreased from the comparable prior year periods mainly due to manufacturing inefficiencies, which included excess material usage and additional labor costs, and higher manufacturing fixed costs.

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Weighing Modules and Control Systems

Net revenues of the Weighing Modules and Control Systems segment were as follows (dollars in thousands):

	Fiscal quarter ended					Nine fiscal months ended
	October 1,			October 2,		October 1,			October 2,
	2011			2010		2011			2010
Net revenues	$	31,630		$	26,051	$	96,081		$	77,659
Change versus comparable
prior year period	$	5,579				$	18,422
Percentage change versus
prior year period		21.4	%				23.7	%

Changes in the Weighing Modules and Control Systems segment net revenues were attributable to the following:

	vs. prior year		vs. prior year-
	quarter		to-date
Change attributable to:
Change in volume	16.2	%	20.7	%
Change in average selling prices	-0.4	%	-1.7	%
Foreign currency effects	5.0	%	4.6	%
Other	0.6	%	0.1	%
Net change	21.4	%	23.7	%

Gross profit as a percentage of net revenues for the Weighing Modules and Control Systems segment were as follows:

	Fiscal quarter ended				Nine fiscal months ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Gross margin percentage	28.3	%	29.2	%	27.3	%	25.9	%

The gross margin percentage for the fiscal quarter ended October 1, 2011 decreased from the comparable prior year period due to manufacturing inefficiencies, such as material usage and higher labor costs. The gross margin percentage for the nine fiscal months ended October 1, 2011 increased from the comparable prior year period mainly due to increased sales volume.

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Selling, General, and Administrative Expenses

Selling, general, and administrative (“SG&A”) expenses were as follows (dollars in thousands):

	Fiscal quarter ended						Nine fiscal months ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010
Total SG&A expenses	$	16,482		$	14,356		$	49,898		$	41,394
as a percentage of net revenues		27.5	%		27.8	%		27.5	%		27.1	%

Given the specialized nature of our products and our direct sales approach, we incur significant selling, general, and administrative costs.

SG&A expenses for the fiscal quarter and nine fiscal months ended October 1, 2011 increased from the comparable prior year periods. For the fiscal quarter ended October 1, 2011, this increase is attributed to higher personnel costs of $0.6 million, due to wage increases and travel costs, unfavorable exchange rate fluctuations of $0.7 million, and $0.7 million of fees incurred in connection with our transition to being an independent, publicly traded company which includes our requirement to comply with Section 404 of the Sarbanes-Oxley Act of 2002, for the fiscal year ended December 31, 2011. For the nine fiscal months ended October 1, 2011, this increase is attributed to higher personnel costs and commissions of $1.9 million, due to wage increases and travel costs, unfavorable exchange rate fluctuations of $2.0 million, and $4.6 million of fees for adding personnel and incurring fees in connection with our transition to being an independent, publicly traded company. SG&A expenses for the nine fiscal months ended October 2, 2010 included allocations of corporate overhead costs from Vishay Intertechnology of $1.1 million, which impacts comparability of the periods presented.

Through the date of the spin-off, we had significant agreements, transactions, and relationships with Vishay Intertechnology operations outside the defined scope of our business. While these transactions are not necessarily indicative of the terms we would have achieved had we been a separate entity, management believes they were reasonable. A description of these transactions and allocations is included in Note 2 to our combined and consolidated condensed financial statements.

Historically, we used the corporate services of Vishay Intertechnology for a variety of functions including treasury, tax, legal, internal audit, human resources, and risk management. As of the spin-off, we are an independent, publicly traded company and we incurred additional SG&A costs associated with being an independent, publicly traded company. These additional costs are not reflected in the historical combined and consolidated condensed financial statements.

Pursuant to the Transition Services Agreement, Vishay Intertechnology provides VPG certain information technology support services for our foil resistor business. As of October 1, 2011, $0.5 million has been paid to Vishay Intertechnology for transition services and it is estimated that an additional $0.1 million will be paid in the fourth quarter of 2011.

Other Income (Expense)

Total interest expense for the fiscal quarter ended October 1, 2011 increased by less than $0.1 million as compared to the comparable prior year period. Total interest expense for the nine fiscal months ended October 1, 2011 decreased $0.1 million as compared to the comparable prior year period. Interest for the fiscal quarter and nine fiscal months ended October 1, 2011 and the fiscal quarter ended October 2, 2010 consisted of interest on the exchangeable notes issued in connection with the spin-off and the overdraft facility in India. Interest expense in the nine fiscal months ended October 2, 2010 was primarily associated with the net payable to Vishay Intertechnology. Interest expense on the net payable to Vishay Intertechnology through the date of the spin-off is included in the combined and consolidated condensed financial statements based on the prevailing interest rate of Vishay Intertechnology’s revolving credit facility, or if greater, an interest rate required by local tax authorities.

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Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates with, among other things, the revaluation of balance sheet accounts. The Company recorded foreign exchange losses of $0.7 million and $0.8 million during the fiscal quarter and nine fiscal months ended October 1, 2011, as compared to foreign exchange losses of $0.5 million and $0.4 million for the fiscal quarter and nine fiscal months ended October 2, 2010, respectively. The foreign exchange gains and losses during the periods presented are largely due to the revaluation of the non-U.S. dollar-denominated assets at the Company's Israeli operations and the movement of the U.S. dollar compared to the Euro, the Indian Rupee and the New Taiwan Dollar.

The following table analyzes the components of the line “Other” on the combined and consolidated condensed statements of operations (in thousands):

	Fiscal quarter ended
	October 1,			October 2,
	2011			2010			Change
Foreign exchange loss	$	(686	)	$	(538	)	$	(148	)
Interest income		169			61			108
Other		(246	)		50			(296	)
	$	(763	)	$	(427	)	$	(336	)
	Nine fiscal months ended
	October 1,			October 2,
	2011			2010			Change
Foreign exchange loss	$	(769	)	$	(423	)	$	(346	)
Interest income		340			233			107
Other		(200	)		(197	)		(3	)
	$	(629	)	$	(387	)	$	(242	)

Income Taxes

For the current quarter and year to date, fluctuations in the effective tax rate have generally been caused by the geographical earnings mix and the impact of discrete items that are required to be recognized within the respective interim reporting period. The effective tax rate for the fiscal quarter ended October 1, 2011 was 16.5% versus 39.2% for the fiscal quarter ended October 2, 2010. The change in the effective tax rate is the result of the shift in the geographic mix of pretax earnings and the recording of a $0.2 million discrete tax benefit relating to foreign exchange and financial asset positions. The effective tax rate for the nine fiscal months ended October 1, 2011 was 28.9% versus 39.5% for the nine fiscal months ended October 2, 2010. The change in the effective tax rate is the result of the shift in the geographic mix of pretax earnings and the recording of a net cumulative tax benefit of $0.1 million. The net tax benefit is derived from the losses associated with the foreign exchange and financial assets offset by deferred tax reductions due to statutory rate changes.

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The effective tax rates reflect the fact that we could not recognize for accounting purposes the tax benefit of losses incurred in certain jurisdictions, although these losses may be available to offset future taxable income. We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. We give consideration to whether valuation allowances should be established against deferred tax assets based on all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss carryforwards not expiring and tax planning alternatives, as we operate and derive income across multiple jurisdictions. We may not recognize deferred tax assets for loss carryforwards in jurisdictions where there is a recent history of cumulative losses, where there is no taxable income in the carryback period, where there is insufficient evidence of future earnings to overcome the loss history and where there is no other positive evidence, such as the likely reversal of taxable temporary differences, that would result in the utilization of loss carryforwards for tax purposes.

We operate in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our strategy is to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can benefit from lower labor costs and available tax and other government-sponsored incentives. Changes in the effective tax rate are largely attributable to changes in the mix of pretax income among our various taxing jurisdictions.

Additional information about income taxes is included in Note 3 to our combined and consolidated condensed financial statements.

Financial Condition, Liquidity, and Capital Resources

At October 1, 2011 and December 31, 2010 we had significant cash balances and limited third-party debt. Prior to the spin-off, we had significant intercompany balances payable to Vishay Intertechnology and its affiliates. We believe that our current cash and cash equivalents, credit facility and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months.

Effective July 6, 2010, we issued approximately $10.0 million aggregate principal amount of exchangeable notes in accordance with the terms of Vishay Intertechnology's outstanding exchangeable notes due 2102, which required that the existing exchangeable notes of Vishay Intertechnology be exchanged in connection with the spin-off, for a combination of new notes of Vishay Intertechnology and notes issued by VPG. The maturity date of these notes is December 13, 2102.

Our other current and long-term debt consists of debt held by our Japanese subsidiary of approximately $1.8 million at October 1, 2011.

In 2010, we entered into a Credit Agreement among the Company, the lenders, RBS Citizens, National Association as joint book-runner and JPMorgan Chase Bank, National Association as agent for such lenders (“the Agent”), pursuant to which the lenders have made available to the Company a multi-currency, secured credit facility. The 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 Credit Agreement is structured to permit the Company to enter into a second secured revolving credit facility of up to a maximum principal amount not to exceed $15.0 million (or the equivalent thereof in Israeli shekels to be determined at the time the facility is entered into), on terms and conditions reasonably satisfactory to the Agent and secured separately by assets of the Company based primarily in Israel.

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The financial maintenance covenants include (a) a leverage ratio of not more than 2.5 to 1.0; and (b) a fixed charges coverage ratio of not less than 2.5 to 1.0. We were in compliance with all covenants at October 1, 2011 and December 31, 2010. Our leverage ratio and fixed charges ratio were 0.4 to 1.0 and 25.5 to 1.0, respectively, at October 1, 2011. Our leverage ratio and fixed charges ratio were 0.4 to 1.0 and 30.0 to 1.0, respectively, at December 31, 2010. We expect to continue to be in compliance with these covenants based on current projections. If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

Due to our strong product portfolio and market position, our business has historically generated significant cash flow. However, our cash provided by operating activities for the nine fiscal months ended October 1, 2011 was $9.7 million as compared to $20.0 million for the comparable prior year period. This variance primarily resulted from approximately $6.4 million in tax payments made during 2011, bonus/profit sharing paid in 2011, and other changes to the working capital accounts.

We refer to the amount of cash generated from operations in excess of our capital expenditure needs and net of proceeds from the sale of assets as “free cash,” a measure which management uses to evaluate our ability to fund acquisitions. We historically have generated positive “free cash,” even in the recent recession. However, we did not generate “free cash” in the period presented due to the lower amount of cash provided by operating activities, and the increase in capital spending for planned expansion during 2011. See additional discussion below regarding the planned increase in capital spending for 2011.

Approximately 87% and 86% of our cash and cash equivalents balance at October 1, 2011 and December 31, 2010, respectively, was held by our non-U.S. subsidiaries. If cash is repatriated to the United States, we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, incremental foreign income taxes, and withholding taxes payable to various foreign countries.

The following table summarizes the components of net cash (debt) at October 1, 2011 and December 31, 2010 (in thousands):

	October 1,		December 31,
	2011		2010
Cash and cash equivalents	$	83,318	$	82,245
Third-party debt, including current and long-term:
Revolving credit facility	$	-	$	-
Third-party debt held by Japanese subsidiary		1,765		1,734
Exchangeable notes due 2102		9,958		9,958
Notes payable to banks		1,293		85
Total third-party debt		13,016		11,777
Net cash (debt)	$	70,302	$	70,468

Measurements such as “free cash” and “net cash (debt)” do not have uniform definitions and are not recognized in accordance with U.S. GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that “free cash” is a meaningful measure of our ability to fund acquisitions, and that an analysis of “net cash (debt)” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.

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Our financial condition as of October 1, 2011 is strong, with a current ratio (current assets to current liabilities) of 4.7 to 1.0, as compared to a ratio of 4.6 to 1.0 at December 31, 2010. The increase in the current ratio is primarily due to an increase in accounts receivable, inventory, and prepaid expenses, and decreases in income taxes payable. These changes were partially offset by increases in other accrued liabilities and accounts payable.

Cash paid for property and equipment for the nine fiscal months ended October 1, 2011 was $10.3 million as compared to $5.5 million in the comparable prior year period. This reflects our previously announced increase in capital spending for 2011. Capital expenditures for 2011 are primarily required to: (1) construct a new manufacturing facility in India that will consolidate the majority of our existing manufacturing capacity in the Weighing Modules and Control Systems segment into a low-labor-rate facility; (2) facilitate a new manufacturing line that will begin producing a new product offering in the Foil Technology Products segment; and (3) maintain our business systems and facilities. The construction of the manufacturing facility in India is expected to be completed by the end of 2011 and manufacturing will begin during the first quarter of 2012.

Contractual Commitments

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 24, 2011 includes a table of contractual commitments as of December 31, 2010. There were no material changes to these commitments during the fiscal quarter ended October 1, 2011. As previously reported, there were updates to the table during the first quarter of 2011 as follows:

• in connection with the construction of the new manufacturing facility in India, we have entered into a construction contract with a general contractor totaling approximately $8.5 million; and
   
• we revised the payment terms on our debt in Japan, which is now payable monthly over the next 10 years beginning in April of 2011.

Safe Harbor Statement

From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated.

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions, changes in the current pace of economic recovery, including if such recovery stalls or does not continue as expected; difficulties in integrating acquired companies, the inability to realize anticipated synergies and expansion possibilities, unexpected costs or difficulties related to our recent spin-off and other unanticipated conditions adversely affecting the operation of these companies; 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; difficulties in implementing our cost reduction strategies such as labor unrest or legal challenges to our lay-off or termination plans, underutilization of production facilities in lower-labor-cost countries, operation of redundant facilities due to difficulties in transferring production to lower-labor-cost countries; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the SEC on March 24, 2011. 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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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in Part II, Items 7A, “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 24, 2011.

Item 4.CONTROLS AND PROCEDURES

Under the rules and regulations of the Securities and Exchange Commission, we are not required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we file our Annual Report on Form 10-K for our fiscal year ending December 31, 2011, so long as we continue to meet the definition of a non-accelerated filer. In our Annual Report on Form 10-K for the year ending December 31, 2011, management and our independent registered public accounting firm will be required to provide an assessment as to the effectiveness of our internal controls over financial reporting as of December 31, 2011.

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the SEC on March 24, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Removed and Reserved

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

31.1	Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Ziv Shoshani, Chief Executive Officer.
31.2	Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – William M. Clancy, Chief Financial Officer.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Ziv Shoshani, Chief Executive Officer.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – William M. Clancy, Chief Financial Officer.
101	Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended October 1, 2011, furnished in XBRL (eXtensible Business Reporting Language).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VISHAY PRECISION GROUP, INC.

/s/ William M. Clancy

William M. Clancy

Executive Vice President and Chief Financial Officer

(as a duly authorized officer and principal financial and accounting officer)

Date: November 9, 2011

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