Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Item7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

VPG is a global leader in precision measurement and sensing technologies that help power the future by bridging the physical world with the digital one. Many of our specialized sensors, weighing solutions, and measurement systems are "designed-in" by our customers, and address growing applications across a diverse array of industries and markets. Our products are marketed under brand names that we believe are characterized as having a very high level of precision and quality.

Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and technology-driven applications, precision measurement and sensing technologies help ensure and deliver required levels of quality of mission-critical or high-value data. VPG's products are often at the first stage of a data value chain (i.e., the process of converting the physical world into a digital format that can be used for a specific purpose) and as such impact the effectiveness of vast number of critical, high-value downstream processes. Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end products. Our precision measurement solutions are used across a wide variety of end markets upon which we focus, including test and measurement, industrial, transportation, steel, avionics, military and space, as well as other markets such as agriculture, consumer, and medical. The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive. As the functionality of customers' products continues to increase, and they integrate more precision measurement sensors and related systems into their solutions, we believe this will offer substantial growth opportunities for our products and expertise.

As of February 27, 2026 (the date of this filing), following the recent war in Isarel, our operations in Israel have operated at normal levels, as well as the possibility of further spread of the conflict to other countries in the region as well as involving other political and military entities in the Middle East, poses risks to our operations and may lead to disruptions which could adversely affect our business, prospects, financial condition and results of operations.

The impact of recent changes in tariffs have had an impact on VPG as we have manufacturing operations in India, China, Japan, Europe, Canada, Israel, and the United States, as well as in other countries. Beginning in the second quarter of 2025, new tariffs were announced on imports into the U.S. In response several countries have imposed reciprocal tariffs on import from the U.S. and other retaliatory measures. The tariffs have been set at various rates, with exemptions applicable to certain categories of imports and exports. VPG continues to actively monitor and evaluate the ongoing situation, focusing on quickly responding to cost and price adjustments.

Overview of Financial Results

VPG reports in three product segments: Sensors segment, Weighing Solutions segment, and Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing.

Net revenues for the year ended December 31, 2025 were $307.2 million compared to net revenues of $306.5 million for the year ended December 31, 2024. Net earnings attributable to VPG stockholders for the year ended December 31, 2025 were $5.3 million, or $ 0.40 per diluted share, compared to $9.9 million, or $ 0.74 per diluted share, for the year ended December 31, 2024.

The results of operations for the years ended December 31, 2025 and 2024 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance with U.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating results for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company's performance and in comparing the Company's financial performance to that of its peer companies and competitors. Management believes that the Company's non-GAAP measures are regarded as supplemental to its GAAP financial results.

The items affecting comparability are (dollars in thousands, except per share amounts):

																		Net Earnings Attributable to
		Gross Profit								Operating Income								VPG Stockholders								Diluted Earnings Per share
Fiscal Year Ended December 31,		2025				2024				2025				2024				2025				2024				2025				2024
As reported - GAAP			119,430				125,532				13,847				16,864			$	5,293			$	9,911			$	0.40			$	0.74
As reported - GAAP Margins			38.9	%			41.0	%			4.5	%			5.5	%			-				-				-				-
Start-up costs (a)			757				-				757				-				757				-				0.06				-
Acquisition purchase accounting adjustments (b)			221				79				221				79				221				79				0.02				0.01
Acquisition costs (c)			-				-				-				101				-				101				-				0.01
Restructuring costs			-				-				1,490				1,062				1,490				1,062				0.11				0.08
Severance cost			-				-				443				347				443				347				0.03				-
Foreign exchange loss/(gain) (d)			-				-				-				-				4,214				(1,879	)			0.32				(0.14	)
Less: Gain on asset held for sale (e)			-				-				5,544				-				5,544				-				0.42				-
Less: Tax effect of reconciling items and discrete tax items			-				-				-				-				353				(3,079	)			0.03				(0.24	)
As Adjusted - Non GAAP		$	120,408			$	125,611			$	11,214			$	18,453			$	6,521			$	12,700			$	0.49			$	0.95
As Adjusted - Non GAAP Margins			39.2	%			41.0	%			3.7	%			6.0	%

		Year ended
		December 31, 2025				December 31, 2024
Net earnings attributable to VPG stockholders		$	5,293			$	9,911
Interest Expense			1,937				2,512
Income tax expense			3,455				7,730
Depreciation			11,991				12,022
Amortization			3,930				3,783
Restructuring costs			1,490				1,062
Severance cost			443				347
Start-up costs (a)			757				-
Acquisition purchase accounting adjustments (b)			221				79
Acquisition costs (c)			-				101
Foreign exchange loss (gain)(d)			4,214				(1,879	)
Gain on asset held for sale (e)			(5,544	)			-
ADJUSTED EBITDA		$	28,187			$	35,668
ADJUSTED EBITDA MARGIN			9.2	%			11.6	%

(a) Start-up cost 2025

(b) Acquisition purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products sold

(c) Acquisition costs associated with the acquisition of Nokra in September 2024

(d) Impact of foreign currency exchange rates on assets and liabilities.

(e) Gain on Sale of Manufacturing Facility in Kent, Washington.

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 gross profit shown as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but could also include certain other period costs. Gross profit margin is clearly a function of net revenues, but also reflects our cost-cutting programs and our ability to contain fixed costs.

End-of-period backlog is one indicator of potential future sales. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers' forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.

Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities, and it indicates that we may generate increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales.

We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.

The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, the end-of-period backlog, the book-to-bill ratio, and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2024 and through the fourth quarter of 2025 (dollars in thousands):

		4th Quarter				1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
		2024				2025				2025				2025				2025
Net revenues		$	72,653			$	71,741			$	75,161			$	79,728			$	80,573
Gross profit margin			38.2	%			37.7	%			40.7	%			40.3	%			36.8	%
End-of-period backlog		$	96,189			$	100,300			$	108,201			$	107,624			$	108,236
Book-to-bill ratio			1.00				1.04				1.06				1.00				1.01
Inventory turnover			2.06				2.12				2.09				2.20				2.38

		4th Quarter				1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
		2024				2025				2025				2025				2025
Sensors
Net revenues		$	25,755			$	27,055			$	26,563			$	31,624			$	30,402
Gross profit margin			32.0	%			30.1	%			32.0	%			33.6	%			28.5	%
End-of-period backlog		$	39,605			$	42,049			$	46,661			$	48,503			$	52,680
Book-to-bill ratio			1.04				1.06				1.12				1.07				1.15
Inventory turnover			2.15				2.38				2.27				2.66				2.86
Weighing Solutions
Net revenues		$	25,739			$	26,439			$	29,428			$	27,538			$	27,739
Gross profit margin			34.1	%			36.8	%			39.6	%			40.3	%			33.0	%
End-of-period backlog		$	28,003			$	28,241			$	26,734			$	23,639			$	24,163
Book-to-bill ratio			1.12				0.99				0.92				0.89				1.02
Inventory turnover			2.35				2.50				2.62				2.25				2.44
Measurement Systems
Net revenues		$	21,160			$	18,247			$	19,170			$	20,566			$	22,431
Gross profit margin			50.9	%			50.3	%			54.6	%			50.5	%			52.8	%
End-of-period backlog		$	28,581			$	30,010			$	34,805			$	35,482			$	31,392
Book-to-bill ratio			0.78				1.07				1.20				1.04				0.81
Inventory turnover			1.62				1.41				1.33				1.58				1.72

Fourth-Quarter Year-Over-Year Analysis:

Net revenues of $80.6 million for the fourth quarter of 2025 increased 1.1% from the net revenues of $79.7 reported in the third quarter of 2025 and increased 10.9% from $72.7 for the comparable prior year period.

Net revenues in the Sensors segment of $30.4 million in the fourth quarter of 2025 increased 18.0% from $25.8 million in the fourth quarter of 2024. The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors and strain gages in the Test and Measurement and in our Other markets. The Sensors segment gross profit margin of 28.5% declined from 32.0% primarily due to unfavorable foreign exchange rates, unfavorable product mix, and discrete inventory adjustments, partially offset by higher volume.

Net revenues in the Weighing Solutions segment of $27.7 million in the fourth quarter of 2025 increased 7.8% compared to $25.7 million in the fourth quarter of 2024 mainly due to higher revenues in the transportation markets mainly from OEM customers. The Weighing Solutions segment gross profit margin of 33.0% declined from 34.1% a year ago, primarily due to higher discrete manufacturing fixed costs, partially offset by favorable product mix.

Net revenues in the Measurement Systems segment of $22.4 million in the fourth quarter of 2025 increased 6.0% from $21.2 million in the fourth quarter of 2024. The year-over-year increase was primarily attributable to higher revenue in the Steel and AMS markets, which offset lower sales in the Transportation market. The higher year-over-year Measurement Systems segment gross profit margin reflected higher volume partially offset by discrete inventory adjustments.

Fourth-Quarter Sequential Analysis:

Net revenues in the Sensors segment of $30.4 million in the fourth quarter of 2025 decreased 3.9% from $31.6 million in the third quarter of 2025. The sequential decrease primarily reflected lower sales of precision resistors in the AMS market and lower sales of strain gages in the General Industrial market, which offset higher sales of precision resistors in the Test and Measurement markets. The Sensors segment adjusted gross profit margin of 28.5% in the fourth quarter of 2025 declined from the third quarter of 2025 reflecting lower volume, unfavorable product mix and unfavorable foreign exchange rates.

Net revenues in the Weighing Solutions segment of $27.7 million in the fourth quarter of 2025 increased 0.7% compared to revenues of $27.5 million in the third quarter of 2025. The sequential increase in revenues reflected higher revenue in our Industrial Weighing market, which partially offset lower revenue in the Transportation market. The Weighing Solutions segment gross profit margin for the fourth quarter of 2025 of 33.0% decreased from 40.3% in the third quarter of 2025, primarily reflected discrete manufacturing items, reduction of inventory, and higher logistics costs.

Net revenues in the Measurement Systems segment of $22.4 million in the fourth quarter of 2025 increased 9.1% from $20.6 million in the third quarter of 2025. The sequential increase in revenue was primarily due to higher sales in the Steel and AMS markets. The Measurement Systems segment gross profit margin of 52.8% increased from 50.5% in the third quarter of 2025 due to higher volume, partially offset by discrete inventory adjustments.

Growth-Focused Strategy

Each of VPG's business segments maintains and deploys distinct go-to-market strategies, technical expertise, capital requirements, and acquisition opportunities. In the fourth quarter of 2025, we refined our business strategy to support the next phase on our path to achieve accelerated growth. This strategic shift follows significant investments over the past several years to streamline and improve our operational and functional efficiencies and capabilities, positioning us to pursue fast growing, higher-volume opportunities driven by macro technological and industrial trends.

As part of this change in strategy, on November 4, 2025, we announced the expansion of our senior management team with two newly created executive positions: Chief Business and Product Officer and Chief Operating Officer, both reporting to the Chief Executive Officer. We believe these roles, along with related organizational changes, will enable us to accelerate growth by leveraging sales and operational capabilities across our business units through increased standardization of business processes, systems, and oversight. We believe that these changes, combined with a company culture which emphasizes business execution, accountability and operational excellence, will lead to the development of higher added value products, faster time to market, and improved customer service, which in turn will contribute to growth in revenue and profits.

Optimize Core Competence

The Company's core competencies include our innovative deep technical and applications-specific expertise, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes.

Our Sensors segment research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers "design in" these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we signed a long-term lease for a state-of-the-art facility that has been constructed in Israel and fully transitioned to this facility in the third quarter of fiscal 2021.

Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function.

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, Japan, and Israel, where we can benefit from improved efficiencies or available tax and other government-sponsored incentives. In the past several years, we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities in India, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.

Acquisition Strategy

We expect to continue to make strategic acquisitions where opportunities present themselves to grow and expand our segments. Our acquisition strategy is focused on identifying and acquiring high-value, growing technology-driven businesses that augment, expand and/or leverage our current offering in precision measurement and sensor markets. We expect to expand our expertise and acquisition focus to other precision measurement solutions, including in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.

Research and Development

Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance. The amount charged to expense for research and development was $20.8 million, $20.0 million, and $20.4 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Cost Management

To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation.

Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A "Risk Factors" of this Annual Report on Form 10-K.

The Company recorded restructuring costs of $1.5 million, $1.1 million, and $1.6 million during the years ended December 31, 2025, 2024 and 2023, respectively, which were comprised primarily of employee termination costs, including severance and statutory retirement allowances.

We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.

Foreign Currency

We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. U.S. GAAP requires that entities identify the "functional currency" of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary's functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company's operations generally would have the parent company's currency as its functional currency. We have subsidiaries that fall into each of these categories.

Foreign Subsidiaries which use the Local Currency as the Functional Currency

Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated 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 statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.

Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency

Our operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.

Effects of Foreign Exchange Rate on Operations

For the year ended December 31, 2025, foreign exchange rate impacts increased net revenues by $2.8 million and increase costs of products sold and selling, general, and administrative expenses by $7.4 million. For the year ended December 31, 2024, foreign exchange rate impacts decreased net revenues by $0.9 million and increased costs of products sold and selling, general, and administrative expenses by $1.1 million.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number of policies that entail significant judgments or estimates by management.

Inventories

We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method, and market based upon net realizable value. The valuation of our inventories requires management to make costing and market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.

Business Combinations

The Company allocates the purchase price of an acquired company, including when applicable, the fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired businesses based on estimated fair values, with any residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Different valuations approaches are used to value different types of intangible assets. The Company primarily uses the income approach in the valuation of intangible assets. The income approach to valuation is based on the present value of future cash flows attributable to each identifiable intangible asset. This approach to valuation requires management to make significant estimates and assumptions including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, and customer relationships. These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.

Goodwill and Other Indefinite-lived Intangible Assets

Goodwill and indefinite-lived trademarks are tested for impairment at least annually, and whenever events or changes in circumstances occur indicating that it is "more likely than not" impairment may have been incurred. We have the option to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying value as a basis for determining if it is necessary to perform the quantitative goodwill impairment test. However, if we conclude otherwise, then we are required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing it against its carrying value.

The Company has four reporting units to which goodwill was allocated: steel, on-board weighing, DSI, and DTS. In 2025 the Company performed a quantitative impairment test for all its reporting units. In estimating the fair value of our reporting units the Company used the income approach. The income approach to valuation requires management to make significant estimates and assumptions related to future revenues, profitability, working capital requirements and selection of discount rate and long term growth rate. Changes in these estimates and assumptions could have a significant impact on the fair value of the reporting units. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. An impairment charge would be recognized to the extent the carrying value of goodwill exceeds the reporting unit fair value.

The indefinite-lived trade names are tested for impairment either by employing the qualitative approach outlined above, or by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the applicable fair value is recognized as impairment. Any impairment would be recognized in the reporting period in which it has been identified.

Pension and Other Postretirement Benefits

Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan-specific basis, as appropriate.

Our defined benefit plans are concentrated in the United States, Japan and the United Kingdom. Plans in these countries comprise approximately 86% of our retirement obligations at December 31, 2025. We utilize published long-term high-quality bond indices to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to reflect the timing of expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively be settled.

For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred.

We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheets.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our annual effective tax rate is based on pre-tax earnings, statutory tax rates and enacted tax laws. Significant judgments and estimates must be made in determining our consolidated income tax expense as presented in our financial statements.

We must assess the likelihood that we will realize deferred tax assets which requires significant judgment. If we determine that deferred tax assets are not "more likely than not" to be realized, we record a valuation allowance to reduce deferred tax assets to a level that is expected to be realized. If we subsequently determine that realization of a deferred tax asset becomes "more likely than not", the valuation allowance will be reversed. Any change in valuation allowances could have a significant impact on our financial results.

The calculation of our tax liabilities involves an assessment of uncertainties in the application of complex tax laws and regulations in multiple jurisdictions. We record a benefit from an uncertain tax position when it is "more likely than not" that a tax return position will be sustained upon examination, including resolutions of any related appeals or litigation based on the technical merits of the position. If the position is not "more likely than not" to be sustained, a liability for the tax return position is established. We adjust the liability when our judgment changes as a result of the evaluation of new information. The ultimate tax due in a jurisdiction may result in a payment that is materially different from our most recent estimate of the liability. Further judgment is required in determining whether an uncertain tax position is effectively settled. Any change in the analysis will impact income tax expense.

We consider the earnings of most of our non-U.S. subsidiaries to be indefinitely invested outside the United States based on our estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our plans for reinvestment of foreign subsidiary earnings. As of December 31, 2025, the Company had provided for a deferred tax liability of $2.1 million of withholding tax associated with $21 million of unremitted, non-permanently reinvested earnings. Additional withholding taxes of approximately $32.5 million are estimated to be payable upon the distribution of the remaining unremitted earnings at December 31, 2025. If we decide to distribute any portion of the balance of our unremitted earnings to the United States from a foreign country, we would adjust our income tax provision in the period we determine that the earnings are no longer indefinitely invested outside the United States.

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

Results of Operations - Years Ended December 31, 2025 and 2024

Refer to Item 7, "Results of Operations - Years Ended December 2024 and 2023 in our Annual Report on Form 10-K for the year ended December 31, 2024 for a comparison of the year ended December 31, 2024 to the year ended December 31, 2023.

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

		Years ended December 31,
		2025				2024
Costs of products sold			61.1	%			59.0	%
Gross profit			38.9	%			41.0	%
Selling, general, and administrative expenses			35.7	%			35.1	%
Operating income			4.5	%			5.5	%
Income before taxes			2.9	%			5.7	%
Net earnings			1.7	%			3.2	%
Net earnings attributable to VPG stockholders			1.7	%			3.2	%
Effective tax rate			39.3	%			44.0	%

Net Revenues

Net revenues were as follows (dollars in thousands):

		Years ended December 31,
		2025				2024
Net revenues		$	307,202			$	306,522
Change versus prior year		$	680
Percentage change versus prior year			0.2	%

Changes in net revenues were attributable to the following:

		2025 vs. 2024
Change attributable to:
Change in volume			(1.6	)%
Change in average selling prices			1.0	%
Foreign currency effects			0.8	%
Net change			0.2	%

During the year ended December 31, 2025, net revenues increased 0.2% over the prior year due to higher volume in the Sensors and Weighing solution reporting segments and partially offset by lower volume in the Measurement Systems reporting segment.

Gross Profit Margin

Gross profit as a percentage of net revenues was as follows:

		Years ended December 31,
		2025				2024
Gross profit margin			38.9	%			41.0	%

The gross profit margin for the year ended December 31, 2025 decreased 2.1% over the prior year. The decrease in gross profit margin was primarily due to decreased gross profit margins in the Sensors and Measurement Systems segments, which was partially offset by increased gross profit margin in the Weighing Solutions.

Segments

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

Sensors

Net revenues of the Sensors segment were as follows (dollars in thousands):

		Years ended December 31,
		2025				2024
Net revenues		$	115,645			$	112,238
Change versus prior year		$	3,407
Percentage change versus prior year			3.0	%

Changes in Sensors segment net revenues were attributable to the following:

		2025 vs. 2024
Change attributable to:
Change in volume			2.2	%
Change in average selling prices			(0.0	)%
Foreign currency effects			0.8	%
Net change			3.0	%

For the year ended December 31, 2025, net revenues increased 3.0% as compared to the prior year, the increase in revenues was primarily attributable to higher sales of precision resistors and advanced sensors in the Test and Measurement markets and in our AMS markets partially offset by lower sales to other markets.

Gross profit as a percentage of net revenues for the Sensors segment was as follows:

		Years ended December 31,
		2025				2024
Gross profit margin			31.1	%			34.5	%

For the year ended December 31, 2025, the gross profit margin decreased 3.4% as compared to the prior year primarily due to unfavorable foreign exchange rates and discrete inventory adjustments, partially offset by higher volume.

Weighing Solutions

Net revenues of the Weighing Solutions segment were as follows (dollars in thousands):

		Years ended December 31,
		2025				2024
Net revenues		$	111,143			$	107,205
Change versus prior year		$	3,938
Percentage change versus prior year			3.7	%

Changes in Weighing Solutions segment net revenues were attributable to the following:

		2025 vs. 2024
Change attributable to:
Change in volume			(0.0	)%
Change in average selling prices			2.0	%
Foreign currency effects			1.7	%
Net change			3.7	%

For the year ended December 31, 2025, net revenues increased 3.7% from the prior year. The year-over-year increase in revenues was mainly attributable to higher sales in the Transportation market partially offset by lower sales in the Industrial Weighing market.

Gross profit as a percentage of net revenues for the Weighing Solutions segment was as follows:

		Years ended December 31,
		2025				2024
Gross profit margin			37.5	%			36.6	%

For the year ended December 31, 2025, the gross profit margin increased 0.9% as compared to the prior year, due to favorable product mix, partially offset by higher one-time manufacturing fixed costs.

Measurement Systems

Net revenues of the Measurement Systems segment were as follows (dollars in thousands):

		Years ended December 31,
		2025				2024
Net revenues		$	80,414			$	87,079
Change versus prior year		$	(6,665	)
Percentage change versus prior year			(7.7	)%

Changes in the Measurement Systems segment net revenues were attributable to the following:

		2025 vs. 2024
Change attributable to:
Change in volume			(8.6	)%
Change in average selling prices			1.2	%
Foreign currency effects			(0.3	)%
Net change			(7.7	)%

For the year ended December 31, 2025, net revenues decreased 7.7% as compared to the prior year, the decrease was primarily attributable to decreased revenue in the Steel and AMS markets, partially offset by higher revenues in the Transportation market.

Gross profit as a percentage of net revenues for the Measurement Systems segment was as follows:

		Years ended December 31,
		2025				2024
Gross profit margin			52.1	%			54.6	%

For the year ended December 31, 2025, the gross profit margin decreased 2.5% from the prior year mostly due to lower volume and discrete inventory adjustments.

Selling, General, and Administrative Expenses

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

		Years ended December 31,
		2025				2024
Total SG&A expenses		$	109,637			$	107,505
as a percentage of net revenues			35.7	%			35.1	%

SG&A expenses for the year ended December 31, 2025 increased $2.1 million as compared to the prior year mainly due to unfavorable foreign exchange rates, wage increases partially offset by lower sales commissions, headcount and travels costs

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the years ended December 31, 2025 and December 31, 2024, no impairment of goodwill and indefinite-lived intangible assets was recorded.

Restructuring Costs

Restructuring costs reflect the cost reduction programs implemented by the Company. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements for accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods, or to reverse part of the previously recorded charges.

The Company recorded restructuring costs of $1.5 million and $1.1 million during the years ended December 31, 2025 and 2024, respectively. Restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, and were incurred in connection with various cost reduction programs.

Acquisition Costs

For the year ended December 31, 2025, there were no acquisition costs recorded in our consolidated statements of operations. We recorded acquisition costs in our consolidated statements of operations of $0.1 million in connection with the acquisition of Nokra for the year ended December 31, 2024.

Other Income (Expense)

Interest Expense

The Company recorded interest expense of $1.9 million, and $2.5 million for the years ended December 31, 2025 and 2024, respectively. Interest expense was lower in 2025 compared to 2024 mainly due to lower borrowing rates during 2025.and the repayment of $11 million on the Company's credit facility in July 2025.

Other

The following table analyzes the components of the line "Other" on the consolidated statements of operations (in thousands):

		Years ended December 31,
		2025				2024				Change
Foreign currency exchange gain/(loss)		$	(4,214	)		$	1,878			$	(6,092	)
Interest income			1,700				1,673				27
Pension expense			(141	)			(55	)			(86	)
Other			(459	)			(284	)			(175	)
		$	(3,114	)		$	3,212			$	(6,326	)

Foreign currency exchange gains and losses represent the impact of changes in foreign currency exchange rates. The change in foreign currency exchange gains / (losses) for the year ended December 31, 2025, as compared to the prior year period, is primarily due to fluctuations in the Israeli shekel, Japanese Yen and the Canadian dollar.

Income Taxes

Our effective tax rate for the year ended December 31, 2025 was 39.3%, as compared to 44.0% for the year ended December 31, 2024. Our effective tax rate was lower in 2025 compared to 2024 primarily due to lower change in valuation allowances and changes in our geographical mix of income.

We reassessed our ability to realize our U.S. deferred tax assets during 2025 and have concluded that realization of those deferred tax assets is still not "more likely than not". Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions as compared to the U.S. federal statutory tax rate, and the relative amount of income earned in each jurisdiction. The tax rate is also impacted by discrete items that vary from year to year and may not be indicative of the tax rate on continuing operations. The following items had the most significant impact on the difference between the statutory U.S. federal income tax rate and our effective tax rate:

2025

•

17.2% increase related to the effects of foreign operations primarily related to the difference between the U.S. statutory rate and foreign tax rates

•

3.0% increase related to Other nontaxable or nondeductible items

•

5.5% decrease related to changes in valuation allowances

•

3.1% decrease related to specialty tax credits, such as research credits

2024

•

15.3% increase related to the effects of foreign operations primarily related to the difference between the U.S. statutory rate and foreign tax rates

•

7.6% increase related to changes in valuation allowances

•

1.0% increase related to statutory tax rate changes

•

2.9% decrease related to specialty tax credits, such as research credits

Additional information about income taxes is included in Note 6 to our consolidated financial statements.

Financial Condition, Liquidity, and Capital Resources

Refer to Item 7. "Financial Condition, Liquidity, and Capital Resources" in our Annual Report on Form 10-K for the year ended December 31, 2024 for a comparison of the year ended December 31, 2024 to the year ended December 31, 2023.

We believe that our current cash and cash equivalents, credit facilities, and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months.

On August 15, 2024, the Company entered into a Fourth Amended and Restated Credit Agreement (the "2024 Credit Agreement") among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and HSBC as joint lead arrangers and joint bookrunner, and JPMorgan Chase Bank, N.A, as agent for such lenders (the "Agent"), pursuant to which the Company's existing credit facility was amended and restated to, among other things, extend the maturity date from March 20, 2025 to August 15, 2029 and adjust the interest rate and commitment fee. The 2024 Credit Agreement provides for a multi-currency, secured credit facility (the "2024 Revolving Facility") in an aggregate principal amount of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the 2024 Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which were used to refinance the Company's existing revolving credit facility. The aggregate principal amount of the 2024 Revolving Facility may be increased by a maximum of $25.0 million upon the request of the Company, subject to the terms of the 2024 Credit Agreement. The Company may elect to make loans under the 2024 Revolving Facility in US Dollars, Euros, Canadian Dollars, Sterling, Japanese Yen or such other freely convertible foreign currency.

Amounts borrowed under the 2024 Revolving Facility accrue interest in an amount equal to a floating rate plus a specified margin. Such floating rates are (i) for loans denominated in US Dollars, at the Company's option, either (a) the greatest of: the Agent's prime rate, the Federal Funds rate, or a 1.00% floor (the "US Base Rate"), or (b) the Secured Overnight Financing Rate ("SOFR"), (ii) for loans denominated in Canadian Dollars, at the Company's option, either (x) the greatest of: the PRIMCAN Index rate, the average 30 day rate for loans accruing interest based on the Canadian Overnight Repo Rate Average ("CORRA") (the "Canadian Base Rate"), or (y) CORRA, (iii) for loans denominated in Pounds Sterling, the Sterling Overnight Index Average ("SONIA"), (iv) for loans denominated in Euros, the Euro Interbank Offered Rate ("EURIBOR"), and (v) for loans denominated in Japanese Yen, the Tokyo Interbank Offered Rate ("TIBOR").

The specified interest margin for US Base Rate Loans and Canadian Base Rate Loans is 0.25%. Depending upon the Company's leverage ratio, the interest rate margin for loans based on SOFR, CORRA, SONIA, EURIBOR and TIBOR ranges from 1.75% to 3.00% per annum. The Company is required to pay a quarterly fee of 0.20% per annum to 0.40% per annum on the unused portion of the 2024 Revolving Facility, which is also determined based on the Company's leverage ratio. Additional customary fees apply with respect to letters of credit.

The obligations of the Company under the 2024 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company's domestic subsidiaries. The obligations of the Company and the guarantors under the 2024 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2024 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 a specified interest coverage ratio and a leverage ratio, each tested as of the last day of each fiscal quarter. If the Company is not in compliance with any of these covenant restrictions, the 2024 Revolving Facility could be terminated by the lenders, and all amounts outstanding pursuant to the 2024 Credit Agreement could become immediately payable.

Our business has historically generated significant cash flow. Our cash provided by operating activities for the year ended December 31, 2025 was $14.4 million as compared to $19.8 million for the year ended December 31, 2024. Our net cash provided by investing activities for the year ended December 31, 2025 was $2.9 million, compared to $12.9 million used for the year ended December 31, 2024. Our net cash used in financing activities for the year ended December 31, 2025 was $11.4 million, as compared to $9.4 million for the year ended December 31, 2024 which included a partial repayment of our revolving debt in the amount of $11.0 million.

Approximately 91% and 94% of our cash and cash equivalents balance at December 31, 2025 and 2024, respectively, was held by our non-U.S. subsidiaries. See the following table for the percentage of cash and cash equivalents, by region of subsidiary, at December 31, 2025 and December 31, 2024:

		December 31,
		2025				2024
Asia			22	%			21	%
United States			9	%			6	%
Israel			31	%			56	%
Europe			30	%			14	%
Canada			8	%			3	%
Total			100	%			100	%

We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in the foreign jurisdictions. As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries. The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned. The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner. In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities, such as business acquisitions, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the United States through debt or equity issuances. These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of December 31, 2025, to be indefinitely reinvested.

For the year ended December 31, 2025, we generated adjusted free cash flow of $17.3 million. We define "adjusted free cash flow," a measure which management uses to evaluate our ability to fund acquisitions, as the amount of cash provided by operating activities ($14.4 million) in excess of our capital expenditures ($8.0 million) and net of proceeds from the sale of assets ($10.9 million).

The following table summarizes the components of net cash at December 31, 2025 and at December 31, 2024 (in thousands):

		December 31,
		2025				2024
Cash and cash equivalents		$	87,366			$	79,272
Third-party debt, including current and long-term
Revolving debt			32,000				32,000
Repayment of credit facility			(11,000	)			-
Deferred financing costs			(417	)			(559	)
Total third-party debt			20,583				31,441
Net cash		$	66,783			$	47,831

Measurements such as "adjusted free cash flow" and "net cash" 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 "adjusted free cash flow" is a meaningful measure of our ability to fund acquisitions, and that an analysis of "net cash" assists investors in understanding aspects of our cash and debt management. These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.

Our financial condition as of December 31, 2025 is strong, with a current ratio (current assets to current liabilities) of 4.5 to 1.0, as compared to a current ratio of 4.5 to 1.0 at December 31, 2024.

Cash paid for property and equipment for the year ended December 31, 2025 and December 31, 2024 was $8.0 million and $9.2 million, respectively. Capital spending for 2025 was comprised of building projects related to capacity expansion in Israel and Asia, and other projects related to the normal maintenance of business. Capital expenditures for 2026 are expected to be approximately $15.6 million.

As of December 31, 2025 and 2024, we did not have any off-balance sheet arrangements.

Inflation

Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

From time to time, information provided by us, including, but not limited to, statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2025, or other statements made by or on our behalf, may contain or constitute "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated.

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; significant developments from the recent and potential changes in tariffs and trade regulation; impact of inflation; potential issues respecting the United States federal government debt ceiling; global labor and supply chain challenges; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies; the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, and health (including pandemics) instabilities; instability or disruption caused by military hostilities in the regions or countries in which we operate (including Israel); difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; compliance issues under applicable laws, such as export control laws, including the outcome of our voluntary self-disclosure of export control non-compliance; our ability to execute our new corporate strategy and business continuity, operational and budget plans; and other factors affecting our operations, markets, products, services, and prices that are set forth in this Annual Report on Form 10-K for the fiscal year ended December 31, 2025. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report or as of the dates otherwise indicated in such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.