Vishay Precision Group(VPG) - 2022 Q4 - Annual Report

PART I Business Description Vishay Precision Group (VPG) is a global diversified company specializing in precision measurement and sensing technologies, connecting the physical to the digital world. - VPG focuses on precision measurement and sensing technologies, with products widely used in diverse end markets such as industrial, test and measurement, transportation, steel, medical, agriculture, aerospace, military, and consumer goods[15][16] - VPG was spun off from Vishay Intertechnology, Inc. and listed on July 6, 2010, inheriting its innovative Bulk Metal® foil resistor and foil strain gauge technologies[17] - Since its independence, the company has expanded its global manufacturing, sales, and distribution network through multiple acquisitions, including facilities in Canada, China, France, Germany, India, Israel, Japan, Sweden, Taiwan, the UK, and the US[19] - VPG's vision is to be a leading provider of precision measurement and sensing technologies, offering high-accuracy, reliable, and repeatable sensors, weighing solutions, and measurement systems[21] - The company's strategy includes leveraging core technologies and market position to accelerate organic growth and expanding its business through acquisitions of complementary precision measurement sensing products[22] - Since Q4 2021, VPG has adopted an operationally diversified structure and strategy, with each business segment having unique market strategies, technical expertise, capital requirements, and acquisition opportunities[23] - The company's core competencies include innovative technical expertise, strong brands and customer relationships, operational excellence, management team development, and a proven M&A strategy[24] - The Sensors division's R&D team enhances strain gauge performance through innovation, reducing size and power consumption, and developing automated manufacturing processes to improve productivity and quality[25] - The company seeks significant production cost savings and efficiency improvements by relocating manufacturing operations to countries such as India, Japan, and Israel[26] - The company achieves organic growth through "design-ins" by building long-term customer relationships and developing specialized products that meet unique OEM specifications[27] - R&D and product development teams collaborate with marketing to continuously introduce innovative products and improve existing core products to meet customer needs and industry trends[29] - The company plans to continue strategic acquisitions to grow and expand its business segments, shifting its acquisition focus from vertical product integration to broader precision measurement systems and product companies[30][36] - Recent acquisitions include George Kelk Corporation (KELK, 2013), Stress-Tek, Inc. (2015), Pacific Instruments, Inc. (2016), Dynamic Systems Inc. (DSI, 2019), and Diversified Technical Systems, Inc. (DTS, 2021)[31][32][33][34][35] - The company enhances global market recognition by unifying its historical resistor and strain gauge brands, along with strong acquired brands, under the "VPG" brand[37] VPG Business Segment Brands | Sensors | Weighing Solutions | Measurement Systems | | :--- | :--- | :--- | | VPG Foil Resistors | VPG Transducers | KELK | | - VFR | - Celtron | Dynamic Systems Inc. or Gleeble | | - Alpha Electronics | - Revere | DTS | | -Powertron | - Sensortronics | Pacific Instruments | | - APR | - Tedea-Huntleigh | | | Micro-Measurements | VPG Onboard Weighing | | | | Stress-tek | | | | Vulcan | | | | BLH Nobel | | - VPG reports in three product segments: Sensors, Weighing Solutions, and Measurement Systems, each with specific market strategies and technical expertise[39] - The Sensors segment includes precision resistor and strain gauge businesses, with products based on Bulk Metal Foil® technology, offering superior accuracy, stability, and reliability, applied in aerospace, military, industrial automation, and EV battery management[40][42][43] - The segment's innovative advanced sensor product line enhances strain gauge capabilities and performance while reducing size and power consumption[43] - The manufacturing processes for precision resistors and strain gauges have synergies, utilizing similar raw materials and production cycles, and improving efficiency and profitability through automation[46] - The Weighing Solutions segment offers a wide range of load cells and force measurement sensors, applied in construction machinery, agricultural equipment, medical devices, industrial scales, and onboard weighing systems[47][48][53] - Products in this segment include load cells and instrumentation under the VPG Transducers, VPG Onboard Weighing, BLH Nobel, Stress-Tek, and Vulcan brands[47][50][52][53] - The Measurement Systems segment provides highly specialized systems for steel production, material development, and safety testing, including KELK, DSI, Pacific Instruments, and DTS businesses[55] - The KELK business provides high-precision sensors and systems for the steel and aluminum industries; the DSI business offers thermomechanical simulation systems for metallurgical research; the DTS business provides data acquisition systems and sensors for product safety testing[56][57][59] - Some company products require certification and approval from military, aerospace (e.g., DLA, NASA, ESA), and metrology standards (e.g., NTEP, OIML) to ensure product quality and applicability[60][61][63] - The company's main manufacturing facilities are located in Israel, the US, Canada, India, China, Germany, and Japan, with investments in increased capacity and automation to reduce production costs[64] - All major manufacturing facilities are ISO 9001 certified for quality management systems, key foil resistor manufacturing sites are AS9100 aerospace standard certified, and the DTS business is ISO/IEC 17025 certified[65][66] - Most materials required for the company's products are available from multiple sources, but some critical materials (e.g., metal foil alloys, aluminum, stainless steel, tool steel, plastics, and gold) are limited to a few suppliers, and some specialized sensor materials are from single suppliers[68] - Company inventory includes standardized and custom products, with backlog only including orders released by customers and expected to ship within the next 12 months[70][71] - Backlog does not necessarily indicate future performance, as customers may cancel or reschedule shipments, usually without penalty[71][72] - The company has a diversified customer base, with no single customer accounting for over 10% of revenue, and products widely used in industrial, test and measurement, medical, agriculture, and consumer markets[73] - The company provides technical and application support through field application engineers (FAEs) with engineering backgrounds, leveraging their deep understanding of customer needs to drive new product design and R&D[74] - The company's competitive advantages lie in superior product capabilities, performance, quality, proprietary technology, market knowledge, service capabilities, and business reputation, with price competitiveness particularly important in the Weighing Solutions segment[75] - The market is highly fragmented, with competitors ranging from small local companies to large international corporations, but no competitor has an identical product portfolio and proprietary technology to VPG[76] - Key competitors include KOA, Bourns, Vishay Intertechnology in foil resistors; HBK, Tokyo Sokki Kenkyujo in strain gauges; and HBK, Mettler-Toledo, ABB, Siemens in weighing solutions and measurement systems[77] - R&D is crucial for the company to introduce innovative products and improve profitability, especially in proprietary resistive metal foil materials[78][82] - The company has design centers and R&D teams globally to meet local market needs, develop new products and applications, and improve manufacturing technologies[79][80] - The company protects its intellectual property through patents, trade secrets, proprietary technology, and continuous technological innovation, requiring employees to sign confidentiality and invention assignment agreements[83][85] - The company has a perpetual, royalty-free global license agreement with Vishay Intertechnology for the Vishay trademark, but faces risks of market confusion and brand reputation[150][151] - The company launched its corporate ESG program in 2022, completed a materiality assessment, developed a multi-year ESG plan, and established an internal scorecard covering four pillars: "People, Planet, Governance, and Products"[86][87] - The company published an Environmental, Health, and Safety Policy, committing to comply with relevant laws and regulations, promote hazardous substance management, and minimize hazardous substances generated in operations[88] - As of December 31, 2022, the company had approximately 2,700 employees, with about 84% located outside the US, and some employees are union members[89] - The company attracts and retains highly qualified talent by continuously monitoring compensation and benefits and implementing a global talent strategy, including workforce planning and succession planning[90] Executive Officer Information as of March 1, 2023 | Name | Age | Positions | | :--- | :--- | :--- | | Ziv Shoshani | 56 | Chief Executive Officer, President, and Director | | William M. Clancy | 60 | Executive Vice President and Chief Financial Officer | | Amir Tal | 53 | Senior Vice President and Chief Accounting Officer | - The company began filing reports with the SEC after its spin-off on July 6, 2010, with all documents available on the SEC website (www.sec.gov) and the company's investor relations website (ir.vpgsensors.com)[95][96] Risk Factors The company faces various risks, including operational disruptions, labor shortages, intense competition, acquisition and innovation failures, and global political and economic instability. - The COVID-19 pandemic may continue to adversely affect company operations, including supply chain disruptions and business closures[100][102] - The company faces risks of qualified labor shortages, intense market competition, failure to successfully innovate or acquire, difficulties in implementing cost reduction plans, and challenges in ERP system implementation or operation[103][104][107][108][111][114] - Insufficient intellectual property protection, product liability claims, high design-in costs and long cycles, inadequate manufacturing capacity, economic downturn impacts, and order cancellations may adversely affect the company's performance[115][120][122][126][127][129] - Relocating production to lower-cost countries may lead to initial production inefficiencies and increased costs, and could raise labor issues[152][153][154] - Overseas operations face risks of political, economic, health, and military instability (especially in Israel, India, and China), changes in tariffs and trade regulations, foreign exchange rate fluctuations, and anti-corruption law compliance[155][157][158][159][163][164] - Holders of Class B convertible common stock have effective voting control, potentially taking actions inconsistent with common stock holders' interests and blocking change of control transactions[165] - Certain provisions in the company's certificate of incorporation and bylaws may reduce the likelihood of unsolicited acquisition proposals or potential changes in control without board approval[166][167] - Difficulties and volatility in capital, credit, and commodity markets, as well as overall economic conditions, may adversely affect the company's financial condition, operating results, and cash flows[168][169] - The company's future success depends on its ability to attract and retain highly qualified technical, managerial, marketing, financial, and administrative personnel; loss of talent could have a significant adverse impact[172][173] - The company faces risks of computer and information technology system disruptions, cyberattacks, natural disasters, and other unexpected events, all of which could disrupt operations and affect financial performance[174][175][176][178] Unresolved Staff Comments As of the end of the reporting period, the company has no unresolved staff comments. - The company has no unresolved staff comments[182] Properties As of December 31, 2022, the company owned 595,000 square feet and leased 345,400 square feet of facilities, totaling 940,400 square feet. Company's Principal Facilities as of December 31, 2022 (in square feet) | | United States | Other Countries | Total | | :--- | :--- | :--- | :--- | | Owned facilities | 226,000 | 369,000 | 595,000 | | Leased facilities | 73,000 | 272,400 | 345,400 | | Total facilities | 299,000 | 641,400 | 940,400 | - The company's leased facility in Modi'in, Israel, accounts for approximately 45% of the total leased area in "Other Countries"[183] - Management believes the company's properties and equipment are in good operating condition and sufficient for current needs, expecting no difficulty in renewing leases or finding alternative facilities[184] Legal Proceedings The company is involved in various routine legal proceedings, which management believes will not have a material adverse effect on its business. - The company is involved in various routine legal proceedings, which management believes will not have a material adverse effect on its business or financial condition, operating results, and cash flows[185] Mine Safety Disclosures This item is not applicable. - This item is not applicable[186] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock is listed on the NYSE, with Class B shares holding concentrated voting power, and the company repurchased 85,213 shares in 2022. - The company's common stock is listed on the New York Stock Exchange under the ticker VPG. The company has both common stock and Class B convertible common stock, with Class B shares having 10 votes per share[189][190] - As of December 31, 2022, holders of Class B convertible common stock held approximately 45.0% of the company's voting power, with Ms. Ruta Zandman and her relatives controlling approximately 76.9% of Class B shares, representing 34.5% of the total voting power[190] Company Common Stock Repurchase Information for Q4 2022 | | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans (a) | | :--- | :--- | :--- | :--- | :--- | | October 2, 2022 to November 2, 2022 | 43,949 | $ 31.67 | 43,949 | 523,450 | | November 3, 2022 to December 3, 2022 | 8,663 | $ 33.08 | 8,663 | 514,787 | | December 4, 2022 to December 31, 2022 | — | $ — | — | — | | Total | 52,612 | | 52,612 | 514,787 | Cumulative Total Shareholder Return as of December 31, 2022 (Based on $100 Investment) | | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Vishay Precision Group, Inc. | 100.00 | 120.20 | 135.19 | 125.17 | 147.60 | 153.66 | | Russell 2000 Index | 100.00 | 88.99 | 111.70 | 134.00 | 153.85 | 122.41 | | Peer Group | 100.00 | 93.68 | 125.94 | 134.35 | 150.74 | 120.02 | Reserved This item is reserved. - This item is reserved[196] Management's Discussion and Analysis of Financial Condition and Results of Operations VPG achieved significant financial growth in fiscal year 2022, driven by optimized core competencies, cost management, and strategic acquisitions, maintaining a strong financial position despite external challenges. 2022 Fiscal Year Key Financial Performance | Metric | 2022 (million USD) | 2021 (million USD) | Year-over-Year Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | 362.6 | 317.9 | 14.0% | | Net Earnings | 36.1 | 20.2 | 78.7% | | Diluted EPS | 2.63 | 1.48 | 77.7% | | Gross Margin | 41.3% | 39.4% | 1.9%pt | | Adjusted EBITDA | 62.0 | 49.9 | 24.2% | - The company drives growth by optimizing core competencies, implementing cost management strategies, and strategic acquisitions, and continues to invest in R&D and capacity expansion[219][222][223][225][227] - The company maintains a strong financial position, with cash and cash equivalents of $88.6 million and a current ratio of 3.9:1.0 as of December 31, 2022, expecting ample liquidity for the next 12 months[271][279][280] - VPG is a global diversified company focused on precision measurement and sensing technologies, connecting the physical world to the digital world through sensors, weighing solutions, and measurement systems[197] - The company's products are widely used in diverse end markets such as industrial, test and measurement, transportation, steel, medical, agriculture, aerospace, military, and consumer goods[198] Net Revenues and Net Earnings for 2022 and 2021 | Metric | 2022 (million USD) | 2021 (million USD) | | :--- | :--- | :--- | | Net Revenues | 362.6 | 317.9 | | Net Earnings | 36.1 | 20.2 | | Diluted EPS | 2.63 | 1.48 | - The company uses non-GAAP financial measures (such as adjusted gross profit, adjusted operating income, adjusted net earnings, EBITDA, and adjusted EBITDA) to assess core operating performance and provide consistent evaluation with comparable periods[201] Non-GAAP Adjusted Financial Measures for 2022 and 2021 (in thousands of USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | GAAP Gross Profit | 149,602 | 125,142 | | Adjusted Gross Profit | 151,440 | 131,025 | | GAAP Operating Income | 43,799 | 27,372 | | Adjusted Operating Income | 47,155 | 35,244 | | GAAP Net Earnings | 36,063 | 20,221 | | Adjusted Net Earnings | 35,884 | 25,606 | | EBITDA | 62,220 | 41,916 | | Adjusted EBITDA | 61,997 | 49,897 | - The company utilizes financial metrics such as net revenues, gross margin, ending backlog, book-to-bill ratio, and inventory turnover to evaluate business performance and future direction[205] - A book-to-bill ratio greater than 1 indicates demand exceeding current revenues and manufacturing capacity, signaling potential future revenue growth; a ratio less than 1 suggests potential sales decline[208] Key Financial Metrics from Q4 2021 to Q4 2022 | Metric | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues (in thousands of USD) | 90,017 | 87,665 | 88,618 | 90,057 | 96,240 | | Gross Margin | 38.7 % | 40.2 % | 42.1 % | 41.4 % | 41.2 % | | Ending Backlog (in thousands of USD) | 150,500 | 170,600 | 171,400 | 171,700 | 155,000 | | Book-to-Bill Ratio | 1.06 | 1.25 | 1.08 | 1.08 | 0.76 | | Inventory Turnover | 2.82 | 2.69 | 2.52 | 2.47 | 2.63 | Operationally Diversified The company formally adopted an operationally diversified structure and strategy in Q4 fiscal year 2021, with each business segment having unique market strategies, technical expertise, capital requirements, and acquisition opportunities. - VPG formally adopted an operationally diversified structure and strategy in Q4 2021, with each business segment having unique market strategies, technical expertise, capital requirements, and acquisition opportunities[218] Optimize Core Competence The company optimizes core competencies through innovative technical expertise, strong brands, operational excellence, and M&A strategies, investing in advanced sensor technology and automated manufacturing. - The company's core competencies include innovative technical expertise, strong brands, operational excellence, management team development, and an M&A strategy[219] - The Sensors division's R&D team enhances strain gauge performance through innovation, reducing size and power consumption, and developing automated manufacturing processes to improve productivity and quality[220] - The company seeks significant production cost savings and efficiency improvements by relocating manufacturing operations to countries such as India, Japan, and Israel[222] Acquisition Strategy The company plans to continue strategic acquisitions to grow and expand its business segments, extending its acquisition focus from traditional vertical product integration to broader precision measurement solutions. - The company plans to continue strategic acquisitions to grow and expand its business segments, extending its acquisition focus from traditional vertical product integration to broader precision measurement solutions[223][224] Research and Development R&D is crucial for the company to introduce innovative products and improve profitability, and the company expects to maintain or increase R&D expenditures to drive future sales growth. - R&D is crucial for the company to introduce innovative products and improve profitability, and the company expects to maintain or increase R&D expenditures to drive future sales growth[225][226] Research and Development Expenses (in million USD) | Year | R&D Expenses | | :--- | :--- | | 2022 | 19.8 | | 2021 | 17.2 | | 2020 | 12.6 | Cost Management The company controls operating costs through factory automation and relocating manufacturing operations to more cost-effective regions to improve efficiency and competitiveness. - The company controls operating costs through factory automation and relocating manufacturing operations to more cost-effective regions to improve efficiency and competitiveness[227] - These cost reduction plans involve restructuring charges but are expected to result in lower labor and other operating expenses[228] Restructuring Costs (in million USD) | Year | Restructuring Costs | | :--- | :--- | | 2022 | 1.5 | | 2021 | 0.1 | | 2020 | 0.9 | Foreign Currency The company faces foreign exchange rate risks, particularly due to certain subsidiaries transacting in non-functional currencies. - The company faces foreign exchange rate risks, particularly due to certain subsidiaries transacting in non-functional currencies[231] - In 2022, exchange rate fluctuations decreased net revenues by $16.1 million and costs and expenses by $13.3 million[235] - In 2021, exchange rate fluctuations increased net revenues by $5.3 million and costs and expenses by $8.7 million[236] Critical Accounting Policies and Estimates The company's accounting for inventory valuation, business combinations, goodwill impairment, pension plans, and income taxes involves significant judgments and estimates. - Inventory is valued at the lower of cost or market, with adjustments for obsolescence and impairment based on future demand, technological developments, and market conditions[238] - Purchase price allocation in business combinations and intangible asset valuation involve significant estimates and assumptions regarding discount rates, future cash flows, and economic lives[239] - Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, with impairment determined based on qualitative or quantitative assessments[240] - Accounting for pension and other post-retirement benefit plans involves key assumptions such as discount rates, expected long-term asset returns, compensation growth rates, and healthcare cost trends[244][245] - Income tax accounting involves assessing the realizability of deferred tax assets and uncertain tax positions, requiring significant judgment and estimation[249][250][251] Results of Operations – Years Ended December 31, 2022 and 2021 Net revenues increased by 14.0% to $362.6 million in 2022, primarily due to volume growth in the Sensors and Measurement Systems segments, with gross margin improving to 41.3%. Operating Results Percentage for 2022 and 2021 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cost of Sales | 58.7 % | 60.6 % | | Gross Profit | 41.3 % | 39.4 % | | Selling, General, and Administrative Expenses | 28.8 % | 30.0 % | | Operating Income | 12.1 % | 8.6 % | | Income Before Taxes | 12.4 % | 8.2 % | | Net Earnings | 10.1 % | 6.4 % | | Net Earnings Attributable to VPG Stockholders | 9.9 % | 6.4 % | | Effective Tax Rate | 18.9 % | 21.1 % | Net Revenues Net Revenues for 2022 and 2021 (in thousands of USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Revenues | 362,580 | 317,919 | | Year-over-Year Change | 44,661 | | | Year-over-Year Change Percentage | 14.0 % | | Attribution of Net Revenue Change 2022 vs. 2021 | Change Attributed to | 2022 vs. 2021 | | :--- | :--- | | Volume Change | 13.1 % | | Average Selling Price Change | 2.6 % | | Foreign Exchange Impact | (5.3)% | | Acquisitions | 3.6 % | | Net Change | 14.0 % | - Net revenues increased by 14.0% year-over-year in 2022, primarily driven by volume growth in the Sensors and Measurement Systems segments, and a significant increase in revenues from the test and measurement market[255] Gross Profit Margin Gross Profit Margin for 2022 and 2021 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Gross Margin | 41.3 % | 39.4 % | - Gross margin increased by 1.9 percentage points year-over-year in 2022, primarily due to improvements in the Sensors and Measurement Systems segments, partially offset by a decline in the Weighing Solutions segment[255] Segments - The Sensors segment's net revenues increased by 19.1% in 2022, driven by sales growth in precision resistors and advanced sensor products, with gross margin improving by 4.5%[256][257] - The Weighing Solutions segment's net revenues increased by 0.3% in 2022, with slight increases in average selling prices and volumes, but offset by unfavorable exchange rate impacts, and gross margin decreased by 2.3%[258][259] - The Measurement Systems segment's net revenues increased by 30.9% in 2022, primarily due to the DTS acquisition and growth in KELK and DSI steel-related businesses, with gross margin improving by 1.4%[260][261] Selling, General, and Administrative Expenses Selling, General, and Administrative Expenses for 2022 and 2021 (in thousands of USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total SG&A Expenses | 104,285 | 95,273 | | Percentage of Net Revenues | 28.8 % | 30.0 % | - SG&A expenses increased by $9.0 million in 2022, primarily due to DTS acquisition-related costs, higher personnel costs (including wage increases), and increased travel expenses[262] Impairment of Goodwill and Indefinite-lived Intangible Assets - The 2022 annual impairment test results showed no impairment of goodwill and indefinite-lived intangible assets[263] - In 2021, the company recorded a $1.2 million pre-tax non-cash impairment charge, reducing the carrying value of goodwill and indefinite-lived intangible assets[263] Restructuring Costs Restructuring Costs for 2022 and 2021 (in million USD) | Year | Restructuring Costs | | :--- | :--- | | 2022 | 1.5 | | 2021 | 0.1 | - Restructuring costs primarily include employee termination costs, such as severance and statutory retirement benefits, related to various cost reduction initiatives[265] Acquisition Costs - No acquisition costs were recorded in the consolidated statements of operations in 2022. In 2021, the company recorded $1.2 million in acquisition costs related to the DTS acquisition[266] Other Income (Expense) Components of Other Income (Expense) for 2022 and 2021 (in thousands of USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Foreign Exchange Gain/(Loss) | 3,579 | (110) | | Interest Income | 401 | 252 | | Pension Expense | (241) | (468) | | Other | (181) | 96 | | Total | 3,558 | (230) | - Interest expense was $2.3 million in 2022, up from $1.2 million in 2021, primarily due to higher borrowing rates in 2022[267] - Foreign exchange gains in 2022 were primarily influenced by fluctuations in the Israeli Shekel, Japanese Yen, and British Pound, with the USD/Shekel exchange rate favorably impacting Shekel-denominated lease liabilities for the Israeli Sensors facility[268] Income Taxes The effective tax rate in 2022 was 18.9%, lower than 21.1% in 2021, primarily due to changes in the geographic mix of income and the release of uncertain tax position reserves. Effective Tax Rate for 2022 and 2021 | Year | Effective Tax Rate | | :--- | :--- | | 2022 | 18.9 % | | 2021 | 21.1 % | - The decrease in the 2022 effective tax rate was primarily attributed to changes in the geographic mix of income and the release of uncertain tax position reserves, partially offset by state income taxes, foreign exchange gains/losses, changes in valuation allowances, and foreign statutory tax rate changes[269] - The company re-evaluated the realizability of its US deferred tax assets in 2022 and concluded that their realization is still not "more likely than not," thus not recognizing related deferred tax assets[270] Financial Condition, Liquidity, and Capital Resources The company maintains a strong financial position, with a current ratio of 3.9:1.0 as of December 31, 2022, and expects ample liquidity for the next 12 months. - The company maintains a strong financial position, with a current ratio of 3.9:1.0 as of December 31, 2022[280] - The company has a $75 million revolving credit facility, with a borrowing balance of $61.0 million as of December 31, 2022, and is in compliance with all financial covenants[272][274] Cash Flow Activities for 2022 and 2021 (in million USD) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Cash Flow from Operating Activities | 33.0 | 33.5 | | Cash Outflow from Investing Activities | (20.8) | (64.0) | | Cash Flow from Financing Activities | 3.6 | (18.8) | - As of December 31, 2022, approximately 83% of the company's cash and cash equivalents were held by non-US subsidiaries, and existing cash and operating cash flows are expected to be sufficient to meet liquidity needs for the next 12 months[276] Inflation Inflation typically has little impact on the company's operations because products are not sold through long-term contracts, allowing the company to adjust sales prices to reflect cost increases. - Inflation typically has little impact on the company's operations because products are not sold through long-term contracts, allowing the company to adjust sales prices to reflect cost increases based on competitive conditions[283] Recent Accounting Pronouncements The company evaluated the applicability and impact of all Accounting Standards Updates (ASUs) and expects no material impact on its consolidated financial statements. - The company evaluated the applicability and impact of all Accounting Standards Updates (ASUs) and expects that ASUs effective in 2022 or not yet effective will not have a material impact on its consolidated financial statements[284][394] Forward-Looking Statements This report contains forward-looking statements involving various risks, uncertainties, and contingencies that could cause actual results to differ materially from expectations. - This report contains forward-looking statements involving various risks, uncertainties, and contingencies that could cause actual results to differ materially from expectations[285] - Key risk factors include economic conditions, inflation, supply chain challenges, acquisition integration difficulties, new product development issues, exchange rate fluctuations, political and economic instability, difficulties in implementing cost reduction strategies, and export control compliance issues[286] Quantitative and Qualitative Disclosures About Market Risk The company faces financial risks from foreign exchange rates, interest rates, and commodity price fluctuations, managed through internal policies without speculative derivatives. - The company faces financial risks from foreign exchange rates, interest rates, and commodity price fluctuations, and manages these risks through internal policies and procedures, without engaging in speculative derivative transactions[288] - Interest rate risk: Based on 2022 and 2021 debt and cash positions, a 50 basis point change in interest rates is estimated to impact annualized net earnings by $0.1 million[290] - Foreign exchange risk: Assuming all other variables remain constant, a 10% adverse exchange rate movement could impact net earnings by approximately $3.6 million in 2022 and $3.0 million in 2021[293] - Commodity price risk: Assuming raw material cost changes do not affect product selling prices, a 10% increase or decrease in raw material costs could impact net earnings by approximately $2.5 million in 2022 and $1.9 million in 2021[297] Interest Rate Risk - The company faces interest rate change risks, primarily from borrowing activities and cash balances. As of December 31, 2022, the company had $61.0 million in revolving credit borrowings and $88.6 million in cash and cash equivalents[289][290] - Based on debt and cash positions in 2022 and 2021, a 50 basis point increase or decrease in interest rates is estimated to impact annualized net earnings by $0.1 million[290] Foreign Exchange Risk - The company faces foreign exchange rate risks, primarily involving the British Pound, Canadian Dollar, Chinese Yuan, Euro, Indian Rupee, Israeli Shekel, Japanese Yen, Swedish Krona, and New Taiwan Dollar[291] - Foreign exchange risk is particularly significant in Israel and India, where production labor costs are primarily paid in local currencies, while sales revenues are predominantly denominated in US dollars[292] - Sensitivity analysis shows that, assuming all other variables remain constant, a 10% adverse exchange rate movement could impact net earnings by approximately $3.6 million in 2022 and $3.0 million in 2021[293] Commodity Price Risk - Certain metal materials required for the company's product manufacturing are traded in active markets with significant price fluctuations, and some highly specialized sensor materials are supplied by a single vendor[295] - Rising raw material costs may lead to lower gross margins, while falling prices may necessitate inventory write-downs[296] - An estimated 10% increase or decrease in raw material costs would impact net earnings by approximately $2.5 million in 2022 and $1.9 million in 2021[297] Financial Statements and Supplementary Data The financial statements required for this item are included starting on page F-1 of this report. - The financial statements required for this item are included starting on page F-1 of this report[298] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The company has had no changes in or disagreements with accountants on accounting and financial disclosure. - The company has had no changes in or disagreements with accountants on accounting and financial disclosure[299] Controls and Procedures The company's management and independent auditors affirmed the effectiveness of its disclosure controls and internal control over financial reporting as of December 31, 2022. - The company's management (including the CEO and CFO) assessed and determined that its disclosure controls and procedures were effective as of December 31, 2022[300] - Management believes that any control system can only provide reasonable, not absolute, assurance and has inherent limitations due to human error, circumvention, or fraud[301] - The independent registered public accounting firm, Brightman Almagor Zohar & Co., issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[308][309] Disclosure Controls and Procedures - The company's management (including the CEO and CFO) assessed and determined that its disclosure controls and procedures were effective as of December 31, 2022, ensuring timely recording, processing, summarizing, and reporting of information[300] Changes in Internal Controls over Financial Reporting - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[302] Management's Annual Report on Internal Control over Financial Reporting - The company's management is responsible for establishing and maintaining adequate internal control over financial reporting and, based on the COSO 2013 framework, determined that internal control was effective as of December 31, 2022[303] Report of Independent Registered Public Accounting Firm - The independent registered public accounting firm, Brightman Almagor Zohar & Co., issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[308] - The auditors identified goodwill of the DSI reporting unit as a critical audit matter due to significant management judgment in estimating fair value and sensitivity to changes in management's estimates and assumptions[347][348][350] Other Information No other information is disclosed in this item. - No other information is disclosed in this item[315] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company has not disclosed any foreign jurisdictions that prevent inspections. - The company has not disclosed any foreign jurisdictions that prevent inspections[316] PART III Directors, Executive Officers, and Corporate Governance Information for this item will be included in the company's 2023 Annual Meeting of Shareholders proxy statement. - The information required for this item will be included in the company's definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference[318] Executive Compensation Information for this item will be included in the company's 2023 Annual Meeting of Shareholders proxy statement. - The information required for this item will be included in the company's definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference[320] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item will be included in the company's 2023 Annual Meeting of Shareholders proxy statement. - The information required for this item will be included in the company's definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference[321] Certain Relationships and Related Party Transactions, and Director Independence Information for this item will be included in the company's 2023 Annual Meeting of Shareholders proxy statement. - The information required for this item will be included in the company's definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference[322] Principal Accounting Fees and Services Information for this item will be included in the company's 2023 Annual Meeting of Shareholders proxy statement. - The information required for this item will be included in the company's definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference[323] PART IV Exhibits, Financial Statement Schedules This item lists the company's consolidated financial statements, financial statement schedules, and various exhibits, including corporate governance and contractual agreements. - This item lists the company's consolidated financial statements, financial statement schedules, and various exhibits, including the certificate of incorporation, credit agreements, acquisition agreements, equity incentive plans, and executive employment agreements[326][327][328][329] Form 10-K Summary This report does not contain a Form 10-K summary. - This report does not contain a Form 10-K summary[331] SIGNATURES This section confirms the official signing of the Form 10-K report by the company's CEO and other principal officers. - This report was signed by Ziv Shoshani, President and Chief Executive Officer of Vishay Precision Group, Inc., on March 1, 2023, on behalf of the company[335] - The company's board members and principal executive officers also signed this Form 10-K report[338] Index to Consolidated Financial Statements This section provides an index to the company's audited financial statements and related notes for the reporting period. Report of Independent Registered Public Accounting Firm The independent auditors issued an unqualified opinion on VPG's consolidated financial statements and internal control over financial reporting, highlighting DSI goodwill as a critical audit matter. - The independent registered public accounting firm, Brightman Almagor Zohar & Co., issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2022[342] - The auditors issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[343] - The auditors identified goodwill of the DSI reporting unit as a critical audit matter due to significant management judgment in estimating fair value and sensitivity to changes in management's estimates and assumptions[347][348][350] Consolidated Balance Sheets As of December 31, 2022, the company's total assets were $476.7 million, with $88.6 million in cash and $306.5 million in total stockholders' equity. Consolidated Balance Sheets Summary as of December 31, 2022 and 2021 (in thousands of USD) | Metric | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | 88,562 | 84,335 | | Accounts Receivable, Net | 60,068 | 58,265 | | Inventories | 84,660 | 76,427 | | Total Current Assets | 251,806 | 234,943 | | Property, Plant, and Equipment, Net | 87,127 | 81,220 | | Goodwill | 45,544 | 45,830 | | Intangible Assets, Net | 48,217 | 52,437 | | Total Assets | 476,742 | 461,889 | | Liabilities and Equity | | | | Total Current Liabilities | 64,336 | 64,628 | | Long-Term Debt | 60,799 | 60,714 | | Total Liabilities | 170,220 | 184,847 | | Total Equity Attributable to VPG Stockholders | 306,547 | 277,099 | | Total Equity | 306,522 | 277,042 | | Total Liabilities and Equity | 476,742 | 461,889 | Consolidated Statements of Operations In 2022, the company reported net revenues of $362.6 million, gross profit of $149.6 million, and net earnings of $36.1 million, showing significant growth. Consolidated Statements of Operations Summary for the Years Ended December 31, 2022, 2021, and 2020 (in thousands of USD) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Revenues | 362,580 | 317,919 | 269,812 | | Cost of Sales | 212,978 | 192,777 | 165,541 | | Gross Profit | 149,602 | 125,142 | 104,271 | | Selling, General, and Administrative Expenses | 104,285 | 95,273 | 78,256 | | Operating Income | 43,799 | 27,372 | 22,657 | | Income Before Taxes | 45,088 | 25,912 | 18,309 | | Net Earnings | 36,553 | 20,443 | 10,800 | | Net Earnings Attributable to VPG Stockholders | 36,063 | 20,221 | 10,787 | | Diluted Earnings Per Share | 2.63 | 1.48 | 0.79 | Consolidated Statements of Comprehensive Income In 2022, the company's net earnings were $36.6 million, with a net other comprehensive loss of $5.9 million, resulting in comprehensive income of $30.7 million. Consolidated Statements of Comprehensive Income Summary for the Years Ended December 31, 2022, 2021, and 2020 (in thousands of USD) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Earnings | 36,553 | 20,443 | 10,800 | | Net Other Comprehensive Income (Loss) | (5,892) | (2,337) | 5,032 | | Comprehensive Income | 30,661 | 18,106 | 15,832 | | Comprehensive Income Attributable to VPG Stockholders | 30,171 | 17,884 | 15,819 | - Foreign currency translation adjustments were the main factor affecting other comprehensive income (loss), with negative $11.2 million in 2022, negative $4.7 million in 2021, and positive $5.2 million in 2020[360] Consolidated Statements of Cash Flows In 2022, the company generated $33.0 million from operating activities, used $20.8 million in investing activities, and ended with $88.6 million in cash. Consolidated Statements of Cash Flows Summary for the Years Ended December 31, 2022, 2021, and 2020 (in thousands of USD) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash Flow from Operating Activities | 33,029 | 33,537 | 35,313 | | Cash Outflow from Investing Activities | (20,837) | (64,046) | (21,810) | | Cash Flow from Financing Activities | (3,631) | 18,816 | (5,031) | | Effect of Exchange Rate Changes | (4,334) | (2,410) | 3,056 | | Cash and Cash Equivalents, End of Period | 88,562 | 84,335 | 98,438 | - Cash outflow from investing activities was $20.8 million in 2022, primarily for capital expenditures, including capacity expansion projects in Israel and Asia[281][361] - Cash outflow from investing activities was $64.0 million in 2021, including $47.2 million for the acquisition of DTS[275][361] Consolidated Statements of Equity As of December 31, 2022, total equity attributable to VPG stockholders was $306.5 million, reflecting net earnings, other comprehensive loss, and share-based compensation. Consolidated Statements of Equity Summary for the Years Ended December 31, 2022, 2021, and 2020 (in thousands of USD) | Metric | 2022-12-31 | 2021-12-31 | 2020-12-31 | | :--- | :--- | :--- | :--- | | Common Stock | 1,325 | 1,322 | 1,317 | | Class B Convertible Common Stock | 103 | 103 | 103 | | Treasury Stock | (11,504) | (8,765) | (8,765) | | Capital in Excess of Par Value | 201,164 | 199,151 | 197,764 | | Retained Earnings | 156,359 | 120,296 | 100,075 | | Accumulated Other Comprehensive Income (Loss) | (40,900) | (35,008) | (32,671) | | Total Equity Attributable to VPG Stockholders | 306,547 | 277,099 | 257,823 | | Noncontrolling Interests | (25) | (57) | 34 | | Total Equity | 306,522 | 277,042 | 257,857 | - In 2022, net earnings attributable to VPG stockholders were $36.06 million, other comprehensive loss was $5.89 million, share-based compensation expense was $2.44 million, and $2.74 million of treasury stock was repurchased[362] Notes to Consolidated Financial Statements This section details VPG's significant accounting policies and estimates, including revenue recognition, R&D expenses, income taxes, inventory valuation, business combinations, goodwill impairment, pension plans, equity compensation, and leases. Note 1 – Background and Summary of Significant Accounting Policies This note outlines VPG's business background and significant accounting policies, including consolidation principles, use of estimates, revenue recognition, R&D expenses, income taxes, and various asset and liability valuations. - VPG is a global diversified company focused on precision measurement and sensing technologies, with products widely used in diverse industrial and non-industrial markets[364] - Company revenues primarily derive from product sales, recognized when control of the product is transferred to the customer, without significant financing components[367][368] - R&D expenses are expensed as incurred, totaling $19.8 million in 2022, $17.2 million in 2021, and $12.6 million in 2020[371] - The company involves significant judgments and estimates in inventory valuation, business combinations, goodwill and other intangible asset impairment testing, pension and other post-retirement benefit plans, and income tax accounting[378][380][381][389][390][391] Note 2 – Revenues This note discloses the breakdown of the company's contract revenues by geographic region and market segment, with total net revenues of $362.6 million in 2022. Net Revenues by Geographic Region for 2022 (in thousands of USD) | | Sensors | Weighing Solutions | Measurement Systems | Total | | :--- | :--- | :--- | :--- | :--- | | United States | 51,246 | 58,076 | 52,435 | 161,757 | | United Kingdom | 3,481 | 15,697 | 572 | 19,750 | | Other Europe | 31,938 | 37,490 | 5,168 | 74,596 | | Israel | 28,413 | 470 | — | 28,883 | | Asia | 37,143 | 13,974 | 7,537 | 58,654 | | Canada | — | 8 | 18,932 | 18,940 | | Total | 152,221 | 125,715 | 84,644 | 362,580 | Net Revenues by Market Segment for 2022 (in thousands of USD) | Market Segment | 2022 | | :--- | :--- | | Test and Measurement | 78,406 | | Aerospace, Military, and Space | 31,399 | | Transportation | 55,892 | | Other Markets | 79,750 | | Industrial Weighing | 52,109 | | General Industrial | 21,179 | | Steel | 43,845 | | Total | 362,580 | Contract Assets and Liabilities (in thousands of USD) | | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Contract Assets (Unbilled Revenues) | 3,990 | 3,570 | | Contract Liabilities (Accrued Customer Advances) | 7,983 | 4,765 | Note 3 – Acquisition Activity On June 1, 2021, VPG acquired Diversified Technical Systems, Inc. (DTS) for $47.2 million, generating $16.0 million in goodwill. - On June 1, 2021, VPG acquired Diversified Technical Systems, Inc. (DTS), a manufacturer of data acquisition systems and sensors, for $47.2 million[399] Final Fair Value of DTS Acquired Assets and Liabilities (in thousands of USD) | Item | 2021-06-01 | | :--- | :--- | | Working Capital | 12,494 | | Property and Equipment | 1,209 | | Deferred Income Tax Liabilities | (6,215) | | Total Intangible Assets | 23,695 | | Fair Value of Identifiable Assets Acquired | 31,183 | | Purchase Price | 47,216 | | Goodwill | 16,033 | - The acquisition generated $16.0 million in goodwill, which is not deductible for income tax purposes. In 2021, the company recorded $1.2 million in acquisition costs[400] Note 4 – Goodwill and Other Intangible Assets As of December 31, 2022, total goodwill was $45.5 million and net intangible assets were $48.2 million, with no impairment found in 2022. - As of December 31, 2022, the company had four reporting units with allocated goodwill: Steel, Onboard Weighing, DSI, and DTS[403] - The quantitative impairment tests performed in 2022 for the DSI and DTS reporting units found no impairment, with their fair values exceeding carrying values by approximately 8% and 36%, respectively[406] Changes in Goodwill Carrying Value as of December 31, 2022 and 2021 (in thousands of USD) | | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | KELK Acquisition | 6,313 | 6,706 | | DSI Acquisition | 16,887 | 16,910 | | Pacific Instruments Acquisition | — | — | | DTS Acquisition | 16,033 | 15,903 | | Stress-Tek Acquisition | 6,311 | 6,311 | | Total | 45,544 | 45,830 | Intangible Assets as of December 31, 2022 and 2021 (in thousands of USD) | | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Amortizable Intangible Assets | | | | Patents and Acquired Technology | 32,570 | 33,026 | | Customer Relationships | 33,226 | 34,036 | | Trademarks | 1,521 | 1,665 | | Non-Compete Agreements | 10,133 | 11,335 | | Accumulated Amortization | (36,887) | (35,342) | | Net Amortizable Intangible Assets | 40,563 | 44,720 | | Non-Amortizable Intangible Assets | | | | Trademarks | 7,654 | 7,717 | | Total Net Intangible Assets | 48,217 | 52,437 | Note 5 – Restructuring Costs The company recorded restructuring costs of $1.5 million in 2022, primarily for employee termination, with a remaining liability of $0.183 million. Restructuring Costs for 2022, 2021, and 2020 (in thousands of USD) | Year | Restructuring Costs | | :--- | :--- | | 2022 | 1,518 | | 2021 | 76 | | 2020 | 918 | - Restructuring costs primarily include employee termination costs, such as severance and statutory retirement benefits, related to various cost reduction initiatives[412] Restructuring Liability Activity (in thousands of USD) | | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Beginning Balance | — | 63 | | Restructuring Costs | 1,518 | 76 | | Cash Payments | (1,338) | (138) | | Foreign Currency Translation | 3 | (1) | | Ending Balance | 183 | — | Note 6 – Income Taxes In 2022, the company's income before taxes was $45.1 million, with an effective tax rate of 18.9%, and a valuation allowance against US deferred tax assets. Income Before Taxes by Region for 2022 and 2021 (in thousands of USD) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Domestic | (4,979) | (5,956) | | Foreign | 50,067 | 31,868 | | Total | 45,088 | 25,912 | Income Tax Expense for 2022 and 2021 (in thousands of USD) | Type | 2022 | 2021 | | :--- | :--- | :--- | | Current Income Tax | 10,575 | 8,725 | | Deferred Income Tax | (2,040) | (3,256) | | Total Income Tax Expense | 8,535 | 5,469 | - The effective tax rate in 2022 was 18.9%, lower than 21.1% in 2021, primarily due to changes in the geographic mix of income and the release of uncertain tax position reserves[269] - The company established a valuation allowance against its US deferred tax assets, approximately $8.7 million as of December 31, 2022, as their realization is still not considered "more likely than not"[422] - As of December 31, 2022, undistributed foreign subsidiary earnings were approximately $233.2 million, of which $2.1 million had deferred tax liabilities recognized, with the majority of the remainder considered indefinitely reinvested[425] Note 7 – Long-Term Debt As of December 31, 2022, the company's long-term debt primarily consisted of $61.0 million under its 2020 Credit Agreement revolving credit facility, with interest paid increasing to $2.3 million. Long-Term Debt as of December 31, 2022 and 2021 (in thousands of USD) | | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | 2020 Credit Agreement - Revolving Credit Facility | 61,000 | 61,000 | | Deferred Financing Costs | (201) | (286) | | Total Long-Term Debt | 60,799 | 60,714 | - The company entered into a $75.0 million revolving credit facility on March 20, 2020, which matures on March 20, 2025, and is subject to specific financial ratios and covenants[437][439] - Interest paid in 2022 was $2.3 million, up from $1.2 million in 2021, primarily due to higher borrowing rates in 2022[442] Note 8 – Stockholders' Equity The company has common and Class B convertible common stock, with the Board authorizing the repurchase of up