UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
X Annual report pursuant to Section 13 or 15(d) of the Securities
-----
Exchange Act of 1934. For the fiscal year ended December 31, 2000.
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ________ to
________.
Commission file number 0-24020
SYPRIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1321992
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of principal executive offices, including zip code)
(502) 329-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's common stock held by non-
affiliates on February 20, 2001 (based upon the average of the high and low
prices of the registrant's common stock reported for such date on The Nasdaq
Stock Market), was $8,833,012. As of February 20, 2001, the registrant had
9,736,749 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Stockholders to be held May 1, 2001 are
incorporated by reference into Part III to the extent described therein.
Table of Contents
Page No.
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Part I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 6
Item 3. Legal Proceedings...................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders.................................... 6
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............. 7
Item 6. Selected Financial Data................................................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 13
Item 8. Financial Statements and Supplementary Data............................................ 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 35
Part III
Item 10. Directors and Executive Officers of the Registrant..................................... 35
Item 11. Executive Compensation................................................................. 35
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 35
Item 13. Certain Relationships and Related Transactions......................................... 35
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 36
Signatures........................................................................................... 39
PART I
Item 1. Business
Introduction
Sypris Solutions, Inc. is a diversified provider of technology-based
outsource services and specialized industrial products. The Company performs a
wide range of manufacturing and technical services, typically under long-term
contracts with major manufacturers. The Company also manufactures and sells
complex data storage systems, magnetic instruments, current sensors, high-
pressure closures and a variety of other industrial products. The terms "Sypris"
and the "Company" as used herein include Sypris Solutions, Inc. and its
consolidated subsidiaries, except where the context indicates otherwise. The
Company's wholly-owned subsidiaries are Bell Technologies, Inc. ("Bell"), Group
Technologies Corporation ("GroupTech"), Metrum-Datatape, Inc. ("Metrum-
Datatape") and Tube Turns Technologies, Inc. ("Tube Turns"). The Company's
common stock is traded on The Nasdaq Stock Market under the symbol SYPR .
The Company has two reportable segments: the Electronics Group and the
Industrial Group. The segments are each managed separately because of the
distinctions between the products, services, markets, customers, technologies
and workforce skills of the segments. The Company evaluates performance and
allocates resources based on profit or loss from operations before interest and
income taxes. Financial information about these segments for the three fiscal
years ended December 31, 2000 is set forth in Note 16 to the consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K.
Electronics Group
The Electronics Group consists of three operating units: Bell, GroupTech
and Metrum-Datatape. The Electronics Group's products and manufacturing and
technical services are marketed through a direct sales force, including the
involvement of members of senior management and domestic and international
independent distributors and representatives. The Electronics Group operates
four manufacturing facilities, five testing laboratories and twenty service
operations across the United States.
The Electronics Group's service offerings include a variety of
manufacturing and technical services for a diversified base of customers as an
outsource service provider. The Electronics Group employs a multi-disciplined
engineering team that provides comprehensive manufacturing, design support and
high assurance encryption solutions to its customers in a variety of markets,
including information security, avionics, space and telecommunications. The
Electronics Group's advanced engineering services capabilities include
electronic design services, software systems, electronic assembly, testing,
evaluation and related support services. The Electronics Group provides various
levels of testing and evaluation services that include analysis, engineering,
and mechanical and electronic testing to ascertain performance and reliability
under induced environmental stress conditions including vibration, temperature
extremes, hi-g acceleration, altitude, shock, flammability, acoustical noise and
flight dynamics. The Electronics Group also provides calibration and repair
services for electronic, mechanical and process-control instrumentation. Revenue
derived from outsource services by the Electronics Group accounted for
approximately 78%, 73% and 69% of the segment's net revenue and 66%, 59% and 56%
of total net revenue in the years ended December 31, 2000, 1999 and 1998,
respectively.
The Electronics Group's products include data acquisition, storage and
analysis products for critical instrumentation recording and data collection
applications in test aircraft, spacecraft, satellites, ships and submarines, in
addition to applications in scientific laboratories and commercial data centers.
The Electronics Group also manufactures magnetic and current sensing components
and measurement instrumentation products for industrial and research
applications. Revenue derived from product sales by the Electronics Group
accounted for approximately 22%, 27% and 31% of the segment's net revenue and
19%, 22% and 26% of total net revenue in the years ended December 31, 2000, 1999
and 1998, respectively.
Although there were no acquisitions during 2000, a calibration and repair
business was acquired late in December 1999 by the Electronics Group and,
therefore, the impact was fully reflected in the operating results of 2000. The
most significant component of this acquisition was the addition of a fleet of
fifteen mobile calibration laboratories. These self-contained, temperature
controlled, ISO-certified mobile laboratories allow the Electronics
1
Group to provide calibration services to remote locations across the United
States. Additional calibration services are performed utilizing certain of the
transportable equipment at other customer locations around the world. This
operation complements the calibration and repair services offered by the
Electronics Group at its branch and on-site service locations.
The Electronics Group successfully pursued and was awarded a number of
manufacturing service contracts with major corporations during 2000, resulting
in a record level of backlog of approximately $143 million at December 31, 2000.
These new contracts are primarily with aerospace and defense companies and
reflect what the Company believes is an increasing trend toward outsourcing
across a wide range of industries. Shipments on certain new contracts began
during 2000 and are expected to increase throughout 2001.
The principal raw materials and purchased component parts for the
manufacture of the Electronics Group's products are available from a number of
suppliers and have historically been available in sufficient quantities to meet
production requirements. However, the Electronics Group has recently experienced
shortages for certain electronic components. The supply shortages and extended
lead times for certain components have resulted in curtailed production or
delays in production of assemblies using that component, both of which have also
contributed to an increase in inventory levels. The Company has generally been
able to reduce the impact of the component shortages by working with customers
to reschedule deliveries, by working with suppliers to provide the needed
components, or by purchasing components at somewhat higher prices from
distributors, rather than directly from manufacturers. These procedures reduce,
but do not eliminate, the Company's inventory risk. The Company expects that
shortages and delays in deliveries of certain electronic components will
continue during 2001. Any shortages of raw materials may result in production
delays or increased costs which could have a material adverse affect on the
Company's financial position or results of operations.
The Electronics Group's customers include Raytheon Company, Honeywell,
Inc., Lockheed Martin Corporation, Litton Industries, Inc., LAM Research
Corporation, Boeing Corporation and certain other aerospace and defense
companies. Revenue from Raytheon Company accounted for 15.4% of total net
revenue and 18.3% of the Electronics Group's net revenue in 2000. Revenue from
Raytheon Company accounted for 7.2% and 7.8% of the Electronics Group's net
revenue in 1999 and 1998, respectively. No other single customer accounted for
more than 10% of total net revenue in 2000, 1999 or 1998. The Electronics Group
believes its relationship with its major customers are good, however, the loss
of Raytheon Company or the combined loss of one or more of its major customers
could have a material adverse affect on the Company's financial position or
results of operations.
The Electronics Group's customers also include various agencies of the U.S.
Government, which in the aggregate accounted for 21%, 26% and 22% of the
Company's total net revenue and 25%, 32% and 27% of the Electronics Group's net
revenue for 2000, 1999 and 1998, respectively. No single U.S. Government agency
accounted for more than 10% of the Company's net revenue in 2000. The Company's
contracts with U.S. Government agencies are subject to the standard government
contract clause that permits the government to terminate such contracts at its
convenience. In the event of such termination, there are provisions to enable
the Company to recover its costs plus a fee. The Company does not anticipate the
termination of any of its major government contracts.
The Electronics Group operates in a highly competitive environment and
competes against numerous domestic and foreign manufacturers for the sale of its
products and against numerous national, regional and local service providers.
The Electronics Group's competitors are expected to increase the introduction of
new products utilizing the latest technologies aimed at providing cost-effective
solutions. The Company believes that the primary bases of competition for the
Electronics Group in its targeted product markets are time-to-market,
capability, price, manufacturing quality, advanced manufacturing technology and
reliable delivery. The key competitive factors for the Electronics Group's
services are price, technology, quality, responsiveness, on-time delivery and
accuracy. The Company believes that it generally competes favorably with respect
to each of these factors for its products and services.
2
Industrial Group
The Industrial Group consists of one operating unit: Tube Turns. The
Industrial Group's products and services are marketed through a direct sales
force, including the involvement of members of senior management and domestic
and international independent representatives. The Industrial Group has two
manufacturing facilities in the United States.
The Industrial Group provides manufacturing services to a variety of
customers that outsource forged and finished steel components and subassemblies.
The Industrial Group manufactures forged heavy-duty drive train components for
the commercial truck and construction markets and forged engine cylinders and
shafts for the aerospace market. The Industrial Group provides truck axles for
the heavy-duty truck market under a multi-year manufacturing service agreement
with one major customer and expects to substantially increase production of
truck axles under a manufacturing service agreement with another major
corporation during the fourth quarter of 2001. The Industrial Group is also
currently in the process of installing two fully automated machining centers.
The Industrial Group expects to begin machining a portion of the truck axles
forged for its existing customer beginning in the second quarter of 2001. In
addition to the revenue this machining capability will generate, it also gives
the Industrial Group a competitive advantage by lowering the total cost of the
product through reduced transportation and handling charges, cycle times and
working capital requirements for its customers. Revenue derived from outsource
services by the Industrial Group accounted for approximately 78%, 81% and 72% of
the segment's net revenue and 12%, 15% and 13% of total net revenue in the years
ended December 31, 2000, 1999 and 1998, respectively.
The Industrial Group also offers a line of fabricated products that
includes engineered piping components and assemblies for use in pipeline,
chemical, container and other pressurized systems used by the energy and
chemical industries. The Industrial Group's fabricated products include high-
pressure closures for storage tanks and insulated joints for underground piping.
Revenue derived from fabricated product sales by the Industrial Group accounted
for approximately 22%, 19% and 28% of the segment's net revenue and 3%, 4% and
5% of total net revenue in the years ended December 31, 2000, 1999 and 1998,
respectively.
Steel utilized in the manufacturing process must meet certain
specifications based upon the application in which the product will be utilized.
The material specifications are determined by the customer and, for certain
contracts, the supplier for the material must be approved by the customer. The
Industrial Group presently purchases the majority of its steel from several
North American suppliers. The Industrial Group believes its relationships with
its suppliers are positive and has no indication that it will experience
shortages of raw materials or components essential to its production processes
or that it will be forced to seek alternative sources of supply. Any shortages
of raw materials may result in production delays and increased costs which could
have a material adverse effect on the Company's financial condition or results
of operations.
Outsource services provided to ArvinMeritor, Inc. accounted for
approximately 42%, 50% and 37% of the Industrial Group's net revenue during
2000, 1999 and 1998, respectively. The Industrial Group is the sole supplier of
forged heavy-duty truck axles to this customer under a contract that began in
1997 and was renewed for a multi-year term beginning in 2000. The Industrial
Group believes its relationship with this customer is good, however, the loss of
this customer could have a material adverse effect on the Company's financial
position or results of operations. The Industrial Group has a number of other
customers for its forged and fabricated products in the construction, aerospace,
energy and chemical markets.
The Industrial Group began a significant capital investment program in 1999
to support forging and machining opportunities in the truck market. Capital
expenditures totaled $15.5 million and $7.1 million during 2000 and 1999,
respectively. The Industrial Group further expects to invest approximately $24
million during 2001 to complete this capital program. The majority of this
investment relates to machinery for additional forging capacity, automated
material handling equipment, fully automated machining centers, induction
heating units and material shear systems.
The Industrial Group faces competition for its manufacturing services from
three major domestic competitors and from a number of smaller competitors. The
Company believes that the Industrial Group maintains a good reputation in the
market for forged manufacturing services, product quality and reliability. The
fabricated
3
product line competes with a number of domestic and international competitors.
The Company believes the primary competitive factors for the Industrial Group
are price, quality and on-time delivery and that it competes favorably with
respect to each of these factors.
Organization
Sypris is a Delaware corporation that was organized in 1997 and began
business on March 30, 1998 with the completion of the merger of Group Financial
Partners, Inc. ("GFP") and two of its subsidiaries, Bell and Tube Turns, with
and into GroupTech, a Nasdaq-traded company in which GFP owned an approximate
80% interest. Effective immediately thereafter, GroupTech was merged with and
into Sypris, a subsidiary created to accomplish the reincorporation in Delaware.
As a result of these and other transactions (collectively referred to herein as
the "Reorganization"), Sypris became the holding company for Bell, GroupTech,
Tube Turns and Metrum-Datatape, a wholly-owned subsidiary of GFP prior to the
Reorganization, and succeeded to the listing of GroupTech on The Nasdaq Stock
Market under the new symbol SYPR.
Research and Development
Sypris invested $3.6 million, $6.4 million and $5.9 million in research and
development in 2000, 1999 and 1998, respectively. The investments were primarily
in support of the development of the product lines of the Company's Electronics
Group. Sypris also utilizes its research and development capability to develop
processes and technologies for the benefit of its customers.
Patents, Trademarks and Licenses
Sypris owns and is licensed under a number of patents and trademarks that
management believes are sufficient for its operations. The Company's business as
a whole is not materially dependent upon any one patent, trademark or license or
technologically-related group of patents or licenses.
Government Regulation
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Management believes that the Company's business is operated in
material compliance with applicable regulations promulgated by the Occupational
Safety and Health Administration and the Environmental Protection Agency and
corresponding state agencies, which pertain to health and safety in the
workplace and the use, discharge and storage of chemicals employed in the
manufacturing process. Current costs of compliance are not material to the
Company. However, new or modified requirements, not presently anticipated, could
be adopted creating additional expense for the Company.
GroupTech's former leased facility located on Waters Avenue in Tampa,
Florida, is currently subject to remediation activities related to ground water
contamination by methylene chloride and other volatile organic compounds which
occurred prior to GroupTech's lease of the facility. Through a series of
evaluations, it was determined that ground water contamination is also present
off site. In December 1986, Honeywell, Inc. ("Honeywell"), a prior operator of
the facility, entered into a consent order (the "Consent Order") with the State
of Florida Department of Environmental Regulation under which Honeywell agreed
to take certain corrective actions to remediate the contamination.
Current remediation activities required under the Consent Order include the
installation of recovery wells and the treatment of the contaminated ground
water, which activities Honeywell estimates could cost up to $500,000 per year.
However, pursuant to the Consent Order, Honeywell is also in the first phase of
sampling soils beneath the building and studying a borrow pit which is partially
located on the property. The purpose of these steps is to determine what, if
any, additional remediation activities Honeywell will be required to take under
the Consent Order.
At the time GroupTech purchased the assets of the business located on this
leased site, it obtained an agreement from the seller, Philips Electronics North
America Corporation, to indemnify and hold GroupTech
4
harmless with respect to such matters. GroupTech vacated the property in
December 1994, at which time its lease obligation expired.
In the course of the acquisition of certain assets of a business from
Alliant Techsystems, Inc. ("Alliant") by Metrum Inc. ("Metrum"), a wholly-owned
subsidiary of GroupTech, Metrum and GroupTech became aware of ground water
contamination that will require remedial action at the facility located in
Littleton, Colorado. The facility has been under lease to various subsidiaries
of the Company since the acquisition by Metrum in December 1992. Evaluations
indicate that certain chlorinated solvents were disposed of on the site by a
previous owner of the business, and these solvents have contaminated the ground
water. In December 1995, a remediation system approved by the State of Colorado
was put in place by Alliant. Due to staffing restrictions at the state level,
the federal Environmental Protection Agency (the "EPA") assumed responsibility
for the site in early 2000. In September 2000, Alliant and the EPA entered into
a Consent Order to conduct additional investigation at the site. In the
meantime, Alliant continues to operate the remediation system approved in 1995.
Alliant currently estimates that the total cost it will incur for investigations
and remedial activities at the site could be as much as $10 million. As part of
the agreement for the purchase and sale of the assets of the business, Alliant
agreed to indemnify and hold Metrum harmless with respect to such matters.
The facility of Tube Turns was subject to environmental contamination
involving underground storage tanks by a predecessor owner. Tube Turns has
obtained a $1.0 million indemnity from Sumitomo Metal Industries, Ltd., Sumitomo
Corporation and Sumitomo Corporation of America for these matters, substantially
all of which has been expended. Tube Turns believes, however, that such
contamination has been substantially remediated and that any further costs of
remediation, if any, will not be material.
Backlog
The Company's order backlog at December 31, 2000 was $160.8 million as
compared to order backlog at December 31, 1999 of $127.0 million. Backlog for
the Electronics Group and the Industrial Group at December 31, 2000 was $143.2
million and $17.6 million, respectively. Backlog for the Electronics Group and
the Industrial Group at December 31, 1999 was $107.7 million and $19.3 million,
respectively. Backlog consists of firm purchase orders and commitments. Total
backlog at December 31, 2000 includes $125.4 million for orders that are
expected to be filled within twelve months. However, since orders and
commitments may be rescheduled or canceled, backlog is not a definitive
indicator of future financial performance.
Employees
As of December 31, 2000, Sypris employed approximately 1,600 employees.
Approximately 460 of the Company's employees are covered by collective
bargaining agreements with various unions that expire on various dates through
2005. The Company last experienced a temporary work stoppage during 1995 in
connection with renegotiations of union contracts in the Industrial Group.
Sypris believes its overall relationships with its employees are good and does
not anticipate any significant labor disputes in 2001.
Forward-looking Statements
This Form 10-K and the documents incorporated by reference contain forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Similar forward-looking statements are made periodically in
reports to the Securities and Exchange Commission, press releases, reports and
documents and in written and oral presentations to investors, shareholders,
analysts and others, regarding future results or expected developments. Words
such as "anticipates," "believes," "estimates," "expects," "is likely,"
"predicts," and variations of such words and similar expressions are intended to
identify such forward-looking statements. Although Sypris believes that its
expectations are based on reasonable assumptions, it cannot assure that the
expectations contained in such statements will be achieved. Such statements
involve risks and uncertainties which may cause actual future activities and
results of operations to be materially different from those suggested in this
report, including, among others: the Company's dependence on its current
management; the risks and uncertainties present in the Company's business;
business conditions and growth in the general economy and the electronics and
industrial markets served by the Company; competitive factors and price
pressures; availability of third party component parts at reasonable prices;
inventory risks due to shifts in market demand and/or price erosion of purchased
components; changes in
5
product mix; cost and yield issues associated with the Company's manufacturing
facilities; as well as other factors described elsewhere in this report and in
the Company's other filings with the Securities and Exchange Commission.
Item 2. Properties
The following chart indicates the significant properties owned or leased by
the Company, the segment which uses the properties, and the location and size of
each such property. The properties listed below (other than the corporate
office) are used principally as manufacturing facilities. Substantially all of
the assets of the Company secure the borrowings of the Company under its
principal credit facility.
Approximate
Facility and Location Own or Lease Square Feet
--------------------- ------------ -----------
Corporate Office
Louisville, Kentucky.. Lease 9,000
Electronics Group
Tampa, Florida........ Lease 308,000
Orlando, Florida...... Own 66,000
Littleton, Colorado... Lease 56,500
Monrovia, California.. Lease 70,000
Industrial Group
Louisville, Kentucky.. Own 467,000
In addition, the Company leases space in nineteen other facilities
primarily utilized by the Electronics Group to provide technical services, all
of which are located in the United States. The Company believes its facilities
and equipment to be in good condition and reasonably suited and adequate for its
current needs.
Item 3. Legal Proceedings
Tube Turns is a co-defendant in two separate lawsuits filed in 1993 and
1994, one pending in federal court and one pending in state district court in
Louisiana, arising out of an explosion in a coker plant owned by Exxon
Corporation located in Baton Rouge, Louisiana. The suits are being defended for
Tube Turns by its insurance carrier, and the Company intends to vigorously
defend its case. The Company believes that a settlement or related judgment
would not result in a material loss to Tube Turns or the Company.
More specifically, according to the complaints, Tube Turns is the alleged
manufacturer of a carbon steel pipe elbow which failed, causing the explosion
which destroyed the coker plant and caused unspecified damages to surrounding
property owners. One of the actions was brought by Exxon and claims damages for
destruction of the plant, which Exxon estimates exceed one hundred million
dollars. In this action, Tube Turns is a co-defendant with the fabricator who
built the pipe line in which the elbow was incorporated and with the general
contractor for the plant. The second action is a class action suit filed on
behalf of the residents living around the plant and claims damages in an amount
as yet undetermined. Exxon is a co-defendant with Tube Turns, the contractor and
the fabricator in this action. In both actions, Tube Turns maintains that the
carbon steel pipe elbow at issue was appropriately marked as carbon steel and
was improperly installed, without the knowledge of Tube Turns, by the fabricator
and general contractor in a part of the plant requiring a chromium steel elbow.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.
6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on The Nasdaq Stock Market under the
symbol "SYPR." The following table sets forth, for the periods indicated, the
high and low sales prices per share of the common stock as reported by The
Nasdaq Stock Market.
High Low
---------- ---------
Year ended December 31, 1999:
First Quarter............................................... $ 8.250 $6.375
Second Quarter.............................................. $ 9.750 $6.875
Third Quarter............................................... $11.000 $9.000
Fourth Quarter.............................................. $10.250 $8.625
Year ended December 31, 2000:
First Quarter............................................... $11.000 $8.875
Second Quarter.............................................. $10.750 $8.625
Third Quarter............................................... $10.625 $8.625
Fourth Quarter.............................................. $ 8.750 $6.188
As of February 20, 2001, there were 1,020 holders of record of the
Company's common stock.
The Company has historically not declared or paid any cash dividend on its
common stock. The Company presently intends to retain all of its earnings for
the future operation and growth of its business and does not intend to pay cash
dividends in the foreseeable future. The payment of cash dividends in the future
will be dependent upon the Company's results of operations, earnings, capital
requirements, contractual restrictions and other factors considered relevant by
the Board of Directors.
7
Item 6. Selected Financial Data
The following selected historical consolidated financial data should be
read in conjunction with the consolidated financial statements and the related
notes thereto in Item 8, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 and other financial information
included elsewhere in this Form 10-K.
Years ended December 31,
------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, except for per share data)
Income Statement Data (1):
Net revenue................................ $216,571 $202,130 $211,625 $217,355 $308,598
Gross profit............................... 40,313 44,949 47,923 32,135 30,383
Operating income........................... 5,477 14,166 12,851 1,785 513
Income (loss) from continuing operations... 3,184 9,556 7,446 1,527 (2,536)
Discontinued operations, net of tax........ -- -- -- 3,817 3,457
Net income................................. 3,184 9,556 7,446 5,344 921
Per share data (2):
Income (loss) from continuing operations:
Basic.................................. $ 0.33 $ 1.00 $ 0.79 $ 0.09 $ (0.45)
Diluted................................ $ 0.32 $ 0.97 $ 0.76 $ 0.09 $ (0.43)
Net income (loss):
Basic.................................. $ 0.33 $ 1.00 $ 0.79 $ 0.50 $ (0.08)
Diluted................................ $ 0.32 $ 0.97 $ 0.76 $ 0.48 $ (0.08)
December 31,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data (1):
Working capital............................ $ 58,602 $ 53,705 $ 32,121 $ 35,123 $ 6,337
Total assets............................... 179,122 148,564 121,119 120,608 132,960
Total debt................................. 65,000 54,400 28,583 31,340 46,597
Total shareholders' equity................. 64,205 60,820 49,359 27,728 22,384
- ---------------
(1) See Note 2 to the consolidated financial statements in Item 8, for
acquisition and merger information. On June 30, 1997, the Company divested
certain operations and assets related to all of the Electronics Group's
manufacturing services activities in Latin America.
(2) See Note 15 to the consolidated financial statements in Item 8, for details
regarding the calculation of basic and diluted per share amounts. For
periods prior to the Reorganization, shares used in computing basic and
diluted net income per common share include the outstanding shares of
Sypris common stock as of March 30, 1998 and the dilution associated with
common stock options issued prior to that date. Earnings used in the
computation of income from continuing operations and net income for periods
prior to the Reorganization have been adjusted to exclude the minority
interests reflected in the historical financial statements of GFP.
8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto which are included in Item 8
herein.
Results of Operations
The following table sets forth certain data from the Company's consolidated
income statements for the years ended December 31, 2000, 1999 and 1998,
expressed as a percentage of net revenue:
Years ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net revenue................................................................. 100.0% 100.0% 100.0%
Cost of sales............................................................... 81.4 77.8 77.4
----- ----- -----
Gross profit................................................................ 18.6 22.2 22.6
Selling, general and administrative expense................................. 12.4 11.5 13.3
Research and development.................................................... 1.6 3.2 2.8
Amortization of intangible assets........................................... 0.7 0.5 0.4
Special charges............................................................. 1.4 -- --
----- ----- -----
Operating income............................................................ 2.5% 7.0% 6.1%
===== ===== =====
Net income.................................................................. 1.5% 4.7% 3.5%
===== ===== =====
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net revenue totaled $216.6 million in 2000, an increase of $14.5 million,
or 7.1%, from $202.1 million in 1999. The Electronics Group's net revenue in
2000 was $182.1 million, an increase of $17.2 million or 10.4% from $164.9
million in 1999. The Industrial Group's net revenue in 2000 was $34.5 million, a
decrease of $2.7 million, or 7.3%, from $37.2 million in 1999. The Company's
book-to-bill ratio during 2000 was 1.15 to 1, resulting in an increase in
backlog of $33.8 million to $160.8 million at December 31, 2000. Backlog for the
Electronics Group and the Industrial Group at December 31, 2000 was $143.2
million and $17.6 million, respectively.
The Electronics Group's $17.2 million increase in net revenue was generated
primarily from new contracts for manufacturing services and the expansion of
calibration services resulting from an acquisition completed in the fourth
quarter of 1999. Production on several new manufacturing service contracts,
mainly with defense and aerospace customers, began to ramp-up during 2000,
generating a $16.2 million increase in revenue. The majority of the Electronics
Group's backlog consists of manufacturing service contracts and shipments on
these contracts are expected to increase during 2001. The acquired calibration
business added a fleet of mobile calibration labs to the Electronics Group's
service capabilities and accounted for an $8.4 million increase in revenue
during 2000. The increase in service revenue was partially offset by a $6.5
million decrease in product revenue due to reduced sales quantities for certain
product offerings. Demand for the Electronics Group's data storage products
began to decline in 1999 and continued to decline throughout 2000. The reduced
level of demand reflects an overall market decline and increased competition
arising from technological advancements in the market. Market conditions for
data storage products are expected to stabilize during 2001 and sales volumes
are expected to approximate the levels of 2000. Other outsource services and
product sales for the Electronics Group accounted for a net $0.9 million
decrease in net revenue during 2000.
The Industrial Group's $2.7 million decrease in net revenue was primarily
due to a decline in outsource services provided to customers in the heavy-duty
truck market. Market conditions in North America for heavy-duty truck production
were negatively impacted by oil prices, interest rates and an excess inventory
of new and used trucks, resulting in an overall market decrease of approximately
40%. This reduced the volume of forged truck axles provided under manufacturing
service agreements by the Industrial Group and accounted for a $4.0 million
decrease in net revenue, the majority of which occurred during the second half
of 2000. The Company expects demand in the heavy-duty truck market to remain
weak during 2001, however, further significant declines in demand are not
9
anticipated. Revenue derived from manufacturing services in other markets served
by the Industrial Group increased by $0.5 million and fabricated product sales
increased by $0.8 million. During 1999 and 2000, the Industrial Group invested
approximately $22.6 million to expand its forging capacity and add new machining
capabilities. The Industrial Group expects to invest approximately $24 million
during 2001 to complete this capital program. Manufacturing service agreements
are in place or are being negotiated for substantially all of the additional
capacity. The Industrial Group expects to begin production on certain new
machining equipment in the second quarter of 2001, with the majority of new
production anticipated to begin in the fourth quarter of 2001.
Gross profit totaled $40.3 million in 2000, or 18.6% of net revenue, as
compared to $44.9 million, or 22.2% of net revenue in 1999. The Electronics
Group's gross profit in 2000 was $36.3 million, or 19.9% of net revenue, as
compared to $37.9 million, or 23.0% of net revenue in 1999. The Industrial
Group's gross profit in 2000 was $4.0 million, or 11.7% of net revenue, as
compared to $7.0 million, or 19.0% of net revenue in 1999. The factors impacting
gross profit are discussed immediately below for each segment.
The Electronics Group's $1.6 million decrease in gross profit in 2000 was
primarily due to unfavorable volume and cost variances on data storage products
and unfavorable cost variances on manufacturing service contracts. Volume
declines for data storage products, related underabsorbed overhead costs and
manufacturing inefficiencies arising from the transfer of production following
the consolidation of two facilities during the first half of 2000 contributed to
a $5.0 million decline in gross profit. This reduction was substantially offset
by increased gross profit from the growth in the manufacturing and calibration
service revenue. The additional volume generated increased gross profit of $4.4
million, however, this increase was offset by a $1.0 million unfavorable cost
variance associated with the following three primary factors. First, shortages
and extended lead times for the purchase of certain electronic components
resulted in manufacturing inefficiencies due to the unpredictability of
scheduling receipts of allocated components from vendors. Component supply
levels were low throughout 2000, however, the availability of certain components
began to improve during the fourth quarter. While management believes that a
sufficient supply of components will be available to enable it to substantially
meet its customer delivery schedules for the next twelve months, the Company's
results of operations or financial position could be negatively impacted by
these component market conditions. Second, the number of new program start-ups
increased substantially during 2000 as compared to the prior year. Manufacturing
inefficiencies on new programs generally result in lower gross margins during
the start-up phase and margins typically improve as the programs mature. And
third, additional costs incurred to make the necessary investments in people,
equipment and processes to support the record level of backlog also reduced
gross profit in 2000. Management expects the factors affecting gross profit in
2000 will begin to lessen during the first half of 2001, as manufacturing
efficiency improves on new programs and shipments on contracts in backlog begin
to accelerate.
The Industrial Group's $3.0 million decrease in gross profit was primarily
due to the downturn of the heavy-duty truck market. The reduction in demand and
corresponding impact on shipments occurred as the organizational infrastructure
to support future growth plans was being developed. The increased cost structure
associated with the additional people and systems required to meet future
contractual requirements and the underabsorption of overhead due to the volume
decline resulted in low gross margin levels, particularly during the second half
of 2000. The Company expects gross profit will continue to be adversely effected
as the truck market demand is not expected to increase during 2001.
Selling, general and administrative expense in 2000 was $26.9 million, or
12.4% of net revenue, as compared to $23.4 million, or 11.5% of net revenue in
1999. The increase in selling, general and administrative expense was
attributable primarily to the Electronics Group, which reported an increase of
$2.9 million. Investments by the Company in organizational infrastructure as
discussed above also include certain selling, general and administrative
expenses, the majority of which are within the Electronics Group. Selling
expenses incurred for marketing and bid and proposal activities during 2000
exceeded prior year amounts and were a contributing factor to the increased
orders and net revenue in 2000.
Research and development expense in 2000 was $3.6 million, or 1.6% of net
revenue, as compared to $6.4 million, or 3.2% of net revenue in 1999. This
decrease was attributable to the Electronics Group, and relates to the quantity
and timing of new product releases for the data acquisition, storage and
analysis product lines and the utilization of strategic alliances with suppliers
for product development.
10
Amortization of intangible assets in 2000 was $1.4 million, an increase of
$0.4 million, or 45.6% compared to $1.0 million in 1999. This increase resulted
from the amortization of goodwill recorded in connection with the December 1999
calibration business acquisition by the Electronics Group.
Special charges of $2.9 million were recognized during 2000 for activities
related to the consolidation of certain operations within the Electronics Group.
Operations for the Electronics Group's data acquisition, storage and analysis
product lines have been conducted at two facilities since the November 1997
acquisition that expanded this business. Although several consolidation actions
were implemented immediately following this acquisition, management identified
potential cost savings that could be realized through the elimination of
redundant manufacturing operations and staffing of functional areas between the
two facilities. The consolidation activities were substantially completed during
the first nine months of 2000. The special charges incurred for these activities
include workforce reductions, facilities rearrangement and relocation expenses,
and employment costs related to the transfer of production.
Interest expense in 2000 was $4.0 million, an increase of $2.3 million, or
133%, from $1.7 million in 1999. The increase in interest expense was primarily
due to an increase in the weighted average debt outstanding coupled with an
increase in interest rates. The Company's weighted average debt outstanding more
than doubled to approximately $58.7 million in 2000 from approximately $28.4
million in 1999. This increase resulted primarily from the December 1999
acquisition by the Electronics Group, working capital funding related to the
increase in revenue and order backlog and capital expenditures during 1999 and
2000 to support the Company's new business opportunities. The weighted average
interest rate for 2000 was approximately 8.3% as compared to approximately 6.1%
for the prior year. The year-to-year rate change includes an increase in the
margin paid on outstanding borrowings of approximately 100 basis points under
the terms of the Company's credit agreement with a syndicate of banks ( the
"Credit Agreement"), as amended in October 1999 and November 2000.
An income tax benefit of approximately $1.4 million was recognized during
2000 as compared to income tax expense of $3.1 million during 1999. The tax
benefit during 2000 was primarily due to a $3.0 million reduction in the
Company's valuation allowance on deferred tax assets. Certain issues related to
the Company's consolidated federal taxable income were resolved during 2000,
which gave rise to the elimination of the valuation allowance for deferred tax
assets related to federal income tax temporary differences. The Company also
recognized a tax benefit during 2000 of approximately $0.3 million for research
and development tax credits. The provision for income taxes in 1999 included a
reduction in the valuation allowance on deferred tax assets of $1.9 million and
a benefit for research and development tax credits of $0.6 million.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenue totaled $202.1 million in 1999, a decrease of $9.5 million, or
4.5%, from $211.6 million in 1998. Net revenue for the Electronics Group in 1999
was $164.9 million, a decrease of $9.5 million or 5.4% from $174.4 million in
1998 and net revenue for the Industrial Group in 1999 was $37.2 million,
unchanged from 1998. The $9.5 million decrease in the Electronics Group's net
revenue for 1999 was primarily a result of reduced demand for certain product
offerings. During the fourth quarter of 1999, a portion of the government
program funding related to these products was delayed due to the timing of the
federal budget approval process and certain other program spending was suspended
prior to year-end due to year 2000 concerns. The decrease in net revenue for
product sales in the fourth quarter of 1999 was offset by an increase in net
revenue for manufacturing services, which experienced increased sales volume
during the second half of 1999. The Electronics Group's net revenue for the
first half of 1999 was $15.8 million below the first half of 1998. However, net
revenue increased in the third and fourth quarters of 1999 by $1.3 million and
$5.0 million, respectively, over the comparative prior year quarters. The growth
that occurred during the second half of 1999 was primarily the result of
management's business development efforts in manufacturing services that began
during 1998, specifically the transition from low-margin contracts to new
business opportunities aimed at improving profitability. The Electronics Group's
backlog increased from $76.7 million to $95.2 million to $107.7 million at
December 31, 1997, 1998 and 1999, respectively. The backlog at December 31, 1999
also consisted of higher margin contracts than those in place during 1998. The
Industrial Group continued to increase shipments of truck axles during 1999,
thereby offsetting declines in other forged product lines provided to customers
in the aerospace industry and foreign markets of the oil and gas industry.
Gross profit totaled $44.9 million in 1999, a decrease of $3.0 million, or
6.3%, from $47.9 million in 1998. Gross profit for the Electronics Group was
$37.9 million in 1999, a decrease of $3.5 million, or 8.5%, from
11
$41.4 million in 1998 and gross profit for the Industrial Group was $7.0 million
in 1999, an increase of $0.5 million, or 8.5%, from $6.5 million in 1998. The
$3.5 million decrease in the Electronics Group's gross profit is comprised of a
$4.7 million decrease primarily due to the decline in product sales described
above, which was partially offset by a $1.2 million increase primarily due to
the improved performance of manufacturing services. Operational and financial
control improvements over manufacturing services reflects management's actions
to improve profitability by focusing on specific manufacturing and service
opportunities in which the Company offers value-added solutions under a
competitive cost structure. Additionally, the Electronics Group's revenue mix
for 1999 as compared to 1998 consisted of a higher percentage of manufacturing
services revenue and a lower percentage of product sales, primarily due to
revenue mix changes during the fourth quarter of 1999. Since the margins on
manufacturing services are typically lower than product sales, the Electronics
Group's gross profit percentage decreased to 23.0% in 1999 from 23.7% in 1998.
The $0.5 million increase in the Industrial Group's gross profit was primarily
due to manufacturing efficiencies in the production of forged truck axles and
the increased capacity utilization and cost reductions on certain programs. The
productivity and utilization improvements resulted in an increase in the
Industrial Group's gross profit percentage to 19.0% in 1999 from 17.5% in 1998.
Selling, general and administrative expense totaled $23.4 million in 1999,
a decrease of $4.8 million, or 17.1%, from $28.2 million in 1998. The
consolidation of certain functional activities was the primary cause of the
decrease in the year-to-year comparison. Workforce reductions in certain
operations associated with the decrease in revenue and a strategic decision to
align costs with the revenue base resulted in a decrease of approximately $0.5
million. Other contributing factors included a reduction in selling expense
attributable to the decrease in net revenue and adjustments to the Company's
estimated liability for the sale of certain assets of the Electronics Group in
June 1997, for which a final settlement agreement was reached during the second
quarter of 1999. Also included in 1998 were legal, accounting and other
professional fees and other costs totaling approximately $0.4 million associated
with the Reorganization which were nonrecurring.
Research and development expense totaled $6.4 million in 1999, an increase
of $0.5 million, or 7.9%, from $5.9 million in 1998. This increase was generated
by the Electronics Group, and reflected management's continued support and
investment in the data acquisition, storage and analysis product lines.
Amortization of intangible assets totaled $1.0 million in 1999 and in 1998.
The amortization was primarily attributable to goodwill recorded in connection
with the Reorganization.
Interest expense totaled $1.7 million in 1999, an increase of $0.4 million,
from $1.3 million in 1998. Average outstanding debt for 1999 exceeded 1998
primarily due to working capital investments and capital expenditures. The
weighted average interest rate was higher in 1999 than in 1998 due to increased
rates and a pricing adjustment on the refinancing completed early in the fourth
quarter of 1999.
The provision for income taxes totaled $3.1 million in 1999, a decrease of
$1.2 million, from $4.3 million in 1998. The Company's effective tax rate in
1999 was 24.5% as compared to 36.7% in 1998. During the fourth quarter of 1999,
the Company recognized a tax benefit of approximately $0.6 million related to a
claim for research and development credits attributable to prior years. The
provision for income taxes during 1999 also reflected a reduction in the
valuation allowance on deferred tax assets of $1.9 million as compared to $0.9
million in 1998.
Liquidity, Capital Resources and Financial Condition
Net cash provided by operating activities was $8.1 million for 2000 as
compared to net cash used in operating activities of $2.1 million for 1999.
Operating results for 2000 accounted for $10.7 million of cash flow, which was
partially offset by a $2.6 million investment in working capital. Accounts
receivable and accounts payable increased by $8.1 million and $9.3 million,
respectively, commensurate with the growth in the Electronics Group's service
revenue. The increase in accounts receivable also reflects the low volume of
shipments immediately prior to December 31, 1999, principally related to Year
2000 issues and related concerns by customers. During 2000, inventory increased
by $4.2 million in the Electronics Group and decreased by $2.2 million in the
Industrial Group. The increase in the Electronics Group's inventory was
primarily attributable to start-up programs for manufacturing services,
electronic component shortages and expected shipments on certain contracts
scheduled in the first half of 2001. The decrease in the Industrial Group's
inventory was primarily due to reduced demand in the heavy-duty truck market.
12
Net cash used in investing activities was $14.9 million for 2000 as
compared to $26.4 million for 1999. The Company had increased levels of capital
expenditures in 2000 in both the Electronics Group and the Industrial Group,
which totaled $8.0 million and $15.5 million, respectively. Capital expenditures
for the Electronics Group were principally comprised of facilities improvements
and manufacturing, assembly and test equipment. The Industrial Group's capital
expenditures included facilities improvements and new forging and machining
equipment to increase and expand the range of production capabilities. During
2000, the Company also sold certain manufacturing equipment and concurrently
leased the equipment back under operating lease agreements with terms ranging
from five to nine years. Proceeds from the sale and leaseback of the related
assets totaled $9.3 million. During 1999, the Company completed the acquisition
of the assets of two businesses for an aggregate purchase price of $11.6
million.
Net cash provided by financing activities was $11.1 million during 2000 as
compared to $26.5 million during 1999. The Company's debt outstanding under its
Credit Agreement increased $10.6 million during 2000, primarily to fund capital
expenditures. The Company's net borrowings increased $25.8 million during 1999
primarily to fund two acquisitions and capital expenditures.
Under the terms of the Credit Agreement between the Company and its
lenders, the Company had total availability for borrowings and letters of credit
under its revolving credit facility of $35.0 million at December 31, 2000,
which, when combined with the cash balance of $14.7 million, provides for total
cash and borrowing capacity of $49.7 million. Maximum borrowings on the
revolving credit facility are $100.0 million, subject to a $15.0 million limit
for letters of credit. Borrowings under the Credit Agreement may be used to
finance working capital requirements, eligible acquisitions as defined in the
Credit Agreement and for general corporate purposes, including capital
expenditures.
The Credit Agreement contains customary affirmative and negative covenants,
including financial covenants requiring the maintenance of specified ratios and
minimum levels of net worth. The terms of the Credit Agreement were last amended
as of February 2001 to modify certain financial ratios and include collateral
security, with substantially all other terms and conditions of the Credit
Agreement remaining in effect as set forth in the original document. As a result
of the February 2001 amendment, the Company was in compliance with all covenants
associated with the Credit Agreement as of December 31, 2000 and expects to
remain in compliance for the remaining term of the Credit Agreement.
The Company's principal commitments at December 31, 2000 consisted of
repayments of borrowings under the Credit Agreement and obligations under
operating leases for certain of its real property and equipment. The Company
also had purchase commitments for manufacturing equipment totaling approximately
$11.4 million at December 31, 2000.
The Company believes sufficient resources will be available to satisfy the
Company's cash requirements for at least the next twelve months. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements and its rate
of growth. If the Company's working capital and capital expenditure requirements
exceed expected levels during 2001 or in the foreseeable future, it may require
additional external sources of capital.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company had no holdings of derivative financial or commodity
instruments at December 31, 2000. The Company is exposed to financial market
risks, including changes in interest rates and foreign currency exchange rates.
All borrowings under the Company's Credit Agreement bear interest at a variable
rate based on the prime rate, the London Interbank Offered Rate, or certain
alternative short-term rates. An increase in interest rates of 100 basis points
would result in additional interest expense of approximately $0.6 million on an
annualized basis, based upon the Company's debt outstanding at December 31,
2000. Substantially all of the Company's business is transacted in U.S. dollars.
Accordingly, foreign exchange rate fluctuations have never had a significant
impact on the Company, and they are not expected to in the foreseeable future.
13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYPRIS SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... 15
Consolidated Income Statements........................................... 16
Consolidated Balance Sheets.............................................. 17
Consolidated Statements of Cash Flows.................................... 18
Consolidated Statements of Shareholders' Equity.......................... 19
Notes to Consolidated Financial Statements............................... 20
14
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Sypris Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Sypris
Solutions, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sypris Solutions, Inc. at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 16, 2001
15
SYPRIS SOLUTIONS, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except for per share data)
Years ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net revenue:
Outsource services................................ $168,216 $150,139 $146,706
Products.......................................... 48,355 51,991 64,919
-------- -------- --------
Total net revenue............................... 216,571 202,130 211,625
-------- -------- --------
Cost of sales:
Outsource services................................ 145,059 127,153 126,894
Products.......................................... 31,199 30,028 36,808
-------- -------- --------
Total cost of sales............................. 176,258 157,181 163,702
-------- -------- --------
Gross profit.................................... 40,313 44,949 47,923
Selling, general and administrative expense......... 26,881 23,388 28,169
Research and development............................ 3,574 6,409 5,940
Amortization of intangible assets................... 1,436 986 963
Special charges..................................... 2,945 -- --
-------- -------- --------
Operating income................................ 5,477 14,166 12,851
-------- -------- --------
Interest expense, net............................... 4,035 1,730 1,298
Other income, net................................... (344) (219) (204)
-------- -------- --------
Income before income taxes.......................... 1,786 12,655 11,757
-------- -------- --------
Income tax (benefit) expense........................ (1,398) 3,099 4,311
-------- -------- --------
Net income.......................................... $ 3,184 $ 9,556 $ 7,446
======== ======== ========
Net income per common share:
Basic........................................... $ 0.33 $ 1.00 $ 0.79
Diluted......................................... $ 0.32 $ 0.97 $ 0.76
Shares used in computing per common share amounts:
Basic........................................... 9,671 9,515 9,438
Diluted......................................... 9,964 9,861 9,793
The accompanying notes are an integral part of the consolidated financial
statements.
16
SYPRIS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31,
-------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents.................................................................................. $ 14,674 $ 10,406
Accounts receivable, net................................................................................... 31,896 23,793
Inventory, net............................................................................................. 51,055 49,462
Other current assets....................................................................................... 7,695 4,279
-------- --------
Total current assets..................................................................................... 105,320 87,940
Property, plant and equipment, net........................................................................... 54,317 40,192
Intangible assets, net....................................................................................... 17,154 18,038
Other assets................................................................................................. 2,331 2,394
-------- --------
$179,122 $148,564
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................................... $ 25,670 $ 11,022
Accrued liabilities........................................................................................ 18,548 17,813
Current portion of long-term debt.......................................................................... 2,500 5,400
-------- --------
Total current liabilities................................................................................ 46,718 34,235
Long-term debt............................................................................................... 62,500 49,000
Other liabilities............................................................................................ 5,699 4,509
-------- --------
Total liabilities........................................................................................ 114,917 87,744
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares issued............................... -- --
Common stock, non-voting, par value $.01 per share, 10,000,000 shares authorized; no shares issued......... -- --
Common stock, par value $.01 per share, 20,000,000 shares authorized; 9,709,669 and 9,589,214 shares issued
and outstanding in 2000 and 1999, respectively............................................................ 97 96
Additional paid-in capital................................................................................. 24,401 23,921
Retained earnings.......................................................................................... 40,060 36,876
Accumulated other comprehensive income (loss).............................................................. (353) (73)
-------- --------
Total shareholders' equity............................................................................... 64,205 60,820
-------- --------
$179,122 $148,564
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
17
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
-----------------------------
2000 1999 1998
-------- -------- -------
Cash flows from operating activities:
Net income................................................................................. $ 3,184 $ 9,556 $ 7,446
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization............................................................ 9,351 7,582 6,909
Deferred income taxes.................................................................... (2,478) (645) 989
Provision for excess and obsolete inventory.............................................. 453 446 851
Provision for doubtful accounts.......................................................... 18 (129) 135
Other noncash charges (credits).......................................................... 202 133 (258)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable...................................................................... (8,121) 2,619 1,727
Inventory................................................................................ (2,046) (11,277) 4,245
Other assets............................................................................. (344) (1,704) (1,138)
Accounts payable......................................................................... 9,274 (1,997) (1,855)
Accrued and other liabilities............................................................ (1,361) (6,652) (8,081)
-------- -------- -------
Net cash provided by (used in) operating activities.......................................... 8,132 (2,068) 10,970
Cash flows from investing activities:
Capital expenditures....................................................................... (23,886) (14,443) (5,845)
Proceeds from sale of assets............................................................... 9,292 14 380
Purchase of the net assets of acquired entities............................................ -- (11,642) --
Changes in nonoperating assets and liabilities............................................. (351) (343) (364)
-------- -------- -------
Net cash used in investing activities........................................................ (14,945) (26,414) (5,829)
Cash flows from financing activities:
Net increase in debt under revolving credit agreements..................................... 10,600 28,280 720
Payments on long-term debt................................................................. -- (2,463) (3,284)
Proceeds from issuance of common stock..................................................... 481 684 40
Payments for redemption of common stock in subsidiaries, net............................... -- -- (66)
-------- -------- -------
Net cash provided by (used in) financing activities.......................................... 11,081 26,501 (2,590)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents......................................... 4,268 (1,981) 2,551
Cash and cash equivalents at beginning of year............................................... 10,406 12,387 9,836
-------- -------- -------
Cash and cash equivalents at end of year..................................................... $ 14,674 $ 10,406 $12,387
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
18
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
Accumulated
Other
Additional Comprehensive Total
Common Stock Paid-In Retained Income Shareholders'
--------------------
Shares Amount Capital Earnings (Loss) Equity
--------- -------- ---------- -------- -------------- -------------
Balance at January 1, 1998................................ 314,196 $ 7,892 $ -- $ 19,836 $ -- $ 27,728
Net income................................................ -- -- -- 7,446 -- 7,446
Adjustment in minimum pension liability................... -- -- -- -- (1,294) (1,294)
--------- ------- -------- -------- ------- --------
Comprehensive income (loss)............................... -- -- -- 7,446 (1,294) 6,152
Issuance of shares for conversion of GFP no par value
common stock to Sypris $.01 par value common stock....... 8,027,813 (7,808) 7,808 -- -- --
Issuance of shares for conversion of redeemable common
stock to Sypris $.01 par value common stock.............. 205,074 2 661 38 -- 701
Issuance of shares for acquisition of minority interests
in subsidiaries.......................................... 893,822 9 3,560 -- -- 3,569
Excess of fair value of common stock issued over net
assets acquired.......................................... -- -- 11,169 -- -- 11,169
Exercise of stock options................................. 9,688 -- 40 -- -- 40
--------- ------- -------- -------- ------- --------
Balance at December 31, 1998.............................. 9,450,593 95 23,238 27,320 (1,294) 49,359
Net income................................................ -- -- -- 9,556 -- 9,556
Adjustment in minimum pension liability................... -- -- -- -- 1,221 1,221
--------- ------- -------- -------- ------- --------
Comprehensive income...................................... -- -- -- 9,556 1,221 10,777
Issuance of shares under Employee Stock Purchase Plan..... 15,600 -- 99 -- -- 99
Exercise of stock options................................. 123,021 1 584 -- -- 585
--------- ------- -------- -------- ------- --------
Balance at December 31, 1999.............................. 9,589,214 96 23,921 36,876 (73) 60,820
Net income................................................ -- -- -- 3,184 -- 3,184
Adjustment in minimum pension liability................... -- -- -- -- (280) (280)
--------- ------- -------- -------- ------- --------
Comprehensive income (loss)............................... -- -- -- 3,184 (280) 2,904
Issuance of shares under Employee Stock Purchase Plan..... 35,290 -- 273 -- -- 273
Exercise of stock options................................. 85,165 1 207 -- -- 208
--------- ------- -------- -------- ------- --------
Balance at December 31, 2000.............................. 9,709,669 $ 97 $ 24,401 $ 40,060 $ (353) $ 64,205
========= ======= ======== ======== ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
19
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(1) Organization and Significant Accounting Policies
Consolidation Policy
The accompanying consolidated financial statements include the accounts of
Sypris Solutions, Inc. and its wholly-owned subsidiaries (collectively, "Sypris"
or the "Company"), Bell Technologies, Inc. ("Bell"), Group Technologies
Corporation ("GroupTech"), Metrum-Datatape, Inc. ("Metrum-Datatape"), and Tube
Turns Technologies, Inc. ("Tube Turns"). All significant intercompany accounts
and transactions have been eliminated.
Nature of Business
Sypris is a diversified provider of technology-based outsource services and
specialized industrial products. The Company performs a wide range of
manufacturing and technical services, typically under long-term contracts with
major manufacturers. The Company also manufactures and sells complex data
storage systems, magnetic instruments, current sensors, high-pressure closures
and a variety of other industrial products.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Contract inventory is stated at actual production costs, reduced by the
cost of units for which revenue has been recognized. Gross contract inventory is
considered work in process. Progress payments under long-term contracts are
specified in the contracts as a percentage of cost and are liquidated as
contract items are completed and shipped. Other inventory is stated at the lower
of cost or market. The first-in, first-out method was used for determining the
cost of inventory excluding contract inventory and certain other inventory,
which was determined using the last-in, first-out method (see Note 5).
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. Depreciation
of property, plant and equipment is generally computed using the straight-line
method over their estimated economic lives. For land improvements, buildings and
building improvements, the estimated economic life is generally 40 years.
Estimated economic lives range from three to twelve years for machinery,
equipment, furniture and fixtures. Leasehold improvements are amortized over the
respective lease term using the straight-line method. Expenditures for
maintenance, repairs and renewals of minor items are expensed as incurred. Major
renewals and improvements are capitalized.
Interest cost is capitalized for qualifying assets during the period in
which the asset is being installed and prepared for its intended use.
Capitalized interest cost is amortized on the same basis as the related
depreciation. Capitalized interest for the year ended December 31, 2000 was
$910,000.
20
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Intangible Assets
Costs in excess of net assets of businesses acquired ("goodwill"), patents,
product drawings and similar intangible assets are amortized over their
estimated economic lives. Goodwill is being amortized over a period of fifteen
years (see Notes 2 and 7). Other intangible assets are being amortized over
periods ranging from five to fifteen years, using the straight-line method.
Impairment of Long-lived Assets
The Company evaluates long-lived assets, including goodwill, for impairment
and assesses their recoverability based upon anticipated future cash flows. If
facts and circumstances lead the Company's management to believe that the cost
of one of its assets may be impaired, the Company will evaluate the extent to
which that cost is recoverable by comparing the future undiscounted cash flows
estimated to be associated with that asset to the asset's carrying amount and
write down that carrying amount to market value, or discounted cash flow value,
to the extent necessary.
Revenue Recognition
A portion of the Company's business is conducted under long-term, fixed-
price contracts with aerospace and defense companies and agencies of the U.S.
Government. Contract revenue is included in the consolidated income statements
as units are completed and shipped using the units of delivery, percentage of
completion method of accounting. The costs attributed to contract revenue are
based upon the estimated average costs of all units to be shipped. The
cumulative average costs of units shipped to date is adjusted through current
operations as estimates of future costs to complete change (see "Contract
Accounting" below).
Revenue recognized under the percentage of completion method of accounting
totaled $105,535,000, $90,819,000 and $56,867,000 for the years ended December
31, 2000, 1999 and 1998, respectively. Substantially all such amounts were
accounted for under the units of delivery method. All other revenue is
recognized as product is shipped and title passes, or when services are
rendered.
Contract Accounting
For long-term contracts, the Company capitalizes in inventory direct
material, direct labor and factory overhead as incurred. The Company also
capitalizes certain general and administrative costs for estimating and bidding
on contracts awarded (of which approximately $210,000 remained in inventory at
December 31, 2000 and 1999). Selling costs are expensed as incurred. Costs to
complete long-term contracts are estimated on a monthly basis. Estimated margins
at completion are applied to cumulative contract revenue to arrive at costs
charged to operations.
Accounting for long-term contracts under the percentage of completion
method involves substantial estimation processes, including determining the
estimated cost to complete a contract. As contracts may require performance over
several accounting periods, formal detailed cost-to-complete estimates are
performed and updated monthly via performance reports. Management's estimates of
costs-to-complete change due to internal and external factors, such as labor
rate and efficiency variances, revised estimates of warranty costs, estimated
future material prices and customer specification and testing requirement
changes. Changes in estimated costs are reflected in gross profit in the period
in which they are known. If increases in projected costs-to-complete are
sufficient to create a loss contract, the entire estimated loss is charged to
operations in the period the loss first becomes known. Provisions for losses on
firm fixed-priced contracts totaled $1,701,000, $807,000 and $907,000 in 2000,
1999 and 1998, respectively.
21
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Product Warranty Costs
The provision for estimated warranty costs is recorded at the time of sale
and periodically adjusted to reflect actual experience. The accrued liability
for warranty costs is included in the caption "Accrued liabilities" in the
accompanying consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist of accounts receivable. The Company's
customer base consists of various departments or agencies of the U.S.
Government, aerospace and defense companies under contract with the U.S.
Government and a number of customers in diverse industries across geographic
areas. At December 31, 2000, the Company did not have significant credit risk
concentrations. The Company performs periodic credit evaluations of its
customers' financial condition and does not require collateral on its commercial
accounts receivable. Credit losses are provided for in the financial statements
and consistently have been within management's expectations.
The Company recognized revenue from contracts with the U.S. Government and
its agencies of approximately $45,467,000, $53,244,000 and $47,178,000 during
the years ended December 31, 2000, 1999 and 1998, respectively. The Company's
single largest customer for the year ended December 31, 2000 was Raytheon
Company, which represented approximately 15% of the Company's total net revenue.
No other single customer accounted for more than 10% of the Company's total net
revenue for the years ended December 31, 2000, 1999 or 1998.
Stock Based Compensation
Stock options are granted under various stock compensation programs to
employees and independent directors (see Note 13). The Company accounts for
stock option grants in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25").
Adoption of Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 was subsequently
amended by two other statements and is required to be adopted in years beginning
after June 15, 2000. Because of the Company's minimal use of derivatives, SFAS
133 did not have a material impact on the Company's consolidated financial
statements when it was adopted by the Company effective January 1, 2001.
Reclassifications
Certain amounts in the Company's 1999 and 1998 consolidated financial
statements have been reclassified to conform with the 2000 presentation.
22
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) Acquisitions and Mergers
During 1999, the Company completed two transactions in which it acquired
the assets of the related businesses. The transactions were accounted for as
purchases, in which the combined purchase price of $11,642,000 was allocated
based on the fair values of assets acquired, with the excess amount allocated to
goodwill, which totaled $6,607,000. The results of operations of the acquired
businesses have been included in the consolidated financial statements since the
respective acquisition dates. The acquisitions were financed by the Company's
Credit Agreement (see Note 9).
Sypris was organized in 1997 and began business on March 30, 1998 with the
completion of the merger of Group Financial Partners, Inc. ("GFP") and two of
its subsidiaries, Bell and Tube Turns, with and into GroupTech, a Nasdaq-traded
company in which GFP owned an approximate 80% interest. Effective immediately
thereafter, GroupTech was merged with and into Sypris. As a result of these and
other transactions (collectively referred to herein as the "Reorganization"),
Sypris became the holding company for Bell, GroupTech, Tube Turns and Metrum-
Datatape, a wholly-owned subsidiary of GFP prior to the Reorganization, and
succeeded to the listing of GroupTech on the Nasdaq Stock Market under the new
symbol SYPR.
The Reorganization was accounted for as a downstream merger, in which the
merger of GFP and GroupTech was accounted for as a purchase of the minority
interests of GroupTech. The issuance of shares in exchange for the redeemable
common stock held by the Bell and Tube Turns minority shareholders was accounted
for as a purchase, and accordingly, the excess of the fair value of the common
stock issued over the fair market value of the proportional share of the net
assets of Bell and Tube Turns was allocated to the assets and liabilities of
Bell and Tube Turns and the excess was allocated to goodwill, which totaled
$6,118,000.
(3) Special Charges
Special charges of $2,945,000 were recognized during the year ended
December 31, 2000 for activities related to the consolidation of certain
operations within the Electronics Group. The special charges incurred and paid
during 2000 include workforce reductions, related severance and other benefit
costs of $1,211,000, facilities rearrangement and relocation costs of $480,000,
and employment costs related to the transfer of production of $1,254,000. The
workforce reductions resulted in the termination of 48 employees involved in
manufacturing, engineering, sales and administrative activities during 2000.
(4) Accounts Receivable
Accounts receivable consists of the following:
December 31,
-----------------
2000 1999
------- -------
(in thousands)
Commercial....................... $26,262 $18,419
U.S. Government.................. 6,313 6,044
------- -------
32,575 24,463
Allowance for doubtful accounts.. (679) (670)
------- -------
$31,896 $23,793
======= =======
Accounts receivable from the U.S. Government includes amounts due under
long-term contracts, all of which are billed at December 31, 2000 and 1999, of
$4,864,000 and $4,282,000, respectively.
23
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(5) Inventory
Inventory consists of the following:
December 31,
-------------------
2000 1999
-------- --------
(in thousands)
Raw materials........................................................... $ 13,567 $12,640
Work-in process......................................................... 8,388 9,649
Finished goods.......................................................... 1,632 1,673
Costs relating to long-term contracts and programs, net of amounts
attributed to revenue recognized to date............................... 45,542 29,637
Progress payments related to long-term contracts and programs........... (14,011) (1,038)
LIFO reserve............................................................ (1,059) (430)
Reserve for excess and obsolete inventory............................... (3,004) (2,669)
-------- -------
$ 51,055 $49,462
======== =======
The preceding amounts include inventory valued under the last-in, first-out
("LIFO") method totaling $5,365,000 and $7,582,000 at December 31, 2000 and
1999, respectively, which approximates replacement cost.
(6) Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
-------------------
2000 1999
-------- --------
(in thousands)
Land and land improvements.............................................. $ 1,032 $ 1,024
Buildings and building improvements..................................... 14,979 13,392
Machinery, equipment, furniture and fixtures............................ 77,901 70,173
Construction in progress................................................ 18,561 6,327
-------- --------
112,473 90,916
Accumulated depreciation................................................ (58,156) (50,724)
-------- --------
$ 54,317 $ 40,192
======== ========
Depreciation expense totaled $7,906,000, $6,526,000 and $5,934,000 for the
years ended December 31, 2000, 1999 and 1998, respectively. At December 31,
2000, $5,372,000 and $2,093,000 was included in accounts payable and accrued
liabilities, respectively, for capital expenditures.
24
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(7) Intangible Assets
Intangible assets consists of the following:
December 31,
-----------------
2000 1999
------- -------
(in thousands)
Costs in excess of net assets of businesses acquired.. $18,418 $18,462
Other................................................. 3,107 2,954
------- -------
21,525 21,416
Accumulated amortization.............................. (4,371) (3,378)
------- -------
$17,154 $18,038
======= =======
Amortization expense totaled $1,445,000, $1,056,000 and $975,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
(8) Accrued Liabilities
Accrued liabilities consists of the following:
December 31,
-----------------
2000 1999
------- -------
(in thousands)
Employee benefit plan accruals........................ $ 4,770 $ 5,007
Salaries, wages and incentives........................ 2,921 3,694
Other................................................. 10,857 9,112
------- -------
$18,548 $17,813
======= =======
Included in other accrued liabilities are employee payroll deductions,
advance payments, accrued operating expenses, accrued warranty expenses, accrued
interest and other items, none of which exceed 5% of total current liabilities.
(9) Long-Term Debt
The Company has a credit agreement with a syndicate of banks (the "Credit
Agreement") that was entered into in October 1999 and amended as of November
2000 and February 2001. The Credit Agreement provides for a revolving credit
facility with an aggregate commitment of $100,000,000 through January 2005.
Under the terms of the Credit Agreement, interest rates are determined at the
time of borrowing and are based on the London Interbank Offered Rate plus a
margin of 1.0% to 3.25%; or the greater of the prime rate or the federal funds
rate plus 0.5%, plus a margin up to 0.75%. The Company also pays a fee of 0.2%
to 0.5% on the unused portion of the aggregate commitment. The margins applied
to the respective interest rates and the commitment fee are adjusted quarterly
and are based on the Company's ratio of funded debt to earnings before interest,
taxes, depreciation and amortization. The weighted average interest rate for
outstanding borrowings at December 31, 2000 was 9.3%. The effective average
interest rates for borrowings during the years ended December 31, 2000 and 1999
were 8.3% and 6.1%, respectively. Current maturities of long-term debt at
December 31, 2000 and 1999 represent amounts due under a short-term borrowing
arrangement included in the Credit Agreement. Standby letters of credit up to a
maximum of $15,000,000 may be issued under the Credit Agreement and no amounts
were outstanding at December 31, 2000 and 1999.
The Credit Agreement contains customary affirmative and negative covenants,
including financial covenants requiring the maintenance of specified fixed
charge and leverage ratios and minimum levels of net worth. The Credit Agreement
is secured by substantially all assets of the Company, including but not limited
to accounts
25
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
receivable, inventory, equipment and real estate, and is also guaranteed by the
subsidiaries of the Company. The asset collateralization requirement may be
eliminated after June 2002 in the event the Company achieves certain financial
ratios and remains in compliance with all covenants.
The Credit Agreement was last amended as of February 2001 to modify certain
financial ratios and include collateral security, with substantially all other
terms and conditions of the Credit Agreement remaining in effect as set forth in
the original document. As a result of the February 2001 amendment, the Company
was in compliance with all covenants associated with the Credit Agreement as of
December 31, 2000 and expects to remain in compliance for the remaining term of
the Credit Agreement.
Interest incurred during the years ended December 31, 2000, 1999 and 1998
totaled $5,260,000, $1,725,000 and $1,645,000, respectively. Interest paid
during the years ended December 31, 2000, 1999 and 1998 totaled $5,063,000,
$1,629,000 and $1,664,000, respectively.
(10) Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at their carrying amount which
approximates fair value because of the short-term maturity of those instruments.
The carrying amount of debt outstanding at December 31, 2000 and 1999 under the
Credit Agreement approximates fair value because borrowings are for terms less
than six months and have rates that reflect currently available terms and
conditions for similar debt.
(11) Employee Benefit Plans
The Company sponsors noncontributory defined benefit pension plans (the
"Pension Plans") covering certain employees of Tube Turns. The Pension Plans
covering salaried and management employees provide pension benefits that are
based on the employees' highest five-year average compensation within ten years
before retirement. The Pension Plans covering hourly employees and union members
generally provide benefits at stated amounts for each year of service. The
Company's funding policy is to make the minimum annual contributions required by
the applicable regulations. The Pension Plans' assets are primarily invested in
equity securities and fixed income securities. The Company recorded a decrease
of $280,000 and an increase of $1,221,000 to its minimum pension liability
during 2000 and 1999, respectively. No tax effect was recorded related to these
adjustments.
The following table details the components of pension expense:
Years ended December 31,
---------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Service cost benefits earned during the period........ $ 180 $ 181 $ 163
Interest cost of projected benefit obligation......... 1,409 1,283 1,312
Net amortizations and deferrals....................... (189) 554 474
Actual return on plan assets.......................... (927) (1,480) (1,321)
------ ------- -------
$ 473 $ 538 $ 628
====== ======= =======
26
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following are summaries of the changes in the benefit obligations and
plan assets and of the funded status of the Pension Plans:
December 31,
---------------------------
2000 1999
------------ ------------
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 17,859 $ 19,185
Service cost................................................ 180 181
Interest cost............................................... 1,409 1,283
Plan amendments............................................. 798 --
Actuarial loss (gain)....................................... 131 (1,549)
Benefits paid............................................... (1,281) (1,241)
----------- -----------
Benefit obligation at end of year........................... $ 19,096 $ 17,859
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year.............. $ 14,329 $ 13,146
Actual return on plan assets................................ 927 1,480
Company contributions....................................... 1,181 944
Benefits paid............................................... (1,281) (1,241)
----------- -----------
Fair value of plan assets at end of year.................... $ 15,156 $ 14,329
=========== ===========
Funded status of the plans:
Benefit obligation at end of year........................... $ 19,096 $ 17,859
Fair value of plan assets at end of year.................... 15,156 14,329
----------- -----------
Funded status of plan (underfunded)......................... (3,940) (3,530)
Unrecognized actuarial gain................................. (260) (821)
Unrecognized prior service cost............................. 1,166 608
----------- -----------
Net liability recognized.................................... $ (3,034) $ (3,743)
=========== ===========
Balance sheet liabilities (assets):
Accrued benefit liability................................... $ 4,510 $ 4,379
Intangible asset............................................ (1,123) (563)
Accumulated other comprehensive income (loss)............... (353) (73)
----------- -----------
Net amount recognized....................................... $ 3,034 $ 3,743
=========== ===========
Assumptions at year end:
Discount rate used in determining present values............ 8.00% 8.00%
Rate of compensation increase............................... 4.25% 4.25%
Expected long-term rate of return on plan assets............ 9.50% 8.50%
The Company sponsors a defined contribution plan (the "Defined Contribution
Plan") for substantially all employees of the Company. The Defined Contribution
Plan is intended to meet the requirements of Section 401(k) of the Internal
Revenue Code. The Defined Contribution Plan allows the Company to match
participant contributions and provides discretionary contributions as approved
by the Company's Board of Directors. Contributions to the Defined Contribution
Plan in 2000, 1999 and 1998 totaled $3,459,000, $2,996,000 and $2,661,000,
respectively.
During 1999 and 1998, the Company had partially self-insured medical plans
(the "Medical Plans") covering certain employees. Beginning January 1, 2000, the
Company expanded the coverage to cover substantially all employees. The number
of employees participating in the Medical Plans was approximately 1,300 at
December 31, 2000 as compared to approximately 600 at December 31, 1999. The
Medical Plans limit the Company's annual obligations to fund claims to specified
amounts per participant and in the aggregate. The Company is adequately
27
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
insured for amounts in excess of these limits. Employees are responsible for
payment of a portion of the premiums. During 2000, 1999 and 1998, the Company
charged $4,456,000, $2,802,000 and $2,407,000, respectively, to operations
related to reinsurance premiums, medical claims incurred and estimated, and
administrative costs for the Medical Plans. Claims paid during 2000, 1999 and
1998 did not exceed the aggregate limits.
(12) Commitments and Contingencies
The Company leases certain of its real property and certain equipment,
vehicles and computer hardware under operating leases with terms ranging from
month-to-month to ten years and which contain various renewal and rent
escalation clauses. Future minimum annual lease commitments (in thousands) under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 2000 are as follows:
2001..................................................... $ 5,107
2002..................................................... 4,686
2003..................................................... 4,124
2004..................................................... 3,187
2005..................................................... 2,781
2006 and thereafter...................................... 5,410
-------
$25,295
=======
Rent expense for the years ended December 31, 2000, 1999 and 1998 totaled
$3,650,000, $3,858,000 and $4,701,000, respectively.
The Company entered into agreements for the sale and leaseback of certain
specific manufacturing and testing equipment during 2000. The terms of the
operating leases range from five to nine years and the Company has the option to
purchase the equipment at the expiration of the respective lease at a fixed
price based upon the equipment's estimated residual value. Proceeds from the
sale and leaseback transactions during 2000 were $9,251,000 and the transactions
resulted in a deferred loss of $351,000 that will be amortized over the term of
the respective leases. Future minimum annual lease commitments related to these
leases are included in the above schedule.
As of December 31, 2000, the Company had outstanding purchase commitments
of approximately $11,416,000, primarily for the acquisition of manufacturing
equipment, including certain equipment to be financed under an operating lease
agreement that becomes effective when the equipment is placed in service in
2001.
Tube Turns is a co-defendant in two separate lawsuits filed in 1993 and
1994, one pending in federal court and one pending in state district court in
Louisiana, arising out of an explosion in a coker plant owned by Exxon
Corporation located in Baton Rouge, Louisiana. The suits are being defended for
Tube Turns by its insurance carrier, and the Company intends to vigorously
defend its case. The Company believes that a settlement or related judgment
would not result in a material loss to Tube Turns or the Company.
More specifically, according to the complaints, Tube Turns is the alleged
manufacturer of a carbon steel pipe elbow which failed, causing the explosion
which destroyed the coker plant and caused unspecified damages to surrounding
property owners. One of the actions was brought by Exxon and claims damages for
destruction of the plant, which Exxon estimates exceed one hundred million
dollars. In this action, Tube Turns is a co-defendant with the fabricator who
built the pipe line in which the elbow was incorporated and with the general
contractor for the plant. The second action is a class action suit filed on
behalf of the residents living around the plant and claims damages in an amount
as yet undetermined. Exxon is a co-defendant with Tube Turns, the contractor and
the fabricator in this action. In both actions, Tube Turns maintains that the
carbon steel pipe elbow at issue was appropriately marked as carbon steel and
was improperly installed, without the knowledge of Tube Turns, by the fabricator
and general contractor in a part of the plant requiring a chromium steel elbow.
28
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company is involved in certain litigation and contract issues arising
in the normal course of business. While the outcome of these matters cannot, at
this time, be predicted in light of the uncertainties inherent therein,
management does not expect that these matters will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
(13) Stock Option and Purchase Plans
The Company has certain stock compensation plans under which options to
purchase common stock may be granted to officers, key employees and non-employee
directors. Options may be granted at not less than the market price on the date
of grant. Options are exercisable in whole or in part up to two years after the
date of grant and ending ten years after the date of grant. The following table
summarizes option activity for the three years ended December 31, 2000:
Weighted
Average
Exercise Exercise
Shares Price Range Price
---------- ---------------- --------
Options assumed pursuant to the
Reorganization effective March 30, 1998................................. 871,987 $1.72 - 31.00 $ 5.33
Granted.................................................................. 379,214 7.00 - 9.13 8.68
Exercised................................................................ (9,688) 2.76 - 4.36 4.16
Forfeited................................................................ (13,125) 3.52 - 15.76 7.36
--------- ---------------- --------
Balance at December 31, 1998............................................. 1,228,388 1.72 - 31.00 6.35
Granted.................................................................. 226,352 5.94 - 9.63 7.75
Exercised................................................................ (123,021) 2.76 - 6.68 4.75
Forfeited................................................................ (19,259) 2.96 - 11.00 8.26
--------- ---------------- --------
Balance at December 31, 1999............................................. 1,312,460 1.72 - 31.00 6.71
Granted.................................................................. 518,746 6.56 - 10.50 9.52
Exercised................................................................ (114,246) 2.76 - 8.75 4.08
Forfeited................................................................ (163,223) 4.24 - 10.50 7.20
--------- ---------------- --------
Balance at December 31, 2000............................................. 1,553,737 $1.72 - 31.00 $ 7.79
========= ================ ========
The following table summarizes certain weighted average data for options
outstanding and currently exercisable at December 31, 2000:
Outstanding Exercisable
----------------------------------- -----------------
Weighted Average Weighted
------------------------
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
-------------------- --------- ----------- ----------- ------- --------
$1.72................. 156,648 $ 1.72 1.7 156,648 $ 1.72
$2.76 - $4.12......... 42,782 3.34 4.2 42,782 3.34
$4.24 - $6.24......... 118,505 4.90 5.2 99,261 4.91
$6.56 - $10.00........ 1,015,534 8.46 6.3 432,514 8.41
$10.06 - $15.76....... 206,161 10.79 6.6 40,811 12.21
$16.12 - $23.00....... 10,003 18.16 5.4 10,003 18.16
$25.52 - $31.00....... 4,104 28.86 4.1 4,104 28.86
--------- ------ --- ------- ------
Total.............. 1,553,737 $ 7.79 5.7 786,123 $ 6.78
========= ====== === ======= ======
The Company's stock compensation program also provides for the grant of
performance-based stock options to key employees. The terms and conditions of
the performance-based option grants provide for the
29
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
determination of the exercise price and the beginning of the vesting period to
occur when the fair market value of the Company's common stock achieves certain
targeted price levels. Performance-based options to purchase 108,000 shares,
16,000 shares and 380,000 shares of common stock were granted during 2000, 1999
and 1998, respectively. Performance-based options to purchase 112,000 shares of
common stock were forfeited in 2000. None of the targeted price levels of the
performance-based options were achieved during 2000, 1999 or 1998 and,
accordingly, these options are excluded from disclosures of options outstanding
at December 31, 2000, 1999 and 1998. The aggregate number of shares of common
stock reserved for issuance under the Company's stock compensation programs as
of December 31, 2000 was 3,000,000. The aggregate number of shares available for
future grant as of December 31, 2000 was 899,566.
The Company applies APB 25 and related interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options is equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and net income per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for options granted by the Company during 2000, 1999 and 1998 were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
Years ended December 31,
--------------------------
2000 1999 1998
------ ------ ------
Expected life (years)...................... 6 6 6
Expected volatility........................ 70.30% 75.50% 94.20%
Risk-free interest rates................... 4.98% 6.30% 5.68%
Expected dividend yield.................... -- -- --
The weighted average Black-Scholes value of options granted under the stock
option plans during 2000, 1999 and 1998 was $7.05, $5.50 and $6.91,
respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
Years ended December 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
(in thousands, except for per share data)
Pro forma net income.......... $ 2,086 $ 8,533 $ 5,989
========= ========= =========
Pro forma net income per
common share:
Basic......................... $ 0.22 $ 0.90 $ 0.63
Diluted....................... $ 0.21 $ 0.87 $ 0.61
30
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Effective February 1, 1999, the Company adopted a stock purchase plan to
provide substantially all employees who have satisfied the eligibility
requirements the opportunity to purchase shares of the Company's common stock on
a compensation deduction basis. The purchase price is the lower of 85% of the
fair market value of the common stock on the first or last business day of the
purchase period. Payroll deductions may not exceed $6,000 for any six-month
cycle. The stock purchase plan expires January 31, 2006. At December 31, 2000
and 1999, there were 249,110 shares and 284,400 shares, respectively, available
for purchase under the plan. During 2000 and 1999, a total of 35,290 shares and
15,600 shares, respectively, were issued under the plan.
(14) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Accordingly, deferred income taxes have been
provided for temporary differences between the recognition of revenue and
expenses for financial and income tax reporting purposes and between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
The components of income tax (benefit) expense is as follows:
Years ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Current:
Federal.................... $ 969 $ 3,386 $ 2,844
State...................... 102 320 441
Other...................... 9 38 37
-------- -------- --------
1,080 3,744 3,322
Deferred:
Federal.................... (2,351) (630) 1,011
State...................... (127) (15) (22)
-------- -------- --------
(2,478) (645) 989
-------- -------- --------
$ (1,398) $ 3,099 $ 4,311
======== ======== ========
The Company files a consolidated federal income tax return which includes
all subsidiaries. Income taxes paid during 2000, 1999 and 1998 totaled
$1,347,000, $2,136,000 and $5,329,000, respectively. During 2000, the Company
received $2,102,000 in federal income tax refunds.
At December 31, 2000, the Company had $17,771,000 of state net operating
loss carryforwards available to offset future taxable income. Such carryforwards
reflect income tax losses incurred which will expire on December 31 of the
following years (in thousands):
2008........................................... $ 2,386
2009........................................... 8,362
2010........................................... 560
2011........................................... 5,999
2017........................................... 464
-------
$17,771
=======
31
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following is a reconciliation of income tax (benefit) expense to that
computed by applying the federal statutory rate of 34% to income before income
taxes:
Years ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Federal tax at the statutory rate................................ $ 607 $ 4,303 $ 3,997
State income taxes, net of federal tax benefit................... 153 236 291
Change in valuation allowance for deferred tax asset............. (3,008) (1,891) (882)
Research and development tax credit.............................. (262) (544) --
Non-deductible expenses.......................................... 240 135 166
Other............................................................ 872 860 739
------- ------- ------------
$(1,398) $ 3,099 $ 4,311
======= ======= ============
Deferred income tax assets and liabilities are as follows:
December 31,
---------------------------
2000 1999
------------ ------------
(in thousands)
Deferred tax assets:
Compensation and benefit accruals............................... $ 1,108 $ 992
Inventory valuation............................................. 673 969
State net operating loss carryforwards.......................... 977 977
Contract provisions............................................. 796 577
Accounts receivable allowance................................... 255 250
Defined benefit pension plan.................................... 995 985
Other........................................................... 327 424
------------ ------------
5,131 5,174
Valuation allowance............................................. (977) (3,985)
------------ ------------
4,154 1,189
Deferred tax liabilities:
Depreciation.................................................... (1,981) (1,494)
------------ ------------
Net deferred tax asset (liability)............................... $ 2,173 $ (305)
============ ============
The valuation allowance for deferred tax assets decreased by $3,008,000,
$1,891,000 and $882,000 in 2000, 1999 and 1998, respectively. The majority of
the decrease in the valuation allowance in 2000 was recorded during the fourth
quarter to reflect adjustments to the Company's effective tax rate based upon
income before income taxes as reported for the fourth quarter and year ended
December 31, 2000. At December 31, 2000, the valuation allowance of $977,000
relates to state tax net operating loss ("NOL") carryforwards. The utilization
of the state NOL carryforwards is uncertain because it is unlikely the losses
will be utilized within the carryforward periods prescribed by the applicable
taxing jurisdiction based upon the Company's current filing status. Management
believes it is more likely than not that the Company's future earnings will be
sufficient to ensure the realization of deferred tax assets for federal and
state purposes, excluding the state NOL carryforward.
32
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(15) Net Income Per Common Share
Basic income per common share is calculated by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted income per common share is calculated by
using the weighted average number of common shares outstanding adjusted to
include the potentially dilutive effect of outstanding stock options. For the
period prior to the Reorganization on March 30, 1998, shares used in computing
basic and diluted income per common share include the outstanding shares of
Sypris common stock as of that date and the dilution associated with common
stock options issued prior to that date.
The following table presents information necessary to calculate net income
per common share:
Years ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands, except for per share data)
Shares outstanding:
Weighted average shares outstanding................................. 9,671 9,515 9,438
Effect of dilutive employee stock options........................... 293 346 355
------------ ------------ ------------
Adjusted weighted average shares outstanding
and assumed conversions............................................ 9,964 9,861 9,793
============ ============ ============
Net income applicable to common stock................................. $ 3,184 $ 9,556 $ 7,446
============ ============ ============
Net income per common share:
Basic .............................................................. $ 0.33 $ 1.00 $ 0.79
============ ============ ============
Diluted ............................................................ $ 0.32 $ 0.97 $ 0.76
============ ============ ============
(16) Segment Information
The Company's operations are conducted in two reportable business segments:
the Electronics Group and the Industrial Group. The segments are each managed
separately because of the distinctions between the products, services, markets,
customers, technologies and workforce skills of the segments. The Electronics
Group provides a wide range of manufacturing and technical services for a
diversified customer base as an outsource service provider. The Electronics
Group also manufactures complex data storage systems, magnetic instruments,
current sensors and other electronic products. The Industrial Group provides
manufacturing services for a variety of customers that outsource forged and
finished steel components and subassemblies. The Industrial Group also
manufactures high-pressure closures and other fabricated products. Revenue
derived from outsource services in 2000 for the Electronics Group and the
Industrial Group accounted for 66% and 12% of total net revenue, respectively.
There was no intersegment net revenue recognized for all years presented. The
following table presents financial information for the reportable segments of
the Company:
Years ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Net revenue from unaffiliated customers:
Electronics Group..................................................... $ 182,126 $ 164,963 $ 174,396
Industrial Group...................................................... 34,445 37,167 37,229
------------ ------------ ------------
$ 216,571 $ 202,130 $ 211,625
============ ============ ============
Gross profit:
Electronics Group..................................................... $ 36,272 $ 37,873 $ 41,400
Industrial Group...................................................... 4,041 7,076 6,523
------------ ------------ ------------
$ 40,313 $ 44,949 $ 47,923
============ ============ ============
33
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Operating income:
Electronics Group............. $ 6,935 $ 12,005 $ 11,207
Industrial Group.............. 1,648 4,930 4,329
General, corporate and other.. (3,106) (2,769) (2,685)
-------- -------- --------
$ 5,477 $ 14,166 $ 12,851
======== ======== ========
Total assets:
Electronics Group............. $124,523 $106,229 $ 90,174
Industrial Group.............. 37,851 26,714 18,905
General, corporate and other.. 16,748 15,621 12,040
-------- -------- --------
$179,122 $148,564 $121,119
======== ======== ========
Depreciation and amortization:
Electronics Group............. $ 8,037 $ 6,551 $ 5,933
Industrial Group.............. 1,109 902 825
General, corporate and other.. 205 129 151
-------- -------- --------
$ 9,351 $ 7,582 $ 6,909
======== ======== ========
Capital expenditures:
Electronics Group............. $ 7,971 $ 6,327 $ 4,598
Industrial Group.............. 15,546 7,134 1,185
General, corporate and other.. 369 982 62
-------- -------- --------
$ 23,886 $ 14,443 $ 5,845
======== ======== ========
The Company attributes net revenue to countries based upon the location of
its operations. Export sales from the United States totaled $25,250,000,
$30,061,000 and $25,551,000 in 2000, 1999 and 1998, respectively.
(17) Quarterly Financial Information (Unaudited)
The following is an analysis of certain items in the consolidated income
statements by quarter for the years ended December 31, 2000 and 1999:
2000 1999
--------------------------------------------- --------------------------------------------
First Second Third Fourth First Second Third Fourth
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(in thousands, except for per share data)
Net revenue $50,697 $52,118 $53,887 $59,869 $44,898 $49,331 $48,291 $59,610
Gross profit................ 10,754 11,353 9,090 9,116 9,720 11,734 12,041 11,454
Operating income............ 1,182 2,739 707 849 2,432 3,704 4,364 3,666
Net income.................. 179 1,368 90 1,547 1,533 2,459 2,763 2,801
Net income per common share:
Basic.................. $ 0.02 $ 0.14 $ 0.01 $ 0.16 $ 0.16 $ 0.26 $ 0.29 $ 0.29
Diluted................ $ 0.02 $ 0.14 $ 0.01 $ 0.16 $ 0.16 $ 0.25 $ 0.28 $ 0.28
34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required herein is incorporated by reference from
sections of the Company's Proxy Statement titled "Section 16(a) Beneficial
Ownership Reporting Compliance," "Election of Directors," and "Executive
Officers," which Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to instruction G(3) of the General Instructions to Form 10-
K.
Item 11. Executive Compensation
The information required herein is incorporated by reference from
sections of the Company's Proxy Statement titled "Election of Directors - Board
of Directors and Committees of the Board," "Compensation of Directors,"
"Compensation Committee Report," "Compensation Committee Interlocks and Insider
Participation," "Performance Graph," and "Executive Compensation," which Proxy
Statement will be filed with the Securities and Exchange Commission pursuant to
instruction G(3) of the General Instructions to Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required herein is incorporated by reference from the
section of the Company's Proxy Statement titled "Security Ownership of Certain
Beneficial Owners and Management," which Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to instruction G(3) of the General
Instructions to Form 10-K.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference from the
section of the Company's Proxy Statement titled "Certain Relationships and
Related Transactions," which Proxy Statement will be filed with the Securities
and Exchange Commission pursuant to instruction G(3) of the General Instructions
to Form 10-K.
35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
The financial statements as set forth under Item 8 of this report on
Form 10-K are included.
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other consolidated financial statement schedules have been omitted
because the required information is shown in the consolidated financial
statements or notes thereto or they are not applicable.
3. Exhibits
Exhibit
Number Note Description
- ------ ---- -----------
2 (4) Fourth Amended and Restated Agreement and Plan of
Reorganization dated February 5, 1998 by and among Group
Financial Partners, Inc., Group Technologies Corporation,
Bell Technologies, Inc. and Tube Turns Technologies, Inc.
3.1 (6) Certificate of Incorporation of the Company.
3.2 (7) Bylaws of the Company.
4.1 (10) Specimen common stock certificate.
4.2 (5) Agreement and Plan of Merger dated September 22, 1997 by and
between Group Technologies Corporation and Sypris Solutions,
Inc.
10.1 (1) Purchase and Sale Agreement among Honeywell Inc., Defense
Communications Products Corporation (prior name of Group
Technologies Corporation) and Group Financial Partners, Inc.
dated May 21, 1989.
10.2 (1) Purchase and Sale Agreement among Alliant Techsystems Inc.,
MAC Acquisition I, Inc. and Group Technologies Corporation
dated December 31, 1992.
10.3 (1) Purchase and Sale Agreement among Philips Electronic North
America Corporation and Group Technologies Corporation dated
June 25, 1993.
10.4 (3) Stock and Asset Purchase and Sale Agreement among Group
Technologies Corporation, Group Technologies Mexican Holding
Company, SCI Systems, Inc., SCI Systems de Mexico S.A. de
C.V. and SCI Holdings, Inc. dated June 30, 1997.
10.5 (8) Asset Purchase Agreement among Datatape Incorporated, Delta
Tango, Inc., Metrum-D, Inc., Impactdata, Inc. and M. Stuart
Millar dated November 12, 1997.
10.6 (11) 1999 Amended and Restated Loan Agreement between Bank One,
Kentucky, NA, Sypris Solutions, Inc., Bell Technologies,
Inc., Tube Turns Technologies, Inc., Group Technologies
Corporation and Metrum-Datatape, Inc. dated October 27,
1999.
10.6.1 2000A Amendment to Loan Documents between Bank One,
Kentucky, NA, Sypris Solutions, Inc., Bell Technologies,
Inc., Tube Turns Technologies, Inc., Group Technologies
Corporation and Metrum-Datatape, Inc. dated November 9,
2000.
10.7 (1) Form of U.S. Government Award/Contract.
36
10.8 (1) Lease between John Hancock Mutual Life Insurance Company and
Honeywell, Inc. dated April 27, 1979; related Notice of
Assignment from John Hancock Mutual LIfe Insurance Company
to Sweetwell Industrial Associates, L.P., dated July 10,
1986; related Assignment and Assumption of Lease between
Honeywell, Inc. and Defense Communications Products
Corporation (prior name of Group Technologies Corporation)
dated May 21, 1989; and related Amendment I to Lease
Agreement between Sweetwell Industries Associates, L.P. and
Group Technologies Corporation dated October 25, 1991,
regarding Tampa industrial park property.
10.8.1 Agreement related to Fourth Renewal of Lease between
Sweetwell Industries Associates, L.P. and Group Technologies
Corporation dated November 1, 2000, regarding Tampa
industrial park property.
10.9 (8) Lease between Metrum-Datatape, Inc. (assignee of Metrum,
Inc.) and Alliant Techsystems, Inc. dated March 29, 1993 and
amended July 29, 1993, May 2, 1994, November 14, 1995,
December 4, 1996 and February 12, 1998 regarding 4800 East
Dry Creek Road Property.
10.10 (8) Sublease between Pharmacia & Upjohn Company and Metrum-D,
Inc. dated November 14, 1997.
10.10.1 Amendment of Sublease between Pharmacia & Upjohn Company and
Metrum-Datatape, Inc. dated August 6, 1998.
10.11 (2), (12) Sypris Solutions, Inc. Stock Option Plan, Restated effective
December 17, 1996, dated January 22, 1990.
10.12 (9), (12) Sypris Solutions, Inc. 1994 Stock Option Plan for Key
Employees as Amended and Restated effective July 1, 1998,
dated October 27, 1994.
10.13 (8), (12) Sypris Solutions, Inc. Share Performance Program For Stock
Option Grants dated July 1, 1998.
10.14 (10), (12) Sypris Solutions, Inc. Independent Directors' Stock Option
Plan as Amended and Restated effective February 23, 1999,
dated October 27, 1994.
10.15 (8), (12) Sypris Solutions, Inc. Independent Directors Compensation
Program Amended and Restated on April 28, 1998, dated
September 1, 1995.
10.16 (12) Sypris Solutions, Inc. Profit Sharing Bonus Plan, effective
as of January 3, 2000.
10.17 (12) Group Technologies Corporation Profit Sharing Bonus Plan,
effective as of January 3, 2000.
10.18 (12) Tube Turns Technologies, Inc. Profit Sharing Bonus Plan,
effective as of January 3, 2000.
10.19 (12) Sypris Solutions, Inc. Executive Bonus Plan, effective as of
January 2, 2001.
10.20 (12) Employment Agreement by and between Metrum-Datatape, Inc.
and G. Darrell Robertson dated February 28, 2000.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, independent auditors.
______________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed May 18, 1994 (Registration No. 33-76326).
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1996 filed on March 31, 1997.
(3) Incorporated by reference to the Company's Form 8-K filed on July 15,
1997.
37
(4) Incorporated by reference to Appendix A to the Prospectus included in
the Company's Registration Statement on Form S-4/A filed February 12,
1998 (No. 333-20299).
(5) Incorporated by reference to Appendix G to the Prospectus included in
the Company's Registration Statement on Form S-4/A filed February 12,
1998 (No. 333-20299).
(6) Incorporated by reference to Appendix H to the Prospectus included in
the Company's Registration Statement on Form S-4/A filed February 12,
1998 (No. 333-20299).
(7) Incorporated by reference to Appendix I to the Prospectus included in
the Company's Registration Statement on Form S-4/A filed February 12,
1998 (No. 333-20299).
(8) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended June 28, 1998 filed on August 4, 1998.
(9) Incorporated by reference to the Company's Form S-8 filed on September
2, 1998.
(10) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1998 filed on March 5, 1999.
(11) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1999 filed on February 25, 2000.
(12) Management contract or compensatory plan or arrangement.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 2,
2001.
SYPRIS SOLUTIONS, INC.
(Registrant)
/s/ Jeffrey T. Gill
----------------------------------------
(Jeffrey T. Gill)
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 2, 2001:
/s/ Robert E. Gill Chairman of the Board
- --------------------------------
(Robert E. Gill)
/s/ Jeffrey T. Gill President, Chief Executive Officer and
- --------------------------------
(Jeffrey T. Gill) Director
/s/ David D. Johnson Vice President and Chief Financial Officer
- --------------------------------
(David D. Johnson) (Principal Financial Officer)
/s/ Anthony C. Allen Vice President and Controller
- --------------------------------
(Anthony C. Allen) (Principal Accounting Officer)
/s/ Henry F. Frigon Director
- --------------------------------
(Henry F. Frigon)
/s/ R. Scott Gill Director
- --------------------------------
(R. Scott Gill)
/s/ William L. Healey Director
- --------------------------------
(William L. Healey)
Director
________________________________
(Roger W. Johnson)
/s/ Sidney R. Petersen Director
- --------------------------------
(Sidney R. Petersen)
/s/ Robert Sroka Director
- --------------------------------
(Robert Sroka)
39
SCHEDULE II
SYPRIS SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
---------- ----------- ------------ ----------
(in thousands)
Allowance for doubtful accounts:
Year ended December 31, 2000............................. $ 670 $ 18 $ (9) (1) $ 679
========== ========== ========== ==========
Year ended December 31, 1999............................. $ 836 $ (129) $ (37) (1) $ 670
========== ========== ========== ==========
Year ended December 31, 1998............................. $ 1,097 $ 135 $ (396) (1) $ 836
========== ========== ========== ==========
Reserve for inactive, obsolete and unsalable inventory:
Year ended December 31, 2000............................. $ 2,669 $ 453 $ (118) (2) $ 3,004
========== ========== ========== ==========
Year ended December 31, 1999............................. $ 4,024 $ 446 $ (1,801) (3) $ 2,669
========== ========== ========== ==========
Year ended December 31, 1998............................. $ 5,769 $ 851 $ (2,596) (2) $ 4,024
========== ========== ========== ==========
(1) Uncollectible accounts written off.
(2) Inactive, obsolete and unsalable inventory written off.
(3) Includes $180,000 for inactive, obsolete and unsalable inventory written
off and a $1,621,000 reclassification to costs relating to long-term
contracts to conform to the presentation for the year ended December 31,
2000.
40