UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
------
Securities Exchange Act of 1934. For the quarterly period ended
March 31, 2002.
or
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 of (I.R.S. Employer
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)
______________________________
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____.
---
As of April 24, 2002 the registrant had 14,060,126 shares of common stock
outstanding.
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Income Statements for the Three Months Ended March 31, 2002 and
April 1, 2001 ....................................................................... 2
Consolidated Balance Sheets at March 31, 2002 and December 31, 2001 ................... 3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002
and April 1, 2001 ................................................................... 4
Notes to Consolidated Financial Statements ............................................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................................ 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................ 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................................... 12
SIGNATURES .................................................................................................. 13
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYPRIS SOLUTIONS, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except for per share data)
Three Months Ended
-----------------------------
March 31, April 1,
2002 2001
----------- -------------
(Unaudited)
Net revenue:
Outsourced services ......................... $ 52,661 $ 46,018
Products .................................... 9,872 12,017
----------- -----------
Total net revenue ........................ 62,533 58,035
Cost of sales:
Outsourced services ......................... 44,813 39,991
Products .................................... 6,591 7,880
----------- -----------
Total cost of sales ....................... 51,404 47,871
----------- -----------
Gross profit .............................. 11,129 10,164
Selling, general and administrative ............ 6,514 6,575
Research and development ....................... 831 677
Amortization of intangible assets .............. 51 335
----------- -----------
Operating income .......................... 3,733 2,577
Interest expense, net .......................... 1,082 1,129
Other income, net .............................. (29) (152)
----------- -----------
Income before income taxes ................ 2,680 1,600
Income tax expense ............................. 855 581
----------- -----------
Net income ................................ $ 1,825 $ 1,019
=========== ===========
Earnings per share:
Basic ..................................... $ 0.18 $ 0.10
Diluted ................................... $ 0.17 $ 0.10
Weighted average shares outstanding:
Basic ..................................... 10,169 9,723
Diluted ................................... 10,742 9,900
The accompanying notes are an integral part of the consolidated
financial statements.
2
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
March 31, December 31,
2002 2001
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ........................................................ $ 27,247 $ 13,232
Accounts receivable, net ......................................................... 42,930 39,758
Inventory, net ................................................................... 63,012 60,574
Other current assets ............................................................. 8,465 7,991
----------- -----------
Total current assets ........................................................... 141,654 121,555
Property, plant and equipment, net .................................................. 73,457 70,452
Intangible assets, net .............................................................. 15,875 15,926
Other assets ........................................................................ 4,018 3,511
----------- -----------
$ 235,004 $ 211,444
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................................................. $ 26,188 $ 26,828
Accrued liabilities .............................................................. 18,137 19,902
Current portion of long-term debt ................................................ -- 7,500
----------- -----------
Total current liabilities ...................................................... 44,325 54,230
Long-term debt ...................................................................... 62,500 80,000
Other liabilities ................................................................... 6,824 7,094
----------- -----------
Total liabilities .............................................................. 113,649 141,324
Stockholders' equity:
Preferred stock, par value $.01 per share, 989,000 shares authorized;
no shares issued ............................................................... -- --
Series A preferred stock, par value $.01 per share, 11,000 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;
3,547,853 and 9,898,675 shares issued and outstanding in 2002 and 2001,
respectively ................................................................... 135 99
Additional paid-in capital ....................................................... 74,697 25,490
Retained earnings ................................................................ 48,252 46,427
Accumulated other comprehensive income (loss) .................................... (1,729) (1,896)
----------- -----------
Total stockholders' equity ..................................................... 121,355 70,120
----------- -----------
$ 235,004 $ 211,444
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
3
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
---------------------------
March 31, April 1,
2002 2001
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income ....................................................................... $ 1,825 $ 1,019
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization ................................................. 2,680 2,328
Other noncash charges ......................................................... 257 150
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (3,290) (259)
Inventory ................................................................... (2,470) (4,108)
Other assets ................................................................ (483) 2,330
Accounts payable ............................................................ 1,002 5,135
Accrued liabilities ......................................................... (1,635) 98
----------- -----------
Net cash (used in) provided by operating activities ........................ (2,114) 6,693
Cash flows from investing activities:
Capital expenditures ............................................................. (7,602) (8,114)
Proceeds from sale of assets ..................................................... - 66
Changes in nonoperating assets and liabilities ................................... (433) (254)
----------- -----------
Net cash used in investing activities ...................................... (8,035) (8,302)
Cash flows from financing activities:
Net (decrease) increase in debt under revolving credit agreements ................ (25,000) 625
Proceeds from issuance of common stock ........................................... 49,164 139
----------- -----------
Net cash provided by financing activities .................................. 24,164 764
----------- -----------
Net increase (decrease) in cash and cash equivalents ................................ 14,015 (845)
Cash and cash equivalents at beginning of period .................................... 13,232 14,674
----------- -----------
Cash and cash equivalents at end of period .......................................... $ 27,247 $ 13,829
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Business
Sypris is a diversified provider of outsourced services and specialty
products. The Company performs a wide range of manufacturing, engineering,
design, testing and other technical services, typically under multi-year,
sole-source contracts with major companies and government agencies in the
markets for aerospace & defense electronics, truck components & assemblies, and
for users of test & measurement equipment.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries
(collectively, "Sypris" or the "Company"), Sypris Electronics, LLC, Sypris Test
& Measurement, Inc., Sypris Data Systems, Inc., and Sypris Technologies, Inc.,
and have been prepared by the Company in accordance with the rules and
regulations of the Securities and Exchange Commission (the "Commission"). All
significant intercompany transactions and accounts have been eliminated. These
unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the results of operations, financial
position and cash flows for the periods presented, and the disclosures herein
are adequate to make the information presented not misleading. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. Actual
results for the three months ended March 31, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002. These
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 2001 as presented in the Company's annual report on Form 10-K.
(3) Earnings Per Share
There were no adjustments required to be made to net income for
purposes of computing basic and diluted earnings per share. A reconciliation of
the weighted average shares outstanding used in the calculation of basic and
diluted earnings per share is as follows (in thousands):
Three Months Ended
---------------------------
March 31, April 1,
2002 2001
----------- -----------
(Unaudited)
Shares used to compute basic earnings per share ................... 10,169 9,723
Dilutive effect of stock options .................................. 573 177
----------- -----------
Shares used to compute diluted earnings per share ................. 10,742 9,900
=========== ===========
5
(4) Inventory
Inventory consists of the following (in thousands):
March 31, December 31,
2002 2001
----------- -----------
(Unaudited)
Raw materials .............................................................. $ 16,036 $ 19,003
Work in process ............................................................ 14,306 9,661
Finished goods ............................................................. 3,645 5,450
Costs relating to long-term contracts and programs, net of
amounts attributed to revenue recognized to date ......................... 38,234 37,908
Progress payments related to long-term contracts and programs .............. (3,902) (6,540)
LIFO reserve ............................................................... (1,126) (987)
Reserve for excess and obsolete inventory .................................. (4,181) (3,921)
----------- -----------
$ 63,012 $ 60,574
=========== ===========
(5) Segment Data
The Company's operations are conducted in two reportable business
segments: the Electronics Group and the Industrial Group. There was no
intersegment net revenue recognized in either of the periods presented. The
following table presents financial information for the reportable segments of
the Company for the three months ended March 31, 2002 and April 1, 2001 (in
thousands):
Three Months Ended
---------------------------
March 31, April 1,
2002 2001
----------- -----------
(Unaudited)
Net revenue from unaffiliated customers:
Electronics Group ......................................................... $ 44,076 $ 50,081
Industrial Group .......................................................... 18,457 7,954
----------- -----------
$ 62,533 $ 58,035
=========== ===========
Gross profit:
Electronics Group ......................................................... $ 8,688 $ 9,300
Industrial Group .......................................................... 2,441 864
----------- -----------
$ 11,129 $ 10,164
=========== ===========
Operating income:
Electronics Group ......................................................... $ 3,150 $ 3,233
Industrial Group .......................................................... 1,458 398
General, corporate and other .............................................. (875) (1,054)
----------- -----------
$ 3,733 $ 2,577
=========== ===========
(6) Commitments and Contingencies
The Company's Sypris Technologies subsidiary is a co-defendant in two
lawsuits arising out of an explosion at a coker plant owned by Exxon Mobil
Corporation located in Baton Rouge, Louisiana. In each of these lawsuits, it is
alleged that a carbon steel pipe elbow that Sypris Technologies manufactured was
improperly installed and the failure of which caused the explosion. One of the
actions was brought by Exxon Mobil in 1994 in state district court in Louisiana
and claims damages for destruction of the plant, which Exxon Mobil estimates
exceed one hundred million dollars. Sypris Technologies is a co-defendant in
this action with the fabricator who built the pipeline into which the elbow was
incorporated and with the general contractor for the plant. The second action is
a class action suit also filed in 1994 in federal
6
court in Louisiana on behalf of the residents living around the plant and claims
unspecified damages. Sypris Technologies is a co-defendant in this action with
Exxon Mobil, the contractor and the fabricator. In both actions, the Company
maintains that the carbon steel pipe elbow at issue was appropriately marked as
carbon steel and was improperly installed, without Sypris Technologies'
knowledge, by the fabricator and general contractor in circumstances that
required the use of a chromium steel elbow. Although the Company believes these
defenses to be meritorious, there can be no assurance that the Company will not
be found liable for some or all of the alleged damages. If the Company was to be
found liable and the damages exceeded available insurance coverage, the impact
could materially and adversely affect the Company's financial condition and
results of operations.
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.
(7) Adoption of Recently Issued Accounting Standard
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Under SFAS No. 142, goodwill and indefinite lived intangible assets are no
longer amortized but will be reviewed at least annually for impairment.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. The Company completed the
first of the required impairment tests of goodwill and indefinite lived
intangible assets during the three months ended March 31, 2002 and no adjustment
to the carrying value of goodwill was required.
The nonamortization of goodwill has increased the Company's net income
and earnings per share. Following are pro forma results assuming goodwill had
not been amortized prior to January 1, 2002 (in thousands, except for per share
data):
Three Months Ended
---------------------------
March 31, April 1,
2002 2001
----------- -----------
(Unaudited)
Reported net income ....................................................... $ 1,825 $ 1,019
Adjustment for amortization of goodwill ................................... - 183
----------- -----------
Adjusted net income ....................................................... $ 1,825 $ 1,202
=========== ===========
Basic earnings per share as reported ...................................... $ 0.18 $ 0.10
Adjustment for amortization of goodwill ................................... - 0.02
----------- -----------
Adjusted basic earnings per share ......................................... $ 0.18 $ 0.12
=========== ===========
Diluted earnings per share as reported .................................... $ 0.17 $ 0.10
Adjustment for amortization of goodwill ................................... - 0.02
----------- -----------
Adjusted diluted earnings per share ....................................... $ 0.17 $ 0.12
=========== ===========
There has been no change to the carrying value of the Company's
goodwill since January 1, 2002. Goodwill at March 31, 2002 for the Electronics
Group and the Industrial Group was $13,818,000 and $440,000, respectively. The
Company's intangible assets subject to amortization and the related amortization
expense are not material to the Company's consolidated financial position or
results of operations, respectively.
7
(8) Issuance of Common Stock
On March 26, 2002, the Company completed a public stock offering of
3,600,000 shares of its common stock at $14.50 per share and generated proceeds,
after underwriting discounts and estimated expenses, of approximately
$48,844,000. On April 19, 2002, an over-allotment option was exercised for
500,000 shares at $14.50 per share and generated proceeds, after underwriting
discounts and estimated expenses, of approximately $6,785,000. The proceeds of
the offering were used to repay debt of $30,000,000 during March 2002 and
$22,500,000 during April 2002.
(9) Income Taxes
The Company's effective tax rate for the three months ended March 31,
2002 was 31.9%. Reconciling items between the federal statutory income tax rate
and the effective tax rate include management's estimate for 2002 of research
and development tax credits, state income tax benefits and certain other
permanent differences.
(10) Accumulated Other Comprehensive Income
The aggregate fair market value of all interest rate swap agreements
decreased from $728,000 at December 31, 2001 to $461,000 at March 31, 2002 and
was included in other liabilities on the consolidated balance sheet. The change
in fair market value, net of tax of $100,000, was recorded as other
comprehensive income during the three months ended March 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth certain financial data, expressed as a
percentage of net revenue, derived from the Company's consolidated income
statements for the three months ended March 31, 2002 and April 1, 2001.
Three Months Ended
---------------------------
March 31, April 1,
2002 2001
----------- -----------
Net revenue:
Electronics Group ............................. 70.5% 86.3%
Industrial Group .............................. 29.5 13.7
--------- --------
Total net revenue ............................. 100.0 100.0
Cost of sales .................................... 82.2 82.5
--------- --------
Gross profit ..................................... 17.8 17.5
Selling, general and administrative .............. 10.4 11.3
Research and development ......................... 1.3 1.2
Amortization of intangible assets ................ 0.1 0.6
--------- --------
Operating income ................................. 6.0% 4.4%
========= ========
Net income ....................................... 2.9% 1.8%
========= ========
For reporting purposes, the operations of Sypris Electronics, Sypris
Test & Measurement and Sypris Data Systems are included in the Electronics
Group, and Sypris Technologies' operations are
8
included in the Industrial Group. Segment discussion is included in the
following discussion and analysis of our consolidated results of operations.
Net Revenue. Net revenue was $62.5 million for the first quarter of
2002, an increase of $4.5 million, or 7.8%, from $58.0 million for the first
quarter of 2001. Backlog at March 31, 2002 was $162.4 million, an increase of
$11.8 million from $150.6 million at April 1, 2001. Backlog for our Electronics
Group and Industrial Group at March 31, 2002 was $116.9 million and $45.5
million, respectively.
Net revenue for our Electronics Group for the first quarter of 2002 was
$44.1 million, a decrease of $6.0 million, or 12.0%, from $50.1 million for the
first quarter of 2001. Net revenue from manufacturing services decreased $2.2
million in the first quarter of 2002, primarily due to the completion of certain
contracts with aerospace and defense customers during 2001. Although we began
production on new contract awards during the second half of 2001 and the first
quarter of 2002, revenue derived from the new contracts only partially offset
the volume decline attributable to the completion of the mature contracts. Net
revenue from other outsourced services decreased $1.8 million in the first
quarter of 2002 due to weak economic conditions and a slowdown in the commercial
avionics market, which negatively impacted our customers' demand for test and
measurement services. We also divested a test facility in the third quarter of
2001, which accounted for net revenue of $0.9 million in the first quarter of
2001. Net revenue from product sales decreased $2.0 million in the first quarter
of 2002, primarily due to lower sales quantities of data systems products. We
expect quarterly net revenue to show sequential growth during 2002; however,
production schedules for the new manufacturing services' contracts with our
aerospace and defense customers combined with economic pressures on our
customers for other outsourced services is expected to keep revenue levels at or
below comparable prior periods until the fourth quarter of 2002.
Net revenue for our Industrial Group for the first quarter of 2002 was
$18.4 million, an increase of $10.5 million, or 132.0%, from $7.9 million for
the first quarter of 2001. The contract with Dana Corporation, which began in
the second quarter of 2001 for fully machined, heavy-duty truck axle shafts and
other drive train components, generated outsourced services revenue of $8.3
million for the first quarter of 2002. Excluding the Dana contract, our
Industrial Group's net revenue increased $2.2 million for the first quarter of
2002 over the prior period. The increase in net revenue was primarily due to
increased production volume for a new contract under which we began supplying
light axle shafts to Visteon Corporation. The Visteon contract was modified in
April 2002 and now includes light axle shafts for the Ford F-150, F-250, F-350
and Ranger series pickup trucks, Ford Expedition and Mustang GT, and the Lincoln
Navigator. We expect quarterly net revenue to continue to increase during 2002,
primarily due to the Visteon contract and the full year impact of the Dana
contract.
Gross Profit. Gross profit for the first quarter of 2002 was $11.1
million, an increase of $0.9 million, or 9.5%, from $10.2 million for the first
quarter of 2001. Gross margin for the first quarter of 2002 increased to 17.8%
from 17.5% for the first quarter of 2001.
Gross profit for our Electronics Group for the first quarter of 2002
was $8.7 million, a decrease of $0.6 million, or 6.6%, from $9.3 million for the
first quarter of 2001. The decrease in gross profit was attributable to the
lower sales volume of our data systems products as compared to the year-earlier
period. Gross margin on product sales was only slightly below the prior year;
however, the volume decline produced a $0.8 million reduction in gross profit.
Gross margin from manufacturing and other outsourced services improved in excess
of 200 basis points over the prior year, which yielded a $0.2 million increase
in gross profit despite the combined revenue decrease of $4.0 million.
Gross profit for our Industrial Group for the first quarter of 2002 was
$2.4 million, an increase of $1.5 million or 182.5% from $0.9 million for the
first quarter of 2001. The increase in gross profit was
9
attributable to our revenue growth in the heavy-duty truck market resulting
primarily from the Dana contract. Start-up costs and manufacturing
inefficiencies related to our initial production under the Visteon contract
limited the profit contribution from this new business. We expect profitability
to improve during 2002 as production reaches full volumes and our manufacturing
cost targets are achieved.
Selling, General and Administrative. Selling, general and
administrative expense for the first quarter of 2002 was $6.5 million, or 10.4%
of net revenue, as compared to $6.6 million, or 11.3% of net revenue for the
first quarter of 2001. The decline in selling, general and administrative
expense was primarily attributable to decreased selling expenses and commissions
related to lower product sales for our Electronics Group.
Research and Development. Research and development expense for the
first quarter of 2002 was $0.8 million, or 1.3% of net revenue, as compared to
$0.7 million, or 1.2% of net revenue for the first quarter of 2001. The increase
in research and development expense was attributable to our Electronics Group
and was related to new product releases for the data systems product lines.
Amortization of Intangible Assets. Amortization of intangible assets
for the first quarter of 2002 was $0.1 million, a decrease of $0.2 million, or
84.8% compared to $0.3 million for the first quarter of 2001. Amortization of
goodwill and indefinite lived intangible assets ceased when we adopted SFAS No.
142 effective January 1, 2002.
Interest Expense, Net. Interest expense for the first quarter of 2002
was $1.1 million, which is consistent with the amount reported for the first
quarter of 2001. Interest expense attributable to increased borrowings for the
first quarter of 2002 was offset by a reduction in interest rates. Our weighted
average debt outstanding increased to approximately $87.4 million for the first
quarter of 2002 from approximately $63.4 million for the first quarter of 2001.
This increase reflected the $11.5 million acquisition from Dana made by our
Industrial Group in May 2001 and capital expenditures during 2001 to support new
business opportunities. The weighted average interest rate for the first quarter
of 2002 was approximately 4.8% as compared to approximately 9.2% for the prior
period. There was no capitalized interest during for the first quarter of 2002
as compared to $0.4 million for the first quarter of 2001.
Income Taxes. Income tax expense was $0.9 million for the first quarter
of 2002 as compared to $0.6 million for the first quarter of 2001. The effective
tax rate for the first quarter of 2002 was 31.9% as compared to 36.3% for the
first quarter of 2002. The lower effective tax rate for the first quarter of
2002 was principally due to tax credits and state income tax benefits that we
expect to realize during 2002.
Liquidity, Capital Resources and Financial Condition
Net cash used in operating activities was $2.1 million for the first
quarter of 2002, as compared to net cash provided by operating activities of
$6.7 million for the first quarter of 2001. Accounts receivable increased by
$3.3 million, primarily due to the timing of shipments during the first quarter
of 2002 on the Visteon contract. Inventory increased by $2.5 million during the
first quarter of 2002, primarily to support expected shipments on certain
aerospace and defense manufacturing services contracts. Accounts payable
decreased $0.6 million, excluding the impact of open accounts payable at the end
of the first quarter of 2002 and at December 31, 2001 related to capital
expenditures. Accrued liabilities decreased $1.6 million during the first
quarter of 2002, primarily due to tax payments and payroll accruals.
Net cash used in investing activities was $8.0 million for the first
quarter of 2002 as compared to $8.3 million for the first quarter of 2001.
Capital expenditures for our Electronics Group and Industrial Group totaled $2.0
million and $5.5 million, respectively, for the first quarter of 2002. Capital
expenditures for our Electronics Group were principally comprised of
manufacturing, assembly and test
10
equipment. Our Industrial Group's capital expenditures included new forging and
machining equipment to increase and expand the range of production capabilities.
Net cash provided by financing activities was $24.2 million for the
first quarter of 2002 as compared to $0.8 million for the first quarter of 2001.
We received net proceeds of $48.8 million for our public stock offering which
closed on March 26, 2002. Proceeds from the offering were used to reduce debt by
$30.0 million during March 2002, and will be used to further reduce debt in the
second quarter. In January 2002, prior to the offering, our debt increased by
$5.0 million.
We had total availability for borrowings and letters of credit under
the revolving credit facility of $37.5 million at March 31, 2002, which, when
combined with the cash balance of $27.2 million, provides for total cash and
borrowing capacity of $64.7 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 revolving credit facility may be used to finance
working capital requirements, acquisitions and for general corporate purposes,
including capital expenditures. Most acquisitions require the approval of our
bank group.
Our principal commitments at March 31, 2002 consisted of repayments of
borrowings under the credit agreement and obligations under operating leases for
certain of our real property and equipment. We also had purchase commitments
totaling approximately $4.1 million at March 31, 2002, primarily for
manufacturing equipment.
We believe that sufficient resources will be available to satisfy our
cash requirements for at least the next twelve months. Cash requirements for
periods beyond the next twelve months depend on our profitability, ability to
manage working capital requirements and rate of growth. If we make significant
acquisitions or if working capital and capital expenditure requirements exceed
expected levels during the next twelve months or in subsequent periods, we may
require additional external sources of capital. There can be no assurance that
any additional required financing will be available through bank borrowings,
debt or equity financings or otherwise, or that if such financing is available,
it will be available on terms acceptable to us. If adequate funds are not
available on acceptable terms, our business, results of operations and financial
condition could be adversely affected.
Forward-looking Statements
This Form 10-Q contains 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, stockholders, 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 we believe that our expectations are based on reasonable
assumptions, we 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: our
dependence on our current management; the risks and uncertainties present in our
business; business conditions and growth in the general economy and the
electronics and industrial markets served by us; 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 product mix; cost and yield issues associated with our
manufacturing facilities; our ability to successfully manage growth; as well as
other factors described elsewhere in this report and in our other filings with
the Securities and Exchange Commission.
11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
On July 26, 2001, we entered into interest rate swap agreements with
three banks that effectively convert a portion of our variable rate debt to a
fixed rate basis through July 2003. We entered into interest rate swap
agreements as a means to reduce the impact of interest rate changes on future
interest expense. Approximately 48% ($30.0 million) of our outstanding debt was
covered under the interest rate swap agreements at March 31, 2002. We are
exposed to financial market risks, including changes in interest rates and
foreign currency exchange rates. Excluding the borrowings included in the
interest rate swap agreements, all other borrowings under our credit agreement
bear interest at a variable rate based on the prime rate, the London Interbank
Offered Rate, or certain alternative short-term rates, plus a margin (2.0% at
March 31, 2002) based upon our leverage ratio. An increase in interest rates of
100 basis points would result in additional interest expense of approximately
$0.3 million on an annualized basis, based upon our debt outstanding at March
31, 2002. The vast majority of our transactions are denominated in U.S. dollars;
as such, fluctuations in foreign currency exchange rates have historically had
little impact on us. Inflation has not been a significant factor in our
operations in any of the periods presented, and it is not expected to affect
operations in the near future.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
3.2 Bylaws of the Company.
10.20 Underwriting Agreement dated March 20, 2002 among Sypris
Solutions, Inc., Needham & Company, Inc. and A.G. Edwards
& Sons, Inc.
10.21 Sypris Solutions, Inc. Executive Bonus Plan, effective as
of January 2, 2002, executed on or after April 1, 2002.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three months ended
March 31, 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYPRIS SOLUTIONS, INC.
(Registrant)
Date: April 29, 2002 By: /s/ David D. Johnson
------------------- --------------------------------------------
(David D. Johnson)
Vice President & Chief Financial Officer
Date: April 29, 2002 By: /s/ Anthony C. Allen
------------------- --------------------------------------------
(Anthony C. Allen)
Vice President, Controller & Chief Accounting
Officer
13