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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, 1998.
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.)
455 South Fourth Street
Louisville, Kentucky 40202
(Address of principal executive offices, including zip code)
(502) 585-5544
(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. [ ]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates on February 26, 1999 (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 $8,646,406. As of February 26, 1999, the Registrant had
9,451,193 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 Shareholders to be held April 29, 1999 are
incorporated by reference into Part III to the extent described therein.
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Table of Contents
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Page No.
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Part I
Item 1. Business................................................. 1
Item 2. Properties............................................... 5
Item 3. Legal Proceedings........................................ 5
Item 4. Submission of Matters to a Vote of Security Holders...... 5
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.............................. 6
Item 6. Selected Financial Data.................................. 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk.............................................. 12
Item 8. Financial Statements and Supplementary Data.............. 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 37
Part III
Item 10. Directors and Executive Officers of the Registrant....... 37
Item 11. Executive Compensation................................... 37
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 37
Item 13. Certain Relationships and Related Transactions........... 37
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................. 38
Signatures............................................... 41
</TABLE>
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PART I
Item 1. Business
Introduction
Sypris Solutions, Inc. is a diversified provider of specialized industrial
products and technical services. The Company manufactures and sells integrated
data acquisition, storage and analysis systems, magnetic instruments, current
sensors, high-pressure closures, and a variety of other industrial products. The
Company also performs a wide range of specialized electronic design, assembly,
test, evaluation, calibration, and software-based encryption services on a
contract basis. The terms "Sypris" and the "Company" as used herein include
Sypris Solutions, Inc. and its consolidated subsidiaries, except where the
context indicates otherwise.
Sypris is a Delaware corporation which 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 Technologies, Inc.
("Bell") and Tube Turns Technologies, Inc. ("Tube Turns"), with and into Group
Technologies Corporation ("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, Inc.
("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 Company has two reportable segments: the Electronics Group and the
Industrial Group. The reportable 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, 1998 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 provides a broad range of specialized products and
manufacturing and technical services to industrial and commercial customers and
to various government agencies. 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 sixteen service operations across the United States.
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.
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 and 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 and
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.
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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 are generally available in sufficient quantities to meet its
current requirements. During 1998, the Electronics Group implemented a program
to consolidate the purchasing of certain electronic materials and components
with a select group of vendors. Any shortages of raw materials may result in
production delays which could have a material adverse affect on the Company's
financial position or results of operations.
The Company's customers include the National Security Agency, the
Department of Defense, the Federal Bureau of Investigation and other U.S.
Government agencies which, in the aggregate, accounted for 22%, 18% and 13% of
the Company's total net revenue and 27%, 22% and 14% of the Electronics Group's
net revenue for 1998, 1997 and 1996, respectively. No single U.S. Government
agency or any other single customer accounted for more than 10% of the Company's
net revenue in 1998. 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 basis 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.
Industrial Group
The Industrial Group provides manufacturing services and products to
industrial and commercial customers. The Industrial Group currently 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 one manufacturing facility in the United States.
The Industrial Group provides manufacturing services to a variety of
customers that outsource forged 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 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.
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
domestic 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 costs which could have a material
adverse effect on the Company's financial condition or results of operations.
Manufacturing services provided to one customer accounted for approximately
37% of the Industrial Group's net revenue during 1998. The Industrial Group is
the sole supplier of forged truck axles to this customer, is currently operating
under a multi-year contract and believes its relationship with this customer is
good. The
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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 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 for product quality and reliability.
The fabricated 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.
Research and Development
Sypris invested $5.9 million, $3.5 million, and $3.0 million in research
and development in 1998, 1997 and 1996, 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, respectively, 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 action to remediate the contamination. These
remediation activities include the installation of recovery wells and the
treatment of the contaminated ground water. Under the Consent Order, Honeywell
assumed the responsibility for initiating and conducting these remediation
activities, including the annual cost associated with these remediation
activities, currently estimated to be up to $500,000 per year. 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 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, and it is estimated that the clean-up cost could reach as high
as
3
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$20 million in the aggregate. 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, 1998 was approximately $106
million as compared to order backlog at December 31, 1997 of approximately $87
million. Backlog consists of firm purchase orders and commitments, the majority
of which 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, 1998, Sypris employed approximately 1,560 employees.
Approximately 410 of the Company's employees are covered by collective
bargaining agreements with various unions that expire on various dates through
2003. 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 1999.
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 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.
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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 are used principally as
manufacturing facilities, and the owned properties are encumbered by mortgages
under the Company's principal credit facility.
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Approximate
Facility and Location Own or Lease Square Feet
---------------------- ------------ -----------
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Corporate Office
Louisville, Kentucky....... Lease 5,800
Electronics Group
Tampa, Florida............. Lease 308,000
Orlando, Florida........... Own 66,000
Littleton, Colorado........ Lease 70,000
Monrovia, California....... Lease 70,000
Industrial Group
Louisville, Kentucky....... Own 410,000
</TABLE>
In addition, the Company leases space in seventeen 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, 1998.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Since the date of the Reorganization, the Company's common stock has been
traded on The Nasdaq Stock Market under the symbol "SYPR." Prior to that date,
the common stock of GroupTech was traded on The Nasdaq Stock Market under the
symbol "GRTK." 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. All prices prior to the Reorganization have been adjusted
to reflect the one-for-four reverse stock split which occurred concurrent with
the Reorganization.
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High Low
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Year ended December 31, 1997:
First Quarter.............................. $ 7.500 $ 4.000
Second Quarter............................. $ 6.000 $ 3.252
Third Quarter.............................. $ 16.500 $ 4.500
Fourth Quarter............................. $ 18.252 $ 11.000
Year ended December 31, 1998:
First Quarter.............................. $ 15.252 $ 9.250
Second Quarter............................. $ 11.375 $ 6.500
Third Quarter.............................. $ 10.375 $ 7.500
Fourth Quarter............................. $ 8.750 $ 5.938
As of February 26, 1999, there were 907 holders of record of the Company's
common stock.
</TABLE>
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. The Company's existing credit facilities prohibit the
Company from declaring or making any dividend or other distributions on its
common stock.
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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.
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Years ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except for per share data)
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Statement of Operations Data (1):
Net revenue................................. $211,625 $217,355 $308,598 $328,977 $326,327
Gross profit................................ 47,923 32,135 30,383 16,547 47,030
Operating income (loss)..................... 12,851 1,785 513 (14,816) 13,570
Income (loss) from continuing operations.... 7,446 1,527 (2,536) (11,765) 14,342
Discontinued operations, net of tax......... -- 3,817 3,457 3,732 (437)
Net income (loss)........................... 7,446 5,344 921 (8,033) 13,905
Pro forma per share data (2):
Income (loss) from continuing operations:
Basic..................................... $ 0.79 $ 0.09 $ (0.45) $ (1.62) $ 1.56
Diluted................................... $ 0.76 $ 0.09 $ (0.43) $ (1.56) $ 1.49
Net income (loss):
Basic..................................... $ 0.79 $ 0.50 $ (0.08) $ (1.23) $ 1.51
Diluted................................... $ 0.76 $ 0.48 $ (0.08) $ (1.18) $ 1.45
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands)
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Balance Sheet Data (1):
Working capital............................. $ 32,121 $ 35,123 $ 6,337 $ 26,159 $ 61,783
Total assets................................ 121,119 120,608 132,960 173,028 188,300
Total debt.................................. 28,583 31,340 46,597 63,814 77,375
Total shareholders' equity.................. 49,359 27,728 22,384 21,463 29,496
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</TABLE>
(1) See Notes 2 and 3 to the consolidated financial statements in Item 8, for
merger, acquisition and divestiture information.
(2) See Note 15 to the consolidated financial statements in Item 8, for details
regarding the calculation of pro forma basic and diluted per share amounts.
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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. Certain elements of the historical financial statements have been
reclassified to conform to the 1998 presentation.
Results of Operations
The following table sets forth certain data from the Company's consolidated
statements of operations for the years ended December 31, 1998, 1997 and 1996,
expressed as a percentage of net revenue:
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Years ended December 31,
----------------------------
1998 1997 1996
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Net revenue............................................................ 100.0% 100.0% 100.0%
Cost of sales.......................................................... 77.4 85.2 90.2
-------- -------- --------
Gross profit........................................................... 22.6 14.8 9.8
Selling, general and administrative expense............................ 13.3 12.3 8.5
Research and development............................................... 2.8 1.6 1.0
Amortization of intangible assets...................................... 0.4 0.1 0.2
-------- -------- --------
Operating income....................................................... 6.1% 0.8% 0.1%
======== ======== =======
Income (loss) from continuing operations............................... 3.5% 0.7% (0.8%)
======== ======== =======
Net income............................................................. 3.5% 2.5% 0.3%
======== ======== =======
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenue totaled $211.6 million in 1998, a decrease of $5.8 million, or
2.6%, from $217.4 million in 1997. The Electronics Group experienced a decrease
in net revenue of $11.5 million, while the Industrial Group experienced an
increase of $5.7 million. The $11.5 million decrease in the Electronics Group's
net revenue resulted from the divestiture of the Company's Latin American
operations, which accounted for net revenue of $16.9 million in 1997, and a
decrease in net revenue from manufacturing and technical services of $10.4
million partially offset by an increase in product sales of $15.8 million. The
$10.4 million decrease in manufacturing and technical services revenue is
primarily attributable to management's actions to redirect its resources to
pursue low-volume, high-mix, complex industrial electronics assembly and test
opportunities which meet specific profitability targets. The $15.8 million
increase in product sales includes the acquisition of certain assets of Datatape
Incorporated in November 1997 (the "Datatape Acquisition") which expanded the
Company's data acquisition, storage and analysis product line and generated a
$24.8 million increase in net revenue in 1998. The balance of the Electronics
Group's product offerings experienced a $9.0 million decline in net revenue
primarily due to a weakening of demand in domestic and Asian markets. Management
expects the overall demand for the Electronics Group's products will be stable
during 1999. The $5.7 million increase in the Industrial Group's net revenue
resulted primarily from an increase in shipments to a customer based upon its
commitment to use the Company as its sole source for truck axles in its North
American market.
Gross profit totaled $47.9 million in 1998, an increase of $15.8 million,
or 49.1%, from $32.1 million in 1997. The Electronics Group and the Industrial
Group accounted for $14.3 million and $1.5 million of the increase in gross
profit, respectively. The Electronics Group's gross profit was $41.4 million in
1998, an increase of $14.3 million, or 52.9%, from $27.1 million in 1997. The
$14.3 million increase in gross profit was achieved while net revenue for the
Electronics Group declined by $11.5 million to $174.4 million, reflecting the
change in revenue mix described above. Gross profit of the Electronics Group
expressed as a percentage of net revenue increased to 23.7% in 1998 from 14.6%
in 1997. The increased product sales volume and improved cost management
controls over higher margin manufacturing services contracts accounted for
approximately $5.7 million and $7.7 million of the increase in gross profit,
respectively. The Industrial Group's gross profit was $6.5 million in 1998, an
increase of $1.5 million, or 29.0%, from $5.0 million in 1997, primarily due to
the volume increase reflected in net revenue.
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Gross profit of the Industrial Group expressed as a percentage of net revenue
increased to 17.5% in 1998 compared to 16.1% in 1997, primarily related to
increased capacity utilization and cost reductions on certain programs.
Selling, general and administrative expense totaled $28.2 million in 1998,
an increase of $1.5 million, or 5.7%, from $26.7 million in 1997. The change in
revenue mix occurring in the Electronics Group resulted in an increase in
selling, general and administrative expense for the comparable years.
Research and development expense totaled $5.9 million in 1998, an increase
of $2.4 million, or 70.3%, from $3.5 million in 1997. This increase was
generated by the Electronics Group, and reflects management's continued support
and investment in the data acquisition, storage and analysis product lines.
Amortization of intangible assets totaled $1.0 million in 1998, an increase
of $0.8 million, from $0.2 million in 1997. This increase is due to the
amortization of goodwill recognized in connection with the Reorganization and
the Datatape Acquisition.
Interest expense totaled $1.3 million in 1998, a decrease of $0.7 million,
from $2.0 million in 1997. This decrease is primarily due to a reduction in the
weighted average debt outstanding, a reduction in the Company's overall costs of
borrowing and a decrease in amortization expense for debt issuance costs and
stock warrants issued to a previous lender. The reduction in debt outstanding in
1998 compared to 1997 is attributable to the repayment of debt from proceeds
generated by the divestiture of the Latin American operations, coupled with
repayments generated by the Company's improved cash flow from operations in
1998, partially offset by the debt incurred to finance the Datatape Acquisition.
The divestiture proceeds were used to repay in full a credit facility on which
the effective interest rate was approximately 300 basis points over the
Company's cost of borrowing under its consolidated credit facility during 1998.
Other income totaled $0.2 million in 1998, a decrease of $2.0 million, from
$2.2 million in 1997. Other income in 1997 included the gain recognized on the
divestiture of the Latin American operations totaling $3.2 million, after giving
consideration to an expected repayment to the buyer of $2.9 million, which is
subject to final determination to be made in accordance with the purchase and
sale agreement.
The provision for income taxes totaled $4.3 million, an increase of $3.2
million, from $1.1 million in 1997. The Company's effective tax rate in 1998 was
36.7%.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net revenue totaled $217.4 million in 1997, a decrease of $91.2 million, or
29.6%, from $308.6 million in 1996. The Electronics Group experienced a decrease
in net revenue of $98.0 million, while the Industrial Group experienced an
increase of $6.8 million. The $98.0 million decrease in the Electronics Group's
net revenue was primarily attributable to a decrease in manufacturing services
revenue of $58.2 million, the divestiture of the Latin American operations which
accounted for net revenue of $16.9 million and $58.4 million in 1997 and 1996,
respectively, and contract claim revenue of $4.1 million in 1996. Partially
offsetting these declines was an increase in net revenue from the data
acquisition, storage and analysis product line of $5.8 million. In 1997, three
manufacturing services customers of the Electronics Group altered their
outsourcing strategies, which resulted in a $39.2 million decrease in net
revenue. One of these customers was utilizing certain manufacturing services on
a temporary basis while it increased capacity to provide its manufacturing
services internally. The other two customers altered their outsourcing
strategies and moved their manufacturing solutions overseas. Changes in customer
demand and the completion of certain long-term contracts collectively accounted
for the remaining $19.0 million of the decrease in net revenue in the
Electronics Group. The $6.8 million increase in the Industrial Group's net
revenue was primarily due to shipments of truck axles and forged aerospace
products, which increased net revenue by $4.7 million and $1.3 million,
respectively.
Gross profit totaled $32.1 million in 1997, an increase of $1.7 million, or
5.8%, from $30.4 million in 1996. The Electronics Group experienced a decrease
in gross profit of $0.3 million, while the Industrial Group experienced an
increase of $2.0 million. Gross profit of the Electronics Group decreased by
$0.3 million to $27.1 million in 1997 while net revenue for the Electronics
Group declined by $98.0 million to $185.9 million. Gross profit of the
Electronics Group expressed as a percentage of net revenue increased to 14.6% in
1997 from
9
<PAGE>
9.6% in 1996. Management's actions to improve profitability and focus
on the core domestic manufacturing services operations yielded an increase in
gross profit of $1.7 million and the increase in product sales coupled with
reduced product cost provided an increase in gross profit of $4.6 million. The
improvements were offset by a $2.5 million decrease in gross profit due to the
divestiture of Latin American operations and the $4.1 million contract claim in
1996. The Industrial Group's gross profit was $5.0 million in 1997, an increase
of $2.0 million, or 67.0%, from $3.0 million in 1996, primarily due to the
volume increase reflected in net revenue. Gross profit percentage also increased
to 16.1% in 1997, compared to 12.4% in 1996, primarily due to cost controls
which enabled the Industrial Group to maintain fixed manufacturing overhead
costs constant despite the growth in revenue.
Selling, general and administrative expense totaled $26.7 million in 1997,
an increase of $0.4 million, or 1.5%, from $26.3 million in 1996. Selling,
general and administrative expense increased by $1.8 million primarily due to an
increase in operating expenses incurred for general corporate purposes and to
support the revenue growth in the Industrial Group. This was partly offset by a
direct reduction in selling, general and administrative expense of $1.4 million
due to the decrease in the Electronics Group's net revenue.
Research and development expense totaled $3.5 million in 1997, an increase
of $0.5 million, or 14.4%, from $3.0 million in 1996. This increase was
generated by the Electronics Group, primarily resulting from the Datatape
Acquisition, which incurred $0.3 million of research and development expense in
1997.
Interest expense totaled $2.0 million in 1997, a decrease of $2.0 million,
from $4.0 million in 1996. This decrease is primarily related to the repayment
of debt with proceeds from the divestiture of the Latin American operations.
Additionally, the reduced level of operations in the Electronics Group required
lower levels of working capital and, therefore, reduced debt requirements.
The provision for income taxes totaled $1.1 million in 1997, a decrease of
$0.5 million, from $1.6 million in 1996.
Discontinued operations in 1997 and 1996 consists of the Company's real
estate operations, which were divested prior to the Reorganization.
Liquidity, Capital Resources and Financial Condition
Net cash provided by operating activities totaled $11.0 million in 1998 as
compared to net cash used in operating activities of $0.1 million in 1997. The
improvement in cash flow from operating activities was primarily due to the
Company's operating income, which totaled $12.9 million in 1998 as compared to
$1.8 million in 1997. In addition, the Company's inventory decreased by $4.2
million in 1998 compared to a $7.7 million increase in 1997. The decrease in
inventory during 1998 is attributable to the decrease in the Electronics Group's
net revenue and improved materials management controls. Cash flow from operating
activities in 1998 also includes an $8.1 million decrease in accrued
liabilities, resulting primarily from payments on obligations related to the
integration of acquired operations, employment costs and supplier contracts and
a reduction in deferred revenue.
Net cash used in investing activities totaled $5.8 million in 1998 as
compared to net cash provided by investing activities of $18.5 million in 1997.
Capital expenditures were $5.8 million and $5.7 million in 1998 and 1997,
respectively. The divestiture of the Company's real estate and Latin American
operations in 1997 generated net cash of $21.6 million and $18.0 million,
respectively. The Company also invested $14.4 million for the Datatape
Acquisition in 1997. The Company did not have any material commitments for
capital expenditures at December 31, 1998; however, the Company anticipates
capital expenditures in 1999 will exceed the spending levels of 1998 and 1997.
Net cash used in financing activities totaled $2.6 million in 1998 as
compared to $14.7 million in 1997. The Company's scheduled principal payments on
long-term debt during 1998 were $3.3 million which was partially offset by a
$0.7 million increase in borrowings under the revolving credit facility.
Proceeds generated by the real estate and Latin American operation divestitures
were used to repay debt in 1997. Additionally, the Datatape Acquisition was
financed with borrowings on the Company's credit agreement in 1997.
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 $13.1 million at December 31, 1998,
which, with certain limitations, can be used for general corporate purposes.
This credit agreement contains
10
<PAGE>
customary restrictive covenants, including covenants requiring the Company to
maintain certain financial ratios, and prohibits the Company from paying cash
dividends. Maximum borrowings on the revolving credit facility are $30.0
million, subject to a $5.0 million limit for letters of credit.
The Company believes cash generated from operations, existing cash reserves
and available borrowings under its existing credit facility will satisfy the
Company's working capital and capital expenditure requirements for at least the
next twelve months.
The Company's balance sheet at December 31, 1998 includes the effects of
the Reorganization and, accordingly, the comparison to the balance sheet at
December 31, 1997 for other assets, other noncurrent liabilities, minority
interests in consolidated subsidiaries, redeemable common stock, common stock,
and additional paid-in capital reflects changes resulting from the accounting
adjustments recorded pursuant to the Reorganization.
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software which recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Sypris has implemented a company-wide Year 2000 Project (the "Y2K Project")
to address the Year 2000 issue. The Y2K Project encompasses both information
technology ("IT") and non-IT systems. The Y2K Project is being addressed by
project teams at each of the Company's subsidiaries and by the Company's IT
Committee, which consists of senior members of the IT departments from each
subsidiary.
Beginning in 1997, the Company began a program of reviewing its enterprise
resource planning ("ERP") systems to reduce the number of ERP systems utilized
across its business units and improve overall access to information. During
1998, the Company selected three primary ERP systems and is in the process of
implementing the upgrades or conversions for these new systems. All new ERP
systems are Year 2000 compliant, and the implementations have been completed or
are scheduled for completion at various dates through the second quarter of
1999. The Company has a contingency plan for the implementation of one ERP
system, which provides for a Year 2000 compliance patch to its current system in
the event an unforeseen problem is encountered during the total system
conversion. The implementation of the contingency plan would only become
necessary in the event the ERP system conversion would not be complete by the
second quarter of 1999.
A detailed assessment of all significant IT systems has been completed. The
project teams are implementing plans to correct problems identified during the
assessment phase of the Y2K Project. The implementation of the new ERP systems
and the related hardware modifications have addressed the majority of the
Company's business systems. The Company has also upgraded or replaced the
majority of its personal computers and standardized its desktop software
applications over the past three years. The Company expects that the testing and
remediation of all IT systems will be complete by the second quarter of 1999.
A detailed assessment of all significant non-IT systems is expected to be
completed by the first quarter of 1999. The Company has identified the critical
non-IT systems, which includes microcontroller based systems and other devices
with embedded chips used in the engineering, manufacturing and testing processes
and expects to complete the assessment, testing and remediation on the critical
systems by the first quarter of 1999. Completion of testing and remediation on
certain of the lower priority non-IT systems will continue during the second and
third quarters of 1999. The Company is also reviewing phone, security, HVAC and
other facility related systems and will complete the testing and remediation of
these systems by the second quarter of 1999.
The Company has identified and is communicating with customers, suppliers
and other critical service providers to determine if entities with which the
Company transacts business have an effective plan in place to address the Year
2000 issue, and to determine the extent of the Company's vulnerability to the
failure of third parties to remediate their own Year 2000 issue. The Company is
relying on statements from its service and goods suppliers and is
11
<PAGE>
not auditing suppliers' preparation plans. Risks associated with this approach
are being identified and contingency plans will be developed as needed.
As of December 31, 1998, the Company has spent less than $75,000 on its Y2K
Project, primarily on the assessment phase of the Y2K Project. Costs to be
incurred in 1999 to correct Year 2000 problems are estimated at approximately
$700,000. Such costs do not include normal system upgrades and replacements.
The costs incurred by the Company for the new ERP systems are considered to be
normal system upgrades and replacements and, therefore, are not included in
costs for the Y2K Project. The Company does not expect the costs relating to
Year 2000 remediation to have a material effect on its results of operations or
financial condition.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Y2K Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third-party suppliers and customers. The Company believes that, with
the implementation of new ERP systems and completion of the Y2K Project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company had no holdings of derivative financial or commodity
instruments at December 31, 1998. 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 not significantly affect the Company's net income. 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.
12
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors................... 14
Consolidated Statements of Operations............ 15
Consolidated Balance Sheets...................... 16
Consolidated Statements of Cash Flows............ 17
Consolidated Statements of Shareholders' Equity.. 18
Notes to Consolidated Financial Statements....... 19
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Sypris Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Sypris
Solutions, Inc. (and predecessor entities as described in Note 1) as of December
31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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.
Ernst & Young LLP
Louisville, Kentucky
February 19, 1999
14
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net revenue....................................................................................... $211,625 $217,355 $308,598
Cost of sales..................................................................................... 163,702 185,220 278,215
-------- -------- --------
Gross profit.................................................................................... 47,923 32,135 30,383
Selling, general and administrative expense....................................................... 28,169 26,658 26,264
Research and development.......................................................................... 5,940 3,487 3,049
Amortization of intangible assets................................................................. 963 205 557
-------- -------- --------
Operating income................................................................................ 12,851 1,785 513
Interest expense, net............................................................................. 1,298 1,959 3,979
Other income, net................................................................................. (204) (2,205) (828)
-------- -------- --------
Income (loss) before income taxes, minority interests and discontinued operations................. 11,757 2,031 (2,638)
Income tax expense................................................................................ 4,311 1,143 1,614
-------- -------- --------
Income (loss) before minority interests and discontinued operations............................... 7,446 888 (4,252)
Minority interests in losses of consolidated subsidiaries......................................... -- 639 1,716
-------- -------- --------
Income (loss) from continuing operations.......................................................... 7,446 1,527 (2,536)
Loss from discontinued operations (net of applicable taxes of $186 and $205 in 1997 and 1996,
respectively).................................................................................... -- (375) (609)
Gain on disposal of discontinued operations (net of applicable taxes of $2,160 and $2,932 in 1997
and 1996, respectively).......................................................................... -- 4,192 4,066
-------- -------- --------
Net income........................................................................................ $ 7,446 $ 5,344 $ 921
======== ======== ========
Pro forma earnings per common share:
Income (loss) from continuing operations:
Basic........................................................................................... $ 0.79 $ 0.09 $ (0.45)
Diluted......................................................................................... $ 0.76 $ 0.09 $ (0.43)
Net income (loss):
Basic........................................................................................... $ 0.79 $ 0.50 $ (0.08)
Diluted......................................................................................... $ 0.76 $ 0.48 $ (0.08)
Pro forma shares used in computing per common share amounts:
Basic........................................................................................... 9,438 9,424 9,424
Diluted......................................................................................... 9,793 9,826 9,826
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................................. $ 12,387 $ 9,836
Accounts receivable, net.............................................................................. 26,283 28,560
Inventory, net........................................................................................ 38,465 44,867
Other current assets.................................................................................. 1,724 2,062
---------- ----------
Total current assets................................................................................ 78,859 85,325
Property, plant and equipment, net...................................................................... 27,535 26,885
Intangible assets, net.................................................................................. 12,075 6,642
Other assets............................................................................................ 2,650 1,756
-------- --------
$ 121,119 $ 120,608
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................................... $ 13,004 $ 14,858
Accrued liabilities................................................................................... 23,651 31,867
Current portion of long-term debt..................................................................... 10,083 3,477
---------- ----------
Total current liabilities........................................................................... 46,738 50,202
Long-term debt.......................................................................................... 18,500 27,863
Other liabilities....................................................................................... 6,522 10,325
---------- ----------
Total liabilities................................................................................... 71,760 88,390
Commitments and contingencies
Minority interests in subsidiaries...................................................................... -- 3,569
Redeemable common stock................................................................................. -- 921
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; 9,450,593 shares issued and
outstanding in 1998................................................................................. 95 7,892
Additional paid-in capital............................................................................ 23,238 --
Retained earnings..................................................................................... 27,320 19,836
Accumulated other comprehensive income................................................................ (1,294) --
---------- ----------
Total shareholders' equity.......................................................................... 49,359 27,728
---------- ----------
$ 121,119 $ 120,608
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................................... $ 7,446 $ 5,344 $ 921
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................... 6,909 7,399 9,897
Deferred income taxes....................................................................... 989 (309) 563
Minority interests in losses of consolidated subsidiaries................................... -- (639) (1,716)
Provision for excess and obsolete inventory................................................. 851 2,130 4,106
Provision for doubtful accounts............................................................. 135 718 1,208
Gain on disposal of discontinued operations, net of tax..................................... -- (4,192) (4,066)
Other noncash (credits) charges............................................................. (258) (1,689) 1,011
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable......................................................................... 1,727 7,490 2,047
Inventory................................................................................... 4,245 (7,657) 15,164
Other current and noncurrent assets......................................................... (1,138) (775) 3,921
Accounts payable............................................................................ (1,855) (7,986) (17,774)
Accrued and other liabilities............................................................... (8,081) 117 (1,221)
------- -------- --------
Net cash provided by (used in) operating activities........................................... 10,970 (49) 14,061
Cash flows from investing activities:
Capital expenditures......................................................................... (5,845) (5,746) (7,366)
Proceeds from disposal of assets............................................................. 380 39,586 6,399
Purchase of the net assets of acquired entities.............................................. -- (14,400) --
Changes in nonoperating assets and liabilities............................................... (364) (911) (548)
------- -------- --------
Net cash (used in) provided by investing activities........................................... (5,829) 18,529 (1,515)
Cash flows from financing activities:
Net proceeds (repayments) under revolving credit agreements.................................. 720 (6,934) 216
Proceeds from long-term debt................................................................. -- 30,650 10,000
Principal payments on long-term debt......................................................... (3,284) (37,157) (22,321)
Proceeds from issuance of common stock....................................................... 40 -- --
Payments for redemption of common stock in subsidiaries, net................................. (66) (1,215) (125)
------- -------- --------
Net cash used in financing activities......................................................... (2,590) (14,656) (12,230)
------- -------- --------
Net increase in cash and cash equivalents..................................................... 2,551 3,824 316
Cash and cash equivalents at beginning of year................................................ 9,836 6,012 5,696
------- -------- --------
Cash and cash equivalents at end of year...................................................... $12,387 $ 9,836 $ 6,012
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
------------------- Paid-In Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income Equity
--------- -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996............................... 314,196 $ 7,892 $ -- $21,604 $ -- $29,496
Net income............................................... -- -- -- 921 -- 921
--------- ------- ------- ------- ------------ -------
Balance at December 31, 1996............................. 314,196 7,892 -- 14,492 -- 22,384
Net income............................................... -- -- -- 5,344 -- 5,344
--------- ------- ------- ------- ------------ -------
Balance at December 31, 1997............................. 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..................................... -- -- -- 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
========= ======= ======= ======= ============ =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 specialized industrial products and
technical services. The Company manufactures and sells integrated data
acquisition, storage and analysis systems, magnetic instruments, current
sensors, high-pressure closures, and a variety of other industrial products. The
Company also performs a wide range of specialized electronic design, assembly,
test, evaluation, calibration, and software-based encryption services on a
contract basis.
Basis of Presentation
Sypris is a Delaware corporation which 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. In connection with the Reorganization, a one-
for-four reverse stock split was effected for shareholders of record as of March
30, 1998. All references in the financial statements to number of shares and per
share amounts of the Company's common stock have been retroactively restated to
reflect the decreased number of shares outstanding.
The historical financial statements included herein as of and for the
periods ended prior to the Reorganization are the consolidated financial
statements of GFP, since GFP is deemed to be the acquirer for accounting
purposes. 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. Minority interest accounting was reflected in the historical
financial statements of GFP as of and for the periods ended prior to the
Reorganization based upon the proportionate share of the equity of GroupTech
owned by minority shareholders.
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.
19
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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. Buildings
and building improvements are depreciated over their estimated economic lives
principally using the straight-line method. Machinery, equipment, furniture and
fixtures are depreciated over their estimated economic lives principally using
the straight-line method. Leasehold improvements are amortized over the 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.
Intangible Assets
Goodwill, patents, non-compete agreements, product drawings, and similar
intangible assets are amortized over their estimated economic lives. Currently,
intangible assets are being amortized over periods ranging from five to fifteen
years, using the straight-line method. Goodwill resulting from the
Reogranization and the acquisition of certain assets of Datatape is being
amortized over a period of fifteen years (see Notes 2 and 7).
Impairment of Long-lived Assets
Impairment losses are recorded on long-lived assets used in operations
when impairment indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying value of such assets.
Contract Revenue Recognition
A portion of the Company's business is conducted under long-term, fixed-
price contracts with the U.S. Government and prime contractors with the U.S.
Government. Contract revenue is included in the consolidated statement of
operations 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 $56,867,000, $47,887,000 and $54,397,000 for the years ended
December 31, 1998, 1997 and 1996, 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.
20
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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, 1998 and 1997). 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 which are 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 $907,000, $1,600,000 and $2,327,000 in
1998, 1997 and 1996, respectively.
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, prime contractors with the U.S. Government and a number of customers
in diverse industries across geographic areas. At December 31, 1998, the Company
does 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 the U.S. Government and its agencies
of approximately $47,178,000, $40,170,000 and $38,725,000 during the years ended
December 31, 1998, 1997 and 1996, respectively. The Company's largest commercial
customer for the years ended December 31, 1997 and 1996 was IBM, which
represented approximately 10% and 12%, respectively, of the Company's revenue.
No other single customer accounted for more than 10% of the Company's net
revenue for the years ended December 31, 1998, 1997 or 1996.
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").
Net Income Per Common Share
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to SFAS 128 requirements (see Note 15).
21
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 superseded SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position, but did affect the disclosures of
segment information (see Note 16).
Employee Benefit Plans
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
132 supercedes the disclosure requirements of various prior pronouncements. The
overall objective of SFAS 132 is to improve and standardize disclosures about
pensions and other postretirement benefits and to make the required information
easier to prepare and more understandable. SFAS 132 eliminates certain former
disclosure requirements but requires certain additional disclosures. SFAS 132
addresses disclosure issues only and does not change the measurement or
recognition provisions specified in prior pronouncements (see Note 11).
Reclassifications
Certain amounts in the Company's 1997 and 1996 consolidated financial
statements have been reclassified to conform with the 1998 presentation.
(2) Mergers and Acquisitions
See "Basis of Presentation" included in Note 1 for a discussion of the
Reorganization on March 30, 1998 that resulted in the formation of Sypris. If
the Reorganization had occurred at the beginning of the year, income before
minority interests and discontinued operations in 1998 and 1997 would have been
reduced by $103,000 and $413,000, respectively.
On November 14, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Datatape Incorporated. The transaction
was accounted for as a purchase, in which the purchase price of $14,400,000 was
allocated based on the fair values of assets acquired and liabilities assumed,
with the excess amount allocated to goodwill, which totaled $4,631,000. The
acquisition was financed by the Company's credit agreement (see Note 9).
(3) Dispositions
On June 30, 1997, the Company sold to SCI Systems, Inc., SCI Systems De
Mexico S.A. de C.V. and SCI Holdings, Inc., (collectively, "SCI"), all of its
investment in the capital stock and/or equity interests of three of its wholly-
owned subsidiaries, Group Technologies S.A. de C.V., Group Technologies
Suprimentos de Informatica Industia E Comercio Ltda., and Group Technologies
Integraoes em Electronica Ltda (the "Latin American Operations"). These three
subsidiaries comprised all of GroupTech's operations in Latin America. GroupTech
also sold or assigned to SCI certain assets principally used in or useful to the
operations being sold, including accounts receivable, inventory, equipment,
accounts payable and equipment leases. The initial sales price of the
aforementioned assets totaled $18,000,000 in cash and the assumption by SCI of
certain liabilities. Pursuant to procedures described in the purchase and sale
agreement, the price is subject to subsequent adjustment, upward or downward,
based upon, among other things, the value of the net assets of the Latin
American Operations at June 29, 1997. The Company expects to repay $2,914,000 of
the initial sales price to SCI, subject to a final determination to
22
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
be made in accordance with the purchase and sale agreement. The Company
recognized a gain of $3,200,000 after giving consideration to its recorded
liability and expected repayment of $2,914,000, relative to this disposition.
<TABLE>
<C> <S>
(4) Accounts Receivable
</TABLE>
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Commercial....................... $18,789 $23,899
U.S. Government.................. 8,330 5,758
------- -------
27,119 29,657
Allowance for doubtful accounts.. (836) (1,097)
------- -------
$26,283 $28,560
======= =======
</TABLE>
Accounts receivable from the U.S. Government includes amounts due
under long-term contracts, all of which are billed at December 31, 1998 and
1997, of $2,203,000 and $1,144,000, respectively.
(5) Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Raw materials............................................................................................ $15,697 $17,137
Work-in process.......................................................................................... 12,447 14,954
Finished goods........................................................................................... 2,478 6,725
Costs relating to long-term contracts and programs, net of amounts attributed to revenue recognized to
date.................................................................................................... 16,700 17,729
Progress payments related to long-term contracts and programs............................................ (4,224) (5,189)
LIFO reserve............................................................................................. (609) (720)
Reserve for excess and obsolete inventory................................................................ (4,024) (5,769)
------- -------
$38,465 $44,867
======= =======
</TABLE>
The preceding amounts include inventory valued under the last-in,
first-out ("LIFO") method totaling $7,020,000 and $4,966,000 at December 31,
1998 and 1997, respectively, which approximates replacement cost.
23
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
(in thousands)
<S> <C> <C>
Land and land improvements.................... $ 991 $ 976
Buildings and building improvements........... 12,395 11,513
Machinery, equipment, furniture and fixtures.. 57,824 52,426
Facilities in progress........................ 967 866
-------- --------
72,177 65,781
Accumulated depreciation...................... (44,642) (38,896)
-------- --------
$ 27,535 $ 26,885
======== ========
</TABLE>
Depreciation expense totaled $5,934,000, $6,908,000 and $9,218,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
(7) Intangible Assets
Intangible assets consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Costs in excess of net assets of businesses acquired.. $11,849 $ 5,731
Other................................................. 2,727 2,437
------- -------
14,576 8,168
Accumulated amortization.............................. (2,501) (1,526)
------- -------
$12,075 $ 6,642
======= =======
</TABLE>
Amortization expense totaled $975,000, $491,000 and $679,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
(8) Accrued Liabilities
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Employee benefit plan accruals................................ $ 5,471 $ 5,547
Salaries, wages and incentives................................ 4,179 3,676
Sale of business price adjustment............................. 2,914 2,914
Payments received from customers in excess of contract costs.. 454 2,691
Other......................................................... 10,633 17,039
------- -------
$23,651 $31,867
======= =======
</TABLE>
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.
24
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(9) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Term Loan................................. $ 11,500 $14,500
Revolving Credit Facility................. 16,870 16,150
Other..................................... 213 690
-------- -------
28,583 31,340
Less current portion...................... (10,083) (3,477)
-------- -------
$ 18,500 $27,863
======== =======
</TABLE>
The Company has a credit agreement with a syndicate of banks which provides
a revolving credit loan of up to $30,000,000 (the "Revolving Credit Facility").
The credit agreement also provided the Company with a term loan of $15,000,000
(the "Term Loan"). Under the terms of the credit agreement, interest rates are
determined at the time of borrowing and are based on the prime rate, the London
Interbank Offered Rate plus a spread, or certain alternative rates, and
approximated 6.45% at December 31, 1998. The credit agreement also requires
compliance with a number of financial and non-financial covenants and prohibits
the Company from paying dividends. The commitment fee on the unused portion of
the revolving credit loan ranges from 0.15% to 0.35% per annum. Borrowings under
the credit agreement are secured by substantially all of the assets of the
Company. The Term Loan requires quarterly principal payments of $750,000 through
the scheduled maturity date on September 30, 2002. Although there have been no
modifications to the credit agreement in 1998 that affect the maturity date of
the Revolving Credit Facility, outstanding borrowings of $6,870,000 were
classified as current maturities of long-term debt at December 31, 1998 due to
the periodic use of the Company's cash balances for repayments of borrowings
under the Revolving Credit Facility.
Aggregate maturities of long-term debt as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.................................................... $10,083
2000.................................................... 3,000
2001.................................................... 3,000
2002.................................................... 12,500
-------
$28,583
=======
</TABLE>
Interest paid during the years ended December 31, 1998, 1997 and 1996
totaled $1,664,000, $2,238,000 and $6,082,000, 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 under the Revolving Credit Facility
approximates fair value, due to the short-term nature of the instrument. The
carrying amount of the Term Loan is assumed to approximate fair value because
there have not been any significant changes in market conditions or specific
circumstances since the instrument was recorded.
25
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(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 minimum pension liability of $1,294,000 during 1998. No tax benefit was
recorded related to this adjustment.
The following table details the components of pension expense for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Service cost benefits earned during the period...... $ 163 $ 157 $ 183
Interest cost of projected benefit obligation....... 1,312 1,312 1,266
Net amortizations and deferrals..................... 474 889 32
Actual return on plan assets........................ (1,321) (1,592) (656)
------- ------- ------
$ 628 $ 766 $ 825
======= ======= ======
</TABLE>
The following are summaries of the changes in the benefit obligations
and plan assets and of the funded status of the Pension Plans:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year........... $17,195 $15,637
Service cost...................................... 163 157
Interest cost..................................... 1,312 1,312
Actuarial loss.................................... 1,745 1,270
Benefits paid..................................... (1,230) (1,181)
------- -------
Benefit obligation at end of year................. $19,185 $17,195
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year.... $11,924 $10,304
Actual return on plan assets...................... 1,321 1,592
Company contributions............................. 1,131 1,209
Benefits paid..................................... (1,230) (1,181)
------- -------
Fair value of plan assets at end of year.......... $13,146 $11,924
======= =======
Funded status of the plans:
Benefit obligation at end of year................. $19,185 $17,195
Fair value of plan assets at end of year.......... 13,146 11,924
------- -------
Funded status of plan (underfunded)............... (6,039) (5,271)
Unrecognized actuarial loss (gain)................ 1,126 (301)
Unrecognized prior service cost................... 764 920
------- -------
Net liability recognized.......................... $(4,149) $(4,652)
======= =======
</TABLE>
26
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Balance sheet liabilities (assets):
Accrued benefit liability.................................. $ 6,203 $ 5,567
Intangible asset........................................... (760) (915)
Accumulated other comprehensive income..................... (1,294) ---
------- -------
Net amount recognized...................................... $ 4,149 $ 4,652
======= =======
Assumptions at year end:
Discount rate used in determining present values........... 7.00% 8.00%
Rate of compensation increase.............................. 3.25% 4.75%
Expected long-term rate of return on plan assets........... 8.50% 8.50%
</TABLE>
The Company sponsors defined contribution plans (the "Defined
Contribution Plans") for substantially all employees of the Company. The Defined
Contribution Plans are intended to meet the requirements of Section 401(k) of
the Internal Revenue Code. The Defined Contribution Plans allow the Company to
match participant contributions as approved by the Company's Board of Directors,
and certain of the Defined Contribution Plans include required base
contributions and discretionary contributions. Contributions to the Defined
Contribution Plans for 1998, 1997 and 1996 totaled $2,661,000, $1,863,000 and
$2,676,000, respectively.
The Company has partially self-insured medical plans (the "Medical
Plans") covering certain employees. 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 insured for amounts in excess of these
limits. Employees are responsible, in some instances, for payment of a portion
of the premiums. During 1998, 1997 and 1996, the Company charged $2,407,000,
$2,265,000 and $3,732,000, respectively, to operations related to reinsurance
premiums, medical claims incurred and estimated, and administrative costs for
the Medical Plans. Claims paid during 1998, 1997 and 1996 did not exceed the
aggregate limits.
(12) Commitments and Contingencies
The Company leases certain of its real property and certain computer,
manufacturing and office equipment under operating leases with terms ranging
from month-to-month to ten years and which contain various renewal and rent
escalation clauses. Future minimum noncancelable lease payments as of December
31, 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.............................................. $ 4,598
2000.............................................. 3,445
2001.............................................. 3,137
2002.............................................. 2,075
2003.............................................. 968
2004 and thereafter............................... 161
-------
$14,384
=======
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996
totaled $4,701,000, $3,406,000 and $4,892,000, respectively.
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.
27
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
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 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. Options
issued under stock compensation plans of subsidiaries prior to the
Reorganization were assumed by the Company without modifying the vesting terms
and conditions of the outstanding options. The number of shares issuable under
options assumed pursuant to the Reorganization and the related exercise price of
the outstanding options were determined in accordance with the terms of the
Reorganization. The following table summarizes option activity from the
effective date of the Reorganization through December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Range Price
--------- --------------- --------
<S> <C> <C> <C>
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
========= =============== ========
</TABLE>
28
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes certain weighted average data for
options outstanding and currently exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------ -----------------------
Weighted Average
----------------------- Weighted
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
-------------------- --------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.72........................ 156,648 $ 1.72 3.73 156,648 $ 1.72
$2.76 - $4.12................ 162,438 3.34 2.82 161,188 3.34
$4.24 - $6.24................ 258,396 4.71 7.17 92,317 4.83
$6.68 - $10.00............... 600,816 8.35 6.06 261,151 7.99
$10.52 - $15.76.............. 35,983 12.48 4.35 28,033 12.23
$16.12 - $23.00.............. 10,003 18.16 7.38 10,003 18.16
$25.52 - $31.00.............. 4,104 28.86 6.16 4,104 28.86
--------- -------- ----------- ----------- --------
Total...................... 1,228,388 $ 6.35 5.53 713,444 $ 5.58
========= ======== =========== =========== ========
</TABLE>
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 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 380,000 shares of common stock
were granted during 1998. None of the targeted price levels of the performance-
based options were achieved during 1998 and, accordingly, these options are
excluded from disclosures of options outstanding at December 31, 1998. The
aggregate number of shares of common stock reserved for issuance under the
Company's stock compensation programs as of December 31, 1998 was 2,750,000. The
aggregate number of shares available for future grant as of December 31, 1998
was 1,224,182.
29
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Prior to the Reorganization, stock compensation plans were maintained
for each entity. The Company used a formula price valuation as a basis for
establishing a market value for stock which was not publicly traded. The
following table summarizes option activity for periods prior to the
Reorganization:
<TABLE>
<CAPTION>
GFP Tube Turns Bell GroupTech
----------------------- ---------------------- ------------------------ ------------------------
Exercise Exercise Exercise Exercise
Price Price Price Price
Shares Range Shares Range Shares Range Shares Range
------- -------------- ------- ------------- -------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1996.............. 6,880 $45.99 - 73.40 55,000 $ 9.05 74,650 $ 9.92 - 15.49 1,019,951 $1.67 - 7.75
Granted....................... -- -- 20,000 10.75 35,000 13.47 - 16.56 631,437 0.84 - 3.00
Exercised..................... (280) 73.40 -- -- -- -- -- --
Forfeited..................... -- -- -- -- -- -- (251,700) 2.35 - 6.00
Expired....................... -- -- -- -- -- -- (150,000) 2.35
----- -------------- ------ ------------- ------- -------------- --------- ------------
Balance at
December 31, 1996............ 6,600 45.99 - 73.40 75,000 9.05 - 10.75 109,650 9.92 - 16.56 1,249,688 0.84 - 7.75
Granted....................... -- -- -- -- -- -- 806,879 0.88 - 4.03
Exercised..................... -- -- (5,000) 9.05 (36,350) 9.92 - 15.49 (600) 2.75
Forfeited..................... -- -- -- -- -- -- (411,600) 1.06 - 5.25
----- -------------- ------ ------------- ------- -------------- --------- ------------
Balance at
December 31, 1997........... 6,600 45.99 - 73.40 70,000 9.05 - 10.75 73,300 9.92 - 16.56 1,644,367 0.84 - 7.75
Granted....................... -- -- -- -- -- -- 16,080 3.25
Exercised..................... -- -- -- -- (10,400) 9.92 (154,000) 1.09 - 1.67
Forfeited..................... -- -- -- -- -- -- (9,800) 1.09 - 2.75
----- -------------- ------ ------------- ------- -------------- --------- ------------
Balance at
March 30, 1998.............. 6,600 $45.99 - 73.40 70,000 $9.05 - 10.75 62,900 $ 9.92 - 16.56 1,496,647 $0.84 - 7.75
===== ============== ====== ============= ======= ============== ========= ============
</TABLE>
The following table summarizes the weighted average exercise prices
for option activity for periods prior to the Reorganization:
<TABLE>
<CAPTION>
Tube
GFP Turns Bell GroupTech
------ ----- ------ ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1997....... $48.90 $9.50 $13.24 $2.30
Granted.......................... -- -- -- 1.29
Exercised........................ -- 9.05 13.85 2.75
Forfeited........................ -- -- -- 2.23
------ ----- ------ -----
Balance at December 31, 1997..... 48.90 9.54 12.94 1.82
Granted.......................... -- -- -- 3.25
Exercised........................ -- -- 9.92 1.06
Forfeited........................ -- -- -- 1.40
------ ----- ------ -----
Balance at March 30, 1998..... $48.90 $9.54 $13.45 $1.86
====== ===== ====== =====
</TABLE>
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 1998 were estimated at the date
of grant using a Black-Scholes option pricing model with the following weighted-
average assumptions: risk free interest rate
30
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
of 5.68%; expected term of 6.0 years; a volatility factor of the expected market
price of the Company's common stock of 0.942 and no dividend yield. The weighted
average fair value of options granted in 1998 was $6.91.
The fair value for options granted prior to the Reorganization was
estimated at the date of grant using a Black-Scholes option pricing model for
options of GroupTech and the minimum value method for all other options. No
dividend yield was assumed for all option grants during these periods. The
following weighted average assumptions were used for option grants:
<TABLE>
<CAPTION>
Years ended
December 31,
---------------
1997 1996
------ ------
<S> <C> <C>
Risk-free interest rate:
GroupTech option grants..................... 5.75% 5.88%
GFP, Tube Turns and Bell option grants...... -- 5.00%
Expected life in years:
GroupTech option grants..................... 3.3 2.6
GFP, Tube Turns and Bell option grants...... -- 8.2
Expected volatility:
GroupTech option grants..................... 1.12 0.71
</TABLE>
The per share weighted average fair value of options granted by
GroupTech during 1997 and 1996 was $1.30 and $1.10, respectively. No options
were granted by Tube Turns and Bell during 1997. The per share weighted average
fair value of options granted during 1996 by Tube Turns and Bell was $3.88 and
$6.64, respectively. During 1996, Bell also granted options below market price
with a per share weighted average value of $5.44.
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 for the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- --------
(in thousands, except for per share data)
<S> <C> <C> <C>
Pro forma income (loss) from continuing operations.. $ 5,989 $ 546 $ (4,521)
======== ======== ========
Pro forma net income (loss)......................... $ 5,989 $ 4,363 $ (1,064)
======== ======== ========
Pro forma per share data:
Income (loss) from continuing operations:
Basic............................................. $ 0.63 $ 0.06 $ (0.48)
Diluted........................................... $ 0.61 $ 0.06 $ (0.46)
Net income (loss):
Basic............................................. $ 0.63 $ 0.46 $ (0.11)
Diluted........................................... $ 0.61 $ 0.44 $ (0.11)
</TABLE>
31
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(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 to show the effect of 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 taxes related to continuing operations are as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal........................ $2,844 $1,171 $ (189)
State.......................... 441 138 407
Other.......................... 37 169 495
------ ------ ------
3,322 1,478 713
Deferred:
Federal....................... 1,011 (251) 931
State......................... (22) (84) (30)
------ ------ ------
989 (335) 901
------ ------ ------
$4,311 $1,143 $1,614
====== ====== ======
</TABLE>
The Company files a consolidated federal income tax return which
includes all subsidiaries. Income taxes paid during 1998, 1997 and 1996 totaled
$5,329,000, $4,747,000 and $3,708,000, respectively. Income tax refunds received
during 1997 totaled $1,373,000. At December 31, 1998, the Company had state net
operating loss carryforwards in the aggregate of approximately $19,200,000 with
various expiration dates.
The following is a reconciliation of income tax expense to that
computed by applying the federal statutory rate of 34% to income before income
taxes, minority interests and discontinued operations:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal tax at the statutory rate............................. $3,997 $ 691 $ (897)
State income taxes, net of federal tax benefit................ 291 47 372
Foreign income taxes.......................................... -- 152 481
State tax net operating loss carryforward..................... (66) (29) (671)
Change in valuation allowance for deferred tax asset.......... (882) 247 1,144
Other......................................................... 971 35 1,185
------ -------- --------
$4,311 $ 1,143 $ 1,614
====== ========= ========
</TABLE>
32
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Compensation and benefit accruals............................ $ 1,026 $ 1,381
Inventory valuation.......................................... 857 1,251
Net operating loss carryforward.............................. 1,041 975
Accounts receivable allowance................................ 310 194
Defined benefit pension plan................................. 1,629 1,361
Other........................................................ 1,405 2,514
------- -------
6,268 7,676
Valuation allowance.......................................... (5,876) (6,758)
------- -------
392 918
Deferred tax liabilities:
Stock issuance by subsidiary................................. -- (5,051)
Depreciation................................................. (1,148) (685)
Contract provisions.......................................... (194) (194)
------- -------
(1,342) (5,930)
------- -------
Net deferred tax liability.................................... $ (950) $(5,012)
======= =======
</TABLE>
The valuation allowance for deferred tax assets decreased by $882,000
in 1998. The decrease was the result of net changes in temporary differences.
Deferred tax liabilities decreased by $4,588,000 in 1998, primarily due to the
reversal of the deferred tax liability attributable to the issuance of common
stock by GroupTech in its initial public offering in 1994. The taxable temporary
difference which gave rise to this liability is not expected to occur as a
result of the Reorganization and was therefore eliminated in accounting for the
Reorganization. The valuation allowance for deferred tax assets increased by
$247,000 and $1,144,000 in 1997 and 1996, respectively. The valuation allowance
is recorded on the Company's deferred tax assets to reduce the total to an
amount that management believes will more likely than not be realized.
Realization of deferred tax assets is dependent upon sufficient taxable income
during the period that temporary differences and carryforwards are expected to
be available to reduce taxable income.
(15) Pro Forma Net Income Per Common Share
For periods ended prior to the Reorganization, shares used in
computing pro forma basic and pro forma diluted net income per common share
include the outstanding shares of Sypris common stock as of the date of the
Reorganization and the dilution associated with common stock options issued
prior to the Reorganization. For the year ended December 31, 1998, the
computation also gives effect to the dilution associated with the issuance of
common stock options subsequent to the Reorganization. Additionally, earnings
used in the computation of pro forma per share amounts for income from
continuing operations and net income for periods ended prior to the
Reorganization have been adjusted to exclude the minority interests reflected in
the historical financial statements of GFP.
33
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents information necessary to calculate pro forma
net income per common share for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands, except for per share data)
<S> <C> <C> <C>
Pro forma shares outstanding:
Weighted average shares outstanding................................... 9,438 9,424 9,424
Effect of dilutive employee stock options............................. 355 402 402
---------- ---------- ----------
Adjusted weighted average shares outstanding and assumed conversions.. 9,793 9,826 9,826
========== ========== ==========
Income applicable to pro forma common stock:
Income (loss) from continuing operations.............................. $ 7,446 $ 1,527 $ (2,536)
Discontinued operations............................................... -- 3,817 3,457
---------- ---------- ----------
Net income............................................................ 7,446 5,344 921
Minority interests in losses of consolidated subsidiaries............. -- (639) (1,716)
---------- ---------- ----------
Net income (loss) applicable to pro forma common stock................ $ 7,446 $ 4,705 $ (795)
========== ========== ==========
Pro forma income per common share:
Basic income per common share:
Income (loss) from continuing operations............................. $ 0.79 $ 0.09 $ (0.45)
Discontinued operations.............................................. -- 0.41 0.37
---------- ---------- ----------
Net income (loss) per common share................................... $ 0.79 $ 0.50 $ (0.08)
========== ========== ==========
Diluted income per common share:
Income (loss) from continuing operations............................. $ 0.76 $ 0.09 $ (0.43)
Discontinued operations.............................................. -- 0.39 0.35
---------- ---------- ----------
Net income (loss) per common share................................... $ 0.76 $ 0.48 $ (0.08)
========== ========== ==========
</TABLE>
34
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(16) Segment Information
The Company's operations are conducted in two reportable business
segments: the Electronics Group and the Industrial Group. The following presents
financial information for the reportable segments of the Company for the three
years ended December 31, 1998. There was no intersegment net revenue recognized
for all years presented.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Net revenue from unaffiliated customers:
Electronics Group........................ $ 174,396 $ 185,854 $ 283,915
Industrial Group......................... 37,229 31,501 24,683
---------- ---------- ----------
$ 211,625 $ 217,355 $ 308,598
========== ========== ==========
Gross profit:
Electronics Group........................ $ 41,400 $ 27,079 $ 27,332
Industrial Group......................... 6,523 5,056 3,051
---------- ---------- ----------
$ 47,923 $ 32,135 $ 30,383
========== ========== ==========
Operating income:
Electronics Group........................ $ 11,207 $ 2,501 $ 1,251
Industrial Group......................... 4,329 2,456 1,377
General, corporate and other............. (2,685) (3,172) (2,115)
---------- ---------- ----------
$ 12,851 $ 1,785 $ 513
========== ========== ==========
Total assets:
Electronics Group........................ $ 90,174 $ 97,978 $ 97,160
Industrial Group......................... 18,905 16,946 16,221
General, corporate and other............. 12,742 6,811 7,485
Discontinued operations.................. -- -- 15,495
Eliminations............................. (702) (1,127) (3,401)
---------- ---------- ----------
$ 121,119 $ 120,608 $ 132,960
========== ========== ==========
Depreciation and amortization:
Electronics Group........................ $ 5,933 $ 6,111 $ 7,033
Industrial Group......................... 825 816 629
General, corporate and other............. 151 93 56
Discontinued operations.................. -- 379 2,179
---------- ---------- ----------
$ 6,909 $ 7,399 $ 9,897
========== ========== ==========
Capital expenditures:
Electronics Group........................ $ 4,598 $ 3,329 $ 5,266
Industrial Group......................... 1,185 2,294 1,614
General, corporate and other............. 62 108 29
Discontinued operations.................. -- 15 457
---------- ---------- ----------
$ 5,845 $ 5,746 $ 7,366
========== ========== ==========
</TABLE>
35
<PAGE>
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company attributes net revenue to countries based upon the
location of its operations. Prior to June 30, 1997, the Company's Electronics
Group had operations in Latin America (see Note 3). The Company's assets since
that date are located exclusively in the United States. Export sales from the
United States totaled $25,551,000, $22,717,000 and $15,405,000 in 1998, 1997 and
1996, respectively. Following is geographic information regarding the Company's
net revenue:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
United States.................... $ 211,625 $ 200,424 $ 250,141
Latin America.................... -- 16,931 58,457
---------- ---------- ----------
$ 211,625 $ 217,355 $ 308,598
========== ========== ==========
</TABLE>
(17) Discontinued Operations
The Company formerly owned various commercial office buildings,
industrial buildings and land (the "Real Estate Group"). The assets of the Real
Estate Group were divested in a series of transactions beginning in October 1995
and ending in February 1997. The Real Estate Group is accounted for as a
discontinued operation and, accordingly, the results of operations and related
gain on the disposal are segregated in the accompanying consolidated statements
of operations. The Company received proceeds from the sale of the real estate of
$21,200,000 and $3,900,000 in 1997 and 1996, respectively. The majority of the
proceeds were used to repay mortgages on the related real estate properties.
(18) Quarterly Financial Information (Unaudited)
The following is an analysis of certain items in the consolidated
statements of operations by quarter for the years ended December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ------------------------------------
First Second Third Fourth First Second Third Fourth
------- ------- ------- ------- ------- ------- ------- -------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue................................... $55,490 $55,196 $46,936 $54,003 $49,350 $62,134 $47,752 $58,119
Gross profit.................................. 10,912 13,152 10,960 12,899 5,888 9,325 7,376 9,546
Operating income (loss)....................... 2,093 3,772 3,299 3,687 (829) 1,380 (403) 1,637
Income (loss) from continuing operations...... 1,061 2,087 1,919 2,379 (507) 685 1,856 (507)
Net income (loss)............................. 1,061 2,087 1,919 2,379 3,409 685 1,805 (555)
Pro forma per share data:
Income (loss) from continuing operations:
Basic....................................... 0.11 0.22 0.20 0.25 (0.13) 0.05 0.22 (0.05)
Diluted..................................... 0.11 0.21 0.20 0.24 (0.12) 0.04 0.21 (0.04)
Net income (loss):
Basic....................................... 0.11 0.22 0.20 0.25 0.29 0.05 0.21 (0.05)
Diluted..................................... 0.11 0.21 0.20 0.24 0.29 0.04 0.20 (0.05)
</TABLE>
36
<PAGE>
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.
37
<PAGE>
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
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- ------- ---- -----------
<C> <C> <S>
2 (10) 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.
2.1 (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.
2.2 (1) Purchase and Sale Agreement among Alliant Techsystems Inc., MAC
Acquisition I, Inc. and Group Technologies Corporation dated
December 31, 1992.
2.3 (1) Purchase and Sale Agreement among Philips Electronic North
America Corporation and Group Technologies Corporation dated
June 25, 1993.
2.4 (6) 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.
2.5 (14) Asset Purchase Agreement among Datatape Incorporated, Delta
Tango, Inc., Metrum-D, Inc., Impactdata, Inc. and M. Stuart
Millar dated November 12, 1997.
3.1 (12) Certificate of Incorporation of the Company.
3.2 (13) Bylaws of the Company.
4.1 Specimen common stock certificate.
4.2 (11) Agreement and Plan of Merger dated September 22, 1997 by and
between Group Technologies Corporation and Sypris Solutions,
Inc.
10.1 (7) 1997A Amended and Restated Loan Agreement between Bank One,
Kentucky, NA, BT Holdings, Inc., Bell Technologies, Inc., Tube
Turns Technologies, Inc., Group Technologies Corporation,
Metrum-D, Inc. and Group Financial Partners, Inc. dated November
1, 1997 and effective November 14, 1997.
10.1.1 (8) 1998A Amendment to Loan Documents, dated January 16, 1998.
10.1.2 (14) 1998B Amendment to Loan Documents, dated February 18, 1998.
10.2 (1) Form of U.S. Government Award/Contract.
10.3 (1) Master Lease Agreement between General Electric Capital
Corporation and Group Technologies Corporation dated April 1,
1993.
</TABLE>
38
<PAGE>
<TABLE>
<C> <C> <S>
10.4 (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.
10.5 (14) 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.
10.6 (14) Sublease between Pharmacia & Upjohn Company and Metrum-D, Inc.
dated November 14, 1997.
10.7 (3) Sypris Solutions, Inc. Stock Option Plan, Restated effective
December 17, 1996, dated January 22, 1990.
10.8 (15) Sypris Solutions, Inc. 1994 Stock Option Plan for Key Employees
as Amended and Restated effective July 1, 1998, dated October
27, 1994.
10.9 (14) Sypris Solutions, Inc. Share Performance Program For Stock
Option Grants dated July 1, 1998.
10.10 Sypris Solutions, Inc. Independent Directors' Stock Option Plan
as Amended and Restated effective February 23, 1999, dated
October 27, 1994.
10.11 (14) Sypris Solutions, Inc. Independent Directors Compensation
Program Amended and Restated on April 28, 1998, dated September
1, 1995.
10.12 Sypris Solutions, Inc. Profit Sharing Bonus Plan, effective as
of January 2, 1999.
10.13 Group Technologies Corporation Profit Sharing Bonus Plan,
effective as of January 2, 1999.
10.14 Tube Turns Technologies, Inc. Profit Sharing Bonus Plan,
effective as of January 2, 1999.
10.15 (14) Group Financial Partners, Inc. Profit Sharing Bonus Plan,
effective as of January 2, 1998.
10.16 (2) Group Technologies Corporate Management Deferred Compensation
Plan Restated effective October 16, 1995, dated August 29, 1995.
10.17 (9) Separation letter agreement dated December 10, 1996 between
Group Technologies Corporation and Carl P. McCormick.
10.18 (4) Stock Purchase Right Agreement dated April 7, 1997 between Group
Technologies Corporation and Thomas W. Lovelock.
10.19 (5) Employment Agreement by and between Group Technologies
Corporation and Thomas W. Lovelock dated June 23, 1997.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, independent auditors.
27 Financial Data Schedule.
</TABLE>
- ------------
(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-Q for the quarterly
period ended October 2, 1995 filed on November 15, 1995.
39
<PAGE>
(3) Incorporated by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1996 filed on March 31, 1997.
(4) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended March 30, 1997 filed on May 14, 1997.
(5) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 29, 1997 filed on August 13, 1997.
(6) Incorporated by reference to the Company's Form 8-K filed on July 15,
1997.
(7) Incorporated by reference to Exhibit 10.4.5 included in the Company's
Registration Statement on Form S-4/A filed February 12, 1998
(No. 333-20299).
(8) Incorporated by reference to Exhibit 10.4.6 included in the Company's
Registration Statement on Form S-4/A filed February 12, 1998
(No. 333-20299).
(9) Incorporated by reference to Exhibit 10.31 included in the Company's
Registration Statement on Form S-4/A filed February 12, 1998
(No. 333-20299).
(10) 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).
(11) 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).
(12) 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).
(13) 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).
(14) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 28, 1998 filed on August 4, 1998.
(15) Incorporated by reference to the Company's Form S-8 filed on
September 2, 1998.
40
<PAGE>
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 5,
1999.
SYPRIS SOLUTIONS, INC.
(Registrant)
/s/ Jeffrey T. Gill
-----------------------------------------
(Jeffrey T. Gill)
President and Chief Executive Officer
<TABLE>
<CAPTION>
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 5, 1999:
<S> <C>
/s/ Robert E. Gill Chairman of the Board
------------------------
(Robert E. Gill)
/s/ Jeffrey T. Gill President, Chief Executive Officer and Director
------------------------
(Jeffrey T. Gill)
/s/ David D. Johnson Vice President and Chief Financial Officer
------------------------ (Principal Financial Officer)
(David D. Johnson)
/s/ Anthony C. Allen Vice President and Controller
------------------------ (Principal Accounting Officer)
(Anthony C. Allen)
/s/ Henry F. Frigon Director
------------------------
(Henry F. Frigon)
/s/ R. Scott Gill Director
------------------------
(R. Scott Gill)
/s/ William L. Healey Director
------------------------
(William L. Healey)
/s/ Roger W. Johnson Director
------------------------
(Roger W. Johnson)
/s/ Sidney R. Petersen Director
------------------------
(Sidney R. Petersen)
/s/ Robert Sroka Director
------------------------
(Robert Sroka)
</TABLE>
41
<PAGE>
SCHEDULE II
SYPRIS SOLUTIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
---------- ---------- ------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998.................................. $1,097 $ 135 $ (396)(1) $ 836
====== ====== ======== ======
Year ended December 31, 1997.................................. $2,011 $ 718 $(1,632)(1) $1,097
====== ====== ======== ======
Year ended December 31, 1996.................................. $1,090 $1,208 $ (287)(1) $2,011
====== ====== ======== ======
Reserve for inactive, obsolete and unsalable
inventory:
Year ended December 31, 1998.................................. $5,769 $ 851 $(2,596)(2) $4,024
====== ====== ======== ======
Year ended December 31, 1997.................................. $6,531 $2,130 $(2,892)(2) $5,769
====== ====== ======== ======
Year ended December 31, 1996.................................. $8,563 $4,106 $(6,138)(2) $6,531
====== ====== ======== ======
</TABLE>
(1) Uncollectible accounts written off.
(2) Inactive, obsolete and unsalable inventory written off.
42
<PAGE>
Exhibit 4.1
COMMON STOCK COMMON STOCK
LOGO [LOGO] LOGO
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR CERTAIN DEFINITIONS
THE STATE OF DELAWARE
CUSIP 871655 10 6
PAR VALUE $0.01
SYPRIS SOLUTIONS, INC.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.01
EACH OF
=========================== SYPRIS SOLUTIONS, INC. =============================
transferable only on the books of Sypris Solutions, Inc. (the "Corporation") by
the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
In Witness whereof, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused a
facsimile of its corporate seal to be hereunto affixed.
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
(New York, New York) Transfer Agent
and Registrar
By
Authorized Signature
Dated: [LOGO]
/s/ Richard L. Davis /s/ Jeffrey T. Gill
SECRETARY PRESIDENT and CEO
<PAGE>
SYPRIS SOLUTIONS, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
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The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with
right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - Custodian
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(Cust) (Minor)
under Uniform Gifts to Minors Act
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(State)
Additional abbreviations may be used though not in the above list.
For Value received, hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
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Shares
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of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
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Attorney
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to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, X
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X
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NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
EXHIBIT 10.10
SYPRIS SOLUTIONS, INC.
INDEPENDENT DIRECTORS' STOCK OPTION PLAN
ADOPTED ON OCTOBER 27, 1994
AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 23, 1999
PREAMBLE
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The Sypris Solutions, Inc. Independent Directors' Stock Option Plan is a
restatement of the Group Technologies Corporation Independent Directors' Stock
Option Plan adopted by Group Technologies Corporation effective October 27,
1994. Group Technologies Corporation was merged into Sypris Solutions, Inc.
effective March 30, 1998, with Sypris Solutions, Inc. being the surviving
corporation. Pursuant to the provisions of the plan, Group Technologies
Corporation common stock subject to the plan and outstanding options under the
plan are automatically by virtue of the merger converted into and replaced by
Sypris Solutions, Inc. common stock. The plan was amended and restated on March
30, 1998 to reflect the changes caused by the merger. The Plan is hereby again
amended and restated, effective February 23, 1999, for the purpose of increasing
the number of shares authorized for issuance under the Plan, as set forth
herein.
1. Purpose. The purpose of the Sypris Solutions, Inc. Independent Directors'
Stock Option Plan is to promote the interests of the Company by affording an
incentive to certain persons not affiliated with the Company and its
Subsidiaries to serve as a director of the Company in order to bring additional
expertise and business judgment to the Company through the opportunity for stock
ownership offered under this Plan.
2. Definitions.
A. "Board" means the Company's Board of Directors.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Common Stock" means the Company's common stock, $.01 par value, or the
common stock or securities of a Successor that have been substituted theretofore
pursuant to Section 9.
D. "Company" means Sypris Solutions, Inc., a Delaware corporation, with its
principal place of business at 455 South Fourth Street, Suite 350, Louisville,
Kentucky 40202.
E. "Compensation Committee" means the Compensation Committee of the Board that
administers the Plan pursuant to Section 4.
F. "Independent Director" means an individual serving as a director on the
Company's Board of Directors and who is not otherwise employed by the Company or
its Subsidiaries or an affiliate thereof.
G. "Option Price" means the price to be paid for Common Stock upon the
exercise of an option granted under the Plan, in accordance with Section 7.B.
H. "Optionee" means an Independent Director to whom options have been granted
under the Plan.
<PAGE>
I. "Optionee Representative" means the Optionee's estate or the person or
persons entitled thereto by will or by applicable laws of descent and
distribution.
J. "Plan" means the Sypris Solutions, Inc. Independent Directors' Stock Option
Plan, as set forth herein, and as amended from time to time.
K. "Subsidiary" means any corporation which at the time an option is granted
under the Plan qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Code Section 424(f), or any similar
provision thereafter enacted.
L. "Successor" means the entity surviving a merger or consolidation with the
Company, or the entity that acquires all or a substantial portion of the
Company's assets or outstanding capital stock (whether by merger, purchase or
otherwise).
3. Shares Subject to Plan.
A. Authorized Unissued or Treasury Shares. Subject to the provisions of
Section 9, the shares to be delivered upon exercise of options granted under the
Plan shall be made available, at the discretion of the Board, from the
authorized unissued shares or treasury shares of Common Stock.
B. Aggregate Number of Shares. Subject to adjustments and substitutions made
pursuant to the provisions of Section 9, the aggregate number of shares that may
be issued upon exercise of all options that may be granted under the Plan shall
not exceed five hundred thousand (500,000) of the Company's authorized shares of
Common Stock.
C. Shares Subject to Expired Options. If any option granted under the Plan
expires or terminates for any reason without having been exercised in full in
accordance with the terms of the Plan, the shares of Common Stock subject to,
but not delivered under, such option shall become available for any lawful
corporate purpose, including for transfer pursuant to other options granted to
the same employee or other employees without decreasing the aggregate number of
shares of Common Stock that may be granted under the Plan.
4. Administration. The Plan shall be administered by the Compensation
Committee of the Board. The Compensation Committee shall have full power and
authority to construe, interpret, and administer the Plan and to adopt such
rules and regulations for carrying out the Plan as it may deem proper and in the
best interests of the Company.
5. Grant of Options. Subject to the terms, provisions and conditions of the
Plan, the Board shall have full and final authority in its discretion: (i) to
select the Independent Directors to whom options shall be granted; (ii) to
determine the number of shares of Common Stock subject to each option; (iii) to
determine the time or times when options will be granted, the manner in which
each option shall be exercisable, and the duration of the exercise period; and
(iv) to fix such other provisions of the option agreement as it may deem
necessary or desirable consistent with the terms of the Plan. Subject to the
terms, provisions and conditions of the Plan, either the Board or the
Compensation Committee shall have full and final authority in its discretion to
determine all other questions relating to the administration of the Plan. The
interpretation of any provisions of the Plan by either the Board or the
Compensation Committee shall be final, conclusive, and binding upon all persons
and the officers of the Company shall place into effect and shall cause the
Company to perform its obligations under the Plan in accordance with the
determinations of the Board or the Compensation Committee in administering the
Plan.
<PAGE>
6. Eligibility. Independent Directors of the Company shall be eligible to
receive options under the Plan. No Company director who is also a Company
employee or a Subsidiary employee shall be entitled to receive an option under
the Plan. Independent Directors to whom options may be granted under the Plan
will be those selected by the Board from time to time who, in the sole
discretion of the Board, have contributed in the past or who may be expected to
contribute materially in the future to the successful performance of the Company
and its Subsidiaries.
7. Terms and Conditions of Options. Each option granted under the Plan shall
be evidenced by an option agreement signed by the Optionee and by a member of
the Board. An option agreement shall constitute a binding contract between the
Company and the Optionee, and every Optionee, upon acceptance of such option
agreement, shall be bound by the terms and restrictions of the Plan and of the
option agreement. Such agreement shall be subject to the following express
terms and conditions and to such other terms and conditions that are not
inconsistent with the Plan and that the Board may deem appropriate.
A. Option Period. Options granted under the Plan shall be exercisable
immediately and, if not exercised, shall lapse at the earliest of the following
times:
(i) ten (10) years from the date of grant; or
(ii) the date set by the grant and specified in the applicable option
agreement.
B. Option Price. The Option Price per share of Common Stock shall be the fair
market value of the Common Stock on the date the option is granted and shall be
subject to adjustments in accordance with the provisions of Section 9.
C. Fair Market Value. The fair market value of the Common Stock on any given
measurement date shall be determined as follows:
(i) if the Common Stock is traded on the over-the-counter market, the
sale price for the Common Stock in the over-the-counter market on the
measurement date (or if there was no sale of the Common Stock on such
date, on the immediately preceding date on which there was a sale of
the Common Stock), as reported by the National Association of
Securities Dealers Automated Quotation System; or
(i) if the Common Stock is listed on a national securities exchange,
the closing sale price for the Common Stock on the Composite Tape on
the measurement date; or
(i) if the Common Stock is neither traded on the over-the-counter
market nor listed on a national securities exchange, such value as the
Board, in good faith, shall determine.
D. Payment of Option Price. Each option shall provide that the purchase price
of the shares as to which an option shall be exercised shall be paid to the
Company at the time of exercise either in cash or in such other consideration as
the Board deems acceptable, and which other consideration in the Board's sole
discretion may include: (i) Common Stock of the Company already owned by the
Optionee having a total fair market value on the date of exercise, determined in
accordance with Section 7.C, equal to the purchase price, (ii) Common Stock of
the Company issuable upon the exercise of a Plan option and withheld by the
Company having a total fair market value on the date of exercise, determined in
accordance with Section 7.C, equal to the purchase price, or (iii) a combination
of cash and Common Stock of the Company (either shares already owned by the
Optionee or shares being withheld upon the
<PAGE>
exercise of a Plan option) having a total fair market value on the date of
exercise, determined in accordance with Section 7.C, equal to the amount of the
purchase price not paid in cash.
E. Manner of Exercise. Subject to the terms and conditions of any applicable
option agreement, any option granted under the Plan may be exercised in whole or
in part. To initiate the process for the exercise of an option: (i) the Optionee
shall deliver to the Company, or to a broker-dealer in the Common Stock with the
original copy to the Company, a written notice of intent to exercise an option
specifying the number of shares as to which the option is being exercised and,
if determined by counsel for the Company to be necessary, representing that such
shares are being acquired for investment purposes only and not for the purpose
of resale or distribution; and (ii) the Optionee, or the broker-dealer, shall
pay for the exercise price of such shares with cash, or if the Board in its
discretion agrees to so accept, by delivery to the Company of Common Stock of
the Company (either shares already owned by the Optionee or shares being
withheld upon the exercise of a Plan option), or in some combination of cash and
such Common Stock acceptable to the Board. If payment of the Option Price is
made with Common Stock, the value of the Common Stock used for such payment
shall be the fair market value of the Common Stock on the date of exercise as
determined in accordance with Section 7.C. The date of exercise of a stock
option shall be determined under procedures established by the Board, but in no
event shall the date of exercise precede the date on which both the written
notice of intent to exercise an option and full payment of the exercise price
for the shares as to which the option is being exercised have been received by
the Company. Promptly after receiving full payment for the shares as to which
the option is being exercised and, provided that all conditions precedent
contained in the Plan are satisfied, the Company shall, without transfer or
issuance tax or other incidental expenses to the Optionee, deliver to the
Optionee a certificate for such shares of the Common Stock. If the Optionee
fails to accept delivery of the Common Stock, the Optionee's rights to exercise
the applicable portion of the option shall terminate.
F. Investment Representation. Each option agreement may provide that, upon
demand by the Board for such a representation, the Optionee or Optionee
Representative shall deliver to the Board at the time of any exercise of an
option or portion thereof a written representation that the shares to be
acquired upon such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof. Upon such demand, delivery of such
representation before delivery of Common Stock issued upon exercise of an option
and before expiration of the option period shall be a condition precedent to the
right of the Optionee or Optionee Representative to purchase Common Stock.
G. Exercise in the Event of Death or Termination of Service. Upon termination
of service as an Independent Director, for whatever reason, any and all stock
options held by the Optionee shall remain effective and may be exercised by the
Optionee or the Optionee Representative until the expiration of the applicable
option term.
H. Transferability of Options. An option granted under the Plan may not be
transferable and may be exercised only by the Optionee during the Optionee's
lifetime, or by the Optionee Representative in the event of the Optionee's
death, to the extent the option was exercisable by the Optionee at the date of
his death.
I. No Rights as Shareholder. No Optionee or Optionee Representative shall have
any rights as a shareholder with respect to Common Stock subject to his option
before the date of transfer to him of a certificate or certificates for such
shares.
J. Tax Withholding. To the extent required by applicable law, the Optionee
shall, on the date of exercise, make arrangements satisfactory to the Company
for the satisfaction of any withholding tax obligations that arise by reason of
an option exercise or any sale of shares. The Board, in its sole discretion, may
permit these obligations to be satisfied in whole or in part with: (i) cash paid
by the
<PAGE>
Optionee or by a broker-dealer on behalf of the Optionee, (ii) shares of Common
Stock that otherwise would be issued to the Optionee upon exercise of the
option, and/or (iii) shares of Common Stock previously acquired. The Company
shall not be required to issue shares for the exercise of an option until such
tax obligations are satisfied and the Company may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise due
to the Optionee.
8. Compliance With Other Laws and Regulations. The Plan, the grant and exercise
of options thereunder, and the obligation of the Company to sell and deliver
Common Stock under such options, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for Common Stock before: (i) the listing of the
Common Stock on any stock exchange or over-the-counter market on which the
Common Stock may then be listed and (ii) the completion of any registration or
qualification of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable. To the extent the Company
meets the then applicable requirements for the use thereof and to the extent the
Company may do so without undue cost or expense, and subject to the
determination by the Board of Directors of the Company that such action is in
the best interest of the Company, the Company intends to register the issuance
and sale of such Common Stock by the Company under federal and applicable state
securities laws using a Form S-8 registration statement under the Securities Act
of 1933, as amended, or such successor Form as shall then be available.
9. Capital Adjustments Affecting Stock, Mergers and Consolidations.
A. Capital Adjustments. In the event of a capital adjustment in the Common
Stock resulting from a stock dividend, stock split, reorganization, merger,
consolidation, or a combination or exchange of shares, the number of shares of
Common Stock subject to the Plan and the number of shares under option shall be
automatically adjusted to take into account such capital adjustment. By virtue
of such a capital adjustment, the price of any share under option shall be
adjusted so that there will be no change in the aggregate purchase price payable
upon exercise of any such option.
B. Mergers and Consolidations. In the event the Company merges or consolidates
with another entity, or all or a substantial portion of the Company's assets or
outstanding capital stock are acquired (whether by merger, purchase or
otherwise) by a Successor, the kind of shares of Common Stock that shall be
subject to the Plan and to each outstanding option shall, automatically by
virtue of such merger, consolidation or acquisition, be converted into and
replaced by shares of common stock, or such other class of securities having
rights and preferences no less favorable than the Common Stock of the Successor,
and the number of shares subject to the option and the purchase price per share
upon exercise of the option shall be correspondingly adjusted, so that, by
virtue of such merger, consolidation or acquisition, each Optionee shall have
the right to purchase: (i) that number of shares of common stock of the
Successor that have a book value equal, as of the date of such merger,
conversion or acquisition, to the book value, as of the date of such merger,
conversion or acquisition, of the shares of Common Stock of the Company
theretofore subject to the Optionee's option, (ii) for a purchase price per
share that, when multiplied by the number of shares of common stock of the
Successor subject to the option, shall equal the aggregate exercise price at
which the Optionee could have acquired all of the shares of Common Stock of the
Company theretofore optioned to the Optionee.
C. No Effect on Company's Rights. The granting of an option pursuant to the
Plan shall not effect in any way the right and power of the Company to make
adjustments, reorganizations, reclassifications, or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.
<PAGE>
10. Amendment, Suspension, or Termination. The Board shall have the right, at
any time, to amend, suspend or terminate the Plan. Notwithstanding the
foregoing, without the consent of the Optionee, no amendment shall make any
changes in an outstanding option which would adversely affect the rights of the
Optionee.
11. Effective Date, Term and Approval. The Plan is effective October 27, 1994
(the date of Board adoption of the Plan). The Plan was approved by stockholders
of the Company holding not less than a majority of the shares present and voting
at its 1995 annual meeting on April 21, 1995. The Plan shall terminate ten (10)
years after the effective date of the Plan and no options may be granted under
the Plan after such time, but any option granted prior thereto may be exercised
in accordance with its terms.
12. Governing Law; Severability. The Plan shall be governed by the laws of the
State of Delaware. The invalidity or unenforceability of any provision of the
Plan or any option granted pursuant to the Plan shall not affect the validity
and enforceability of the remaining provisions of the Plan and the options
granted hereunder, and such invalid or unenforceable provision shall be stricken
to the extent necessary to preserve the validity and enforceability of the Plan
and the options granted hereunder.
Dated this 23rd day of February, 1999.
SYPRIS SOLUTIONS, INC.
By:/s/ Jeffrey T. Gill
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Jeffrey T. Gill
President & CEO
<PAGE>
EXHIBIT 12
SYPRIS SOLUTIONS INC.
PROFIT SHARING BONUS PLAN
1999 FISCAL YEAR
1. Establishment of Plan.
Sypris Solutions Inc., a Delaware corporation (the "Company"), established
this profit sharing bonus plan effective as of January 2, 1999 (the "Plan"), to
provide a financial incentive for employees of the Company to advance the growth
and prosperity of the Company.
2. Eligibility.
All full-time employees of the Company shall be eligible to participate in
the Plan, other than those employees who are specifically included in another
incentive bonus and/or profit sharing plan of the Company in lieu of
participation in this Plan.
3. Profit Sharing Pool.
Award amounts will be based on a Profit Sharing Pool that shall be comprised
of ten percent (10%) of the increase in the consolidated Profit Before Bonus and
Taxes of the Company for the current fiscal year from the previous fiscal year,
as reported on the consolidated financial statements of the Company. No award
shall be granted should the Profit Before Bonus and Taxes of the Company for the
current fiscal year decline from that of the previous fiscal year.
4. Participants.
(a) Eligibility. Employees of the Company who are specifically designated by
the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") for participation during the current fiscal year. A
list of the participants shall be attached to a copy of this Plan and shall
include each participant's name, salary, start date (for purposes of the current
fiscal year), maximum percentage share of the Key Executive Award, and
objectives for the year.
(b) Amount of Award. Each eligible employee shall be entitled to an amount
equal to his or her maximum percentage share, subject to an adjustment and/or
determination by the Compensation Committee to reflect (i) the actual
contribution of the employee to the Company's performance and profitability
during the course of the fiscal year, (ii) the portion of the fiscal year
employed, (iii) his or her performance to goals, and (iv) the recommendation of
the President and CEO of the Company, subject to the cap on such award as
provided herein and the provisions of Sections 4(c), 8(a) and 8(b) below. The
maximum amount payable to an eligible employee shall be equal to the lesser of
his or her maximum percentage share or one hundred percent (100%) of the
eligible employee's base salary.
(c) Time of Payment. Awards shall be payable to each eligible employee as
soon as administratively practicable after release of the audited annual
financial statements of the Company; provided, however, that the Plan shall be
in effect as of the date of payment and such employee shall be employed by the
Company as of the date of payment. No employee shall have any right to payment
of an award unless the Plan is in effect and the employee is employed by the
Company as of the date of payment.
5. Method of Payment.
Awards shall be payable by check in lump sum. All such payments shall be
subject to withholding for income, social security or other such payroll taxes
as may be appropriate.
<PAGE>
6. Administration.
The Compensation Committee shall administer this Plan. The decisions of the
Compensation Committee in interpreting and applying the Plan shall be final.
7. Miscellaneous.
(a) Employment Rights. The adoption and maintenance of this Plan is not an
employment agreement between the Company and any employee. Nothing herein
contained shall be deemed to give any employee the right to be retained in the
employ of the Company nor to interfere with the right of the Company to
discharge any employee at any time.
(b) Amendment and Termination. The Company may, without the consent of any
employee or beneficiary, amend or terminate the Plan at any time and from time-
to-time.
(c) Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) Construction. The headings and subheadings of this Plan have been
inserted for convenience for reference only and are to be ignored in any
construction of the provisions hereof. The masculine shall be deemed to include
the feminine, the singular shall include the plural, and the plural shall
include the singular unless the context otherwise requires. The invalidity or
unenforceability of any provision hereunder shall not affect the validity or
enforceability of the balance hereof. This Plan represents the entire
undertaking by the Company concerning its subject matter and supersedes all
prior undertakings with respect thereto. No provision hereof may be waived or
discharged except by a written document approved by the Compensation Committee
and signed by a duly authorized representative of the Company.
SYPRIS SOLUTIONS INC.
/S/ Jeffrey T. Gill
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President & CEO
January 2,1999
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Date
<PAGE>
EXHIBIT 13
GROUP TECHNOLOGIES CORPORATION
PROFIT SHARING BONUS PLAN
1999 FISCAL YEAR
1. Establishment of Plan.
Sypris Solutions Inc., a Delaware corporation ("Sypris"), established this
profit sharing bonus plan effective as of January 2, 1999 (the "Plan"), to
provide a financial incentive for the employees of Group Technologies
Corporation, a wholly-owned subsidiary and a Florida corporation (the
"Company"), to advance the growth and prosperity of Sypris and the Company.
2. Eligibility.
All full-time employees of the Company shall be eligible to participate in
the Plan, other than those employees who are specifically included in another
incentive bonus and/or profit sharing plan of the Company in lieu of
participation in this Plan.
3. Profit Sharing Pool.
(a) Award amounts will be based on a Profit Sharing Pool that shall be
comprised of (i) five percent (5%) of the Profit Before Bonus and Taxes of the
Company for the previous fiscal year and (ii) thirty percent (30%) of the
increase in Profit Before Bonus and Taxes of the Company for the current fiscal
year from the previous fiscal year, as reported on the financial statements of
the Company. No award shall be granted should the Profit Before Bonus and Taxes
of the Company for the current fiscal year decline from that of the previous
fiscal year.
(b) The sum of the face amount of all accounts receivable which have not
been collected within ninety (90) days of the date of invoice and which have not
otherwise been reserved for on the Company's balance sheet as of December 31,
1999, shall be deducted from the Profit Sharing Pool and classified as a
"Delayed Bonus Payment." If an invoice is determined to be uncollectable and is
subsequently written-off, the amount of the Delayed Bonus Payment will be
reduced accordingly.
(c) The Profit Sharing Pool and the Delayed Bonus Payment shall be divided
into two award levels, with thirty-five percent (35%) of the Profit Sharing Pool
and the Delayed Bonus Payment set aside for award to Key Executives (the "Key
Executive Award") and sixty-five percent (65%) of the Profit Sharing Pool and
the Delayed Bonus Payment set aside for Key Employees (the "Key Employee
Award").
4. Key Executive Award.
(a) Eligibility. Key Executives shall be eligible employees of the Company
who are specifically designated by the Compensation Committee of the Board of
Directors of Sypris (the "Compensation Committee") for participation during the
current fiscal year. A list of the participants shall be attached to a copy of
this Plan and shall include each participant's name, salary, start date (for
purposes of the current fiscal year), maximum percentage share of the Key
Executive Award, and objectives for the year.
(b) Amount of Award. Each eligible Key Executive employee shall be
entitled to an amount equal to his or her maximum percentage share of the Key
Executive Award, subject to an adjustment and/or determination by the
Compensation Committee to reflect (i) the actual contribution of the employee to
the Company's performance and profitability during the course of the fiscal
year, (ii) the portion of the fiscal year employed, (iii) his or her performance
to goals, and (iv) the recommendation of the President and CEO of the
<PAGE>
Company,subject to the cap on such award as provided herein and the provisions
of Sections 4(c), 8(a) and 8(b) below. The maximum amount payable to an eligible
Key Executive employee shall be equal to the lesser of his or her maximum
percentage share of the Key Executive Award or one hundred percent (100%) of the
eligible Key Executive employee's base salary.
(c) Time of Payment. Awards shall be payable to each eligible Key
Executive employee as soon as administratively practicable after release of the
audited annual financial statements of Sypris; provided, however, that the Plan
shall be in effect as of the date of payment and such employee shall be employed
by the Company as of the date of payment. No employee shall have any right to
payment of an award unless the Plan is in effect and the employee is employed by
the Company as of the date of payment.
(d) Delayed Bonus Payment. Distribution of the Delayed Bonus Payment will
be made to each eligible Key Executive employee when payment of all invoices
which created the Delayed Bonus Payment have been received and/or the amounts
have been written-off by the Company; provided, however, that the Plan shall be
in effect as of the date of the payment and such employee shall be employed by
the Company as of the date of payment. No employee shall have any right to
payment of an award unless the Plan is in effect and the employee is employed by
the Company as of the date of payment.
5. Key Employee Award.
(a) Eligibility. Key Employees shall be eligible employees of the Company
who are specifically designated by the Compensation Committee for participation
during the current fiscal year. A list of the participants shall be attached to
a copy of this Plan and shall include each participant's name, salary, start
date (for purposes of the current fiscal year) and maximum percentage share of
the Key Employee Award.
(b) Amount of Award. Each eligible Key Employee shall be entitled to an
amount equal to his or her maximum percentage share of the Key Employee Award,
subject to an adjustment and/or determination by the Compensation Committee to
reflect (i) the actual contribution of the employee to the Company's performance
and profitability during the course of the fiscal year, (ii) the portion of the
fiscal year employed, and (iii) the recommendation of the President and CEO of
the Company, subject to the cap on such award as provided herein and the
provisions of Sections 5(c), 8(a) and 8(b) below. The maximum amount payable to
an eligible Key Employee shall be equal to the lesser of his or her maximum
percentage share of the Key Executive Award or one hundred percent (100%) of the
eligible Key Employee's base salary.
(c) Time of Payment. Awards shall be payable to each eligible Key Employee
as soon as administratively practicable after release of the audited annual
financial statements of Sypris; provided, however, that the Plan shall be in
effect as of the date of payment and such employee shall be employed by the
Company as of the date of payment. No employee shall have any right to payment
of an award unless the Plan is in effect and the employee is employed by the
Company as of the date of payment.
(d) Delayed Bonus Payment. Distribution of the Delayed Bonus Payment will
be made to each eligible employee when payment of all invoices which created the
Delayed Bonus Payment have been received and/or the amounts have been written-
off by the Company; provided, however, that the Plan shall be in effect as of
the date of payment and such employee shall be employed by the Company as of the
date of payment. No employee shall have any right to payment of an award unless
the Plan is in effect and the employee is employed by the Company as of the date
of payment.
6. Method of Payment.
Awards shall be payable by check in lump sum. All such payments shall be
subject to withholding for income, social security or other such payroll taxes
as may be appropriate.
<PAGE>
7. Administration.
The Compensation Committee shall administer this Plan. The decisions of
the Compensation Committee in interpreting and applying the Plan shall be final.
8. Miscellaneous.
(a) Employment Rights. The adoption and maintenance of this Plan is not an
employment agreement between the Company and any employee. Nothing herein
contained shall be deemed to give any employee the right to be retained in the
employ of the Company nor to interfere with the right of the Company to
discharge any employee at any time.
(b) Amendment and Termination. The Company may, without the consent of any
employee or beneficiary, amend or terminate the Plan at any time and from time-
to-time.
(c) Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) Construction. The headings and subheadings of this Plan have been
inserted for convenience for reference only and are to be ignored in any
construction of the provisions hereof. The masculine shall be deemed to include
the feminine, the singular shall include the plural, and the plural shall
include the singular unless the context otherwise requires. The invalidity or
unenforceability of any provision hereunder shall not affect the validity or
enforceability of the balance hereof. This Plan represents the entire
undertaking by the Company concerning its subject matter and supersedes all
prior undertakings with respect thereto. No provision hereof may be waived or
discharged except by a written document approved by the Compensation Committee
and signed by a duly authorized representative of the Company.
SYPRIS SOLUTIONS INC. GROUP TECHNOLOGIES CORP.
/s/ Jeffrey T. Gill /s/ Thomas W. Lovelock
------------------- ----------------------
President & CEO President & CEO
January 2, 1999 January 2, 1999
--------------- ---------------
Date Date
<PAGE>
EXHIBIT 14
TUBE TURNS TECHNOLOGIES, INC.
PROFIT SHARING BONUS PLAN
1999 FISCAL YEAR
1. Establishment of Plan.
Sypris Solutions Inc., a Delaware corporation ("Sypris"), established this
profit sharing bonus plan effective as of January 2, 1999 (the "Plan"), to
provide a financial incentive for the employees of Tube Turns Technologies,
Inc., a wholly-owned subsidiary and a Kentucky corporation (the "Company"), to
advance the growth and prosperity of Sypris and the Company.
2. Eligibility.
All full-time employees of the Company shall be eligible to participate in
the Plan, other than those employees who are specifically included in another
incentive bonus and/or profit sharing plan of the Company in lieu of
participation in this Plan.
3. Profit Sharing Pool.
(a) Award amounts will be based on a Profit Sharing Pool that shall be
comprised of (i) five percent (5%) of the Profit Before Bonus and Taxes of the
Company for the previous fiscal year and (ii) thirty percent (30%) of the
increase in Profit Before Bonus and Taxes of the Company for the current fiscal
year from the previous fiscal year, as reported on the financial statements of
the Company. No award shall be granted should the Profit Before Bonus and Taxes
of the Company for the current fiscal year decline from that of the previous
fiscal year.
(b) The sum of the face amount of all accounts receivable which have not
been collected within ninety (90) days of the date of invoice and which have not
otherwise been reserved for on the Company's balance sheet as of December 31,
1999, shall be deducted from the Profit Sharing Pool and classified as a
"Delayed Bonus Payment." If an invoice is determined to be uncollectable and is
subsequently written-off, the amount of the Delayed Bonus Payment will be
reduced accordingly.
(c) The Profit Sharing Pool and the Delayed Bonus Payment shall be
divided into two award levels, with thirty-five percent (35%) of the Profit
Sharing Pool and the Delayed Bonus Payment set aside for award to Key Executives
(the "Key Executive Award") and sixty-five percent (65%) of the Profit Sharing
Pool and the Delayed Bonus Payment set aside for Key Employees (the "Key
Employee Award").
4. Key Executive Award.
(a) Eligibility. Key Executives shall be eligible employees of the
Company who are specifically designated by the Compensation Committee of the
Board of Directors of Sypris (the "Compensation Committee") for participation
during the current fiscal year. A list of the participants shall be attached to
a copy of this Plan and shall include each participant's name, salary, start
date (for purposes of the current fiscal year), maximum percentage share of the
Key Executive Award, and objectives for the year.
(b) Amount of Award. Each eligible Key Executive employee shall be
entitled to an amount equal to his or her maximum percentage share of the Key
Executive Award, subject to an adjustment and/or determination by the
Compensation Committee to reflect (i) the actual contribution of the employee to
the Company's performance and profitability during the course of the fiscal
year, (ii) the portion of the fiscal year employed, (iii) his or her performance
to goals, and (iv) the recommendation of the President and CEO of the
<PAGE>
Company, subject to the cap on such award as provided herein and the provisions
of Sections 4(c), 8(a) and 8(b) below. The maximum amount payable to an eligible
Key Executive employee shall be equal to the lesser of his or her maximum
percentage share of the Key Executive Award or one hundred percent (100%) of the
eligible Key Executive employee's base salary.
(c) Time of Payment. Awards shall be payable to each eligible Key
Executive employee as soon as administratively practicable after release of the
audited annual financial statements of Sypris; provided, however, that the Plan
shall be in effect as of the date of payment and such employee shall be employed
by the Company as of the date of payment. No employee shall have any right to
payment of an award unless the Plan is in effect and the employee is employed by
the Company as of the date of payment.
(d) Delayed Bonus Payment. Distribution of the Delayed Bonus Payment will
be made to each eligible Key Executive employee when payment of all invoices
which created the Delayed Bonus Payment have been received and/or the amounts
have been written-off by the Company; provided, however, that the Plan shall be
in effect as of the date of the payment and such employee shall be employed by
the Company as of the date of payment. No employee shall have any right to
payment of an award unless the Plan is in effect and the employee is employed by
the Company as of the date of payment.
5. Key Employee Award.
(a) Eligibility. Key Employees shall be eligible employees of the Company
who are specifically designated by the Compensation Committee for participation
during the current fiscal year. A list of the participants shall be attached to
a copy of this Plan and shall include each participant's name, salary, start
date (for purposes of the current fiscal year) and maximum percentage share of
the Key Employee Award.
(b) Amount of Award. Each eligible Key Employee shall be entitled to an
amount equal to his or her maximum percentage share of the Key Employee Award,
subject to an adjustment and/or determination by the Compensation Committee to
reflect (i) the actual contribution of the employee to the Company's performance
and profitability during the course of the fiscal year, (ii) the portion of the
fiscal year employed, and (iii) the recommendation of the President and CEO of
the Company, subject to the cap on such award as provided herein and the
provisions of Sections 5(c), 8(a) and 8(b) below. The maximum amount payable to
an eligible Key Employee shall be equal to the lesser of his or her maximum
percentage share of the Key Executive Award or one hundred percent (100%) of the
eligible Key Employee's base salary.
(c) Time of Payment. Awards shall be payable to each eligible Key Employee
as soon as administratively practicable after release of the audited annual
financial statements of Sypris; provided, however, that the Plan shall be in
effect as of the date of payment and such employee shall be employed by the
Company as of the date of payment. No employee shall have any right to payment
of an award unless the Plan is in effect and the employee is employed by the
Company as of the date of payment.
(d) Delayed Bonus Payment. Distribution of the Delayed Bonus Payment will
be made to each eligible employee when payment of all invoices which created the
Delayed Bonus Payment have been received and/or the amounts have been written-
off by the Company; provided, however, that the Plan shall be in effect as of
the date of payment and such employee shall be employed by the Company as of the
date of payment. No employee shall have any right to payment of an award unless
the Plan is in effect and the employee is employed by the Company as of the date
of payment.
6. Method of Payment.
Awards shall be payable by check in lump sum. All such payments shall be
subject to withholding for income, social security or other such payroll taxes
as may be appropriate.
<PAGE>
7. Administration.
The Compensation Committee shall administer this Plan. The decisions of
the Compensation Committee in interpreting and applying the Plan shall be final.
8. Miscellaneous.
(a) Employment Rights. The adoption and maintenance of this Plan is not
an employment agreement between the Company and any employee. Nothing herein
contained shall be deemed to give any employee the right to be retained in the
employ of the Company nor to interfere with the right of the Company to
discharge any employee at any time.
(b) Amendment and Termination. The Company may, without the consent of
any employee or beneficiary, amend or terminate the Plan at any time and from
time-to-time.
(c) Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) Construction. The headings and subheadings of this Plan have been
inserted for convenience for reference only and are to be ignored in any
construction of the provisions hereof. The masculine shall be deemed to include
the feminine, the singular shall include the plural, and the plural shall
include the singular unless the context otherwise requires. The invalidity or
unenforceability of any provision hereunder shall not affect the validity or
enforceability of the balance hereof. This Plan represents the entire
undertaking by the Company concerning its subject matter and supersedes all
prior undertakings with respect thereto. No provision hereof may be waived or
discharged except by a written document approved by the Compensation Committee
and signed by a duly authorized representative of the Company.
SYPRIS SOLUTIONS INC. TUBE TURNS TECHNOLOGIES, INC.
/s/ Jeffrey T. Gill /s/ John M. Kramer
------------------- ------------------
President & CEO President & CEO
January 2,1999 January 2,1999
-------------- --------------
Date Date
<PAGE>
EXHIBIT 21
SYPRIS SOLUTIONS, INC.
SUBSIDIARIES OF THE COMPANY
The Company's subsidiaries as of December 31, 1998 are as follows:
(1) Bell Technologies, Inc., a Florida corporation.
(2) BT Holdings, Inc., a Kentucky corporation.
(3) Group Technologies Corporation, a Florida corporation.
(4) Metrum-Datatape, Inc., a Delaware corporation.
(5) Tube Turns Technologies, Inc., a Kentucky corporation.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Post-Effective Amendment
No. 1 to Form S-8 Registration Statements Nos. 33-94546, 333-07195, 33-94544,
333-07199, 333-07111 and 333-70319, pertaining to the Sypris Solutions, Inc.
1994 Stock Option Plan for Key Employees (Formerly Group Technologies
Corporation 1994 Stock Option Plan for Key Employees), to the Sypris Solutions,
Inc. Independent Directors' Stock Option Plan (Formerly Group Technologies
Corporation Independent Directors' Stock Option Plan), to the Sypris Solutions,
Inc. Stock Option Plan Dated January 22, 1990 (Formerly Group Technologies
Corporation Stock Option Plan Dated January 22, 1990) and to the Sypris
Solutions, Inc. Employee Stock Purchase Plan, of our report dated February 19,
1999 with respect to the consolidated financial statements and schedule of
Sypris Solutions, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,387
<SECURITIES> 0
<RECEIVABLES> 27,119
<ALLOWANCES> 836
<INVENTORY> 38,465
<CURRENT-ASSETS> 78,859
<PP&E> 72,177
<DEPRECIATION> 44,642
<TOTAL-ASSETS> 121,119
<CURRENT-LIABILITIES> 46,738
<BONDS> 18,500
0
0
<COMMON> 95
<OTHER-SE> 49,264
<TOTAL-LIABILITY-AND-EQUITY> 121,119
<SALES> 211,625
<TOTAL-REVENUES> 211,625
<CGS> 163,702
<TOTAL-COSTS> 163,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> 11,757
<INCOME-TAX> 4,311
<INCOME-CONTINUING> 7,446
<DISCONTINUED> 0
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<NET-INCOME> 7,446
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.76
</TABLE>
