<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934. For the quarterly period ended October 1, 2000.
or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934. For the transition period from _________________
to ________________.
Commission file number: 0-24020
SYPRIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1321992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of principal executive offices, including zip code)
(502) 585-5544
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No _______.
As of October 20, 2000, the Registrant had 9,705,758 shares of Common Stock
outstanding.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Income Statements for the Three
and Nine Months Ended October 1, 2000 and
September 26, 1999........................... 2
Consolidated Balance Sheets at October 1, 2000
and December 31, 1999........................ 3
Consolidated Statements of Cash Flows for the
Nine Months Ended October 1, 2000 and
September 26, 1999........................... 4
Notes to Consolidated Financial Statements.... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........ 12
Signatures................................................ 13
</TABLE>
1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Sypris Solutions, Inc.
Consolidated Income Statements
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net revenue........................................ $ 53,887 $ 48,291 $ 156,702 $ 142,520
Cost of sales...................................... 44,797 36,250 125,505 109,025
---------- ------------- ---------- -------------
Gross profit..................................... 9,090 12,041 31,197 33,495
Selling, general and administrative expense........ 6,684 5,826 19,713 17,197
Research and development........................... 921 1,608 2,882 5,068
Amortization of intangible assets.................. 363 243 1,087 730
Special charges.................................... 415 -- 2,887 --
---------- ------------- ---------- -------------
Operating income................................. 707 4,364 4,628 10,500
Interest expense, net.............................. 1,289 423 3,149 1,050
Other income, net.................................. (56) (15) (205) (262)
---------- ------------- ---------- -------------
(Loss) income before income taxes.................. (526) 3,956 1,684 9,712
Income tax (benefit) expense....................... (616) 1,193 47 2,957
---------- ------------- ---------- -------------
Net income......................................... $ 90 $ 2,763 $ 1,637 $ 6,755
========== ============= ========== =============
Net income per common share:
Basic............................................ $ 0.01 $ 0.29 $ 0.17 $ 0.71
Diluted.......................................... $ 0.01 $ 0.28 $ 0.16 $ 0.69
Shares used in computing per common share amounts:
Basic............................................ 9,684 9,537 9,660 9,493
Diluted.......................................... 10,013 9,939 9,992 9,820
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
October 1, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 11,045 $ 10,406
Accounts receivable, net......................... 29,780 23,793
Inventory, net................................... 60,490 49,462
Other current assets............................. 2,740 4,279
-------- --------
Total current assets........................... 104,055 87,940
Property, plant and equipment, net................. 50,501 40,192
Intangible assets, net............................. 16,890 18,038
Other assets....................................... 2,480 2,394
-------- --------
$173,926 $148,564
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable................................. $ 21,817 $ 11,022
Accrued liabilities.............................. 13,402 17,813
Current portion of long-term debt................ 6,000 5,400
-------- --------
Total current liabilities...................... 41,219 34,235
Long-term debt..................................... 66,000 49,000
Other liabilities.................................. 3,768 4,509
-------- --------
Total liabilities.............................. 110,987 87,744
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; 9,705,758 and
9,589,214 shares issued and outstanding in
2000 and 1999, respectively.................... 97 96
Additional paid-in capital....................... 24,402 23,921
Retained earnings................................ 38,513 36,876
Accumulated other comprehensive income (loss).... (73) (73)
-------- --------
Total shareholders' equity..................... 62,939 60,820
-------- --------
$173,926 $148,564
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
Sypris Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 1, September 26,
2000 1999
---------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,637 $ 6,755
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization..................... 7,257 5,592
Other noncash charges............................. 169 430
Changes in operating assets and liabilities:
Accounts receivable............................. (5,968) (2,486)
Inventory....................................... (11,178) (8,312)
Other current and noncurrent assets............. 1,539 (895)
Accounts payable................................ 9,617 381
Accrued and other liabilities................... (5,028) (4,868)
-------- -------
Net cash used in operating activities......... (1,955) (3,403)
Cash flows from investing activities:
Capital expenditures................................. (15,301) (8,067)
Other................................................ (187) (718)
-------- -------
Net cash used in investing activities......... (15,488) (8,785)
Cash flows from financing activities:
Net borrowings under revolving credit agreements..... 17,600 11,624
Principal payments on long-term debt................. -- (1,664)
Proceeds from issuance of common stock............... 482 523
-------- -------
Net cash provided by financing activities..... 18,082 10,483
-------- -------
Net increase (decrease) in cash and cash equivalents... 639 (1,705)
Cash and cash equivalents at beginning of period....... 10,406 12,387
-------- -------
Cash and cash equivalents at end of period............. $ 11,045 $10,682
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
Sypris Solutions, Inc.
Notes to Consolidated Financial Statements
(1) Organization
Sypris Solutions, Inc. is a diversified provider of technology-based
outsource services and specialized industrial products. The Company performs a
wide range of manufacturing and technical services, typically under long-term
contracts with major manufacturers. The Company also manufactures and sells
complex data storage systems, magnetic instruments, current sensors, high-
pressure closures and a variety of other industrial products.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries
(collectively, "Sypris" or the "Company"), Bell Technologies, Inc. ("Bell"),
Group Technologies Corporation ("GroupTech"), Metrum-Datatape, Inc. ("Metrum-
Datatape"), and Tube Turns Technologies, Inc. ("Tube Turns"), and have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission"). All significant
intercompany transactions and accounts have been eliminated. These unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to fairly state the results of operations, financial position and cash flows for
the periods presented, and the disclosures herein are adequate to make the
information presented not misleading. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Certain amounts in the Company's 1999
consolidated financial statements have been reclassified to conform with the
2000 presentation. Actual results for the three and nine months ended October
1, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements, and notes thereto, for the year ended December 31, 1999 as presented
in the Company's annual report on Form 10-K.
(3) Net Income per Common Share
There were no adjustments required to be made to net income for purposes of
computing basic and diluted net income per common share. A reconciliation of the
average number of common shares outstanding used in the calculation of basic and
diluted net income per common share is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares used to compute basic net
income per common share................. 9,684 9,537 9,660 9,493
Dilutive effect of stock options......... 329 402 332 327
---------- ------------- ---------- -------------
Shares used to compute diluted net
income per common share................. 10,013 9,939 9,992 9,820
========== ============= ========== =============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
(4) Inventory
Inventory consists of the following (in thousands):
October 1, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Raw materials............................................. $12,540 $12,640
Work-in-process........................................... 10,056 9,649
Finished goods............................................ 2,423 1,673
Costs relating to long-term contracts and programs,
net of amounts attributed to revenue recognized to date.. 48,000 29,637
Progress payments related to long-term contracts
and programs............................................. (8,740) (1,038)
LIFO reserve.............................................. (942) (430)
Reserve for excess and obsolete inventory................. (2,847) (2,669)
------- -------
$60,490 $49,462
======= =======
</TABLE>
(5) Special Charges
Special charges of $415,000 and $2,887,000 were recognized during the three
and nine months ended October 1, 2000, respectively, for activities related to
the consolidation of certain operations within the Electronics Group. The
special charges incurred for these activities include workforce reductions,
facilities rearrangement and relocation expenses, and employment costs related
to the transfer of production.
6
<PAGE>
(6) Segment Data
The Company's operations are conducted in two reportable business segments:
the Electronics Group and the Industrial Group. There was no intersegment net
revenue recognized for all periods presented. The following table presents
financial information for the reportable segments of the Company for the three
and nine months ended October 1, 2000 and September 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net revenue from unaffiliated customers:
Electronics Group......................... $45,493 $39,526 $129,577 $115,304
Industrial Group.......................... 8,394 8,765 27,125 27,216
------- ------- -------- --------
$53,887 $48,291 $156,702 $142,520
======= ======= ======== ========
Gross profit:
Electronics Group......................... $ 8,133 $10,299 $ 27,194 $ 28,358
Industrial Group.......................... 957 1,742 4,003 5,137
------- ------- -------- --------
$ 9,090 $12,041 $ 31,197 $ 33,495
======= ======= ======== ========
Operating income:
Electronics Group......................... $ 1,146 $ 3,885 $ 4,670 $ 9,337
Industrial Group.......................... 391 1,194 2,380 3,469
General, corporate and other.............. (830) (715) (2,422) (2,306)
------- ------- -------- --------
$ 707 $ 4,364 $ 4,628 $ 10,500
======= ======= ======== ========
</TABLE>
(7) Commitments and Contingencies
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 third 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth certain financial data, expressed as a
percentage of net revenue, from the Company's Consolidated Income Statements for
the three and nine months ended October 1, 2000 and September 26, 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net revenue.................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 83.1 75.1 80.1 76.5
----- ----- ----- -----
Gross profit................................. 16.9 24.9 19.9 23.5
Selling, general and administrative expense.. 12.4 12.1 12.6 12.1
Research and development..................... 1.7 3.3 1.8 3.5
Amortization of intangible assets............ 0.7 0.5 0.7 0.5
Special charges.............................. 0.8 -- 1.8 --
----- ----- ----- -----
Operating income............................. 1.3% 9.0% 3.0% 7.4%
===== ====== ===== =====
Net income................................... 0.2% 5.7% 1.0% 4.7%
===== ====== ===== =====
</TABLE>
For reporting purposes, the operations of Bell, GroupTech and Metrum-
Datatape are included in the Electronics Group, and Tube Turns' operations are
included in the Industrial Group. Segment discussion is included in the
following discussion and analysis of the Company's consolidated results of
operations.
Net revenue for the third quarter of 2000 was $53.9 million, an increase of
$5.6 million, or 11.6%, from $48.3 million for the third quarter of 1999. Net
revenue for the first nine months of 2000 was $156.7 million, an increase of
$14.2 million, or 10.0%, from $142.5 million for the first nine months of 1999.
The revenue growth came exclusively from the Electronics Group, which increased
net revenue by $6.0 million and $14.3 million for the third quarter and nine-
month periods, respectively. Within the Electronics Group, the revenue growth
was generated primarily from new contracts for manufacturing services and the
expansion of the calibration business due to an acquisition completed in the
fourth quarter of 1999. Together these two areas increased net revenue by
approximately $8.9 million and $21.3 million for the third quarter and nine-
month periods, respectively. The increase in the Electronics Group's net revenue
for both periods was partially offset by reduced sales quantities for certain
product offerings, partly due to production delays experienced during the
consolidation of two facilities. The Electronics Group's backlog increased by
$4.2 million during the third quarter to $140.9 million. The Industrial Group
reported a decrease in net revenue of $0.4 million and $0.1 million for the
third quarter and nine-month periods, respectively. During the third quarter of
2000, shipments of axles to customers in the heavy-duty truck market generated
less net revenue than in the prior year due to reduced volume, while sales of
other forged product lines and other product offerings to customers in the oil
and gas industry increased over the prior year. The decline in net revenue for
the heavy-duty truck forged product line was primarily attributable to an
approximate 30% reduction in demand in the truck markets served by the
Industrial Group. The trend in the Company's year-to-year revenue growth is
expected to continue in the fourth quarter of 2000. Additionally, shortages and
extended purchase lead times are currently being experienced on certain
electronic components utilized in the Electronics Group's manufacturing services
contracts. While the Company believes that a sufficient supply of components
will be available to enable
8
<PAGE>
it to substantially meet its customer delivery schedules for the next twelve
months, the Company's results of operations or financial position could be
negatively impacted by these component market conditions.
Gross profit for the third quarter of 2000 was $9.1 million, or 16.9% of
net revenue, as compared to $12.0 million, or 24.9% of net revenue for the third
quarter of 1999. Gross profit for the first nine months of 2000 was $31.2
million, or 19.9% of net revenue, as compared to $33.5 million, or 23.5% of net
revenue for the first nine months of 1999. The revenue growth from manufacturing
services and the acquired calibration business generated additional gross profit
of approximately $1.6 million and $3.8 million for the third quarter and nine-
month periods, respectively. This was offset by decreased gross profit of
approximately $1.5 million and $3.4 million for the third quarter and nine-month
periods, respectively, resulting from reductions in net revenue from certain
high margin products. Although the volume variances accounted for a net increase
in gross profit of $0.1 million and $0.4 million for the comparable periods, the
Company's unfavorable cost variances reduced gross profit by $3.0 million and
$2.7 million for the third quarter and nine-month periods, respectively. The
factors impacting gross profit, particularly for the comparable third quarter
periods, are discussed immediately below for each segment.
The Electronics Group's gross profit for the third quarter of 2000 was $8.1
million, or 17.9% of net revenue, as compared to $10.3 million, or 26.1% of net
revenue for the third quarter of 1999. The Electronics Group's gross profit for
the first nine months of 2000 was $27.2 million, or 21.0% of net revenue, as
compared to $28.4 million, or 24.6% of net revenue for the first nine months of
1999. During the third quarter, gross profit for the Electronics Group was
adversely affected by four primary factors. First, the shortages in certain
electronic components caused manufacturing inefficiencies in the production
process due to the unpredictability of scheduling receipts of allocated
components from vendors. Second, the number of new program start-ups increased
substantially during the third quarter as compared to the prior year period.
Manufacturing inefficiencies on new programs generally result in lower gross
margins during the startup phase and margins typically improve as the programs
mature. Third, additional costs incurred to make the necessary investments in
people, equipment and processes to support new manufacturing services program
start-ups, programs currently in backlog and the order forecast for the next
twelve months have also reduced gross profit in the current periods. And fourth,
volume declines on certain of the Electronics Group's high margin products have
reduced overhead absorption and further decreased gross profit for the third
quarter and nine-month periods. For the first nine months of 2000, gross profit
was also negatively affected by manufacturing inefficiencies related to the
transfer of production following the consolidation of two facilities, which was
substantially completed by the end of the third quarter. Management expects the
factors affecting gross profit during the third quarter will continue during the
fourth quarter of 2000 and will begin to lessen during the first half of 2001 as
manufacturing efficiency improves on new programs and shipments on contracts in
backlog begin to accelerate. The availability of certain electronic components
is not expected to improve during the next twelve months and management is
working with its vendors and customers to minimize the impact on profitability.
The Industrial Group's gross profit for the third quarter of 2000 was $1.0
million, or 11.4% of net revenue, as compared to $1.7 million, or 19.9% of net
revenue for the third quarter of 1999. The Industrial Group's gross profit for
the first nine months of 2000 was $4.0 million, or 14.8% of net revenue, as
compared to $5.1 million, or 18.9% of net revenue for the first nine months of
1999. The reduced sales volume for the heavy-duty truck forged product line had
a negative impact on overhead absorption during the third quarter. Along with
the decline in revenue, the capital investment and infrastructure development
related to increasing forging capacity and creating new machining capabilities
to support the future growth plans of the Industrial Group further contributed
to the decrease in gross profit for the third quarter and nine-month periods.
Management expects customer demand in the truck
9
<PAGE>
market will not increase significantly during the next twelve months and is
taking actions to lessen the impact on profitability.
Selling, general and administrative expense for the third quarter of
2000 was $6.7 million, or 12.4% of net revenue, as compared to $5.8 million, or
12.1% of net revenue for the third quarter of 1999. Selling, general and
administrative expense for the first nine months of 2000 was $19.7 million, or
12.6% of net revenue, as compared to $17.2 million, or 12.1% of net revenue for
the first nine months of 1999. The increase in selling, general and
administrative expense was attributable primarily to the Electronics Group,
which reported an increase of $0.7 million and $2.4 million for the third
quarter and nine-month periods, respectively. The investments the Company is
making in organizational infrastructure referred to in the gross profit
discussion above also include certain selling, general and administrative
expenses, the majority of which are within the Electronics Group. In addition,
selling expenses have increased as a result of the increases in net revenue and
orders for the Electronics Group.
Research and development expense for the third quarter of 2000 was $0.9
million, or 1.7% of net revenue, as compared to $1.6 million, or 3.3% of net
revenue for the third quarter of 1999. Research and development expense for the
first nine months of 2000 was $2.9 million, or 1.8% of net revenue, as compared
to $5.1 million, or 3.5% of net revenue for the first nine months of 1999. This
decrease was attributable to the Electronics Group, and relates to the timing of
new product releases for the data acquisition, storage and analysis product
lines and the utilization of strategic alliances with suppliers for product
development.
Amortization of intangible assets for the third quarter of 2000 was $0.4
million, an increase of $0.2 million, or 49.4% compared to $0.2 million for the
third quarter of 1999. Amortization of intangible assets for the first nine
months of 2000 was $1.1 million, an increase of $0.4 million, or 48.9% compared
to $0.7 million for the first nine months of 1999. This increase resulted from
the amortization of goodwill recorded in connection with the December 1999
calibration business acquisition by the Electronics Group.
Special charges of $0.4 million and $2.9 million were recognized during the
third quarter and first nine months of 2000, respectively, for activities
related to the consolidation of certain operations within the Electronics Group.
Operations for the Electronics Group's data acquisition, storage and analysis
product lines have been conducted at two facilities since the November 1997
acquisition that expanded this business. Although several consolidation actions
were implemented immediately following this acquisition, management identified a
number of additional synergies that could be realized through the elimination of
redundant manufacturing operations and staffing of functional areas between the
two facilities. The majority of these consolidation activities were
substantially completed during the first six months of 2000 and it is
anticipated that an additional $0.1 million in special charges will be
recognized in the last quarter of 2000 in connection with these consolidation
activities. The special charges incurred for these activities include workforce
reductions, facilities rearrangement and relocation expenses, and employment
costs related to the transfer of production.
Interest expense for the third quarter of 2000 was $1.3 million, an
increase of $0.9 million, or 205%, from $0.4 million for the comparable period
of 1999. Interest expense for the first nine months of 2000 was $3.1 million, an
increase of $2.1 million, or 200%, from $1.0 million for the comparable period
of 1999. This increase was primarily due to an increase in the weighted average
debt outstanding coupled with an increase in interest rates. The Company's
weighted average debt outstanding more than doubled to approximately $63.5
million in the third quarter of 2000 from approximately $31.4 million in the
third quarter of 1999. This increase resulted primarily from the December 1999
acquisition by the Electronics Group, working capital funding related to the
increase in revenue and order backlog and capital expenditures during 1999 and
the first nine months of 2000 to support the Company's new business
10
<PAGE>
opportunities. The weighted average interest rate for the third quarter of 2000
was approximately 8.4% as compared to approximately 6.0% for the prior year
quarter. In accordance with the terms in the Company's credit agreement, the
weighted average interest rate is expected to increase approximately 100 basis
points in the fourth quarter of 2000.
An income tax benefit of approximately $0.6 million was recognized during
the third quarter of 2000 primarily due to a revision of the Company's effective
tax rate for the year. The lower effective tax rate results primarily from
research and development tax credits and foreign sales corporation tax benefits.
Liquidity, Capital Resources and Financial Condition
Net cash used in operating activities was $2.0 million for the first nine
months of 2000 as compared to $3.4 million for the comparable period of 1999.
During the first nine months of 2000, the Company's accounts receivable and
inventory balances increased by $6.0 million and $11.2 million, respectively.
The $6.0 million increase in accounts receivable resulted primarily from a high
volume of shipments occurring late in the third quarter as compared to the low
volume of shipments immediately prior to December 31, 1999, principally related
to Year 2000 issues and related concerns by customers. During the first nine
months of 2000, inventory increased by $12.6 million in the Electronics Group
and decreased by $1.4 million in the Industrial Group. The increase in the
Electronics Group's inventory was primarily attributable to startup programs for
manufacturing services, electronic component shortages and expected shipments on
certain contracts scheduled during the last quarter of 2000 and in the first
half of 2001. The decrease in the Industrial Group's inventory was primarily due
to reduced sales in the automotive forged product line. Accounts payable
increased by $9.6 million for the first nine months of 2000 due to the increase
in inventory requirements and the timing of payments to vendors.
Net cash used in investing activities was $15.5 million for the first nine
months of 2000 as compared to $8.8 million for the comparable period of 1999.
This change primarily resulted from the increased levels of capital expenditures
in both the Electronics Group and the Industrial Group, which totaled $4.5
million and $10.3 million, respectively. Capital expenditures for the
Electronics Group were principally comprised of facilities improvements and
manufacturing, assembly and test equipment. The Industrial Group's capital
expenditures included facilities improvements and new forging and machining
equipment to increase and expand the range of production capabilities. As of
October 1, 2000 the Company has committed to spending approximately $11.0
million for capital expenditures in the next twelve months.
Net cash provided by financing activities was $18.1 million during the
first nine months of 2000 as compared to $10.5 million during the comparable
period of 1999. During the first nine months of 2000, the Company's net
borrowings under its revolving credit facilities increased $17.6 million in
order to fund its operating and investing needs.
Under the terms of the credit agreement between the Company and its bank,
the Company had total availability for borrowings and letters of credit under
its revolving credit facility of $28.0 million at October 1, 2000, which, when
combined with the cash balance of $11.0 million, provides for total cash and
borrowing capacity of $39.0 million. Maximum borrowings on the revolving credit
facility are $100.0 million, subject to a $15.0 million limit for letters of
credit.
The Company believes earnings before depreciation and amortization,
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. Cash requirements for periods
beyond the next twelve months depend on the Company's profitability, its ability
to manage working capital requirements and its rate of growth. While the Company
continues to pursue acquisition
11
<PAGE>
opportunities, it does not expect to complete any acquisitions during the fourth
quarter of 2000. If the Company makes significant acquisitions or if working
capital and capital expenditure requirements exceed expected levels during 2000
or in the foreseeable future, it may require additional external sources of
capital.
Forward-looking Statements
This Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Similar forward looking
statements are made periodically in reports to the 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 Commission.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three months ended
October 1, 2000.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYPRIS SOLUTIONS, INC.
(Registrant)
Date: October 30, 2000 By: /s/ David D. Johnson
------------------ ----------------------------------------
(David D. Johnson)
Vice President & Chief Financial Officer
Date: October 30, 2000 By: /s/ Anthony C. Allen
------------------ ----------------------------------------
(Anthony C. Allen)
Vice President, Controller & Chief
Accounting Officer
13
