UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended March 31, 2005.
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 Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of principal executive offices, including zip code)
(502) 329-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of April 26, 2005, the Registrant had 18,014,799 shares of common stock outstanding.
| PART I. FINANCIAL INFORMATION |
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| ITEM 1. |
FINANCIAL STATEMENTS |
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| Consolidated Income Statements for the Three Months Ended March 31, 2005 and 2004 |
2 | |||
| Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 |
3 | |||
| Consolidated Cash Flow Statements for the Three Months Ended March 31, 2005 and 2004 |
4 | |||
| 5 | ||||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
10 | ||
| ITEM 3. |
16 | |||
| ITEM 4. |
17 | |||
| PART II. |
OTHER INFORMATION |
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| ITEM 6. |
17 | |||
| 18 | ||||
1
PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
CONSOLIDATED INCOME STATEMENTS
(in thousands, except for per share data)
| Three Months Ended March 31, |
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| 2005 |
2004 Restated (Note 3) |
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| (Unaudited) | ||||||||
| Net revenue: |
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| Outsourced services |
$ | 117,011 | $ | 80,127 | ||||
| Products |
7,230 | 9,249 | ||||||
| Total net revenue |
124,241 | 89,376 | ||||||
| Cost of sales: |
||||||||
| Outsourced services |
107,334 | 69,426 | ||||||
| Products |
5,548 | 5,592 | ||||||
| Total cost of sales |
112,882 | 75,018 | ||||||
| Gross profit |
11,359 | 14,358 | ||||||
| Selling, general and administrative |
8,553 | 8,158 | ||||||
| Research and development |
673 | 524 | ||||||
| Amortization of intangible assets |
138 | 126 | ||||||
| Operating income |
1,995 | 5,550 | ||||||
| Interest expense, net |
1,261 | 288 | ||||||
| Other income, net |
(181 | ) | (58 | ) | ||||
| Income before income taxes |
915 | 5,320 | ||||||
| Income tax expense |
325 | 1,995 | ||||||
| Net income |
$ | 590 | $ | 3,325 | ||||
| Earnings per common share: |
||||||||
| Basic |
$ | 0.03 | $ | 0.22 | ||||
| Diluted |
$ | 0.03 | $ | 0.21 | ||||
| Dividends declared per common share |
$ | 0.03 | $ | 0.03 | ||||
| Weighted average shares outstanding: |
||||||||
| Basic |
18,030 | 14,791 | ||||||
| Diluted |
18,367 | 15,593 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
| March 31, 2005 |
December 31, 2004 Restated (Note 3) |
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| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 16,475 | $ | 14,060 | ||||
| Accounts receivable, net |
113,899 | 104,637 | ||||||
| Inventory, net |
99,676 | 96,476 | ||||||
| Other current assets |
15,602 | 21,566 | ||||||
| Total current assets |
245,652 | 236,739 | ||||||
| Property, plant and equipment, net |
175,295 | 166,940 | ||||||
| Goodwill |
14,277 | 14,277 | ||||||
| Other assets |
13,090 | 13,222 | ||||||
| Total assets |
$ | 448,314 | $ | 431,178 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 82,272 | $ | 61,778 | ||||
| Accrued liabilities |
21,026 | 20,378 | ||||||
| Current portion of long-term debt |
2,000 | 7,000 | ||||||
| Total current liabilities |
105,298 | 89,156 | ||||||
| Long-term debt |
110,000 | 110,000 | ||||||
| Other liabilities |
23,258 | 23,083 | ||||||
| Total liabilities |
238,556 | 222,239 | ||||||
| Stockholders’ equity: |
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| Preferred stock, par value $0.01 per share, 975,150 shares authorized; no shares issued |
— | — | ||||||
| Series A preferred stock, par value $0.01 per share, 24,850 shares authorized; no shares issued |
— | — | ||||||
| Common stock, non-voting, par value $0.01 per share, 10,000,000 shares authorized; no shares issued |
— | — | ||||||
| Common stock, par value $0.01 per share, 30,000,000 shares authorized; 18,012,559 and 17,920,500 shares issued and outstanding in 2005 and 2004, respectively |
180 | 179 | ||||||
| Additional paid-in capital |
141,718 | 140,898 | ||||||
| Retained earnings |
70,278 | 70,227 | ||||||
| Accumulated other comprehensive loss |
(2,418 | ) | (2,365 | ) | ||||
| Total stockholders’ equity |
209,758 | 208,939 | ||||||
| Total liabilities and stockholders’ equity |
$ | 448,314 | $ | 431,178 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
CONSOLIDATED CASH FLOW STATEMENTS
(in thousands)
| Three Months Ended March 31, |
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| 2005 |
2004 Restated (Note 3) |
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| (Unaudited) | ||||||||
| Cash flows from operating activities: |
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| Net income |
$ | 590 | $ | 3,325 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization |
5,754 | 4,001 | ||||||
| Other noncash charges |
620 | 215 | ||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
(9,555 | ) | (15,959 | ) | ||||
| Inventory |
(3,600 | ) | (2,555 | ) | ||||
| Other current assets |
5,872 | 1,836 | ||||||
| Accounts payable |
21,045 | 7,972 | ||||||
| Accrued liabilities |
1,133 | 3,104 | ||||||
| Net cash provided by operating activities |
21,859 | 1,939 | ||||||
| Cash flows from investing activities: |
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| Capital expenditures, net |
(14,598 | ) | (8,875 | ) | ||||
| Changes in nonoperating assets and liabilities |
(128 | ) | 233 | |||||
| Net cash used in investing activities |
(14,726 | ) | (8,642 | ) | ||||
| Cash flows from financing activities: |
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| Net decrease in debt under revolving credit agreements |
(5,000 | ) | (43,200 | ) | ||||
| Cash dividends paid |
(538 | ) | (428 | ) | ||||
| Proceeds from issuance of common stock |
820 | 49,649 | ||||||
| Net cash (used in) provided by financing activities |
(4,718 | ) | 6,021 | |||||
| Net increase (decrease) in cash and cash equivalents |
2,415 | (682 | ) | |||||
| Cash and cash equivalents at beginning of period |
14,060 | 12,019 | ||||||
| Cash and cash equivalents at end of period |
$ | 16,475 | $ | 11,337 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (1) | Nature of Business |
Sypris is a diversified provider of outsourced services and specialty products. The Company performs a wide range of manufacturing, engineering, design, testing, and other technical services, typically under multi-year, sole-source contracts with corporations and government agencies in the markets for aerospace & defense electronics, truck components & assemblies, and test & measurement equipment.
| (2) | Basis of Presentation |
The accompanying unaudited consolidated financial statements include the accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries (collectively, “Sypris” or the “Company”), and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. All significant intercompany transactions and accounts have been eliminated. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the results of operations, financial position and cash flows for the periods presented, and the disclosures herein are adequate to make the information presented not misleading. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2004 as presented in the Company’s Annual Report on Form 10-K.
| (3) | Change in Method of Accounting |
During the first quarter of 2005, the Company’s Industrial Group changed its method of accounting for certain inventory and costs of sales at its Louisville manufacturing facility to the first-in, first-out (FIFO) method from the last-in, first-out (LIFO) method used in all prior years. As a result, all inventories are now stated at the lower of cost, determined on a FIFO basis, or market. Prior to this voluntary change in accounting principle, approximately 13% of the Company’s total inventory as previously reported was valued using LIFO and the remaining inventories were valued using FIFO.
The change is preferable because it results in conforming all of the Company’s inventories to a uniform method of accounting subsequent to a series of acquisitions from 2001 through 2004. In addition, inventories will be valued in a manner which more closely approximates current cost, and LIFO is the prevalent method used by other entities within the Company’s industry, and it provides a more meaningful and understandable presentation of financial position to users of the Company’s financial statements.
In accordance with Accounting Principles Board Opinion No. 20, Accounting Changes, the financial statements for all prior periods have been adjusted to retroactively apply this change in accounting principle.
5
The effect of the accounting change on net income (loss) and earnings (loss) per common share as previously reported by quarter for 2004 is:
| Year ended December 31, 2004 | |||||||||||||||||
| First |
Second |
Third |
Fourth |
Total | |||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| Net income (loss): |
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| Previously reported |
$ | 3,399 | $ | 1,984 | $ | 3,487 | $ | (1,463 | ) | $ | 7,407 | ||||||
| Increase (decrease) |
(74 | ) | — | 304 | 662 | 892 | |||||||||||
| Restated |
$ | 3,325 | $ | 1,984 | $ | 3,791 | $ | (801 | ) | $ | 8,299 | ||||||
| Basic earnings (loss) per common share: |
|||||||||||||||||
| Previously reported |
$ | 0.23 | $ | 0.11 | $ | 0.19 | $ | (0.08 | ) | $ | 0.43 | ||||||
| Increase (decrease) |
(0.01 | ) | — | 0.02 | 0.04 | 0.05 | |||||||||||
| Restated |
$ | 0.22 | $ | 0.11 | $ | 0.21 | $ | (0.04 | ) | $ | 0.48 | ||||||
| Diluted earnings (loss) per common share: |
|||||||||||||||||
| Previously reported |
$ | 0.22 | $ | 0.11 | $ | 0.19 | $ | (0.08 | ) | $ | 0.43 | ||||||
| Increase (decrease) |
(0.01 | ) | — | 0.02 | 0.04 | 0.05 | |||||||||||