What changed in this filing

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Item 1. Financial Statements

2020-05-20 compared with 2019-11-12 · 141 added, 181 removed, 313 unchanged (51% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Cost of sales

1 unchanged sentence

Severance, relocation and other costs

Operating loss

Operating income (loss)

Interest expense, net

Other expense (income), net

Other expense, net

Loss before taxes

Income tax expense

Income tax expense, net

Loss per share:

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Other comprehensive (loss) income:

Foreign currency translation adjustments

Foreign currency translation adjustments, net of tax

Comprehensive loss

3 unchanged sentences

(in thousands, except for share data)

September 29,

Current assets:

13 unchanged sentences

Finance lease obligations, current portion

Note payable – related party, current portion

Total current liabilities

Note payable – related party

Operating lease liabilities, net of current portion

Finance lease obligations, net of current portion

Note payable – related party

Other liabilities

12 unchanged sentences

Accumulated other comprehensive loss

Treasury stock, 16,192 shares in 2019 and 2018

Treasury stock, 15,038 and 26,192 shares in 2020 and 2019, respectively

Total stockholders’ equity

4 unchanged sentences

(in thousands)

Nine Months Ended

September 29,

September 30,

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

1 unchanged sentence

Deferred loan costs recognized

Net (gain) loss on the sale of assets

Insurance recovery gain

Net gain on the sale of assets

Provision for excess and obsolete inventory

7 unchanged sentences

Accrued and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Capital expenditures

Capital expenditures, net

Proceeds from sale of assets

Insurance proceeds for recovery of property damage, net

Net cash provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

2 unchanged sentences

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Effect of exchange rate changes on cash balances

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Right-of-use assets obtained in exchange for finance lease obligations

The accompanying notes are an integral part of the consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Stockholders’ equity

(in thousands, except for share data)

Three Months Ended September 29 , 2019

Comprehensive

June 30, 2019 balance

Foreign currency translation adjustment

Noncash compensation

Retire treasury stock

September 29, 2019 balance

Three Months Ended September 30, 2018

Comprehensive

July 1, 2018 balance

Foreign currency translation adjustment

Noncash compensation

Retire treasury stock

September 30, 2018 balance

Nine Months Ended September 29, 2019

(in thousands)

Comprehensive

4 unchanged sentences

Retire treasury stock

September 29, 2019 balance

Nine Months Ended September 30, 2018

March 31, 2019 balance

Comprehensive

January 1, 2020 balance

Adoption of new accounting standards

Foreign currency translation adjustment

Exercise of stock options

Noncash compensation

Retire treasury stock

September 30, 2018 balance

April 5, 2020 balance

The accompanying notes are an integral part of the consolidated financial statements.

Sypris Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

Notes to Consolidated Financial Statements

Nature of Business

13 unchanged sentences

All intercompany transactions and accounts have been eliminated.

In accordance with the Disclosure Modernization and Simplification final rule issued by the Securities and Exchange Commission (“SEC”) and effective for the Company beginning in the first quarter of 2019, a reconciliation of the changes of stockholders’ equity is presented for all periods for which the results of operations are presented.

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 and nine months ended September 29, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Actual results for the three months ended April 5, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2019 as presented in the Company’s Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform with current period presentation.

COVID-19 Assessment

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown.

While the Company expects the effects of the pandemic to negatively impact its results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.

The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

Such estimates and assumptions affect, among other things, the Company’s long-lived asset valuation;

inventory valuation;

valuation of deferred income taxes and income tax contingencies;

the allowance for doubtful accounts;

and pension plan assumptions.

Events and changes in circumstances arising after April 5, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Factors deriving from the COVID-19 response that have or may negatively impact sales and gross margin in the future include, but are not limited to:

limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the material components we utilize in the manufacture of the products we sell, or to meet delivery requirements and commitments;

limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home;

limitations on the ability of our customers to conduct their business and purchase our products;

and limitations on the ability of our customers to pay us on a timely basis.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (ASC 842).

The new standard was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

This standard affects any entity that enters into a lease, with some specified scope exemptions.

The Company adopted this update beginning on January 1, 2019 using the alternative modified retrospective transition method and will not recast comparative periods in transition to the new standard.

In addition, we elected certain practical expedients which permit us to not reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, and to not separate lease and nonlease components for all classes of underlying assets.

We also made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet for all classes of underlying assets.

The adoption of ASC 842 on January 1, 2019 resulted in the recognition of right-of-use assets (ROU) of approximately $7,664,000 and lease liabilities of operating leases of approximately $8,549,000.

The implementation decreased the accumulated deficit by $1,442,000, which was primarily due to the recognition of the remaining deferred gain related to the operating lease portion on a 2016 sale-leaseback directly into the accumulated deficit.

There was no material impact to our consolidated statements of operations or cash flows as a result of the adoption of ASC 842.

See Note 4 for further information regarding the impact of the adoption of ASC 842 on the Company’s financial statements.

In August 2016, the FASB issued ASU No.

2016-15 Statement of Cash Flows Topic 230:

Classification of Certain Cash Receipts and Cash Payments .

2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing existing differences in the presentation of these items.

The amendments in ASU No.

2016-15 became effective for us in the first quarter of 2018 and were adopted retrospectively.

The adoption of this update did not impact our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments , new guidance for the accounting for credit losses on certain financial instruments.

This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities.

This guidance, which becomes effective January 1, 2023, is not expected to have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No.

2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02).

Under existing U.S.

GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted.

When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income.

The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Entities are required to make additional disclosures, regardless of whether they elect to reclassify stranded amounts of tax effects.

The Company adopted the standard effective January 1, 2019, and has elected to not reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.

The adoption of ASU 2018-02 did not have an impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans .

The guidance eliminated certain disclosures about defined benefit plans, added new disclosures, and clarified other requirements.

This guidance became effective January 1, 2020.

There were no changes to interim disclosure requirements.

As this standard relates only to financial disclosures, its adoption did not have an impact to our operating results, financial position or cash flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software:

1 unchanged sentence

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

This new guidance will be effective for public companies for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures.

This guidance became effective January 1, 2020 and did not have a material impact on our consolidated financial statements.

This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities.

This guidance, which becomes effective January 1, 2023, is not expected to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes .

This guidance is intended to simplify various aspects of income tax accounting including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

This guidance becomes effective January 1, 2021 and early adoption is permitted.

Adoption of this guidance requires certain changes to primarily be made prospectively, with some changes to be made retrospectively.

We are currently assessing the impact of this guidance on our consolidated financial statements.

The Company determines if an arrangement is a lease at its inception.

The Company has entered into operating leases for real estate.

These leases have initial terms which range from 10 to 11 years, and often include one or more options to renew.

The Company has entered into operating leases for real estate and personal property, including manufacturing and information technology equipment.

These real estate leases have initial terms which range from 10 to 11 years, and often include one or more options to renew.

These renewal terms can extend the lease term by 5 years, and will be included in the lease term when it is reasonably certain that the Company will exercise the option.

4 unchanged sentences

All operating lease expenses are recognized on a straight-line basis over the lease term.

For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.

For finance leases, interest expense is recognized on the lease liability and the right-of-use asset is amortized over the lease term.

Some leases may require variable lease payments based on factors specific to the individual agreements.

3 unchanged sentences

Incremental payments due to changes in the index are treated as variable lease costs and expensed as incurred.

These operating leases are included in “Operating lease right-of-use assets” on the Company’s consolidated balance sheets as of September 29, 2019, and represent the Company’s right to use the underlying asset for the lease term.

The Company’s obligations to make lease payments are included in “Operating lease liabilities, current portion” and “Operating lease liabilities, net of current portion” on the Company’s consolidated balance sheets as of September 29, 2019.

Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized right-of-use assets of approximately $7,664,000 and lease liabilities for operating leases of approximately $8,549,000 on January 1, 2019, and included adjustments for any unamortized lease incentives and prepaid and accrued rent.

Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at the commencement date based on the present value of lease payments over the lease term.

As of September 29, 2019, total right-of-use assets and operating lease liabilities were approximately $7,123,000 and $7,951,000, respectively.

These operating leases are included in “Operating lease right-of-use assets” on the Company’s consolidated balance sheets, and represent the Company’s right to use the underlying asset for the lease term.

Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As of April 5, 2020, total right-of-use assets and operating lease liabilities were approximately $6,727,000 and $7,534,000, respectively.

As of December 31, 2019, total right-of-use assets and operating lease liabilities were approximately $7,014,000 and $7,747,000, respectively.

We primarily use our incremental borrowing rate, which is updated quarterly, based on the information available at commencement date, in determining the present value of lease payments.

3 unchanged sentences

Lease payments associated with short-term leases are expensed as incurred and are not recorded on the Company’s balance sheet.

The related lease expense for short-term leases was not material for the three and nine months ended September 29, 2019.

The following table presents information related to lease expense for the three and nine months ended September 29, 2019 (in thousands):

The related lease expense for short-term leases was not material for the three months ended April 5, 2020 and March 31, 2019.

The following table presents information related to lease expense for the three months ended April 5, 2020 and March 31, 2019 (in thousands):

Three Months Ended

Finance lease expense:

5 unchanged sentences

The following table presents supplemental cash flow information related to leases (in thousands):

Three Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows from finance leases

The annual future minimum lease payments as of September 29, 2019 are as follows (in thousands):

The annual future minimum lease payments as of April 5, 2020 are as follows (in thousands):

Next 12 months

5 unchanged sentences

Less imputed interest

For the year ended December 31, 2018, and under legacy lease accounting (ASC 840), future minimum lease payments under non-cancellable leases as of December 31, 2018 were expected to be as follows:

Total lease payments

Less imputed interest

The following table presents certain information related to lease terms and discount rates for leases as of September 29, 2019:

The following table presents certain information related to lease terms and discount rates for leases as of April 5, 2020:

Weighted-average remaining lease term (years)

6 unchanged sentences

The Company also does not provide service-type warranties nor does it allow customer returns.

In connection with the sale of various parts to customers, the Company is subject to typical assurance warranty obligations covering the compliance of the electronics parts produced to agreed-upon specifications (See Note 14).

Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company.

11 unchanged sentences

These estimates are based upon management’s best assessment of the totality of the circumstances and are included in our contract profit based upon contractual provisions and our relationships with each customer.

The majority of our contractual arrangements with customers are for one year or less.

For the remaining population of non-cancellable contracts greater than one year we had $24,263,000 of remaining performance obligations as of September 29, 2019, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 15% of our remaining performance obligations as revenue in 2019, 64% in 2020 and the balance thereafter.

The majority of Sypris Electronics’ contractual arrangements with customers are for one year or less.

For the remaining population of non-cancellable contracts greater than one year we had $19,068,000 of remaining performance obligations as of April 5, 2020, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 63% of our remaining performance obligations as revenue in 2020, 36% in 2021 and the balance in 2022.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three and nine months ended September 29, 2019 and September 30, 2018:

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

The following table summarizes revenue from contracts with customers for the three months ended April 5, 2020 and March 31, 2019 (in thousands):

Sypris Technologies – transferred point in time

5 unchanged sentences

Contract assets are generally classified as current assets in the consolidated balance sheet.

The balance of contract assets as of September 29, 2019 and December 31, 2018 were $1,214,000 and $839,000, respectively, and are included within other current assets in the accompanying consolidated balance sheets.

The balance of contract assets as of April 5, 2020 and December 31, 2019 were $936,000 and $906,000, respectively, and are included within other current assets in the accompanying consolidated balance sheets.

Contract liabilities – Some of the Company’s contracts within Sypris Electronics are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones.

2 unchanged sentences

These contract liabilities are classified as either current or long-term in the consolidated balance sheet based on the timing of when the Company expects to recognize revenue.

As of September 29, 2019 and December 31, 2018, contract liabilities were $9,616,000 and $8,369,000, respectively, and are included within accrued liabilities in the consolidated balance sheets.

As of April 5, 2019, the contract liabilities balance was $7,176,000, of which $5,811,000 was included within accrued liabilities and $1,365,000 was included within other liabilities in the accompanying consolidated balance sheets.

As of December 31, 2019, the contract liabilities balance was $7,504,000, of which $5,769,000 was included within accrued liabilities and $1,735,000 was included within other liabilities in the accompanying consolidated balance sheets.

Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract.

The Company recognized revenue from contract liabilities of $2,408,000 and $5,035,000 during the three and nine months ended September 29, 2019, respectively.

The Company recognized revenue from contract liabilities of $543,000 and $1,614,000 during the three and nine months ended September 30, 2018, respectively.

The Company recognized revenue from contract liabilities of $2,312,000 and $1,344,000 during the three months ended April 5, 2020 and March 31, 2019, respectively.

Practical expedients and exemptions

6 unchanged sentences

The Company has relocated certain assets from the Broadway Plant to other manufacturing facilities, as needed, to serve its existing and target customer base and identified underutilized or non-core assets for disposal.

Management is currently evaluating options for the real estate and any remaining assets in the Broadway Plant.

As a result of these initiatives, the Company recorded charges of $391,000, or $0.02 per share, and $1,088,000, or $0.05 per share, during the first nine months of 2019 and 2018, respectively, related to the transition of production from the Broadway Plant, which is included in severance, relocation and other costs in the consolidated statement of operations.

Management expects to apply the proceeds from the sale of any underutilized or non-core assets to help fund the costs to transfer any additional equipment from the Broadway Plant.

On April 13, 2020, the Company completed the sale of the Broadway Plant real estate for $1,700,000 and recognized a gain of $807,000.

Management is currently evaluating options for any remaining assets in the Broadway Plant.

As a result of these initiatives, the Company recorded charges of $91,000, or less than $0.01 per share, and $98,000, or less than $0.01 per share, during the first three months of 2020 and 2019, respectively, related to the transition of production from the Broadway Plant, which is included in severance, relocation and other costs in the consolidated statement of operations.

All amounts incurred were recorded within Sypris Technologies.

The charges for the first nine months of 2019 were primarily related to mothball costs associated with the closed facility.

The charges for the first nine months of 2018 included $254,000 for equipment relocation costs and $834,000 for other costs, primarily related to mothball costs associated with the closed facility.

The charges for the three months ended April 5, 2020 were primarily related to mothball costs associated with the closed facility.

A summary of the total pre-tax charges is as follows (in thousands):

Costs Incurred

April 5, 2020

Severance and benefit related costs

2 unchanged sentences

The Company expects to incur additional pre-tax costs of approximately $52,000 within Sypris Technologies, the majority of which is expected to be cash expenditures.

As noted above, management expects to use proceeds from the sale of underutilized or non-core assets to fund costs incurred on the transfer of equipment from the Broadway Plant.

The following assets have been segregated and included in assets held for sale in the consolidated balance sheets (in thousands):

September 29,

Machinery, equipment, furniture and fixtures

Property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

Other Expense (Income), Net

During the nine months ended September 29, 2019, the Company recognized a gain of $1,500,000 as a result of a settlement agreement with one of its customers to resolve various outstanding disputes between the two parties.

As a result of the agreement, the customer paid the Company $1,500,000 in compensation during the three months ended September 29, 2019.

Additionally, the Company recognized a net gain of $467,000 for the nine months ended September 29, 2019 related to the sale of idle assets, which was offset by pension expense of $743,000.

Subsequent to the transfer of production from the Broadway Plant, the primary water supply and sprinkler pipes within the facility suffered freeze damage during an extended period of extreme cold temperatures.

The Company and its insurer reached a full and final settlement agreement with respect to the claim during the second quarter of 2018.

During the nine months ended September 30, 2018, the Company received insurance proceeds of $2,447,000 and recognized an insurance recovery gain of $2,275,000, net of expenses incurred for claim related expenses.

Additionally, the Company recognized a net loss of $241,000 related to the sale of certain idle assets and pension expense of $483,000 for the nine months ended September 30, 2018.

Stock-Based Compensation

During the nine months ended September 29, 2019, the Company granted options to purchase 691,000 shares of our common stock under a long-term incentive program.

The options have a five-year term and cliff vest at three years of service.

The grants did not have a significant impact on the Company’s consolidated financial statements during the three and nine months ended September 29, 2019.

Loss Per Common Share

4 unchanged sentences

Diluted earnings per share excludes the impact of common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period.

For the three and nine months ended September 29, 2019 and September 30, 2018, diluted weighted average common shares do not include the impact of any outstanding stock options and unvested compensation-related shares because the effect of these items on diluted net loss would be anti-dilutive.

For the three months ended April 5, 2020 and March 31, 2019, diluted weighted average common shares do not include the impact of any outstanding stock options and unvested compensation-related shares because the effect of these items on diluted net loss would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted loss per common share is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Loss attributable to stockholders:

Net loss as reported

Less distributed and undistributed earnings allocable to restricted award holders

Less dividends declared attributable to restricted award holders

Less distributed and undistributed earnings allocable to restricted awarded holders

Less dividends declared attributed to restricted awarded holders

Net loss allocable to common stockholders

4 unchanged sentences

Inventory consists of the following (in thousands):

September 29,

Raw materials

4 unchanged sentences

Property, plant and equipment consists of the following (in thousands):

September 29,

Land and land improvements

4 unchanged sentences

Debt outstanding consists of the following (in thousands):

September 29,

Current portion of finance lease obligation

Note payable – related party

Finance lease obligation, current portion

Note payable – related party, current portion

Current portion of long term debt

Finance lease obligation

Note payable – related party

Less unamortized debt issuance and modification costs

5 unchanged sentences

There was no intersegment net revenue recognized in any of the periods presented.

The Company includes the unallocated costs of its corporate office, including the employment costs of its senior management team and other corporate personnel, administrative costs and net corporate interest expense incurred at the corporate level under the caption “General, corporate and other” in the table below.

Such unallocated costs include those for centralized information technology, finance, legal and human resources support teams, certain professional fees, director fees, corporate office rent, certain self-insurance costs and recoveries, software license fees and various other administrative expenses that are not allocated to our reportable segments.

The unallocated assets include cash and cash equivalents maintained in its domestic treasury accounts and the net book value of corporate facilities and related information systems.

The unallocated liabilities consist primarily of the related party notes payable.

Domestic income taxes are calculated at an entity level and are not allocated to our reportable segments.

Corporate capital expenditures and depreciation and amortization include items attributable to the unallocated fixed assets of the corporate office and related information systems.

The following table presents financial information for the reportable segments of the Company (in thousands):

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Net revenue from unaffiliated customers:

4 unchanged sentences

Sypris Electronics

Three Months Ended

Operating income (loss):

6 unchanged sentences

General, corporate and other

September 29,

Total assets:

8 unchanged sentences

The provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience.

The Company’s warranty liability, which is included in accrued liabilities in the accompanying condensed consolidated balance sheets as of September 29, 2019 and December 31, 2018 was $571,000 and $582,000, respectively.

The Company’s warranty expense for the three and nine months ended September 29, 2019 and September 30, 2018 was not material.

The Company’s warranty liability, which is included in accrued liabilities in the accompanying consolidated balance sheets as of April 5, 2020 and December 31, 2019 was $581,000 and $569,000, respectively.

The Company’s warranty expense for the three months ended April 5, 2020 and March 31, 2019 was not material.

The Company bears insurance risk as a member of a group captive insurance entity for certain general liability, automobile and workers’ compensation insurance programs, a self-insured worker’s compensation program and a self-insured employee health program.

2 unchanged sentences

As facts change, it may become necessary to make adjustments that could be material to the Company’s consolidated results of operations and financial condition.

The Company is involved in certain litigation, including product liability claims, and contract issues arising in the normal course of business.

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.

Additionally, the Company believes its product liability insurance is adequate to cover all potential product liability claims.

Additionally, the Company believes its product liability insurance is adequate to cover all potential liability claims.

The Company accounts for loss contingencies in accordance with U.S.

Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated.

With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is within a range or undeterminable.

With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is within a wide range or undeterminable.

If the Company deems an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued.

2 unchanged sentences

The Company has received certain indemnifications from either companies previously owning these facilities or from purchasers of those facilities.

As of September 29, 2019 and December 31, 2018, no amounts were accrued for any environmental matters.

As of April 5, 2020 and December 31, 2019, no amounts were accrued for any environmental matters.

On December 27, 2017, the U.S.

Department of Labor (the “DOL”) filed a lawsuit alleging that the Company had misinterpreted the language of the Company’s 401(k) Plans (collectively, the “Plan”).

The DOL does not appear to dispute that the Company reached such interpretation in good faith after consulting with independent ERISA counsel.

Department of Labor (the “DOL”) filed a lawsuit alleging that the Company had misinterpreted the language of its Company’s 401(k) Plans (collectively, the “Plan”).

The DOL does not appear to dispute that the Company reached such interpretation in good faith and after consulting with independent ERISA counsel.

If the DOL’s allegations were upheld by a court, the Company could be required to make additional contributions into the accounts of its Plan participants.

The Company regards the DOL’s allegations to be without merit and is continuing to vigorously defend the matter.

As of September 29, 2019, the Company had outstanding purchase commitments of approximately $9,276,000, primarily for the acquisition of inventory.

On February 17, 2017, several employees (“Lucas Plaintiffs”) of KapStone Charleston Kraft, LLC filed a lawsuit in South Carolina alleging that they had been seriously burned when they opened a hinged closure and a hot tar-like material spilled out.

Among other claims, the Lucas Plaintiffs allege that Sypris Technologies, Inc.

(“ST”) designed and manufactured the closure, that the closure was defective and that those defects had caused or contributed to their injuries.

ST’s motion to dismiss for lack of jurisdiction was denied on February 28, 2020.

The Company regards these allegations to be without merit and any damages to be undeterminable at this time.

The Company’s general liability insurer has accepted the defense costs.

The Company is continuing to vigorously defend the matter.

As of April 5, 2020, the Company had outstanding purchase commitments of approximately $7,977,000, primarily for the acquisition of inventory and manufacturing equipment.

The provision for income taxes includes federal, state, local and foreign taxes.

7 unchanged sentences

During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed.

Based on its current forecast, the Company has established a valuation allowance against all but a portion of its net deferred tax assets.

Based on its current forecast, the Company has established a valuation allowance against all U.S.

deferred tax assets and a portion of its non-U.S.

deferred tax assets.

Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S.

2 unchanged sentences

Employee Benefit Plans

Pension expense (benefit) consisted of the following (in thousands):

The following table details the components of pension (income) expense (in thousands):

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Interest cost on projected benefit obligation

Net amortizations, deferrals and other costs

Net amortizations of actuarial loss

Expected return on plan assets

Net periodic benefit cost

The net periodic benefit cost of the defined benefit pension plans incurred during the three and nine-month periods ended September 29, 2019 and September 30, 2018 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):

The net periodic benefit cost of the defined benefit pension plans incurred during the three-month periods ended April 5, 2020 and March 31, 2019 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):

Three Months Ended

Nine Months Ended

September 29 ,

September 30 ,

September 29 ,

September 30 ,

Service cost:

5 unchanged sentences

Accumulated other comprehensive loss consisted of the following (in thousands):

September 29,

Foreign currency translation adjustments

4 unchanged sentences

Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the consolidated financial statements at their carrying amount which approximates fair value because of the short-term maturity of those instruments.

The carrying amount of debt outstanding at September 29, 2019 approximates fair value, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments (Level 2).

The carrying amount of debt outstanding at April 5, 2020 approximates fair value, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments (Level 2).

Subsequent Events

There are many uncertainties regarding the current COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels.

While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended April 5, 2020, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties.

The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.

Subsequent to April 5, 2020, the Company reduced production at our operations in response to COVID-19 related government mandates, reduced demand conditions and other operational drivers, primarily in our Sypris Technologies segment.

This resulted in temporarily suspending operations on certain production lines with corresponding reductions in headcount or work hours for our employees, primarily at our facility in Toluca, Mexico.

The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States.

On April 27, 2020, the Company received approval from the U.S.

Small Business Administration (the “SBA”) to fund its request for a loan under the SBA’s Paycheck Protection Program created as part of the CARES Act.

In connection with the approval, on May 1, 2020, the Company entered into a promissory note in favor of BMO Harris Bank National Association (“BMO”), as lender, with a principal amount of $3,558,000 pursuant to the Paycheck Protection Program (the “PPP Note”).

The PPP Note bears interest at a fixed rate of 1.0% per annum, with the first six months of principal and interest deferred.

Beginning in October 2020, the Company expects to make 18 equal payments of principal and interest with the final payment due in April 2022.

The PPP Note may be accelerated upon the occurrence of an event of default.

The PPP Note is unsecured and guaranteed by the SBA.

The Company may apply for forgiveness of the PPP Note, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the eight-week period beginning upon receipt of PPP Note funds, subject to limitations and calculated in accordance with the terms of the CARES Act.

Any forgiveness of the PPP Note shall be subject to approval of the SBA and will require the Company and BMO to apply to the SBA for such treatment in the future.

We intend to comply with the necessary requirements to seek forgiveness of all or a portion of the PPP Note, but no assurance can be provided that we will obtain forgiveness of the PPP Note in whole or in part.

On April 13, 2020, the Company completed the sale of the Broadway Plant real estate for $1,700,000 and recognized a gain of $807,000.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements