What changed in this filing

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Item 1. Financial Statements

2020-11-12 compared with 2020-08-13 · 110 added, 97 removed, 425 unchanged (33% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 29 ,

Cost of sales

1 unchanged sentence

Severance, relocation and other costs

Operating (loss) income

Operating income (loss)

Interest expense, net

Other (income), net

(Loss) income before taxes

Income tax expense

Net (loss) income

(Loss) income per share:

Other expense (income), net

Income (loss) before taxes

Income tax (benefit) expense, net

Net income (loss)

Income (loss) per share:

Weighted average shares outstanding:

5 unchanged sentences

Three Months Ended

Six Months Ended

Net (loss) income

Nine Months Ended

September 29 ,

Net income (loss)

Other comprehensive income (loss)

48 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 29,

Cash flows from operating activities:

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

Net income (loss)

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

Depreciation and amortization

Deferred income taxes

Stock-based compensation expense

7 unchanged sentences

Accounts receivable

Other current assets

Prepaid expenses and other assets

Accounts payable

Accrued and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of assets

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities:

13 unchanged sentences

Consolidated Statements of Stockholders’ Equity

(in thousands)

Three Months Ended July 5, 2020

(in thousands , except for share data )

Three Months Ended October 4, 2020

Comprehensive

April 5, 2020 balance

July 5, 2020 balance

Foreign currency translation adjustment

1 unchanged sentence

Retire treasury stock

July 5, 2020 balance

Three Months Ended June 30, 2019

October 4, 2020 balance

Three Months Ended September 29, 2019

Comprehensive

March 31, 2019 balance

June 30, 2019 balance

Foreign currency translation adjustment

1 unchanged sentence

Retire treasury stock

June 30, 2019 balance

Six Months Ended July 5, 2020

September 29, 2019 balance

Nine Months Ended October 4, 2020

Comprehensive

1 unchanged sentence

Foreign currency translation adjustment

Exercise of stock options

Noncash compensation

Exercise of stock options

Retire treasury stock

July 5, 2020 balance

Six Months Ended June 30, 2019

October 4, 2020 balance

Nine Months Ended September 29, 2019

Comprehensive

4 unchanged sentences

Retire treasury stock

June 30, 2019 balance

September 29, 2019 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

10 unchanged sentences

Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted.

The December 31, 2019 consolidated balance sheet data was derived from audited statements, but does not include all disclosures required by U.S.

The December 31, 2019 consolidated balance sheet data was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S.

The Company’s operations are domiciled in the United States (U.S.) and Mexico, and we serve a wide variety of domestic and international customers.

2 unchanged sentences

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

Actual results for the three and nine months ended October 4, 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.

10 unchanged sentences

and pension plan assumptions.

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

The Company has continued to operate at each location and sought to remain compliant with government regulations imposed due to the COVID-19 pandemic.

1 unchanged sentence

The Company began to experience lower revenue late in the first quarter due to the COVID-19 pandemic, and a more significant impact in the second quarter, especially within the Sypris Technologies group.

While the Company expects the effects of the pandemic will negatively impact its results of operations, cash flows and financial position, management has implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each location.

However, towards the end of the second quarter, some state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions.

While the Company expects the effects of the pandemic will continue to negatively impact its results of operations, cash flows and financial position, management has implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each location.

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:

4 unchanged sentences

We are experiencing disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time.

With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization.

With respect to liquidity, we have evaluated and took actions to reduce costs and spending across our organization.

This includes reducing hiring activities, reducing compensation for our Chairman, President and CEO, certain other senior leadership and corporate personnel and our Board of Directors, and limiting discretionary spending.

In addition, under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we have deferred certain payroll taxes and pension funding payments into future years.

In addition, under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we have deferred certain payroll taxes into future years.

We have also reduced anticipated spending on capital investment projects and are managing working capital to preserve liquidity during this crisis.

In addition to these activities, during the second quarter, the Company secured a $3.6 million term loan with BMO Harris Bank National Association (“BMO”), pursuant to the Paycheck Protection Program (the “PPP Loan”) under the CARES Act.

In addition to these activities, during the second quarter, the Company secured a $3,558,000 term loan with BMO Harris Bank National Association (“BMO”), pursuant to the Paycheck Protection Program (the “PPP Loan”) under the CARES Act.

Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments.

34 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 July 5, 2020 Consolidated Balance Sheet, and represent the Company’s right to use the underlying asset for the lease term.

These operating leases are included in “Operating lease right-of-use assets” on the Company’s October 4, 2020 consolidated balance sheet, 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.

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 July 5, 2020, total right-of-use assets and operating lease liabilities were approximately $6,523,000 and $7,352,000, respectively.

As of October 4, 2020, total right-of-use assets and operating lease liabilities were approximately $6,315,000 and $7,131,000, 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.

4 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 six months ended July 5, 2020 and June 30, 2019.

The following table presents information related to lease expense for the three and six months ended July 5, 2020 and June 30, 2019 (in thousands):

The related lease expense for short-term leases was not material for the three and nine months ended October 4, 2020 and September 29, 2019.

The following table presents information related to lease expense for the three and nine months ended October 4, 2020 and September 29, 2019 (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 29,

Finance lease expense:

5 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 29,

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 July 5, 2020 are as follows (in thousands):

The annual future minimum lease payments as of October 4, 2020 are as follows (in thousands):

Next 12 months

5 unchanged sentences

Less imputed interest

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

The following table presents certain information related to lease terms and discount rates for leases as of October 4, 2020:

Weighted-average remaining lease term (years)

20 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 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 $29,074,000 of remaining performance obligations as of July 5, 2020, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 40% of our remaining performance obligations as revenue in 2020 and the balance in 2021.

Many 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 $35,767,000 of remaining performance obligations as of October 4, 2020, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 19% of our remaining performance obligations as revenue in the fourth quarter of 2020, 55% as revenue in 2021 and the balance in 2022.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three and six months ended July 5, 2020 and June 30, 2019:

The following table summarizes revenue from contracts with customers for the three and nine months ended October 4, 2020 and September 29, 2019:

Three Months Ended

Six Months Ended

Nine Months Ended

September 29 ,

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 July 5, 2020 and December 31, 2019 were $1,389,000 and $906,000, respectively, and are included within other current assets in the accompanying consolidated balance sheets.

The balance of contract assets as of October 4, 2020 and December 31, 2019 were $1,739,000 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 July 5, 2019, the contract liabilities balance was $6,102,000, which was included within accrued liabilities in the accompanying consolidated balance sheets.

As of October 4, 2020, the contract liabilities balance was $5,681,000, which was included within accrued 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 $2,929,000 and $4,645,000 during the three and six months ended July 5, 2020, respectively.

The Company recognized revenue from contract liabilities of $2,190,000 and $3,234,000 during the three and six months ended June 30, 2019, respectively.

The Company recognized revenue from contract liabilities of $2,837,000 and $6,680,000 during the three and nine months ended October 4, 2020, respectively.

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.

Practical expedients and exemptions

8 unchanged sentences

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

As a result of these initiatives, the Company recorded charges of $124,000, or less than $0.01 per share, and $201,000, or less than $0.01 per share, during the first six 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.

As a result of these initiatives, the Company recorded charges of $124,000, or less than $0.01 per share, and $391,000, or less than $0.01 per share, during the first nine 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 six months of 2020 and 2019 were primarily related to mothball costs associated with the closed facility.

Costs Incurred

Severance and benefit related costs

Asset impairments

Equipment relocation costs

The charges for the first nine months of 2020 and 2019 were primarily related to mothball costs associated with the closed facility.

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

2 unchanged sentences

Property, plant and equipment, net

Other (Income), Net

The Company completed the sale of the Broadway Plant real estate for $1,700,000 and other idle assets for $268,000 and recognized net gains of $958,000 during the six months ended July 5, 2020, which is included in other income net on the Company’s consolidated income statements.

Additionally, the Company recognized pension expense of $402,000 and foreign currency related expense of $83,000.

During the three and six months ended June 30, 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 agreed to pay the Company $1,500,000 in compensation.

This amount was subsequently received in July 2019.

Additionally, the Company recognized a net gain of $477,000 for the six months ended June 30, 2019 related to the sale of idle assets, which was offset by pension expense of $495,000.

Other Expense (Income), Net

The Company completed the sale of the Broadway Plant real estate for $1,700,000 and other idle assets for $268,000 and recognized net gains of $813,000 during the nine months ended October 4, 2020, which is included in other income, net on the Company’s consolidated income statements.

Additionally, the Company recognized pension expense of $603,000 and foreign currency related expense of $73,000 during the nine months ended October 4, 2020.

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 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.

Stock-Based Compensation

During the three and six months ended July 5, 2020, the Company granted options to purchase 930,000 shares of our common stock under a long-term incentive program.

During the nine months ended October 4, 2020, the Company granted options to purchase 930,000 shares of our common stock under a long-term incentive program.

The options have a five-year term and cliff vest on the third anniversary of the grant date.

The grants did not have a significant impact on the Company’s consolidated financial statements during the three and six months ended July 5, 2020.

( Loss ) Earnings Per Common Share

The grants did not have a significant impact on the Company’s consolidated financial statements during the three and nine months ended October 4, 2020.

Income (L oss ) Per Common Share

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities.

3 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.

There were 2,735,750 potential common shares excluded from diluted earnings per share for the three months ended June 30, 2019.

For the three and six months ended July 5, 2020 and the six months ended June 30, 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) income per common share is as follows (in thousands):

There were 2,489,250 and 2,754,750 potential common shares excluded from diluted earnings per share for the three and nine months ended October 4, 2020, respectively because the effect of inclusion would be anti-dilutive.

For the three and nine months ended September 29, 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

Six Months Ended

Loss (income) attributable to stockholders:

Net (loss) income as reported

Nine Months Ended

September 29 ,

Income (loss) attributable to stockholders:

Net income (loss) as reported

Less distributed and undistributed earnings allocable to restricted award holders

Less dividends declared attributable to restricted award holders

Net (loss) income allocable to common stockholders

Loss (income) per common share attributable to stockholders:

Net income (loss) allocable to common stockholders

Income (loss) per common share attributable to stockholders:

Weighted average shares outstanding – basic

25 unchanged sentences

Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments.

The PPP Loan is evidenced by a promissory note in favor of BMO, as lender, with a principal amount of $3,558,000 that bears interest at a fixed annual rate of 1.00%, with the first six months of principal and interest deferred and a maturity date of April 2022.

Under the terms of the PPP Loan, 18 equal monthly payments of principal and interest would begin in November 2020 with the final payment due in April 2022, however recent legislation under the Paycheck Protection Program Flexibility Act of 2020 provides for an extension of the maturity date up to five years, an extension of the principal and interest deferral period to the date of a loan forgiveness determination and modifications to the debt amortization schedule if the Company and BMO reach an agreement on modified terms.

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

8 unchanged sentences

The Company has received the benefit of cash infusions from Gill Family Capital Management, Inc.

(“GFCM”) in the form of secured promissory note obligations totaling $6,500,000 in principal as of July 5, 2020 and December 31, 2019.

(“GFCM”) in the form of secured promissory note obligations totaling $6,500,000 in principal as of October 4, 2020 and December 31, 2019.

GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T.

11 unchanged sentences

Simultaneously, the Company entered into a ten-year lease of the nine acres and buildings occupied by the Company and needed for its ongoing business in Toluca.

As a result of the Toluca sale-leaseback, the Company has a finance lease obligation of $2,296,000 for the property as of July 5, 2020.

In January 2018, the Company entered into a 36-month finance lease for $1,277,000 for new production equipment installed at its Sypris Electronics facility during 2017.

The balance of the finance lease obligation as of July 5, 2020 was $213,000.

As a result of the Toluca sale-leaseback, the Company has a finance lease obligation of $2,219,000 for the property as of October 4, 2020.

In February 2019, the Company entered into a 60-month finance lease for $269,000 for new machinery at its Sypris Technologies facility in the U.S.

The balance of the finance lease obligation as of July 5, 2020 was $206,000.

The balance of the finance lease obligation as of October 4, 2020 was $193,000.

The Company is organized into two business segments, Sypris Technologies and Sypris Electronics.

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 29 ,

Net revenue from unaffiliated customers:

22 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 July 5, 2020 and December 31, 2019 was $542,000 and $569,000, respectively.

The Company’s warranty expense for the three and six months ended July 5, 2020 and June 30, 2019 was not material.

The Company’s warranty liability, which is included in accrued liabilities in the accompanying consolidated balance sheets as of October 4, 2020 and December 31, 2019 was $642,000 and $569,000, respectively.

The Company’s warranty expense for the three and nine months ended October 4, 2020 and September 29, 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.

12 unchanged sentences

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

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

As of October 4, 2020 and December 31, 2019, no amounts were accrued for any environmental matters.

On December 27, 2017, the U.S.

4 unchanged sentences

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.

Among other claims, the Lucas Plaintiffs allege that Sypris Technologies designed and manufactured the closure, that the closure was defective and that those defects had caused or contributed to their injuries.

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

The Company regards these allegations to be without merit and any potential 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 July 5, 2020, the Company had outstanding purchase commitments of approximately $8,021,000, primarily for the acquisition of inventory.

As of October 4, 2020, the Company had outstanding purchase commitments of approximately $10,170,000, primarily for the acquisition of inventory.

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 believes it will have sufficient future taxable income to realize its deferred tax assets by its Mexican subsidiaries.

Therefore, the Company reversed its valuation allowance recorded in prior years against certain Mexican net deferred tax assets and recognized an income tax benefit of $3,257,000 during the three and nine months ended October 4, 2020.

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.

and a portion of its non-U.S.

tax benefits.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 29 ,

Interest cost on projected benefit obligation

2 unchanged sentences

Net periodic benefit cost

The net periodic benefit cost of the defined benefit pension plans incurred during the three and six-month periods ended July 5, 2020 and June 30, 2019 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 and nine months ended October 4, 2020 and September 29, 2019 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 29 ,

Service cost:

1 unchanged sentence

Other net periodic benefit costs:

Other (income), net

Other expense (income), net

Accumulated Other Comprehensive Loss

7 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 July 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).

The carrying amount of debt outstanding at October 4, 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).

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