Sypris Reports Second Quarter Results

Sypris Solutions, Inc. (Nasdaq/NM: SYPR) today reported financial results for its second quarter ended July 1, 2012.

HIGHLIGHTS

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For the Second Quarter:
  • Revenue and gross profit increased 16% and 63%, respectively, from the second quarter of last year.
  • Earnings from continuing operations increased to $0.25 per diluted share, up from a loss of $0.08 per diluted share for the prior year period.
  • Gross margin increased to 13.4%, up 390 basis points from 9.5% in the second quarter of 2011.
  • The Company was added to the Russell 2000 Index effective June 22, 2012 as a result of the annual reconstitution of Russell’s family of indexes.
  • Subsequent to quarter end, the Company announced the election of Robert F. Lentz, former Deputy Assistant Secretary of Defense and Chief Information Security Officer for the U.S. Department of Defense, to its Board of Directors.

For the Six Months:
  • Revenue and gross profit increased 21% and 58%, respectively, compared to the first six months of last year.
  • Earnings from continuing operations increased to $0.52 per diluted share, up from $0.05 per diluted share for the prior year period.
  • Gross margin increased to 13.2%, up 310 basis points from 10.1% for the first six months of 2011.

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The Company reported revenue of $98.9 million for the second quarter compared to $85.1 million for the prior year period. The Company’s income from continuing operations for the three months ended July 1, 2012 was $5.0 million, or $0.25 per diluted share, as compared to a loss from continuing operations of $1.6 million, or $0.08 per diluted share, for the prior year period. Net income for the second quarter of 2012 was $4.4 million, or $0.22 per diluted share, as compared to a net loss of $1.6 million, or $0.08 per diluted share, for the prior year period.

For the six months ended July 1, 2012, the Company reported revenue of $195.4 million compared to $160.9 million for the prior year comparable period and income from continuing operations of $10.5 million, or $0.52 per diluted share, as compared to $1.0 million, or $0.05 per diluted share, for the prior year period. Net income for the six months ended July 1, 2012 was $9.7 million, or $0.48 per diluted share, as compared to $0.5 million, or $0.03 per diluted share, for the prior year period.

Net income for the six months ended July 1, 2012 included a gain of $2.6 million in connection with the sale of idle assets and a gain of $0.5 million in connection with the sale of marketable securities. Net income for the six months ended July 3, 2011 included a gain of $3.0 million in connection with a settlement with one of its customers.

“Our Industrial Group continued to show strong results during the quarter, with revenue, margins and income increasing on a year-over-year basis,” said Jeffrey T. Gill, president and chief executive officer. “We expect the improved cost profile and strong operational performance of this business to continue to make a material contribution to the expansion of the Company’s margins and profitability in 2012.”

“Our Aerospace and Defense business benefited from strong product sales to certain overseas customers, resulting in a noteworthy improvement in gross profit during the quarter in comparison with the prior year. And while the business continues to be affected by budgetary and funding uncertainty within the U.S. Department of Defense, the Company continues to pursue new products and programs to replenish its revenue stream.”

The Industrial Group

Revenue for our Industrial Group increased 20% to $82.9 million in the second quarter compared to $68.9 million for the prior year period, primarily as a result of increased demand from customers in the commercial vehicle market and shipments made under new contracts. Gross profit for the quarter increased 26% to $8.9 million, or 10.7% of revenue, compared to $7.1 million, or 10.3% of revenue for the same period in 2011, reflecting the positive conversion associated with the increase in revenue and productivity.

The Electronics Group

Revenue for our Electronics Group was $16.1 million in the second quarter compared to $16.2 million in the prior year period, but up 15.2% sequentially from the first quarter of 2012. Gross profit for the quarter was $4.3 million, or 26.9% of revenue, compared to $1.0 million, or 6.4% of revenue for the same period in 2011, and up sequentially from $2.6 million, or 18.6% of revenue, from the first quarter of 2012.

Outlook

Mr. Gill added, “We will continue to concentrate on the daily execution of our business. We expect recent investments in production cells and automation by our Industrial Group to contribute to further margin expansion going forward. For our Electronics Group, we are planning for a progressive recovery in shipments and margins for this business segment as we move throughout the year.”

“We believe that the Company is well-positioned and our team is focused on delivering improved operational and financial results during the year. We will do so through a relentless focus on execution at every level of our organization.”

Sypris Solutions is a diversified provider of outsourced services and specialty products. The Company performs a wide range of manufacturing, engineering, design and other technical services, typically under multi-year, sole-source contracts with corporations and government agencies in the markets for truck components and assemblies and aerospace and defense electronics. For more information about Sypris Solutions, visit its Web site at www.sypris.com.

Each “forward-looking statement” herein is subject to serious risks and should not be relied upon, as detailed in our most recent Form 10-K and Form 10-Q and subsequent SEC filings. Briefly we currently believe that such risks also include: declining revenues and backlog in our aerospace and defense business lines as we attempt to transition from legacy products and services into new market segments and technologies; dependence on, recruitment or retention of key employees; reliance on major customers or suppliers, especially in the automotive or aerospace and defense electronics sectors; U.S. government spending on products and services that our Electronics Group provides, including the timing of budgetary decisions; our ability to develop new products and programs within the Electronics Group especially in new market segments and technologies; cyber security threats and disruptions; potential impairments, non-recoverability or write-offs of goodwill, assets or deferred costs, including capitalized pre-contract costs related to the development of a replacement for certain aerospace and defense products; potential liabilities associated with discontinued operations, including post-closing indemnifications or claims related to business or asset dispositions; inventory valuation risks including obsolescence, shrinkage, theft, overstocking or underbilling; our inability to successfully launch or sustain new or next generation programs or product features, especially in accordance with budgets or committed delivery schedules; the costs of compliance with our auditing, regulatory or contractual obligations; regulatory actions or sanctions (in each case including FCPA, OSHA and Federal Acquisition Regulations, among others); breakdowns, relocations or major repairs of machinery and equipment; pension valuation, health care or other benefit costs; labor relations; strikes; union negotiations; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; changes or delays in government or other customer budgets, funding or programs; potential weaknesses in internal controls over financial reporting and enterprise risk management; the cost, efficiency and yield of our operations and capital investments, including working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; disputes or litigation, involving customer, supplier, lessor, landlord, creditor, stockholder, product liability or environmental claims; the costs and supply of debt, equity capital, or insurance; fees, costs or other dilutive effects of refinancing, compliance with covenants; cost and availability of raw materials such as steel, component parts, natural gas or utilities; volatility of our customers’ forecasts, financial conditions, market shares, product requirements or scheduling demands; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; failure to adequately insure or to identify environmental or other insurable risks; revised contract prices or estimates of major contract costs; risks of foreign operations; currency exchange rates; war, terrorism, or political uncertainty; unanticipated or uninsured disasters, losses or business risks; inaccurate data about markets, customers or business conditions; or unknown risks and uncertainties.
           
SYPRIS SOLUTIONS, INC.
Financial Highlights
(In thousands, except per share amounts)
 
Three Months Ended
July 1, July 3,
2012 2011
(Unaudited)
Revenue $ 98,912 $ 85,058
Net income (loss) $ 4,438 $ (1,550 )
Basic income (loss) per common share:
Continuing operations $ 0.25 $ (0.08 )
Discontinued operations   (0.03 )   -  
Net income (loss) per share $ 0.22   $ (0.08 )
Diluted income (loss) per common share:
Continuing operations $ 0.25 $ (0.08 )
Discontinued operations   (0.03 )   -  
Net income (loss) per share $ 0.22   $ (0.08 )
Weighted average shares outstanding:
Basic 19,068 18,833
Diluted 19,433 18,833
 
 
 
 
Six Months Ended
July 1, July 3,
2012 2011
(Unaudited)
Revenue $ 195,375 $ 160,868
Net income $ 9,726 $ 502
Basic income (loss) per common share:
Continuing operations $ 0.53 $ 0.05
Discontinued operations   (0.04 )   (0.02 )
Net income per share $ 0.49   $ 0.03  
Diluted income (loss) per common share:
Continuing operations $ 0.52 $ 0.05
Discontinued operations   (0.04 )   (0.02 )
Net income per share $ 0.48   $ 0.03  
Weighted average shares outstanding:
Basic 19,020 18,853
Diluted 19,361 19,047
 

           
Sypris Solutions, Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
 
Three Months Ended Six Months Ended
July 1, July 3, July 1, July 3,
2012 2011 2012 2011
(Unaudited) (Unaudited)
Net revenue:
Industrial Group $ 82,850 $ 68,885 $ 165,372 $ 128,435
Electronics Group   16,062     16,173     30,003     32,433  
Total net revenue 98,912 85,058 195,375 160,868
Cost of sales:
Industrial Group 73,944 61,805 146,544 116,223
Electronics Group   11,745     15,142     23,094     28,386  
Total cost of sales 85,689 76,947 169,638 144,609
Gross profit:
Industrial Group 8,906 7,080 18,828 12,212
Electronics Group   4,317     1,031     6,909     4,047  
Total gross profit 13,223 8,111 25,737 16,259
Selling, general and administrative 7,698 6,810 15,293 13,673
Research and development 1,035 924 1,429 1,540
Amortization of intangible assets 22 28 44 56
Nonrecurring (income) expense, net - - - (3,000 )
Restructuring (income) expense, net   -     130     -     (123 )
Operating income 4,468 219 8,971 4,113
Interest expense, net 105 726 222 1,455
(Gain) on sale of marketable securities (537 ) - (537 ) -
Other (income) expense, net   (457 )   275     (2,531 )   506  
Income (loss) from continuing operations before taxes 5,357 (782 ) 11,817 2,152
Income tax expense   343     768     1,292     1,200  
Income (loss) from continuing operations 5,014 (1,550 ) 10,525 952
Loss from discontinued operations, net of tax   (576 )   -     (799 )   (450 )
Net income (loss) $ 4,438   $ (1,550 ) $ 9,726   $ 502  
Basic income (loss) per share:
Income per share from continuing operations $ 0.25 $ (0.08 ) $ 0.53 $ 0.05
Loss per share from discontinued operations   (0.03 )   -     (0.04 )   (0.02 )
Net income per share $ 0.22   $ (0.08 ) $ 0.49   $ 0.03  
Diluted income (loss) per share:
Income per share from continuing operations $ 0.25 $ (0.08 ) $ 0.52 $ 0.05
Loss per share from discontinued operations   (0.03 )   -     (0.04 )   (0.02 )
Net income per share $ 0.22   $ (0.08 ) $ 0.48   $ 0.03  
Dividends declared per common share $ 0.02 $ - $ 0.04 $ -
Weighted average shares outstanding:
Basic 19,068 18,833 19,020 18,853
Diluted 19,433 18,833 19,361 19,047
 

         
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
 
July 1, December 31,
2012 2011
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 18,549 $ 18,173
Restricted cash - current 3,000
Accounts receivable, net 63,718 42,984
Inventory, net 39,488 33,621
Other current assets 3,748 3,468
Assets held for sale       1,739  
Total current assets 128,503 99,985
Restricted cash 3,000
Investment in marketable securities 1,281 1,749
Property, plant and equipment, net 53,604 56,891
Goodwill 6,900 6,900
Other assets   7,790     7,200  
Total assets $ 198,078   $ 175,725  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,090 $ 51,303
Accrued liabilities   26,081     23,569  
Total current liabilities 88,171 74,872
Long-term debt 14,000 10,000
Other liabilities   25,898     30,385  
Total liabilities 128,069 115,257
Stockholders’ equity:

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; 20,287,275 shares issued and 20,196,210 outstanding in 2012 and 20,108,635 shares issued and 19,995,401 outstanding in 2011
203 201
Additional paid-in capital 149,576 149,160
Retained deficit (57,797 ) (66,722 )
Accumulated other comprehensive loss (21,972 ) (22,170 )
Treasury stock, 91,065 and 113,234 shares in 2012 and 2011, respectively   (1 )   (1 )
Total stockholders’ equity   70,009     60,468  
Total liabilities and stockholders’ equity $ 198,078   $ 175,725  
 
Note: The balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.
 

             
Sypris Solutions, Inc.
Consolidated Cash Flow Statements
(in thousands)
 
Six Months Ended
 
July 1, July 3,
2012 2011
(Unaudited)
Cash flows from operating activities:
Net income $ 9,726 $ 502
Loss from discontinued operations   (799 )   (450 )
Income from continuing operations 10,525 952

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 6,128 7,285
Gain on the sale of marketable securities (537 )
Stock-based compensation expense 925 549
Deferred revenue recognized (3,946 ) (3,442 )
Deferred loan costs recognized 39 134
Write-off of debt issuance costs 277
Gain on the sale of assets (2,625 ) (578 )
Provision for excess and obsolete inventory 610 751
Other noncash items 358 1,062
Contributions to pension plans (446 ) (352 )
Changes in operating assets and liabilities:
Accounts receivable (20,375 ) (12,402 )
Inventory (6,393 ) (9,352 )
Prepaid expenses and other assets (972 ) 1,075
Accounts payable 10,777 14,765
Accrued and other liabilities   1,101     1,171  
Net cash (used in) provided by operating activities (4,831 ) 1,895
Cash flows from investing activities:
Capital expenditures (2,430 ) (2,898 )
Proceeds from sale of assets 4,542 575
Changes in nonoperating assets and liabilities       34  
Net cash provided by (used in) investing activities 2,112 (2,289 )
Cash flows from financing activities:
Repayment of former Revolving Credit Agreement (10,000 )
Repayment of former Senior Notes (13,305 )
Net proceeds from Credit Facility 4,000 22,000
Payments for deferred loan costs (373 )
Common stock repurchases (46 )
Indirect repurchase of shares for minimum statutory tax withholdings (462 ) (424 )
Cash dividends paid (397 )
Proceeds from issuance of common stock       64  
Net cash provided by (used in) financing activities   3,095     (2,038 )
Net increase (decrease) in cash and cash equivalents 376 (2,432 )
Cash and cash equivalents at beginning of period   18,173     16,592  
Cash and cash equivalents at end of period $ 18,549   $ 14,160  
 

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