Sypris Reports Third Quarter Results Gross Margins Expand on Lower Revenue Business Wire LOUISVILLE, Ky. -- November 06, 2012 Sypris Solutions, Inc. (Nasdaq/NM: SYPR) today reported financial results for its third quarter ended September30,2012. HIGHLIGHTS ───────────────────── For the Third Quarter: *Revenue decreased 13.6% from the third quarter of last year. *Gross margin increased 60 basis points to 11.9%. *Earnings from continuing operations were $0.03 per diluted share. *Free cash flow was $4.2million, or $0.22 per diluted share. For the Nine Months: *Revenue increased 8.8% compared to the first nine months of last year. *Gross profit increased 32.4% compared to the prior year period. *Gross margin increased to 12.8% from 10.5% over the same period. *Earnings from continuing operations increased to $0.55 per diluted share, up from $0.35 per diluted share for the prior year period. ───────────────────── The Company reported revenue of $78.8million for the third quarter compared to $91.2million for the prior year period. The Company’s income from continuing operations for the three months ended September30, 2012 was $0.6million, or $0.03 per diluted share, as compared to income from continuing operations of $6.1million, or $0.30 per diluted share, for the prior year period. Income from continuing operations for the third quarter of 2012 included a foreign currency translation loss of $0.6 million and a gain of $1.3 million in connection with the sale of marketable securities, while income from continuing operations for the prior year period included a gain of $3.6 million from the disposition of idle assets and a foreign currency translation gain of $2.8 million. The Company’s net loss for the third quarter of 2012 was $5.7million, or $0.29 per diluted share, which included a $6.3 million expense in discontinued operations for the settlement of an arbitration case associated with the 2009 divestiture of Sypris Test & Measurement. Net income for the prior year quarter was $6.1million, or $0.30per diluted share, and included the gain of $3.6 million from the disposition of idle assets and the foreign currency translation gain of $2.8 million mentioned earlier. For the nine months ended September30, 2012, the Company reported revenue of $274.1million compared to $252.0million for the prior year period and income from continuing operations of $11.1million, or $0.55 per diluted share, as compared to $7.0million, or $0.35per diluted share, for the prior year period. Income from continuing operations for the nine months ended September 30, 2012 included a foreign currency translation loss of $0.9 million, a gain of $2.6 million on the sale of idle assets and a gain of $1.9 million in connection with the sale of marketable securities, while income from continuing operations for the prior year period included gains of $3.0 million in connection with a customer settlement, $4.2 million from the disposition of idle assets and a foreign currency translation gain of $2.1 million. The Company’s net income for the nine months ended September30,2012 was $4.0million, or $0.18 per diluted share, and included one-time expenses of $7.1million in discontinued operations related to the resolution of the arbitration case mentioned earlier. Net income for the prior year period was $6.6 million, or $0.33 per diluted share, and included a loss of $0.5 million associated with the arbitration case and the positive impact of the gains mentioned previously. “Our Industrial Group responded well to the unexpected reduction in the production of commercial vehicles, which resulted in a 21.3% sequential decline in quarterly revenue,” said Jeffrey T. Gill, President and Chief Executive Officer. "We now expect the production of commercial vehicles to remain soft in the short-term as OEMs work to rebalance inventory with demand.” “However, with an estimated 70% of the vehicles on the road today being of an age that is in excess of eight years, the eventual replacement cycle is expected to be robust for an extended period of time. In the interim, we believe that our improved cost profile and strong operational performance, which resulted in a 60 basis point increase in gross margin during the most recent quarter when compared to the same period last year, will enable us to sustain the profitability of this business.” “Our Aerospace and Defense business continues to be affected by budgetary and funding uncertainties within the U.S. Department of Defense that are not expected to be eliminated until Congress successfully addresses the fiscal cliff and its related issues. Despite the recent quarterly drop in revenue, our improved product mix resulted in a 260 basis point expansion of gross margin when compared to the third quarter of last year.” “In the long-term, we will continue to invest in new products and programs to further improve the attractiveness of our business portfolio, with a specific emphasis on trusted solutions for identity management, cryptographic key distribution and cyber analytics. We believe that our product mix going forward should help us to maintain our margin in the face of what is likely to be lumpy revenue until the many macroeconomic and policy issues are successfully resolved.” The Industrial Group Revenue for our Industrial Group decreased 10.3% to $65.2million in the third quarter compared to $72.6million for the prior year period and 21.3% sequentially, primarily as a result of a recent move by commercial vehicle OEM’s to rebalance inventory with lower levels of demand. Gross profit for the quarter was $6.6million, or 10.1% of revenue, compared to $6.9million, or 9.5% of revenue for the same period in 2011, reflecting our ability to protect margins despite lower volumes. The Electronics Group Revenue for our Electronics Group was $13.6million in the third quarter compared to $18.5million in the prior year period, primarily due to the completion of certain electronic manufacturing and engineering services. Gross profit for the quarter was $2.8million, or 20.6% of revenue, compared to $3.3million, or 18.0% of revenue for the same period in 2011, reflecting improved product mix. 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 once volumes return to full replacement levels later next year. Our Electronics Group will continue to face near-term revenue challenges that we expect to be ongoing until the outlook for defense spending is clarified and authorized.” 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; 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; dependence on, recruitment or retention of key employees; reliance on major customers or suppliers, especially in the automotive or aerospace and defense electronics sectors including Dana Holding Corporation, Meritor, Sistemas, Eaton, and the Australian government; 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; volatility of our customers’ forecasts, financial conditions, market shares, product requirements or scheduling demands; cyber security threats and disruptions; our ability to adequately finance current operations, future growth or expenses and potential acquisitions due to the cost and availability of debt, equity capital, or insurance; regulatory actions or sanctions (in each case including FCPA, OSHA and Federal Acquisition Regulations, among others); product liability and warranty expenses caused by our inability to effectively limit contractual obligations or defects in products or services; 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; 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; 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; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; failure to adequately insure against 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; other unknown risks and uncertainties. Non-GAAP Measures In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included in this press release, the company has provided information regarding free cash flow, which is a non-GAAP financial measure. Free cash flow is defined as cash provided by operating activities less capital expenditures. Free cash flow is useful in analyzing the company’s ability to service and repay its debt. Management uses this non-GAAP measure in planning and forecasting for future periods. This non-GAAP measure should not be considered a substitute for our reported results prepared in accordance with GAAP. Reconciliation of Three and Nine Months Ended Free Cash Flow (in thousands) Three Months Ended Nine Months Ended September 30, October 2, September 30, October 2, 2012 2011 2012 2011 (Unaudited) (Unaudited) Consolidated Cash Flow Statement: Cash flows from operating activities: Net cash provided by operating $ 5,918 $ 7,749 $ 1,087 $ 9,644 activities Cash flows from investing activities: Capital (1,676 ) (929 ) (4,106 ) (3,827 ) expenditures Proceeds from sale of 1,271 — 1,271 — marketable securities Proceeds from — 4,062 4,542 4,637 sale of assets Other — 10 — 44 Net cash provided by (used in) (405 ) 3,143 1,707 854 investing activities Cash flows from financing activities: Net cash used in financing (6,981 ) (9,525 ) (3,886 ) (11,563 ) activities Net (decrease) increase in cash (1,468 ) 1,367 (1,092 ) (1,065 ) and cash equivalents Cash and cash equivalents at 18,549 14,160 18,173 16,592 beginning of period Cash and cash equivalents at $ 17,081 $ 15,527 $ 17,081 $ 15,527 end of period Free Cash Flow: Net cash provided by operating $ 5,918 $ 7,749 $ 1,087 $ 9,644 activities Capital (1,676 ) (929 ) (4,106 ) (3,827 ) expenditures Free cash flow $ 4,242 $ 6,820 $ (3,019 ) $ 5,817 Diluted shares 19,567 19,024 19,423 18,999 outstanding Free cash flow $ 0.22 $ 0.36 $ (0.16 ) $ 0.31 per share SYPRIS SOLUTIONS, INC. Financial Highlights (In thousands, except per share amounts) Three Months Ended September 30, October 2, 2012 2011 (Unaudited) Revenue $ 78,763 $ 91,177 Net (loss) income $ (5,739 ) $ 6,082 Basic income (loss) per common share: Continuing operations $ 0.03 $ 0.30 Discontinued operations (0.33 ) - Net (loss) income per share $ (0.30 ) $ 0.30 Diluted income (loss) per common share: Continuing operations $ 0.03 $ 0.30 Discontinued operations (0.32 ) - Net (loss) income per share $ (0.29 ) $ 0.30 Weighted average shares outstanding: Basic 19,074 18,844 Diluted 19,567 19,024 Nine Months Ended September 30, October 2, 2012 2011 (Unaudited) Revenue $ 274,138 $ 252,045 Net income $ 3,987 $ 6,584 Basic income (loss) per common share: Continuing operations $ 0.56 $ 0.35 Discontinued operations (0.37 ) (0.02 ) Net income per share $ 0.19 $ 0.33 Diluted income (loss) per common share: Continuing operations $ 0.55 $ 0.35 Discontinued operations (0.37 ) (0.02 ) Net income per share $ 0.18 $ 0.33 Weighted average shares outstanding: Basic 19,038 18,813 Diluted 19,423 18,999 Sypris Solutions, Inc. Consolidated Statements of Operations (in thousands, except for per share data) Three Months Ended Nine Months Ended September 30, October 2, September 30, October 2, 2012 2011 2012 2011 (Unaudited) (Unaudited) Net revenue: Industrial Group $ 65,176 $ 72,647 $ 230,548 $ 201,082 Electronics Group 13,587 18,530 43,590 50,963 Total net revenue 78,763 91,177 274,138 252,045 Cost of sales: Industrial Group 58,602 65,716 205,146 181,939 Electronics Group 10,787 15,198 33,881 43,584 Total cost of 69,389 80,914 239,027 225,523 sales Gross profit: Industrial Group 6,574 6,931 25,402 19,143 Electronics Group 2,800 3,332 9,709 7,379 Total gross 9,374 10,263 35,111 26,522 profit Selling, general and 7,633 7,232 22,926 20,905 administrative Research and 1,084 1,097 2,513 2,637 development Amortization of 22 24 66 80 intangible assets Nonrecurring (income) expense, - - - (3,000 ) net Restructuring - 356 - 233 expense, net Operating income 635 1,554 9,606 5,667 Interest expense, 98 153 320 1,608 net (Gain) on sale of marketable (1,313 ) - (1,850 ) - securities Other (income) 561 (6,489 ) (1,970 ) (5,983 ) expense, net Income from continuing 1,289 7,890 13,106 10,042 operations before taxes Income tax 697 1,808 1,989 3,008 expense Income from continuing 592 6,082 11,117 7,034 operations Loss from discontinued (6,331 ) - (7,130 ) (450 ) operations, net of tax Net (loss) income $ (5,739 ) $ 6,082 $ 3,987 $ 6,584 Basic income (loss) per share: Income per share from continuing $ 0.03 $ 0.30 $ 0.56 $ 0.35 operations Loss per share from discontinued (0.33 ) - (0.37 ) (0.02 ) operations Net (loss) income $ (0.30 ) $ 0.30 $ 0.19 $ 0.33 per share Diluted income (loss) per share: Income per share from continuing $ 0.03 $ 0.30 $ 0.55 $ 0.35 operations Loss per share from discontinued (0.32 ) - (0.37 ) (0.02 ) operations Net (loss) income $ (0.29 ) $ 0.30 $ 0.18 $ 0.33 per share Dividends declared per $ 0.02 $ - $ 0.06 $ - common share Weighted average shares outstanding: Basic 19,074 18,844 19,038 18,813 Diluted 19,567 19,024 19,423 18,999 Sypris Solutions, Inc. Consolidated Balance Sheets (in thousands, except for share data) September 30, December 31, 2012 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 17,081 $ 18,173 Restricted cash - current 3,000 — Accounts receivable, net 44,243 42,984 Inventory, net 35,876 33,621 Other current assets 3,335 3,468 Assets held for sale — 1,739 Total current assets 103,535 99,985 Restricted cash — 3,000 Investment in marketable securities — 1,749 Property, plant and equipment, net 53,344 56,891 Goodwill 6,900 6,900 Other assets 8,106 7,200 Total assets $ 171,885 $ 175,725 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 45,807 $ 51,303 Accrued liabilities 30,434 23,569 Total current liabilities 76,241 74,872 Long-term debt 8,000 10,000 Other liabilities 23,281 30,385 Total liabilities 107,522 115,257 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; 20,204,247 shares issued and 20,113,800 outstanding in 202 201 2012 and 20,108,635 shares issued and 19,995,401 outstanding in 2011 Additional paid-in capital 149,404 149,160 Retained deficit (63,938 ) (66,722 ) Accumulated other comprehensive loss (21,304 ) (22,170 ) Treasury stock, 90,447 and 113,234 shares in (1 ) (1 ) 2012 and 2011, respectively Total stockholders’ equity 64,363 60,468 Total liabilities and stockholders’ equity $ 171,885 $ 175,725 Sypris Solutions, Inc. Consolidated Cash Flow Statements (in thousands) Nine Months Ended September 30, October 2, 2012 2011 (Unaudited) Cash flows from operating activities: Net income $ 3,987 $ 6,584 Loss from discontinued operations (7,130 ) (450 ) Income from continuing operations 11,117 7,034 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,141 10,791 Gain on the sale of marketable securities (1,850 ) — Stock-based compensation expense 1,331 754 Deferred revenue recognized (5,919 ) (5,163 ) Deferred loan costs recognized 58 153 Write-off of debt issuance costs — 277 Gain on the sale of assets (2,625 ) (4,189 ) Provision for excess and obsolete inventory 629 564 Other noncash items 1,514 (2,186 ) Contributions to pension plans (1,312 ) (753 ) Changes in operating assets and liabilities: Accounts receivable (887 ) (12,632 ) Inventory (3,035 ) (6,346 ) Prepaid expenses and other assets (638 ) 1,138 Accounts payable (5,507 ) 17,793 Accrued and other liabilities (930 ) 2,409 Net cash provided by operating activities 1,087 9,644 Cash flows from investing activities: Capital expenditures (4,106 ) (3,827 ) Proceeds from sale of marketable securities 1,271 — Proceeds from sale of assets 4,542 4,637 Other — 44 Net cash provided by investing activities 1,707 854 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 (2,000 ) 12,500 Payments for deferred loan costs — (387 ) Common stock repurchases (575 ) — Indirect repurchase of shares for minimum (511 ) (435 ) statutory tax withholdings Cash dividends paid (801 ) — Proceeds from issuance of common stock 1 64 Net cash used in financing activities (3,886 ) (11,563 ) Net decrease in cash and cash equivalents (1,092 ) (1,065 ) Cash and cash equivalents at beginning of 18,173 16,592 period Cash and cash equivalents at end of period $ 17,081 $ 15,527 Contact: Sypris Solutions, Inc. Brian A. Lutes, 502-329-2000 Chief Financial Officer
Sypris Reports Third Quarter Results
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