Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our consolidated results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
We are a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. We offer a wide range of manufactured products, often under multi-year sole-source contracts.
We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications. Sypris Electronics, which is comprised of Sypris Electronics, LLC, generates revenue primarily through circuit card and full “box build” manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work.
We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry participants that embrace technological innovation and flexibility, coupled with multi-year contractual relationships, as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, have historically created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity and innovation that can result from such investments helps to differentiate us from our competition when it comes to cost, quality, reliability and customer service.
Impact of COVID-19, Inflation and Supply Chain Challenges on Our Business
The COVID-19 pandemic negatively impacted the Company’s results of operations, cash flows and financial position in 2021 and to a lesser extent in 2022. We have also continued to experience various degrees of supply chain challenges in 2022, including increased lead times for raw materials due to availability constraints and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue throughout 2023.
In connection with the supply chain challenges described above, we have experienced inflationary increases of certain raw materials, as well as logistics, transportation, utilities and labor costs. While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue throughout 2023.
Sypris Technologies Outlook
Demand in the North American Class 4-8 commercial vehicle market began to recover in the second half of 2020 following an anticipated market decline in the first half of 2020 that was deepened by the impact of the COVID-19 pandemic. Market conditions have improved since then for commercial vehicles in addition to the automotive, sport utility vehicle and off-highway markets also served by Sypris Technologies. While there is growing evidence of a slowing North American economy, we believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to benefit the Company as the demand cycles for our products in these markets differs from than the Class 8 commercial vehicle market, thereby reducing volatility in our revenue profile.
Reduced travel, business closures, and other economic impacts related to the COVID-19 pandemic suppressed oil and natural gas demand, thereby adversely impacting the oil and gas markets served by our Tube Turns® brand of engineered products. This caused major pipeline developers to significantly scale back near-term capital investments in new pipeline infrastructure, which resulted in reduced demand for our products for the oil and gas markets during 2021 and 2022. Sales in this market are dependent on, among other things, the level of worldwide oil and gas drilling, the price of crude oil and natural gas and capital spending by exploration and production companies and drilling contractors. The U.S. average land rig count continues to be below pre-pandemic levels but rose 33% in the fourth quarter of 2022 compared to the fourth quarter of 2021. As commodity prices improve and activity increases, particularly in liquefied natural gas (“LNG”) shipments to Europe, we currently expect customer demand in this market to increase in 2023 compared 2022. However, the war between Russia and Ukraine has led to disruption, instability and volatility in global markets and industries that could negatively impact our operations.
Sypris Electronics Outlook
As noted above, the COVID-19 pandemic continued to contribute to business impacts in 2022 including supply chain challenges and delays. The majority of the government aerospace and defense programs that we support require specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products. We have partnered with our customers to qualify alternative components or suppliers and will continue to focus on our supply chain to attempt to mitigate the impact of supply component shortages on our business. Electronic component shortages may continue to be a challenge during 2023. We may not be successful in addressing these shortages and other supply chain issues.
During 2021 and 2022, we announced new program awards for Sypris Electronics, with certain programs continuing into 2024. In addition to contract awards from Department of Defense (“DoD”) prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts related to the communication and navigation markets, which align with our advanced capabilities for delivering products for complex, high cost of failure platforms.
On March 28, 2022, President Biden's Administration submitted to Congress the President’s Fiscal Year (FY) 2023 budget request, which proposed $813.4 billion in total national defense spending, of which $773 billion was for the base budget of the DoD.
On December 29, 2022, the President signed the FY 2023 Omnibus Appropriations Act into law, which provides $858 billion in total national defense funding, of which $816.7 billion is for the DoD base budget. This reflects a $44.6 billion increase over the FY 2023 request for national defense spending, and a $43.7 billion increase for the DoD.
The FY 2023 Omnibus Appropriations Act also provided separate and additional funding of $47 billion for Ukraine, the fourth supplemental since March of 2022, bringing the total amount of supplemental funding authority provided to $113 billion.
The President’s FY 2024 budget request is anticipated to be submitted to Congress in March 2023, initiating the FY 2024 defense authorization and appropriations legislative process. In addition to the FY 2024 budget process, Congress will have to contend with the legal limit on U.S. debt, commonly known as the debt ceiling. The current statutory limit of $31.4 trillion was reached in January 2023, requiring the Treasury Department to take accounting measures to continue normally financing U.S. government obligations while avoiding exceeding the debt ceiling. It is expected, however, the U.S. government will exhaust these measures by June 2023. If the debt ceiling is not raised, the U.S. government may not be able to fulfill its funding obligations and there could be significant disruption to all discretionary programs and wider financial and economic repercussions. The federal budget and debt ceiling are expected to continue to be the subject of considerable congressional debate. Although we believe DoD, intelligence, and homeland security programs will continue to receive consensus support for increased funding and would likely receive priority if this scenario came to fruition, the effect on individual programs or our results cannot be predicted at this time.
We expect to compete for follow-on business opportunities as a subcontractor on future builds of several existing government programs. However, the federal budget and debt ceiling are expected to continue to be the subject of considerable uncertainty and the impact on demand for our products and services and our business are difficult to predict.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements. We believe the following critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We also have other policies that we consider to be key accounting policies, such as our policies for revenue recognition for Sypris Technologies, including cost of sales; however, these policies do not meet the definition of critical accounting estimates because they do not generally require us to make estimates or judgments that involve a significant level of estimation uncertainty. The following discussion of accounting estimates is intended to supplement the Summary of Significant Accounting Policies presented as Note 1 to our consolidated financial statements in Item 8.
Net Revenue and Cost of Sales. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a promised product or rendering a service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for the product or service (the “transaction price”). The Company’s transaction price in its contracts with customers is generally fixed; no payment discounts, rebates or refunds are included within its contracts. The Company 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 1 to the consolidated financial statements in this Annual Report on Form 10-K). Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company.
A performance obligation is a promise in a contract to transfer a distinct product or render a service to a customer and is the unit of account to which the transaction price is allocated under ASC 606, Revenue from Contracts with Customers. When a contract contains multiple performance obligations, we allocate the transaction price to the individual performance obligations using the price at which the promised goods or services would be sold to customers on a standalone basis. For most sales within our Sypris Technologies segment and a portion of sales within Sypris Electronics, control transfers to the customer at a point in time. Indicators that control has transferred to the customer include the Company having a present right to payment, the customer obtaining legal title and the customer having the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment.
For contracts where Sypris Electronics serves as a subcontractor for aerospace and defense companies under federally funded programs, we generally recognize revenue over time as we perform due to the continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contracts that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Because control is transferred over time, revenue and gross profit is recognized based on the extent of progress towards completion of the performance obligation. We use labor hours incurred as a measure of progress for these contracts because it best depicts the Company’s performance of the obligation to the customer, which occurs as we incur labor on our contracts. Under this measure of progress, the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the performance obligation.
Long-lived asset impairment. We perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. When indicators are present, we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount. If the operations are unable to recover the carrying amount of their assets, the long-lived assets are written down to their estimated fair value. Fair value is determined based on discounted cash flows, third party appraisals or other methods that provide appropriate estimates of value. A considerable amount of management judgment and assumptions are required in performing the impairment test, principally in determining whether an adverse event or circumstance has triggered the need for an impairment review. The Company did not have any long-lived assets measured at fair value on a nonrecurring basis as of December 31, 2022 or 2021.
Pension Plan Funded Status. Our U.S. defined benefit pension plans are closed to new entrants and an insignificant amount of service-related cost was recorded in 2022 related to a small number of participants who are still accruing benefits in the Louisville Hourly and Salaried Plans. Changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets. Pension obligations are valued using discount rates established annually in consultation with our outside actuarial advisers using a theoretical bond portfolio, adjusted according to the timing of expected cash flows for our future obligations. Plan liabilities at December 31, 2022 are based upon a discount rate of 5.40% which reflects the Above Mean Mercer Yield Curve rate as of December 31, 2022 rounded to the nearest 5th basis point. Declining discount rates increase the present value of future pension obligations; a 25 basis point decrease in the discount rate would increase our U.S. pension liability by about $0.5 million. As indicated above, when establishing the expected long-term rate of return on our U.S. pension plan assets, we consider historical performance and forward-looking return estimates reflective of our portfolio mix and investment strategy. Based on the most recent analysis of projected portfolio returns, we concluded that the use of 2.35% for the Louisville Hourly Plan, 3.40% for the Marion Plan and 2.65% for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for 2022 was appropriate. A change in the assumed rate of return on plan assets of 100 basis points would result in a $0.2 million change in the estimated 2023 pension expense.
At December 31, 2022, we have $10.0 million of unrecognized losses relating to our U.S. pension plans. Actuarial gains and losses, which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns, are deferred in Accumulated Other Comprehensive Income and amortized to expense following the corridor approach. We use the average remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy for all active and inactive participants.
Based on the current funded status of our U.S. plans, we expect to contribute less than $0.1 million during 2023, which represents the minimum funding amounts required by federal law.
Reserve for Excess, Obsolete and Scrap Inventory. We record inventory at the lower of cost, determined under the first-in, first-out method, or net realizable value, and we reserve for excess, obsolete or scrap inventory. These reserves are primarily based upon management’s assessment of the salability of the inventory, historical usage of raw materials, historical demand for finished goods and estimated future usage and demand. An improper assessment of salability or improper estimate of future usage or demand, or significant changes in usage or demand could result in significant changes in the reserves and a positive or a negative impact on our consolidated results of operations in the period the change occurs.
Stock-based Compensation. We account for stock-based compensation in accordance with the fair value recognition provisions using the Black-Scholes option-pricing method, which requires the input of several subjective assumptions. The Company uses historical Company and industry data to estimate the expected price volatility. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, the Company uses the simplified method to estimate the expected term. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. The dividend yield is assumed to be zero as we have not paid dividends nor do we anticipate paying any dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. Forfeitures are recorded as they occur. Changes in the subjective assumptions can materially affect the fair value estimate of stock-based compensation and consequently, the related expense recognized in the consolidated statements of operations.
Income Taxes. We account for income taxes as required by the provisions of ASC 740, Income Taxes, under which deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates.
Management judgment is required in determining income tax expense and the related balance sheet amounts. In addition, under ASC 740-10, Accounting for Uncertainty in Income Taxes, judgments are required concerning the ultimate outcome of uncertain income tax positions. Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We believe that our recorded income tax liabilities adequately provide for the probable outcome of these assessments.
Deferred tax assets are also recorded for operating losses and tax credit carryforwards. However, ASC 740 requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment is largely dependent upon projected near-term profitability including the effects of tax planning. Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. 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 the deferred tax assets recorded by its Mexican subsidiary.
Based on its current forecast, the Company has established a valuation allowance against all 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. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made.
Results of Operations
We operate in two segments, Sypris Technologies and Sypris Electronics. The table presented below compares our segment and consolidated results of operations from 2022 to 2021. The table presents the results for each year, the change in those results from one year to another in both dollars and percentage change and the results for each year as a percentage of net revenue.
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The first two columns in each table show the absolute results for each period presented.
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The columns entitled “Year-Over-Year Change” and “Year-Over-Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.
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The last two columns in each table show the results for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each are given as a percentage of each segment’s net revenue. These amounts are shown in italics.
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In addition, as used in the table, “NM” means “not meaningful.”
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
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Year Over |
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Year Over |
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Year |
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Results as Percentage of |
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Year Ended |
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Year |
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Percentage |
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Net Revenue for the |
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December 31, |
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Change |
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Change |
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Year Ended |
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Favorable |
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Favorable |
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December 31, |
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2022 |
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2021 |
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(Unfavorable) |
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(Unfavorable) |
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2022 |
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2021 |
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(in thousands, except percentage data) |
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Net revenue:
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Sypris Technologies |
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$ |
69,259 |
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$ |
61,737 |
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$ |
7,522 |
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12.2 |
% |
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62.9 |
% |
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63.4 |
% |
Sypris Electronics |
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40,862 |
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35,697 |
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5,165 |
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14.5 |
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37.1 |
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36.6 |
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Total net revenue |
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110,121 |
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97,434 |
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12,687 |
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13.0 |
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100.0 |
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100.0 |
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Cost of sales:
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Sypris Technologies |
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60,709 |
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53,622 |
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(7,087 |
) |
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(13.2 |
) |
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87.7 |
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86.9 |
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Sypris Electronics |
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34,559 |
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29,306 |
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(5,253 |
) |
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(17.9 |
) |
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84.6 |
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82.1 |
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Total cost of sales |
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95,268 |
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82,928 |
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(12,340 |
) |
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(14.9 |
) |
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86.5 |
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85.1 |
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Gross profit:
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Sypris Technologies |
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8,550 |
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8,115 |
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435 |
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5.4 |
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12.3 |
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13.1 |
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Sypris Electronics |
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6,303 |
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6,391 |
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(88 |
) |
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(1.4 |
) |
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15.4 |
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17.9 |
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Total gross profit |
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14,853 |
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14,506 |
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347 |
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2.4 |
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13.5 |
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14.9 |
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Selling, general and administrative
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14,489 |
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12,596 |
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(1,893 |
) |
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(15.0 |
) |
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13.2 |
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12.9 |
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Operating income
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364 |
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1,910 |
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(1,546 |
) |
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(80.9 |
) |
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0.3 |
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2.0 |
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Interest expense, net
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1,110 |
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868 |
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(242 |
) |
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(27.9 |
) |
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1.0 |
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0.9 |
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Other expense, net
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800 |
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645 |
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(155 |
) |
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(24.0 |
) |
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0.7 |
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0.7 |
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Forgiveness of PPP Loan and related interest
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— |
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(3,599 |
) |
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(3,599 |
) |
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NM |
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— |
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(3.7 |
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(Loss) income before income taxes
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(1,546 |
) |
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3,996 |
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(5,542 |
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NM |
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(1.4 |
) |
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4.1 |
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Income tax expense, net
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948 |
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1,073 |
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125 |
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11.6 |
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0.9 |
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1.1 |
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Net (loss) income
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$ |
(2,494 |
) |
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$ |
2,923 |
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$ |
(5,417 |
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NM |
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(2.3 |
)% |
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3.0 |
% |
Net Revenue. Sypris Technologies derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products. Net revenue for Sypris Technologies increased $7.5 million from the prior year to $69.3 million in 2022. The increase in net revenue for the period includes price adjustments for increases in the market price of steel over the past year, which is contractually passed through to customers under certain contracts. The steel price adjustments totaled approximately $4.1 million for the year ended December 31, 2022. Additionally, the Company also had higher shipment volumes of sport utility and energy components in 2022 as compared to 2021. Revenue for Sypris Technologies is expected to increase in 2023, primarily attributable to higher energy component sales and new program expansion with existing customers in the commercial vehicle market.
Sypris Electronics derives its revenue primarily from circuit card and full “box build” manufacturing, high reliability manufacturing and systems assembly and integration. Net revenue for Sypris Electronics increased $5.2 million to $40.9 million in 2022. The increase in revenue for the year ended December 31, 2022 was primarily related to the ramping of production during the year for two follow-on programs that began shipments during the fourth quarter of 2021. Results for the year ended December 31, 2022 and 2021, were impacted by material availability. Certain programs have been impacted by material availability as receipts of a limited number of specific parts necessary to complete the build of the products were delayed or, in other instances, required us to resource and obtain alternative parts or use alternative suppliers. The order backlog for Sypris Electronics is expected to support an increase in revenue during 2023, but revenue could continue to be negatively impacted by material availability.
Gross Profit. Sypris Technologies’ gross profit increased $0.4 million to $8.5 million in 2022 as compared to $8.1 million in the prior year. The net increase in volumes contributed to an increase in gross profit of $2.6 million for the year ended December 31, 2022 from the prior year. Partially offsetting this increase were inflationary cost increases, unfavorable product mix, increased operating supply spend, additional equipment maintenance expenses in support of the increase in revenue in 2022.
Sypris Electronics’ gross profit decreased $0.1 million to $6.3 million as compared to $6.4 million in the prior year. The decrease in gross profit for the year ended December 31, 2022 was primarily the result of lower margins on new programs ramping during the period compared to margins on mature programs completed during 2021. Additional engineering costs were also incurred in 2022 on certain programs that have not yet reached full rate production. The expected increase in revenue during 2023 attributable to order backlog is expected to favorably impact overhead absorption and the contribution margin from higher volumes is further expected to generate gross profit expansion.
Selling, General and Administrative. Selling, general and administrative expense increased $1.9 million to $14.5 million in 2022 as compared to $12.6 million in 2021. The increase in selling general and administrative expense for the year ended December 31, 2022 was the result of a reinstatement of compensation of our Chairman, President and CEO and certain other senior leadership and corporate personnel and our Board of Directors, which had been reduced in 2020 across the Company amid the onset of the COVDID-19 pandemic. Additionally, the Company experienced higher employee medical insurance claim expense and an increase in headcount to support the increase in volumes for Sypris Technologies. Selling, general and administrative expense increased as a percentage of revenue to 13.2% for the year ended December 31, 2022 from 12.9% for the year ended December 31, 2021.
Other Expense, Net. Other expense, net, was $0.8 million in 2022 as compared to $0.6 million for 2021. During the year ended December 31, 2022, the Company recognized pension expense of $0.6 million. Foreign currency related expenses were not material for the year ended December 31, 2022.
During the year ended December 31, 2021, the Company pension expense of $0.6 million. Foreign currency related expenses were not material for the year ended December 31, 2021.
Forgiveness of PPP Loan and related interest. On June 28, 2021, the Company received notice from BMO that BMO had received confirmation from the SBA that the application for forgiveness of the PPP Loan had been approved. The loan forgiveness request in the amount of $3.6 million was applied to the Company’s entire outstanding PPP Loan balance with BMO. During the year ended December 31, 2021, the Company recorded a gain on the forgiveness of the PPP Loan and accrued interest in the amount of $3.6 million.
Income Taxes. The 2022 income tax provision consists of current tax expense of $0.6 million and deferred tax expense of $0.3 million. The 2021 income tax provision consists of current tax expense of $0.1 million and a deferred tax expense of $1.0 million. The current tax expense in 2022 and 2021 includes taxes paid by our Mexican subsidiary and domestic state income taxes and adjustments. The 2022 and 2021 deferred tax expense includes net changes in the foreign deferred tax assets during the year.
Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. 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 the deferred tax assets recorded by its Mexican subsidiary.
Based on its current forecast, the Company has established a valuation allowance against all 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. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made.
Liquidity and Capital Resources
Cash Balance. At December 31, 2022, we had approximately $21.6 million of cash and cash equivalents, of which $3.6 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as capital expenditures, for at least the next 12 months and beyond. Significant changes from our current forecasts, including, but not limited to: (i) meaningful shortfalls in our projected revenues, (ii) unexpected costs or expenses, and/or (iii) operating difficulties which cause unexpected delays in scheduled shipments, could require us to seek additional funding or force us to make further reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects.
Material Cash Requirements
Gill Family Capital Management Note. The Company has received the benefit of cash infusions from GFCM in the form of secured promissory note obligations totaling $6.5 million in principal as of December 31, 2022 and 2021 (the “Note”). GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. As of December 31, 2022, our principal commitment under the Note was $2.5 million due on April 1, 2023, $2.0 million on April 1, 2024 and the balance on April 1, 2026. Interest on the Note is reset on April 1 of each year, at the greater of 8.0% or 500 basis points above the five-year Treasury note average during the preceding 90-day period, in each case, payable quarterly. The Note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the portion of the notes maturing in April of 2023 and 2024.
The Note provides for a first security interest in substantially all of the Company’s assets, including those in Mexico (see Note 12 to the consolidated financial statements in this Annual Report on Form 10-K).
Finance Lease Obligations. As of December 31, 2022, the Company had $3.6 million outstanding under finance lease obligations for both property and machinery and equipment with maturities through 2026 and a weighted average interest rate of 8.5%.
Equipment Financing Obligations. As of December, 2022, the Company had $1.1 million outstanding under equipment financing facilities, with effective interest rates ranging from 4.4% to 8.1% and payments due through 2028.
Purchase Commitments. We had purchase commitments totaling approximately $68.9 million at December 31, 2022, primarily for inventory.
Cash Flows from Operating, Investing and Financing Activities
Operating Activities. Net cash provided by operating activities was $13.8 million in 2022, as compared to $4.2 million in 2021. The increase in inventory in 2022 resulted in a usage of cash of $11.8 million. The increase in inventory is primarily in support of new program revenue growth for Sypris Electronics. A significant portion of the inventory receipts were funded through prepayments from customers of Sypris Electronics in 2022, which are recorded as contract liabilities and are the primary component of the $20.4 million increase in accrued and other liabilities during 2022. Accounts payable also increased during 2022, primarily associated with the inventory additions, providing a source of cash of $5.6 million. Prepaid expenses and other current assets increased during 2022 resulting in a cash use of $3.1 million primarily as a result of an increase in taxes refundable in Mexico, increased capitalized costs associated with programs in the startup phase of production at Sypris Electronics and increased contract assets.
Investing Activities. Net cash used in investing activities was comprised of capital expenditures of $3.0 million and $2.8 million in 2022 and 2021, respectively.
Financing Activities. Net cash used in financing activities was $1.4 million in 2022 as compared to $1.3 million in 2021. Net cash used in financing activities in 2022 included principal payments on finance lease and equipment financing obligations of $1.3 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation. Net cash used in financing activities in 2021 included principal payments on finance lease and equipment financing obligations of $0.7 million and payments of $0.6 million for minimum statutory tax withholdings on stock-based compensation.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a full description of recent accounting pronouncements, including the respective dates of adoption and effects on our results of operations and financial condition.
Item 8. Financial Statements and Supplementary Data
SYPRIS SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
|
30
|
Consolidated Statements of Operations
|
32
|
Consolidated Statements of Comprehensive (Loss) Income
|
33
|
Consolidated Balance Sheets
|
34
|
Consolidated Statements of Cash Flows
|
35
|
Consolidated Statements of Stockholders’ Equity
|
36
|
Notes to Consolidated Financial Statements
|
37
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of Sypris Solutions, Inc.
Louisville, Kentucky
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sypris Solutions, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Net revenue and gross profit recognized over time
As more fully described in Notes 1 and 3 to the financial statements, for contracts where the Company serves as a contractor for aerospace and defense companies under federally funded programs, revenue and gross profit is recognized over time due to the continuous transfer of control to the customer based upon the extent of progress towards completion of the performance obligation. The Company uses labor hours incurred as the measure of progress as it best depicts the Company’s performance of the obligation to the customer. Under this measure of progress, the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours to complete the performance obligation. Revenue and gross profit are recognized based on the extent of progress towards completion of the performance obligation.
We identified auditing the revenue and gross profit recognized over time as a critical audit matter due to the significant audit effort involved in auditing the percentage of completion calculation. Our audit procedures related to revenue and gross profit recognized over time included the following substantive testing procedures:
|
-
|
Evaluated whether the recognition of revenue and gross profit over time was appropriate based on the terms and conditions of each tested contract.
|
|
-
|
Tested management’s determination of the performance obligation transaction price and gross profit in management’s calculation by comparing items to revenue and gross profit recognized on similar items that were sold during the year.
|
|
-
|
Tested completeness of the inventory on contracts for which revenue and gross profit is being recognized over time by agreeing the inventory in management’s calculation to the underlying inventory listing.
|
|
-
|
Evaluated the percentage of completion based upon labor hours incurred to the ratio of total estimated labor hours at completion by:
|
|
o
|
Assessing, during our physical inventory observation, the stage of completion and recalculating the labor hours incurred to date by comparing inventory items throughout the stages of completion and agreeing those items back to the inventory listing.
|
|
o
|
Performing manufactured inventory cost testing to test the total labor hours incurred on a finished good product.
|
|
o
|
Testing the mathematical accuracy of management’s calculation of revenue and gross profit recognized during the period for the performance obligations.
|
/s/ Crowe LLP
We have served as the Company’s auditor since 2014.
San Francisco, California
March 16, 2023
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
|
|
Year ended December 31, |
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$ |
110,121 |
|
|
$ |
97,434 |
|
Cost of sales
|
|
|
95,268 |
|
|
|
82,928 |
|
Gross profit
|
|
|
14,853 |
|
|
|
14,506 |
|
Selling, general and administrative
|
|
|
14,489 |
|
|
|
12,596 |
|
Operating income
|
|
|
364 |
|
|
|
1,910 |
|
Interest expense, net
|
|
|
1,110 |
|
|
|
868 |
|
Other expense, net
|
|
|
800 |
|
|
|
645 |
|
Forgiveness of PPP Loan and related interest
|
|
|
0 |
|
|
|
(3,599 |
) |
(Loss) income before income taxes
|
|
|
(1,546 |
) |
|
|
3,996 |
|
Income tax expense, net
|
|
|
948 |
|
|
|
1,073 |
|
Net (loss) income
|
|
$ |
(2,494 |
) |
|
$ |
2,923 |
|
(Loss) income per common share: |
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.11 |
) |
|
$ |
0.14 |
|
Diluted
|
|
$ |
(0.11 |
) |
|
$ |
0.13 |
|
Cash dividends per common share
|
|
$ |
0 |
|
|
$ |
0 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic
|
|
|
21,729 |
|
|
|
21,585 |
|
Diluted
|
|
|
21,729 |
|
|
|
23,001 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
|
|
Year ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,494 |
) |
|
$ |
2,923 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense |
|
|
982 |
|
|
|
(593 |
) |
Employee benefit related, net of tax expense |
|
|
1,167 |
|
|
|
2,297 |
|
Other comprehensive income |
|
|
2,149 |
|
|
|
1,704 |
|
Comprehensive (loss) income |
|
$ |
(345 |
) |
|
$ |
4,627 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SYPRIS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
|
|
December 31, |
|
|
|
2022 |
|
|
2021
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21,648 |
|
|
$ |
11,620 |
|
Accounts receivable, net
|
|
|
8,064 |
|
|
|
8,467 |
|
Inventory, net
|
|
|
42,133 |
|
|
|
30,100 |
|
Other current assets
|
|
|
8,133 |
|
|
|
5,868 |
|
Total current assets
|
|
|
79,978 |
|
|
|
56,055 |
|
Property, plant and equipment, net
|
|
|
15,532 |
|
|
|
14,140 |
|
Operating lease right-of-use assets
|
|
|
4,251 |
|
|
|
5,140 |
|
Other assets
|
|
|
4,383 |
|
|
|
4,170 |
|
Total assets
|
|
$ |
104,144 |
|
|
$ |
79,505 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
17,638 |
|
|
$ |
11,962 |
|
Accrued liabilities
|
|
|
33,316 |
|
|
|
19,646 |
|
Operating lease liabilities, current portion
|
|
|
1,168 |
|
|
|
1,063 |
|
Finance lease obligations, current portion
|
|
|
1,102 |
|
|
|
983 |
|
Equipment financing obligations, current portion
|
|
|
398 |
|
|
|
336 |
|
Note payable – related party, current portion
|
|
|
2,500 |
|
|
|
0 |
|
Total current liabilities
|
|
|
56,122 |
|
|
|
33,990 |
|
Operating lease obligations, net of current portion
|
|
|
3,710 |
|
|
|
4,878 |
|
Finance lease obligations, net of current portion
|
|
|
2,536 |
|
|
|
3,469 |
|
Equipment financing obligations, net of current portion
|
|
|
738 |
|
|
|
868 |
|
Note payable – related party
|
|
|
3,989 |
|
|
|
6,484 |
|
Other liabilities
|
|
|
17,474 |
|
|
|
10,530 |
|
Total liabilities
|
|
|
84,569 |
|
|
|
60,219 |
|
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; 22,175,664 shares issued and 22,175,645 outstanding in 2022 and 21,864,743 shares issued and 21,864,724 outstanding in 2021
|
|
|
221 |
|
|
|
218 |
|
Additional paid-in capital
|
|
|
155,535 |
|
|
|
154,904 |
|
Accumulated deficit
|
|
|
(115,336 |
) |
|
|
(112,842 |
) |
Accumulated other comprehensive loss
|
|
|
(20,845 |
) |
|
|
(22,994 |
) |
Treasury stock, 19 shares in 2022 and 2021
|
|
|
0 |
|
|
|
0 |
|
Total stockholders’ equity
|
|
|
19,575 |
|
|
|
19,286 |
|
Total liabilities and stockholders’ equity
|
|
$ |
104,144 |
|
|
$ |
79,505 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Year ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,494 |
) |
|
$ |
2,923 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,088 |
|
|
|
2,646 |
|
Forgiveness of PPP Loan and related interest |
|
|
0 |
|
|
|
(3,599 |
) |
Deferred income taxes |
|
|
329 |
|
|
|
1,015 |
|
Non-cash compensation |
|
|
683 |
|
|
|
491 |
|
Deferred loan costs amortized |
|
|
6 |
|
|
|
7 |
|
Net loss on disposal or abandonment of assets |
|
|
0 |
|
|
|
11 |
|
Provision for excess and obsolete inventory |
|
|
65 |
|
|
|
162 |
|
Non-cash lease expense |
|
|
890 |
|
|
|
963 |
|
Other noncash items |
|
|
(148 |
) |
|
|
150 |
|
Contributions to pension plans |
|
|
(60 |
) |
|
|
(297 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
345 |
|
|
|
(1,265 |
) |
Inventory |
|
|
(11,804 |
) |
|
|
(13,978 |
) |
Prepaid expenses and other assets |
|
|
(3,072 |
) |
|
|
(1,314 |
) |
Accounts payable |
|
|
5,556 |
|
|
|
5,268 |
|
Accrued and other liabilities |
|
|
20,409 |
|
|
|
11,055 |
|
Net cash provided by operating activities |
|
|
13,793 |
|
|
|
4,238 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(3,041 |
) |
|
|
(2,824 |
) |
Proceeds from sale of assets |
|
|
10 |
|
|
|
10 |
|
Net cash used in investing activities |
|
|
(3,031 |
) |
|
|
(2,814 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Principal payments on finance lease obligations |
|
|
(982 |
) |
|
|
(499 |
) |
Principal payments on equipment financing obligations |
|
|
(352 |
) |
|
|
(176 |
) |
Indirect repurchase of shares for minimum statutory tax withholdings |
|
|
(49 |
) |
|
|
(607 |
) |
Net cash used in financing activities |
|
|
(1,383 |
) |
|
|
(1,282 |
) |
Effect of exchange rate changes on cash balances |
|
|
649 |
|
|
|
(128 |
) |
Net increase in cash and cash equivalents |
|
|
10,028 |
|
|
|
14 |
|
Cash and cash equivalents at beginning of year |
|
|
11,620 |
|
|
|
11,606 |
|
Cash and cash equivalents at end of year |
|
$ |
21,648 |
|
|
$ |
11,620 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Fixed assets obtained in exchange for finance lease and equipment financing obligations |
|
$ |
452 |
|
|
$ |
4,012 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Stock |
|
January 1, 2021 balance |
|
|
21,300,958 |
|
|
$ |
213 |
|
|
$ |
155,025 |
|
|
$ |
(115,765 |
) |
|
$ |
(24,698 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,923 |
|
|
|
0 |
|
|
|
0 |
|
Employee benefit related, net of tax |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,297 |
|
|
|
0 |
|
Foreign currency translation adjustment, net of tax |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(593 |
) |
|
|
0 |
|
Restricted common stock grant
|
|
|
197,500 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Noncash compensation |
|
|
52,500 |
|
|
|
0 |
|
|
|
491 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Exercise of stock options |
|
|
313,766 |
|
|
|
3 |
|
|
|
(610 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 balance |
|
|
21,864,724 |
|
|
$ |
218 |
|
|
$ |
154,904 |
|
|
$ |
(112,842 |
) |
|
$ |
(22,994 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(2,494 |
) |
|
|
0 |
|
|
|
0 |
|
Employee benefit related, net of tax |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,167 |
|
|
|
0 |
|
Foreign currency translation adjustment, net of tax |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
982 |
|
|
|
0 |
|
Restricted common stock grant |
|
|
197,500 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Noncash compensation |
|
|
60,000 |
|
|
|
0 |
|
|
|
683 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Exercise of stock options |
|
|
53,421 |
|
|
|
1 |
|
|
|
(50 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 balance |
|
|
22,175,645 |
|
|
$ |
221 |
|
|
$ |
155,535 |
|
|
$ |
(115,336 |
) |
|
$ |
(20,845 |
) |
|
|
0 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(1) Organization and Significant Accounting Policies
Consolidation Policy
The accompanying consolidated financial statements include the accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries (collectively, “Sypris” or the “Company”) and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. The Company’s operations are domiciled in the United States (U.S.) and Mexico and serve a wide variety of domestic and international customers. All intercompany accounts and transactions have been eliminated.
Nature of Business
Sypris is a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. The Company produces a wide range of manufactured products, often under multi-year, sole-source contracts with corporations and government agencies. The Company offers such products through its two business segments, Sypris Technologies, Inc. (“Sypris Technologies”) and Sypris Electronics, LLC (“Sypris Electronics”). Sypris Technologies derives its revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for heavy commercial vehicle and high-pressure energy pipeline applications. Sypris Electronics derives its revenue primarily from circuit card and box build manufacturing, high reliability manufacturing and systems assembly and integration. Most products are built to the customer’s design specifications. The Company also provides engineering design services and repair or inspection services. See Note 20 for additional information regarding our segments.
Use of Estimates
The preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements. Actual results could differ from these estimates.
Fair Value Estimates
The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows: Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 – Valuation 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 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
Inventory
Inventory is stated at the lower of cost or estimated net realizable value. Costs for raw materials, work in process and finished goods is determined under the first-in, first-out method. Indirect inventories, which include perishable tooling, repair parts and other materials consumed in the manufacturing process but not incorporated into finished products are classified as raw materials.
The Company’s reserve for excess and obsolete inventory is primarily based upon forecasted demand for its product sales, and any change to the reserve arising from forecast revisions is reflected in cost of sales in the period the revision is made.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is generally computed using the straight-line method over their estimated economic lives. For land improvements, buildings and building improvements, the estimated economic life is generally 40 years. Estimated economic lives range from three to fifteen years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of their economic life or the respective lease term using the straight-line method. Expenditures for maintenance, repairs and renewals of minor items are expensed as incurred. Major rebuilds and improvements are capitalized. Also included in plant and equipment are assets under finance lease, which are stated at the present value of minimum lease payments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Cloud Computing Arrangements
The Company capitalizes implementation costs incurred in cloud computing (i.e., hosting arrangements) during the application development phase and depreciates the costs over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised or for which the exercise is controlled by the service provider. The Company classifies the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e., operating and SG&A expense) and classifies the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). In addition, the capitalization of implementation costs is reflected in the balance sheet consistent with the location of prepayment of fees for the hosting element (i.e., within prepaid expenses and other current assets). As of December 31, 2022 and 2021, the Company had $204,000 and $89,000 recorded in prepaid expenses and other current assets in the consolidated balance sheets. Amortization expense for the years ended December 31, 2022 and 2021 was not material.
Long-lived Assets
The Company reviews the carrying value of amortizable long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held for sale and held for use is measured by a comparison of the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. If facts and circumstances indicate that the carrying value of an asset or groups of assets, as applicable, is impaired, the long-lived asset or groups of long-lived assets are written down to their estimated fair value.
Leases
Our lease portfolio represents leases of real estate, including manufacturing, assembly and office facilities, while the remainder represents leases of personal property, including manufacturing and information technology equipment. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. Generally, we use our incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily available.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with the fair value recognition provisions using the Black-Scholes option-pricing method, which requires the input of several subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term) and the estimated volatility of our common stock price over the expected term. Changes in the subjective assumptions can materially affect the fair value estimate of stock-based compensation and consequently, the related expense is recognized in the consolidated statements of operations.
Income Taxes
The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using the statutory tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest has also been recognized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with ASC 740, Income Taxes. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.
Net Revenue and Cost of Sales
The Company recognizes revenue when it satisfies a performance obligation by transferring control of a promised product or rendering a service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for the product or service (the “transaction price”). The Company’s transaction price in its contracts with customers is generally fixed; no payment discounts, rebates or refunds are included within its contracts. The Company 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. Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company.
A performance obligation is a promise in a contract to transfer a distinct product or render a service to a customer and is the unit of account to which the transaction price is allocated under ASC 606, Revenue from Contracts with Customers (“ASC 606”). When a contract contains multiple performance obligations, we allocate the transaction price to the individual performance obligations using the price at which the promised goods or services would be sold to customers on a standalone basis. For most sales within our Sypris Technologies segment and a portion of sales within Sypris Electronics, control transfers to the customer at a point in time. Indicators that control has transferred to the customer include the Company having a present right to payment, the customer obtaining legal title and the customer having the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment.
For contracts where Sypris Electronics serves as a contractor for aerospace and defense companies under federally funded programs, we generally recognize revenue over time as we perform due to the continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contracts that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Because control is transferred over time, revenue and gross profit is recognized based on the extent of progress towards completion of the performance obligation. We use labor hours incurred as a measure of progress for these contracts because it best depicts the Company’s performance of the obligation to the customer, which occurs as we incur labor on our contracts. Under this measure of progress, the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the performance obligation.
Allowance for Doubtful Accounts
An allowance for uncollectible trade receivables is recorded when accounts are deemed uncollectible based on consideration of write-off history, aging analysis, and any specific, known troubled accounts.
Product Warranty Costs
The provision for estimated warranty costs is recorded at the time of sale and is periodically adjusted to reflect actual experience. The Company’s warranty liability, which is included in accrued liabilities in the accompanying balance sheets, as of December 31, 2022 and 2021, was $690,000 and $659,000, respectively. The Company’s warranty expense for the years ended December 31, 2022 and 2021 was $251,000 and $252,000, respectively.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts receivable. The Company’s customer base consists of a number of customers in diverse industries across geographic areas, primarily in North America and Mexico, and aerospace and defense companies under contract with the U.S. Government. The Company performs periodic credit evaluations of its customers’ financial condition and does not require collateral on its commercial accounts receivable. Credit losses are provided for in the consolidated financial statements and consistently have been within management’s expectations. Approximately 31% of accounts receivable outstanding at December 31, 2022 is due from two customers. More specifically, SubCom and Detroit Diesel comprise 18% and 13%, respectively, of December 31, 2022 outstanding accounts receivable. Approximately 53% of accounts receivable outstanding at December 31, 2021 is due from three customers. More specifically, Detroit Diesel, ADI and SubCom, comprise 25%, 13% and 11%, respectively, of December 31, 2021 outstanding accounts receivable. No other single customer accounted for more than 10% of the Company’s total accounts receivable as of December 31, 2022 or 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The Company’s largest customers for the year ended December 31, 2022 were Sistemas, Detroit Diesel and Northrop Grumman, which represented approximately 22%, 18% and 14%, respectively, of the Company’s total net revenue. Detroit Diesel and Sistemas are both customers within the Sypris Technologies segment and Northrop Grumman is a customer within the Sypris Electronics segment. Sistemas, Detroit Diesel and Northrop Grumman were the Company’s largest customers for the year ended December 31, 2021, which represented approximately 21%, 18% and 16%, respectively, of the Company’s total net revenue. No other single customer accounted for more than 10% of the Company’s total net revenue for the years ended December 31, 2022 or 2021.
Foreign Currency Translation
The functional currency for the Company’s Mexican subsidiary is the Mexican peso. Assets and liabilities are translated at the period end exchange rate, and income and expense items are translated at the weighted average exchange rate. The resulting translation adjustments are recorded in comprehensive loss as a separate component of stockholders’ equity. Remeasurement gains or losses for U.S. dollar denominated accounts of the Company’s Mexican subsidiary are included in other income, net.
Collective Bargaining Agreements
Approximately 415, or 58% of the Company’s employees, all within Sypris Technologies, were covered by collective bargaining agreements as of December 31, 2022. Excluding certain Mexico employees covered under an annually ratified agreement, there are no employees covered by collective bargaining agreements that expire within the next 12 months. Certain Mexico employees are covered by an annually ratified collective bargaining agreement. These employees represented approximately 55% of the Company’s workforce, or 394 employees as of December 31, 2022.
Recently Issued Accounting Standards
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. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for smaller reporting entities for fiscal years beginning after December 15, 2022, including interim periods within the year of adoption. This guidance, which the Company will adopt effective January 1, 2023, will not have a material impact on our consolidated financial statements.
(2) Leases
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 years 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. The Company’s existing leases do not contain significant restrictive provisions; however, certain leases contain provisions for payment of real estate taxes, insurance and maintenance costs by the Company. The lease agreements do not contain any residual value guarantees. Some of the real estate lease agreements include periods of rent holidays and payments that escalate over the lease term by specified amounts. 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 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. Variable lease payments for which we are typically responsible include real estate taxes, insurance and common area maintenance expenses based on the Company’s pro-rata share, which are excluded from the measurement of the lease liability. Additionally, one of the Company’s real estate leases has lease payments that adjust based on annual changes in the Consumer Price Index (“CPI”). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Incremental payments due to changes in the index are treated as variable lease costs and expensed as incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
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. 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 December 31, 2022, total right-of-use assets and operating lease liabilities were approximately $4,251,000 and $4,878,000, respectively. As of December 31, 2021, total right-of-use assets and operating lease liabilities were approximately $5,140,000 and $5,941,000, 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. If readily available, we would use the implicit rate in a new lease to determine the present value of lease payments. The Company has certain contracts for real estate which may contain lease and non-lease components which it has elected to treat as a single lease component.
The Company has entered into various short-term operating leases, primarily for office equipment with an initial term of twelve months or less. 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 year ended December 31, 2022 and 2021.
The following table presents information related to lease expense for the year ended December 31, 2022 and 2021 (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Finance lease expense |
|
|
|
|
|
|
|
|
Amortization expense
|
|
$ |
677 |
|
|
$ |
422 |
|
Interest expense
|
|
|
338 |
|
|
|
230 |
|
Operating lease expense
|
|
|
1,402 |
|
|
|
1,406 |
|
Variable lease expense
|
|
|
337 |
|
|
|
315 |
|
Total lease expense
|
|
$ |
2,754 |
|
|
$ |
2,373 |
|
The following table presents supplemental cash flow information related to leases (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$ |
1,713 |
|
|
$ |
1,532 |
|
Operating cash flows from finance leases
|
|
|
338 |
|
|
|
230 |
|
Financing cash flows from finance leases
|
|
|
982 |
|
|
|
499 |
|
The annual future minimum lease payments as of December 31, 2022 are as follows (in thousands):
|
|
Operating
|
|
|
Finance
|
|
|
|
Leases
|
|
|
Leases
|
|
Next 12 months
|
|
$ |
1,509 |
|
|
$ |
1,369 |
|
12 to 24 months
|
|
|
1,317 |
|
|
|
1,293 |
|
24 to 36 months
|
|
|
1,231 |
|
|
|
1,259 |
|
36 to 48 months
|
|
|
859 |
|
|
|
256 |
|
48 to 60 months
|
|
|
842 |
|
|
|
0 |
|
Thereafter
|
|
|
0 |
|
|
|
0 |
|
Total lease payments
|
|
|
5,758 |
|
|
|
4,177 |
|
Less imputed interest
|
|
|
(880 |
)
|
|
|
(539 |
)
|
Total
|
|
$ |
4,878 |
|
|
$ |
3,638 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The following table presents certain information related to lease terms and discount rates for leases as of December 31, 2022 and 2021:
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Weighted-average remaining lease term (years): |
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.4 |
|
|
|
5.3 |
|
Finance leases
|
|
|
3.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate (percentage): |
|
|
|
|
|
|
|
|
Operating leases
|
|
|
8.0 |
|
|
|
8.0 |
|
Finance leases
|
|
|
8.5 |
|
|
|
8.5 |
|
(3) Revenue from Contracts with Customers
The Company recognizes revenue when it satisfies a performance obligation by transferring control of a promised product or rendering a service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for the product or service (the “transaction price”). The Company’s transaction price in its contracts with customers is generally fixed; no payment discounts, rebates or refunds are included within its contracts. 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. Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company.
A performance obligation is a promise in a contract to transfer a distinct product or render a service to a customer and is the unit of account to which the transaction price is allocated under ASC 606. When a contract contains multiple performance obligations, we allocate the transaction price to the individual performance obligations using the price at which the promised goods or services would be sold to customers on a standalone basis. For most sales within our Sypris Technologies segment and a portion of sales within Sypris Electronics, control transfers to the customer at a point in time. Indicators that control has transferred to the customer include the Company having a present right to payment, the customer obtaining legal title and the customer having the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment.
For contracts where Sypris Electronics serves as a contractor for aerospace and defense companies under federally funded programs, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contracts that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Because control is transferred over time, revenue and gross profit is recognized based on the extent of progress towards completion of the performance obligation. We use labor hours incurred as a measure of progress for these contracts because it best depicts the Company’s performance of the obligation to the customer, which occurs as we incur labor on our contracts. Under this measure of progress, the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the performance obligation.
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 $97,058,000 of remaining performance obligations as of December 31, 2022, all of which were long-term Sypris Electronics’ contracts. We expect to recognize approximately 57% of our remaining performance obligations as revenue in 2023 and the balance in 2024.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2022 and 2021:
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Sypris Technologies – transferred point in time
|
|
$ |
69,259 |
|
|
$ |
61,737 |
|
Sypris Electronics – transferred point in time
|
|
|
10,400 |
|
|
|
7,232 |
|
Sypris Electronics – transferred over time
|
|
|
30,462 |
|
|
|
28,465 |
|
Net revenue
|
|
$ |
110,121 |
|
|
$ |
97,434 |
|
Differences in the timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue, customer deposits and billings in excess of revenue recognized (contract liabilities) on the consolidated balance sheets.
Contract assets – Contract assets include unbilled amounts typically resulting from sales under contracts where revenue is recognized over time and revenue recognized exceeds the amount billed to the customer, and the right to payment is subject to conditions other than the passage of time. Contract assets are generally classified as current assets in the consolidated balance sheet. The balance of contract assets as of December 31, 2022 and 2021 were $2,393,000 and $1,913,000, 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. Often this results in billing occurring prior to revenue recognition resulting in contract liabilities. Additionally, the Company occasionally receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. 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 December 31, 2022, the contract liabilities balance was $40,391,000, of which $27,909,000 was included within accrued liabilities and $12,482,000 was included within other liabilities in the accompanying consolidated balance sheets. As of December 31, 2021, the contract liabilities balance was $19,888,000, of which $15,013,000 was included within accrued liabilities and $4,875,000 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 $14,165,000 and $6,400,000 during the years ended December 31, 2022 and 2021, respectively.
Practical expedients and exemptions
Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expense in the consolidated statements of operations.
We do not disclose the value of unsatisfied performance obligations for contracts with original expected lengths of one year or less.
(4) Other Expense, Net
The Company recognized other expense of $800,000 during the year ended December 31, 2022, which included pension expense of $562,000. Foreign currency related expenses were not material for the year ended December 31, 2022.
The Company recognized other expense of $645,000 during the year ended December 31, 2021, which included pension expense of $614,000. Foreign currency related expenses were not material for the year ended December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(5) Accounts Receivable
Accounts receivable consists of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Commercial
|
|
$ |
8,139 |
|
|
$ |
8,529 |
|
Allowance for doubtful accounts
|
|
|
(75 |
)
|
|
|
(62 |
)
|
Accounts receivable, net
|
|
$ |
8,064 |
|
|
$ |
8,467 |
|
(6) Inventory
Inventory consists of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Raw materials
|
|
$ |
36,612 |
|
|
$ |
23,694 |
|
Work in process
|
|
|
6,585 |
|
|
|
6,702 |
|
Finished goods
|
|
|
802 |
|
|
|
1,497 |
|
Reserve for excess and obsolete inventory
|
|
|
(1,866 |
)
|
|
|
(1,793 |
)
|
Inventory, net
|
|
$ |
42,133 |
|
|
$ |
30,100 |
|
(7) Other Current Assets
Other current assets consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Prepaid expenses
|
|
$ |
1,810 |
|
|
$ |
1,343 |
|
Contract assets
|
|
|
2,393 |
|
|
|
1,913 |
|
Other
|
|
|
3,930 |
|
|
|
2,612 |
|
Other current assets
|
|
$ |
8,133 |
|
|
$ |
5,868 |
|
Included in other current assets are income and VAT taxes refundable, tools, spare parts and other items, none of which exceed 5% of total current assets.
(8) Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Land and land improvements
|
|
$ |
43 |
|
|
$ |
43 |
|
Buildings and building improvements
|
|
|
8,044 |
|
|
|
7,863 |
|
Machinery, equipment, furniture and fixtures
|
|
|
66,037 |
|
|
|
61,050 |
|
Construction in progress
|
|
|
2,048 |
|
|
|
858 |
|
|
|
|
76,172 |
|
|
|
69,814 |
|
Accumulated depreciation
|
|
|
(60,640 |
) |
|
|
(55,674 |
) |
Property plant and equipment, net
|
|
$ |
15,532 |
|
|
$ |
14,140 |
|
Depreciation expense, including amortization of assets recorded under finance leases, totaled approximately $3,088,000 and $2,646,000 for the years ended December 31, 2022 and 2021, respectively. Capital expenditures included in accounts payable or accrued liabilities were not material as of December 31, 2022 and 2021, respectively.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Included within property, plant and equipment were assets under finance leases as follows (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Buildings and building improvements
|
|
$ |
3,045 |
|
|
$ |
2,864 |
|
Machinery, equipment, furniture and fixtures
|
|
|
3,432 |
|
|
|
3,048 |
|
|
|
|
6,477 |
|
|
|
5,912 |
|
Accumulated depreciation
|
|
|
(2,712 |
)
|
|
|
(1,896 |
)
|
Net
|
|
$ |
3,765 |
|
|
$ |
4,016 |
|
(9) Other Assets
Other assets consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Long term spare parts
|
|
$ |
497 |
|
|
$ |
455 |
|
Long term deposits
|
|
|
280 |
|
|
|
280 |
|
Pension asset
|
|
|
645 |
|
|
|
595 |
|
Deferred tax asset, net
|
|
|
2,367 |
|
|
|
2,548 |
|
Other
|
|
|
594 |
|
|
|
292 |
|
Other assets
|
|
$ |
4,383 |
|
|
$ |
4,170 |
|
(10) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Salaries, wages, employment taxes and withholdings
|
|
$ |
1,644 |
|
|
$ |
1,548 |
|
Employee benefit plans
|
|
|
891 |
|
|
|
861 |
|
Accrued professional fees
|
|
|
734 |
|
|
|
697 |
|
Income, property and other taxes
|
|
|
201 |
|
|
|
176 |
|
Contract liabilities – short term
|
|
|
27,909 |
|
|
|
15,013 |
|
Deferred gain from sale-leaseback
|
|
|
305 |
|
|
|
286 |
|
Other
|
|
|
1,632 |
|
|
|
1,065 |
|
Accrued liabilities
|
|
$ |
33,316 |
|
|
$ |
19,646 |
|
Included in other accrued liabilities are accrued operating expenses, accrued warranty expenses, accrued interest, and other items, none of which exceed 5% of total current liabilities.
(11) Other Liabilities
Other liabilities consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Noncurrent pension liability
|
|
$ |
4,332 |
|
|
$ |
4,647 |
|
Deferred gain from sale leaseback
|
|
|
660 |
|
|
|
907 |
|
Contract liabilities – long term
|
|
|
12,482 |
|
|
|
4,875 |
|
Other
|
|
|
0 |
|
|
|
101 |
|
Other liabilities
|
|
$ |
17,474 |
|
|
$ |
10,530 |
|
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(12) Debt
Long-term obligations consists of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Current: |
|
|
|
|
|
|
|
|
Finance lease obligation, current portion
|
|
$ |
1,102 |
|
|
$ |
983 |
|
Equipment financing obligations, current portion
|
|
|
398 |
|
|
|
336 |
|
Note payable – related party, current portion
|
|
|
2,500 |
|
|
|
0 |
|
Current portion of long-term debt and finance lease obligations
|
|
$ |
4,000 |
|
|
$ |
1,319 |
|
Long Term: |
|
|
|
|
|
|
|
|
Finance lease obligations
|
|
$ |
2,536 |
|
|
$ |
3,469 |
|
Equipment financing obligations
|
|
|
738 |
|
|
|
868 |
|
Note payable – related party
|
|
|
4,000 |
|
|
|
6,500 |
|
Less unamortized debt issuance and modification costs
|
|
|
(11 |
)
|
|
|
(16 |
)
|
Long term debt and finance lease obligations, net of unamortized debt costs
|
|
$ |
7,263 |
|
|
$ |
10,821 |
|
The weighted average interest rate for outstanding borrowings at December 31, 2022 and 2021 was 8.5% and 6.5%, respectively. The Company had no capitalized interest in 2022 or 2021. Interest paid during the years ended December 31, 2022 and 2021 totaled approximately $526,000 and $699,000, respectively.
Paycheck Protection Program
During 2020, the Company secured a $3,558,000 term loan (the “PPP Loan”) with BMO Harris Bank National Association (“BMO”). Proceeds from the PPP Loan were 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%.
On June 28, 2021, the Company received notice from BMO that BMO had received confirmation from the U.S. Small Business Administration (the “SBA”) that the application for forgiveness of the PPP Loan had been approved. The loan forgiveness request in the amount of $3,558,000 was applied to the Company’s entire outstanding PPP Loan balance with BMO. During the year ended December 31, 2021, the Company recorded a gain on the forgiveness of the PPP Loan and accrued interest in the amount of $3,599,000.
Note Payable – Related Party
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 December 31, 2022 and 2021 (the “Note”). GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T. Gill, and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. As of December 31, 2022, our principal commitment under the Note was $2,500,000 due on April 1, 2023, $2,000,000 on April 1, 2024 and the balance on April 1, 2026. Interest on the Note is reset on April 1 of each year, at the greater of 8.0% or 500 basis points above the five-year Treasury note average during the preceding 90-day period, in each case, payable quarterly. The Note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the portion of the Note maturing in April of 2023 and 2024.
Obligations under the promissory note are guaranteed by all of the subsidiaries and are secured by a first priority lien on substantially all assets of the Company, including those in Mexico.
Finance Lease Obligations
As of December 31, 2022, the Company had $3,638,000 outstanding under finance lease obligations for both property and machinery and equipment with maturities through 2026 and a weighted average interest rate of 8.5%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Equipment Financing Obligations
As of December, 2022, the Company had $1.1 million outstanding under equipment financing facilities, with effective interest rates ranging from 4.4% to 8.1% and payments due through 2028. Payments on the Company’s equipment financing obligations are due as follows (in thousands):
Next 12 months
|
|
$ |
468 |
|
12 to 24 months
|
|
|
399 |
|
24 to 36 months
|
|
|
223 |
|
36 to 48 months
|
|
|
127 |
|
48 to 60 months
|
|
|
31 |
|
Thereafter
|
|
|
5 |
|
Total payments
|
|
|
1,253 |
|
Less imputed interest
|
|
|
(117 |
)
|
Total equipment financing obligations
|
|
$ |
1,136 |
|
(13) Fair Value of Financial Instruments
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 December 31, 2022 approximates fair value, and is based upon a market approach (Level 2).
(14) Employee Benefit Plans
Sypris Technologies sponsors noncontributory defined benefit pension plans (the “Pension Plans”) covering certain of its employees. The Pension Plans covering salaried and management employees provide pension benefits that are based on the employees’ highest five-year average compensation within ten years before retirement. The Pension Plans covering hourly employees and union members generally provide benefits at stated amounts for each year of service. All of the Company’s pension plans are frozen to new participants and certain plans are frozen to additional benefit accruals. The Company’s funding policy is to make the minimum annual contributions required by the applicable regulations. The Pension Plans’ assets are primarily invested in equity securities and fixed income securities.
The following table details the components of pension (income) expense (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Service cost
|
|
$ |
5 |
|
|
$ |
4 |
|
Interest cost on projected benefit obligation
|
|
|
839 |
|
|
|
774 |
|
Net amortization of actuarial loss
|
|
|
560 |
|
|
|
613 |
|
Expected return on plan assets
|
|
|
(837 |
)
|
|
|
(773 |
)
|
Net periodic benefit cost
|
|
$ |
567 |
|
|
$ |
618 |
|
The net periodic cost of the defined benefit pension plans incurred during the years ended December 31, 2022 and 2021 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Service cost: |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$ |
5 |
|
|
$ |
4 |
|
Other net periodic benefit costs: |
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
562 |
|
|
|
614 |
|
Total
|
|
$ |
567 |
|
|
$ |
618 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The following are summaries of the changes in the benefit obligations and plan assets and of the funded status of the Pension Plans (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Change in benefit obligation |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
32,756 |
|
|
$ |
36,859 |
|
Service cost
|
|
|
5 |
|
|
|
4 |
|
Interest cost
|
|
|
839 |
|
|
|
774 |
|
Actuarial loss
|
|
|
(6,303 |
)
|
|
|
(2,245 |
)
|
Benefits paid
|
|
|
(2,506 |
)
|
|
|
(2,636 |
)
|
Benefit obligation at end of year
|
|
$ |
24,791 |
|
|
$ |
32,756 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$ |
30,051 |
|
|
$ |
32,353 |
|
Actual return on plan assets
|
|
|
(4,768 |
) |
|
|
37 |
|
Company contributions
|
|
|
66 |
|
|
|
297 |
|
Benefits paid
|
|
|
(2,506 |
)
|
|
|
(2,636 |
)
|
Fair value of plan assets at end of year
|
|
$ |
22,843 |
|
|
$ |
30,051 |
|
|
|
|
|
|
|
|
|
|
Underfunded status of the plans
|
|
$ |
(1,948 |
)
|
|
|
(2,705 |
)
|
Balance sheet assets (liabilities): |
|
|
|
|
|
|
|
|
Other assets
|
|
$ |
645 |
|
|
$ |
595 |
|
Accrued liabilities
|
|
|
(16 |
)
|
|
|
(126 |
)
|
Other liabilities
|
|
|
(2,577 |
)
|
|
|
(3,174 |
)
|
Net amount recognized
|
|
$ |
(1,948 |
)
|
|
$ |
(2,705 |
)
|
Pension plans with accumulated benefit obligation in excess of plan assets: |
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
17,260 |
|
|
$ |
22,846 |
|
Accumulated benefit obligation
|
|
|
17,260 |
|
|
|
22,846 |
|
Fair value of plan assets
|
|
|
14,665 |
|
|
|
19,545 |
|
Projected benefit obligation and net periodic pension cost assumptions: |
|
|
|
|
|
|
|
|
|
|
Discount rate – projected benefit obligation
|
|
|
|
5.40 |
%
|
|
|
|
2.70 |
%
|
Discount rate – net periodic pension cost
|
|
|
|
2.70 |
|
|
|
|
2.25 |
|
Rate of compensation increase
|
|
|
|
N/A |
|
|
|
|
N/A |
|
Expected long-term rate of return on plan assets
|
|
2.35 |
– |
3.40 |
|
|
1.80 |
– |
2.95 |
|
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Weighted average asset allocation: |
|
|
|
|
|
|
|
|
Equity securities
|
|
|
16 |
%
|
|
|
16 |
%
|
Debt securities
|
|
|
83 |
|
|
|
81 |
|
Other
|
|
|
1 |
|
|
|
3 |
|
Total
|
|
|
100 |
%
|
|
|
100 |
%
|
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The fair values of our pension plan assets as of December 31, 2022 are as follows (in thousands):
|
|
Quoted Prices
In Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Asset categories |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
2,365 |
|
|
$ |
0 |
|
Equity securities:
|
|
|
|
|
|
|
0 |
|
U.S. Large Cap
|
|
|
1,671 |
|
|
|
0 |
|
U.S. Mid Cap
|
|
|
566 |
|
|
|
0 |
|
U.S. Small Cap
|
|
|
209 |
|
|
|
0 |
|
World Equity
|
|
|
1,194 |
|
|
|
0 |
|
Real Estate
|
|
|
210 |
|
|
|
0 |
|
Other
|
|
|
106 |
|
|
|
0 |
|
Fixed income securities
|
|
|
5,018 |
|
|
|
11,504 |
|
Total Plan Assets
|
|
$ |
11,339 |
|
|
$ |
11,504 |
|
The fair values of our pension plan assets as of December 31, 2021 are as follows (in thousands):
|
|
Quoted Prices
In Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Asset categories |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
2,371 |
|
|
$ |
0 |
|
Equity securities:
|
|
|
|
|
|
|
0 |
|
U.S. Large Cap
|
|
|
2,008 |
|
|
|
0 |
|
U.S. Mid Cap
|
|
|
863 |
|
|
|
0 |
|
U.S. Small Cap
|
|
|
169 |
|
|
|
0 |
|
World Equity
|
|
|
1,733 |
|
|
|
0 |
|
Real Estate
|
|
|
405 |
|
|
|
0 |
|
Other
|
|
|
547 |
|
|
|
0 |
|
Fixed income securities
|
|
|
6,814 |
|
|
|
15,141 |
|
Total Plan Assets
|
|
$ |
14,910 |
|
|
$ |
15,141 |
|
Investments in our defined benefit plans are stated at fair value. The following valuation methods were used to value our pension assets:
Equity securities |
The fair value of equity securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges. |
|
|
Fixed income securities |
The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges. |
|
|
Cash and cash equivalents |
The fair value of cash and cash equivalents is set equal to its cost. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The Company uses December 31 as the measurement date for the Pension Plans. Total estimated contributions expected to be paid to the plans during 2023 is $16,000, which represents the minimum funding amounts required by federal law. The expected long-term rates of return on plan assets for determining net periodic pension cost for 2022 and 2021 were chosen by the Company from a best estimate range determined by applying anticipated long-term returns and long-term volatility for various assets categories to the target asset allocation of the plan. The target asset allocation of plan assets is equity securities ranging 0-55%, fixed income securities ranging 35-100% and non-traditional/other of 0-10% of total investments.
When establishing the expected long-term rate of return on our U.S. pension plan assets, the Company considered historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy. Based on the most recent analysis of projected portfolio returns, the Company concluded that the use of 2.35% for the Louisville Hourly Plan, 3.40% for the Marion Plan and 2.65% for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for 2022 was appropriate.
Actuarial gains and losses, which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns, are deferred in Accumulated other comprehensive loss and amortized to expense following the corridor approach. We use the average remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy for all active and inactive participants. Accumulated other comprehensive loss at December 31, 2022 includes $9,951,000 of unrecognized actuarial losses that have not yet been recognized in net periodic pension cost. The actual loss reclassified from accumulated other comprehensive loss for 2022 and 2021 was $560,000 and $613,000, respectively.
At December 31, 2022, the benefits expected to be paid in each of the next five fiscal years, and in aggregate for the five fiscal years thereafter are as follows (in thousands):
2023
|
|
$ |
2,513 |
|
2024
|
|
|
2,456 |
|
2025
|
|
|
2,388 |
|
2026
|
|
|
2,300 |
|
2027 |
|
|
2,223 |
|
2028-2032
|
|
|
9,885 |
|
Total
|
|
$ |
21,765 |
|
The Company sponsors a defined contribution plan (the “Defined Contribution Plan”) for substantially all domestic employees of the Company. The Defined Contribution Plan is intended to meet the requirements of Section 401(k) of the Internal Revenue Code. The Defined Contribution Plan allows the Company to match participant contributions up to 3% and provide discretionary contributions. In connection with the matching contributions, the Company recognized compensation expense of approximately $404,000 and $361,000 in 2022 and 2021, respectively.
In addition, certain of the Company’s non-U.S. employees are covered by various defined benefit and defined contribution plans. The Company’s expenses for these plans totaled approximately $253,000 and $232,000 in 2022 and 2021, respectively. The aggregate benefit plan obligations of these plans, which are unfunded, were $1,755,000 and $1,473,000 as of December 31, 2022 and 2021 were included within other liabilities in the accompanying consolidated balance sheets.
(15) Commitments and Contingencies
In order to reduce manufacturing lead times, the Company enters into agreements with certain suppliers to purchase inventory based on the Company’s requirements. A significant portion of the Company’s purchase commitments arising from these agreements consists of firm and non-cancelable commitments. These purchase commitments totaled $66,803,000 as of December 31, 2022, of which $47,353,000 is for purchases to be made in 2023 and $19,450,000 is for purchases to be made in 2024. The Company also had outstanding purchase commitments of $2,047,000 as of December 31, 2022 for the purchase of manufacturing equipment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
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. The Company records estimated liabilities for its insurance programs based on information provided by the third-party plan administrators, historical claims experience, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated insurance-related liabilities on a quarterly basis. 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 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 liability claims.
The Company accounts for loss contingencies in accordance with U.S. GAAP. 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 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. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued.
The Company has various current and previously owned facilities subject to a variety of environmental regulations. The Company has received certain indemnifications from either companies previously owning these facilities or from purchasers of those facilities. Additionally, certain property previously sold by the Company has been designated as a Brownfield Site and is under development by the purchaser. As of December 31, 2022 and 2021, no amounts were accrued for any environmental matters. See “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.
On December 27, 2017, the U.S. 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 the Company consulted with independent ERISA counsel. On January 26, 2022, an opinion was issued by the judge indicating that certain of the Plan language in dispute is unambiguous and would therefore limit the Company’s right to interpret such language. Following the denial of motions for summary judgement from the Company and the DOL on April 28, 2022, a hearing took place on September 13, 2022 to review issues raised in the Company’s motion to amend its answer and its proposed counter claim and general next steps for the litigation proceedings, including settlement considerations. Following the hearing the judge issued an order denying the Company’s motion to amend its answer and proposed counter claim and further requested that the parties prepare a joint status report by November 14, 2022 relating to the schedule for the litigation proceedings. While the Company believes that it has affirmative defenses and is continuing to vigorously defend the matter, the Company has engaged in settlement discussions with the DOL. The Company recorded a reserve of $575,000 during the year ended December 31, 2022, and the Company currently estimates the range of possible loss is $0 to $58,000 in excess of the amount reserved. If a settlement is not reached and the DOL’s allegations were subsequently upheld by a court, the Company could be required to make additional contributions into the accounts of its Plan participants and penalties payable to the DOL could be imposed.
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 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. On November 21, 2022, the Company received a demand for settlement presented by the Lucas Plaintiffs, which was rejected. The Company regards these allegations to be without merit and any potential damages to be undeterminable. As a result, we are currently unable to estimate a loss or range of loss for this matter at this time. The Company’s general liability insurer has accepted the defense costs. The Company is continuing to vigorously defend the matter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(16) Stock Option and Purchase Plans
The Company’s stock compensation program provides for the grant of restricted stock (including performance-based restricted stock), unrestricted stock, stock options and stock appreciation rights. A total of 3,476,021 shares were registered for issuance under the 2015 Omnibus Plan. On May 12, 2020, the 2015 Omnibus Plan was replaced with the 2020 Omnibus Plan. A total of 4,596,271 shares were registered for issuance under the 2020 Omnibus Plan. Additionally, awards under the 2010 and 2015 Omnibus Plans that are cancelled without having been fully exercised or vested are available again for new awards under the 2020 Omnibus Plan. The aggregate number of shares available for future grant as of December 31, 2022 and 2021 was 2,895,771 and 3,429,771, respectively.
The 2015 and 2020 Omnibus Plans provide for restrictions which lapse after three years. During the restricted period, which is commensurate with each vesting period, the recipient has the right to receive dividends and voting rights for the shares. Generally, if a recipient leaves the Company before the end of the restricted period or if performance requirements, if any, are not met, the shares will be forfeited.
Under the plans, the Company may grant options to purchase common stock to officers, key employees and non-employee directors. Options may be granted at not less than the market price on the date of grant. Stock option grants under the 2015 and 2020 Omnibus Plans include a five-year life along with vesting after three years of service.
Compensation expense is measured based on the fair value at the date of grant and is recognized on a straight-line basis over the vesting period. Fair value for restricted shares is equal to the stock price on the date of grant, while the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical Company and industry data to estimate the expected price volatility. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, the Company uses the simplified method to estimate the expected term. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. The dividend yield is assumed to be zero as we have not paid dividends nor do we anticipate paying any dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. Forfeitures are recorded as they occur. Stock based compensation expense of $683,000 and $491,000 has been recorded in selling, general and administrative expense in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively.
The following weighted average assumptions were used to estimate the fair value of options granted using the Black-Scholes option-pricing model:
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Expected life (years)
|
|
|
4.3 |
|
|
|
4.1 |
|
Expected volatility
|
|
|
86.5 |
%
|
|
|
83.0 |
%
|
Risk-free interest rates
|
|
|
1.69 |
%
|
|
|
0.79 |
%
|
Expected dividend yield
|
|
|
0 |
%
|
|
|
0 |
%
|
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
A summary of the restricted stock activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
|
Weighted
Average
Remaining
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Nonvested shares at January 1, 2021
|
|
|
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
197,500 |
|
|
|
3.16 |
|
|
|
|
|
|
|
|
|
Vested
|
|
|
0 |
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31, 2021
|
|
|
197,500 |
|
|
|
3.16 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
197,500 |
|
|
|
2.59 |
|
|
|
|
|
|
|
|
|
Vested
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31, 2022
|
|
|
395,000 |
|
|
$ |
2.88 |
|
|
|
1.9 |
|
|
$ |
809,000 |
|
There were no shares that vested during 2022 or 2021.
The following table summarizes option activity for the year ended December 31, 2022:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2021
|
|
|
2,746,250 |
|
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
38,000 |
|
|
|
3.24 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(687,500 |
)
|
|
|
1.21 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(107,000 |
) |
|
|
0.93 |
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(12,500 |
)
|
|
|
0.96 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021
|
|
|
1,977,250 |
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
260,000 |
|
|
|
2.60 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(138,900 |
)
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(51,000 |
)
|
|
|
0.86 |
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(15,500 |
)
|
|
|
1.15 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2022
|
|
|
2,031,850 |
|
|
$ |
1.31 |
|
|
|
2.02 |
|
|
$ |
1,690,000 |
|
Exercisable at December 31, 2022
|
|
|
907,250 |
|
|
$ |
1.30 |
|
|
|
0.84 |
|
|
$ |
676,000 |
|
The weighted average grant date fair value based on the Black-Scholes option pricing model for options granted in the years ended December 31, 2022 and 2021 was $1.67 and $1.97 per share, respectively. There were 138,900 options exercised in 2022 with an intrinsic value of $176,000. There were 687,500 options exercised in 2021 with an intrinsic value of $1,907,000.
As of December 31, 2022, there was $1,141,000 of total unrecognized compensation cost related to unvested share-based compensation granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of option shares vested during the years ended December 31, 2022 and 2021 was $285,000 and $515,000, respectively.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(17) Stockholders’ Equity
As of December 31, 2022 and 2021, 24,850 shares of the Company’s preferred stock were designated as Series A Preferred Stock in accordance with the terms of our stockholder rights plan, which expired in October 2011. There are no shares of Series A Preferred Stock currently outstanding, and there are no current plans to issue any such shares.
The holders of our common stock were not entitled to any payment as a result of the expiration of the rights plan and the rights issued thereunder.
The Company’s accumulated other comprehensive loss consists of employee benefit related adjustments and foreign currency translation adjustments.
Accumulated other comprehensive loss consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Foreign currency translation adjustments, net of tax
|
|
$ |
(10,458 |
)
|
|
$ |
(11,440 |
)
|
Employee benefit related adjustments – U.S, net of tax
|
|
|
(10,488 |
)
|
|
|
(11,745 |
)
|
Employee benefit related adjustments – Mexico, net of tax
|
|
|
101 |
|
|
|
191 |
|
Accumulated other comprehensive loss
|
|
$ |
(20,845 |
)
|
|
$ |
(22,994 |
)
|
Changes in each component of accumulated other comprehensive loss consisted of the following:
|
|
Foreign
Currency
Translation
|
|
|
Defined
Benefit Plans
|
|
|
Accum. Other
Comp Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
$ |
(10,847 |
)
|
|
$ |
(13,851 |
)
|
|
$ |
(24,698 |
)
|
Currency translation adjustments, net of tax
|
|
|
(593 |
)
|
|
|
0 |
|
|
|
(593 |
)
|
Net actuarial loss for the year, net of tax
|
|
|
0 |
|
|
|
1,684 |
|
|
|
1,684
|
|
Amortization for the year, net of tax
|
|
|
0 |
|
|
|
613 |
|
|
|
613 |
|
Balance at December 31, 2021
|
|
$ |
(11,440 |
)
|
|
$ |
(11,554 |
)
|
|
$ |
(22,994 |
)
|
Currency translation adjustments, net of tax
|
|
|
982 |
|
|
|
0
|
|
|
|
982 |
|
Net actuarial loss for the year, net of tax
|
|
|
0 |
|
|
|
607 |
|
|
|
607 |
|
Amortization for the year, net of tax
|
|
|
0 |
|
|
|
560 |
|
|
|
560 |
|
Balance at December 31, 2022
|
|
$ |
(10,458 |
)
|
|
$ |
(10,387 |
)
|
|
$ |
(20,845 |
)
|
(18) Income Taxes
The Company accounts for income taxes under the liability method. Accordingly, deferred income taxes have been provided for temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements.
The components of (loss) income before taxes are as follows (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Domestic
|
|
$ |
(4,661 |
) |
|
$ |
408
|
|
Foreign
|
|
|
3,115 |
|
|
|
3,588 |
|
Total
|
|
$ |
(1,546 |
) |
|
$ |
3,996
|
|
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The components of income tax expense (benefit) are as follows (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Current: |
|
|
|
|
|
|
|
|
Federal
|
|
$ |
0 |
|
|
$ |
0 |
|
State
|
|
|
3 |
|
|
|
6 |
|
Foreign
|
|
|
616 |
|
|
|
52 |
|
Total current income tax expense
|
|
|
619 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal
|
|
|
0 |
|
|
|
0 |
|
State
|
|
|
0 |
|
|
|
0 |
|
Foreign
|
|
|
329 |
|
|
|
1,015 |
|
Total deferred income tax expense
|
|
|
329 |
|
|
|
1,015 |
|
Income tax expense, net
|
|
$ |
948 |
|
|
$ |
1,073 |
|
The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with Income Taxes, Topic 740 (ASC 740). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of assets or liabilities are recovered or settled. ASC 740 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. 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 the deferred tax assets recorded by its Mexican subsidiary.
Based on the Company’s consideration of all positive and negative evidence, including the future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations, the Company has established a valuation allowance against all 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. tax benefits.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted, which significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Tax Reform Act also provided for a one-time deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is subject to incremental U.S. tax on GILTI income due to expense allocations required by the U.S. foreign tax credit rules. The Company has elected to account for the GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.
The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State income taxes paid in the U.S. during 2022 and 2021 totaled $3,000 and $6,000, respectively. There were no state income tax refunds received in the U.S. during 2022 or 2021. Foreign income taxes paid during 2022 and 2021 totaled $934,000 and $211,000. There were no foreign refunds received in 2022 and 2021. There were no federal taxes paid in 2022 and 2021. There were no federal refunds received in 2022 or 2021. At December 31, 2022, the Company had $146,548,000 of federal net operating loss carryforwards available to offset future federal taxable income. The pre-2018 federal net operating loss carryforwards of $135,646,000 expire in various amounts from 2026 to 2037. Federal net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward period as part of the Tax Act. The indefinite lived net operating loss carryforwards as of December 31, 2022 are approximately $10,902,000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
At December 31, 2022, the Company had $108,063,000 of state net operating loss carryforwards available to offset future state taxable income, the majority of which relates to Florida ($59,901,000) and Kentucky ($48,162,000). The pre-2018 state net operating loss carryforwards totaling approximately $103,141,000 expire in various amounts from 2026 to 2037. State net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward. The indefinite lived state net operating loss carryforwards as of December 31, 2022 are approximately $4,922,000.
The following is a reconciliation of income tax (benefit) expense to that computed by applying the federal statutory rate to income (loss) before income taxes (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Federal tax expense at the statutory rate
|
|
$ |
(325 |
) |
|
$ |
839
|
|
Current year permanent differences
|
|
|
167 |
|
|
|
(11
|
) |
State income taxes, net of federal tax impact
|
|
|
(102 |
) |
|
|
14
|
|
Effect of tax rates of foreign subsidiary
|
|
|
282 |
|
|
|
323 |
|
Currency translation effect on temporary differences
|
|
|
(161 |
) |
|
|
111 |
|
Change in valuation allowance
|
|
|
876 |
|
|
|
919 |
|
State NOL carryforwards
|
|
|
706 |
|
|
|
(256
|
) |
Other
|
|
|
(495 |
)
|
|
|
(866 |
)
|
Income tax expense (benefit), net
|
|
$ |
948 |
|
|
$ |
1,073 |
|
The gross deferred tax asset for the Company’s Mexican subsidiary was $2,367,000 and $2,548,000 as of December 31, 2022 and 2021, respectively.
Deferred income tax assets and liabilities are as follows (in thousands):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Compensation and benefit accruals
|
|
$ |
423 |
|
|
$ |
328 |
|
Inventory valuation
|
|
|
889 |
|
|
|
863 |
|
Federal and state net operating loss carryforwards
|
|
|
35,265 |
|
|
|
35,351 |
|
Deferred revenue
|
|
|
84 |
|
|
|
21 |
|
Accounts receivable allowance
|
|
|
18 |
|
|
|
15 |
|
Defined benefit pension plan
|
|
|
449 |
|
|
|
621 |
|
Lease liabilities
|
|
|
865 |
|
|
|
1,037 |
|
Foreign deferred revenue and other provisions
|
|
|
2,367 |
|
|
|
2,548 |
|
Other
|
|
|
788 |
|
|
|
779 |
|
Total
|
|
|
41,148 |
|
|
|
41,563 |
|
Domestic valuation allowance
|
|
|
(38,028 |
)
|
|
|
(37,441 |
)
|
Total deferred tax assets
|
|
|
3,120 |
|
|
|
4,122 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(48 |
)
|
|
|
(714 |
)
|
Right-of-use assets, net
|
|
|
(705 |
)
|
|
|
(860 |
)
|
Total deferred tax liabilities
|
|
|
(753 |
)
|
|
|
(1,574 |
)
|
Net deferred tax asset
|
|
$ |
2,367 |
|
|
$ |
2,548 |
|
The ASC Income Tax Topic 740 includes guidance for the accounting for uncertainty in income taxes recognized in an enterprise’s financials. Specifically, the guidance prescribes a two-step process, which is the recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The total amount of gross unrecognized tax benefits as of December 31, 2022 and 2021 was $200,000. There were no changes to the unrecognized tax benefit balance during the years ended December 31, 2022 and 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
If the Company’s positions are sustained by the taxing authority, the entire balance at December 31, 2022 would reduce the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022 and 2021, the Company does not have an accrual for the payment of tax-related interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Internal Revenue Service (IRS) is not currently examining the Company’s U.S. income tax returns for 2019 through 2021, for which the statute has yet to expire. During the first quarter of 2023, the Company’s wholly-owned subsidiary in Mexico received a formal tax assessment notice from Mexico’s Federal Tax Administration Service, Servicio de Administracion Tributaria’s (the “SAT”) pertaining to revenue variances and disallowed deductions related to an audit by the SAT of the 2016 tax year. The tax liability for the variances is $20,922,000 Mexican pesos, which includes annual adjustments for inflation, interest and penalties and equals approximately $1,150,000 USD at February 23, 2023. The Mexican subsidiary believes the variances can be substantially eliminated and intends to file an administrative appeal with the SAT and further pursue all available legal actions in response to this assessment. No amounts have been accrued, as the Company does not believe a loss is probable. In addition, open tax years related to state and foreign jurisdictions remain subject to examination.
(19) (Loss) Earnings 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. Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends.
Our potentially dilutive securities include potential common shares related to our stock options and restricted stock. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. 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. All potential common shares were excluded from diluted earnings per share for the year ended December 31, 2022 because the effect of inclusion would be anti-dilutive. There were 38,000 shares excluded from earnings per share for the year ended December 31, 2021, because the effect of inclusion 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):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
(Loss) income attributable to stockholders: |
|
|
|
|
|
|
|
|
Net (loss) income as reported
|
|
$ |
(2,494 |
) |
|
$ |
2,923 |
|
Less distributed and undistributed earnings allocable to restricted award holders
|
|
|
0 |
|
|
|
(12
|
) |
Net (loss) income allocable to common stockholders
|
|
$ |
(2,494 |
) |
|
$ |
2,911 |
|
(Loss) income per common share attributable to stockholders: |
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.11 |
) |
|
$ |
0.14 |
|
Diluted
|
|
$ |
(0.11 |
) |
|
$ |
0.13 |
|
Weighted average shares outstanding – basic
|
|
|
21,729 |
|
|
|
21,585 |
|
Weighted average additional shares assuming conversion of potential common shares
|
|
|
0 |
|
|
|
1,416 |
|
Weighted average shares outstanding – diluted
|
|
|
21,729 |
|
|
|
23,001 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(20) Segment Information
The Company is organized into two business segments, Sypris Technologies and Sypris Electronics. The segments are each managed separately because of the distinctions between the products, markets, customers, technologies, and workforce skills of the segments. Sypris Technologies generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications. Sypris Electronics provides circuit card and box build manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work to customers in the market for aerospace and defense electronics. There was no intersegment net revenue recognized for any year 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):
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Net revenue from unaffiliated customers: |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
69,259 |
|
|
$ |
61,737 |
|
Sypris Electronics
|
|
|
40,862 |
|
|
|
35,697 |
|
Total net revenue
|
|
$ |
110,121 |
|
|
$ |
97,434 |
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
8,550 |
|
|
$ |
8,115 |
|
Sypris Electronics
|
|
|
6,303 |
|
|
|
6,391 |
|
Total gross profit
|
|
$ |
14,853 |
|
|
$ |
14,506 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
3,191 |
|
|
$ |
3,484 |
|
Sypris Electronics
|
|
|
2,721 |
|
|
|
2,846 |
|
General, corporate and other
|
|
|
(5,548 |
)
|
|
|
(4,420 |
)
|
Total operating income
|
|
$ |
364 |
|
|
$ |
1,910 |
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
382 |
|
|
$ |
281 |
|
Sypris Electronics
|
|
|
195 |
|
|
|
37 |
|
General, corporate and other
|
|
|
533 |
|
|
|
550 |
|
Total interest expense
|
|
$ |
1,110 |
|
|
$ |
868 |
|
|
|
|
|
|
|
|
|
|
Other expense (income), net:
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
520 |
|
|
$ |
647 |
|
Sypris Electronics
|
|
|
(4 |
)
|
|
|
(2 |
)
|
General, corporate and other
|
|
|
284 |
|
|
|
0 |
|
Total other expense, net
|
|
$ |
800 |
|
|
$ |
645 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
|
|
Year ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
2,290 |
|
|
$ |
2,555 |
|
Sypris Electronics
|
|
|
2,529 |
|
|
|
2,812
|
|
General, corporate and other
|
|
|
(6,365 |
) |
|
|
(1,371 |
)
|
Total income (loss) before income taxes
|
|
$ |
(1,546 |
) |
|
$ |
3,996 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
2,173 |
|
|
$ |
1,888 |
|
Sypris Electronics
|
|
|
739 |
|
|
|
579 |
|
General, corporate and other
|
|
|
176 |
|
|
|
179
|
|
Total depreciation and amortization
|
|
$ |
3,088 |
|
|
$ |
2,646 |
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
2,714 |
|
|
$ |
2,392 |
|
Sypris Electronics
|
|
|
327 |
|
|
|
403 |
|
General, corporate and other
|
|
|
0 |
|
|
|
29 |
|
Total capital expenditures
|
|
$ |
3,041 |
|
|
$ |
2,824 |
|
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Total assets: |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
36,875 |
|
|
$ |
35,977 |
|
Sypris Electronics
|
|
|
47,522 |
|
|
|
35,599 |
|
General, corporate and other
|
|
|
19,747 |
|
|
|
7,929 |
|
Total assets
|
|
$ |
104,144 |
|
|
$ |
79,505 |
|
|
|
|
|
|
|
|
|
|
Total liabilities: |
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$ |
19,492 |
|
|
$ |
20,666 |
|
Sypris Electronics
|
|
|
56,073 |
|
|
|
31,030 |
|
General, corporate and other
|
|
|
9,004 |
|
|
|
8,523 |
|
Total liabilities
|
|
$ |
84,569 |
|
|
$ |
60,219 |
|
The Company’s export sales from the U.S. totaled $3,548,000 and $4,463,000 in 2022 and 2021, respectively. Approximately $51,228,000 and $45,445,000 of net revenue in 2022 and 2021, respectively, and $9,504,000 and $7,083,000 of long lived assets at December 31, 2022 and 2021, respectively, and net assets of $16,866,000 and $16,336,000 at December 31, 2022 and 2021, respectively, relate to the Company’s international operations.