Aerospace and Defense Revenue Increased 20%

LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 18, 2009-- Sypris Solutions, Inc. (Nasdaq/NM: SYPR) today reported financial results for its second quarter ended July 5, 2009.

Q2 HIGHLIGHTS

• Sequential results reflect a 75% increase in gross profit on stable revenue.
• Electronics Group gross profit increased 51%; gross margin increased to 20.5% versus 14.8% for prior year.
• Aerospace & Defense revenue increased 20%; gross profit increased 158%; gross margin increased to 18.7% compared to 8.7% for 2Q08.
• Industrial Group loss at gross profit improved 40% sequentially.
• Net cash provided by operating activities totaled $6.0 million.
• Increasing quotation activity during the quarter – New business awarded with Daimler AG, Dana, Northrop Grumman, Raytheon, Teledyne and others.

In the second quarter, the Company posted sales of $82.1 million for the second quarter compared to $110.4 million for the prior year period. The Company reported a loss of $6.8 million, or $0.37 per share, for the second quarter compared to a loss of $0.9 million, or $0.05 per share, for the prior year period. The loss for the quarter ended July 5, 2009 included $1.7 million, or $0.09 per share, of charges associated with the implementation of the Company’s previously announced restructuring program.

For the six months ended July 5, 2009, the Company reported revenue of $163.8 million compared to $216.6 million for the prior year period and a net loss of $18.1 million, or $0.98 per share, compared to a net loss of $0.6 million, or $0.03 per share, for the same period in 2008. The loss for the six-month period ended July 5, 2009 included $3.7 million, or $0.20 per share, of charges associated with the restructuring program.

“The results for the quarter, when viewed on a sequential basis, reflect a 75% increase in gross profit on stable revenue, with gross margins expanding to 9.3% of revenue during the period from 5.3% for the first quarter of 2009,” said Jeffrey T. Gill, president and chief executive officer. “This important improvement in operating performance reflects a fundamental reduction in the Company’s cost structure and the results of hard work and dedication from our organization during these challenging times.

“Much work remains in order for the Company to achieve lasting success, but each of our business segments continued to make real progress. Revenue for our Aerospace & Defense segment increased 20% during the quarter, while its gross profit jumped 158%, reflecting an expansion of gross margins to just under 19% of revenue compared to less than 9% for the second quarter of 2008. The strong Aerospace & Defense performance drove revenue for our Electronics Group to 55% of total portfolio revenue, up from 37% for the prior year period.

“Our Industrial Group showed important signs of stabilizing during the quarter, with revenue declining less than 2% on a sequential basis, while losses reported at the gross profit line were reduced by 40% when compared to the first quarter of this year. And while year over year financial results remain highly depressed for this important Group, the rate of change reflected in the sequential results might suggest that the transportation markets served by this Group are near their cyclical low.

“Our Test & Measurement segment continued to perform well, but suffered its first comparable period decline in revenue in several years, driven in part by a reduction in component testing services for the commercial airline industry. Additional actions have been taken to protect this segment’s profitability going forward. Quotation activity remains brisk, and it is our sense that the softness experienced in the top line during the quarter will begin to reverse over the next several quarters.

“The opportunities for new business continued to accelerate, with new awards received in our Industrial Group from Dana and Axle Alliance, a subsidiary of Daimler AG, and in our Test & Measurement segment, which entered into new contracts with Raytheon, Teradyne, Teledyne, Northrop Grumman and others as companies turned to proven single source solutions.”

The Electronics Group

Revenue for our Electronics Group increased 9.5% to $45.2 million in the second quarter compared to $41.3 million in the prior year period. Gross profit for the quarter increased 51.0% to $9.2 million compared to $6.1 million for the same period in 2008, while gross margins expanded to 20.5% from 14.8% for the prior year period.

Revenue for the Aerospace & Defense segment increased 20.1% to $32.4 million in the second quarter compared to $27.0 million for the prior year period, primarily as a result of shipments of new electronic circuit card assemblies for the Bradley Combat System. Gross profit for the Aerospace & Defense segment increased 158.0% to $6.1 million compared to $2.4 million for the prior year period primarily as a result of the redesign of a secured communication product, increased volumes and improved productivity, while gross margins increased to 18.7% from 8.7% for the prior year period.

Revenue for the Test & Measurement segment decreased 10.7% to $12.7 million compared to $14.2 million for the prior year period as a result of a decline in component screening sales related to softness within the commercial aviation business. Gross profit for the Test & Measurement segment decreased 15.8% to $3.2 million from $3.8 million in the prior year period due to lower sales volumes partially offset by cost containment activities. Gross margins were 24.9% compared to 26.5% for the prior year period.

The Industrial Group

Revenue for our Industrial Group was $36.9 million in the second quarter compared to $69.1 million for the prior year period as a result of the forecasted decline in the commercial vehicle and trailer markets. Gross profit for the quarter decreased to a loss of $1.6 million from profit of $5.3 million for the same period in 2008, primarily as a result of significantly lower volumes partially offset by aggressive cost containment activities. On a sequential basis, revenue declined 1.5% from $37.5 million in the first quarter, while the loss at gross profit for the second quarter improved 39.7% from the loss of $2.7 million reported for the first quarter, reflecting the initial positive impact of the Company’s restructuring efforts.

Outlook

Mr. Gill added, “Looking forward, the outlook for the balance of the year remains unchanged. The outlook for our Electronics Group is positive, with this segment of our business expected to benefit from further gross margin expansion as we move throughout the balance of the year as a result of process improvements, increased productivity and lower costs.

“The outlook for our Industrial Group remains quite challenging, with forecasts for the production of Class 5-8 commercial vehicles remaining uncertain at best. Our sense is that the market may have reached its cyclical low in February, but that inventory balancing and continued economic uncertainty will continue to hold down production at or near current levels for the foreseeable future.

“It is important to note that we have already begun to realize the benefits of the restructuring program in the first quarter of this year and expect the recent closure of our production facility in Kenton, Ohio and the relocation of this work to our operation in Morganton, North Carolina to contribute to results in the near term. Furthermore, we have accelerated the previously announced closing of our Marion, Ohio facility, with expectations that this project will now be completed in the very near term instead of by year-end. The accelerated completion of both of these initiatives is expected to result in a material reduction in our fixed and variable expenses going forward.

“As expected, the Company generated positive free cash flow during the second quarter due to improvements in gross profit and increased working capital efficiency. We expect free cash flow, before restructuring expense, to remain relatively neutral for the balance of 2009, assuming the absence of a need to invest in working capital sooner than expected. With the early completion of our restructuring activities, we expect the expenses associated with these actions to decline materially beginning in the third quarter of this year.”

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

Each “forward-looking statement” herein is subject to serious risks and should not be relied upon, as detailed in our most recent Form 10-K and Form 10-Q and subsequent SEC filings. Briefly, we currently believe that such risks also include: the effects of a continuing economic downturn which could reduce our revenues, negatively impact our customers or suppliers and materially, adversely affect our financial results; our ability to liquidate our equity interests in Dana Holding Corporation at satisfactory valuation levels; potential impairments, non-recoverability or write-offs of goodwill, assets or deferred costs, including deferred tax assets in the U.S. or Mexico; fees, costs or other dilutive effects of refinancing, compliance with covenants in, or acceleration of, our loan and other debt agreements; unexpected or increased costs, time delays and inefficiencies of restructuring our manufacturing capacity; breakdowns, relocations or major repairs of machinery and equipment; our inability to successfully launch new or next generation programs; the cost, efficiency and yield of our operations and capital investments, including working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; cost and availability of raw materials such as steel, component parts, natural gas or utilities; volatility of our customers’ forecasts, financial conditions, market shares, product requirements or scheduling demands; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; failure to adequately insure or to identify environmental or other insurable risks; inventory valuation risks including obsolescence, shrinkage, theft, overstocking or underbilling; changes in government or other customer programs; reliance on major customers or suppliers, especially in the automotive or aerospace and defense electronics sectors; revised contract prices or estimates of major contract costs; dependence on, recruitment or retention of key employees; union negotiations; pension valuation, health care or other benefit costs; labor relations; strikes; risks of foreign operations; currency exchange rates; the costs and supply of debt, equity capital, or insurance (including the possibility that our common stock could cease to qualify for listing on the NASDAQ Stock Market due to a sustained decline in prices per share, or other regulatory compliance including, shareholder approval requirements, or that any reverse stock split or other restructuring of our debt or equity financing could be accompanied by the deregistration of our common stock or other “going private” transactions); changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; weaknesses in internal controls; the costs of compliance with our auditing, regulatory or contractual obligations; regulatory actions or sanctions; disputes or litigation, involving customer, supplier, lessor, landlord, creditor, stockholder, product liability or environmental claims; war, terrorism or political uncertainty; unanticipated or uninsured disasters, losses or business risks; inaccurate data about markets, customers or business conditions; or unknown risks and uncertainties.

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included throughout this press release, the company has provided information regarding free cash flow, free cash flow before restructuring expense and EBITDAR, which are non-GAAP financial measures.

Free cash flow is defined as cash provided by operating activities less capital expenditures. Free cash flow before restructuring expense is defined as free cash flow excluding nonrecurring expense, net. EBITDAR is defined as earnings before interest, taxes, depreciation and amortization, impairment of goodwill and nonrecurring expenses.

Management believes EBITDAR is a meaningful measure of performance as it is commonly utilized by management, investors and financial institutions to analyze operating performance and entity valuation. Free cash flow and free cash flow before restructuring expense are useful in analyzing the company’s ability to service and repay its debt. Further, management uses these non-GAAP measures in planning and forecasting for future periods.

These non-GAAP measures should not be considered a substitute for our reported results prepared in accordance with GAAP. EBITDAR should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Free cash flow and free cash flow before restructuring expense should not be considered substitutes for cash provided by operating activities or other cash flow statement data prepared in accordance with GAAP or as a measure of liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt or cash received from the divestitures or businesses or sales of other assets and thus does not reflect funds available for investment or other discretionary uses.

Source: Sypris Solutions, Inc.

Sypris Solutions, Inc.
Brian A. Lutes, 502-329-2000
Chief Financial Officer