July 16,
2009
Ms. Lynn
Dicker
Reviewing
Accountant
United
States Securities and Exchange Commission
Division
of Corporation Finance
Mail Stop
3030
100 F
Street, N.E.
Washington
DC 20549
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Sypris
Solutions Inc.
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Form
10-K for the year ended December 31, 2008
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File
No. 000-24020
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Dear Ms.
Dicker:
We
confirm Sypris Solutions, Inc.’s (Sypris) receipt of the letter from the United
States Securities and Exchange Commission (Commission) dated
June 8, 2009 regarding the Commission staff’s comments on the Form
10-K of Sypris for the fiscal year ended December 31, 2008. In
connection with the letter, we acknowledge the following:
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Sypris
is responsible for the adequacy and accuracy of the disclosures in our
filing;
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Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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·
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Sypris
may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the
United States.
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We also
wish to confirm that we have read the staff’s comments and have provided our
response to each question below. We have also included your comments
for ease of review.
Staff
Comment #1 – Notes to Consolidated Financial Statements, page 41
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1.
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We
note on page 24 that you used a third-party actuary to determine the
calculation of your pension assets and liabilities. We further
note on page 47 that you determined the fair value of your long-lived
assets based upon third-party appraisals. While in future
filings, management may elect to take responsibility for valuing the above
referenced assets and liabilities, please note that if you continue to
refer to the work of the third party in a Form 10-K that is incorporated
by reference into a registration statement, you may be required to obtain
and include a consent from the third party. Refer to Compliance
and Disclosure Interpretation
141.02.
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Sypris
Response
We
acknowledge and concur with the staff’s comments pursuant to Compliance and
Disclosure Interpretation 141.02. In all future Form 10-K filings,
the Company will eliminate references to third-party appraisals and take full
responsibility for any reported valuations.
Ms.
Lynn Dicker
July
16, 2009
Page
2 of 11
Staff
Comment #2 – Goodwill, page 42
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2.
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We
note your disclosure here and on pages 23 and 48 related to your
accounting policy for goodwill. Please revise your future
filings to disclose in more detail how and when you test goodwill for
impairment under SFAS 142. Include a discussion of when you
specifically perform your annual test of goodwill impairment and how you
apply the two-step method. Please also provide more details
relating to the facts and circumstances that led you to impair goodwill by
$440,000 during the fourth quarter of 2008. Refer to the
guidance in paragraph 47(a) of SFAS
142.
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Sypris
Response
In
response to the staff’s comments and request, the Company will include the
following discussion (or substantially similar disclosure) in its future
accounting policy disclosures.
Goodwill
is tested for impairment during the fourth quarter for all our reporting units
or more frequently if events occur or circumstances change that would warrant
such a review. We use a two-step process to test goodwill for
impairment as prescribed by SFAS No. 142, Goodwill and Other Intangible
Assets. In the first step, we use a discounted cash flow
analysis to determine the estimated fair value of each reporting unit, which
considers forecasted cash flows discounted at an estimated weighted average cost
of capital. A growth rate is used to calculate the terminal value of
the reporting unit and is added to the present value of the forecasted cash
flows. The growth rate is the expected rate at which a reporting
unit’s cash flow is projected to grow beyond the period covered by the
long-range plan. The cash flow analysis requires judgment in our
evaluation of the business and establishing an appropriate discount rate and
terminal value to apply in the calculation. In selecting these and
other assumptions for each business, we consider historical performance,
forecasted operating results, general market conditions and industry
considerations specific to the business. We make significant
assumptions and estimates about the extent and timing of future cash flows,
growth rates and discount rates. The cash flows are estimated over a
future period of time, which makes those estimates and assumptions subject to a
high degree of uncertainty. The sum of the calculated fair values of
each reporting unit is then reconciled and compared to our total market
capitalization. If the discounted cash flow analysis yields a fair
value estimate less than the reporting unit’s carrying value, we proceed to step
two of the impairment process. In the second step, the implied fair
value of the reporting unit’s goodwill is determined by allocating the reporting
unit’s fair value to all of its assets and liabilities of the reporting
unit. We believe that the assumptions and estimates used to determine
the fair values of each of our reporting units were
reasonable. However, different assumptions could materially affect
the results.
After
performing our annual goodwill impairment test during the fourth quarter, we
recorded a goodwill impairment charge of $0.4 million in 2008 related to our
Industrial Group, as the carrying value of this reporting unit significantly
exceeded its fair value. Key assumptions used to determine the fair
value of our Industrial Group during the fourth quarter were the expected
after-tax cash flows for the period from 2009 to 2011, a terminal growth rate of
3.0% and a weighted average cost of capital of 13.5%. The terminal
rate represents a decrease from the prior year growth rate of 5% as a result of
the continued downturn in the commercial vehicle industry and uncertainty
surrounding the market’s recovery. The weighted average cost of
capital rate is an increase over the prior year’s rate of 12.4% reflecting an
increase in the Company’s cost of borrowing and an increase in the ratio of debt
to total capital. The impairment charge reflects the full impairment
of the goodwill of the Industrial Group and is driven by the reporting unit’s
current performance and current economic conditions. The Industrial
Group reported an operating loss of $18.8 million for the year ended December
31, 2008 and was projecting an operating loss in 2009. The Industrial
Group primarily serves the medium and heavy-truck segment of the commercial
vehicle market and is thus subject to cyclical demand for this
market. The outlook for this market for 2009 and beyond contains many
uncertainties that negatively impacted the expected cash flows of the Industrial
Group. See Note 3 to the consolidated financial statements for
further details.
Ms.
Lynn Dicker
July
16, 2009
Page 3
of 11
At
December 31, 2008, net assets of our Test & Measurement segment were $13.7
million, including goodwill of $6.9 million, and our Aerospace & Defense
segment had net assets of $16.6 million, including goodwill of $6.9
million. The Company utilized growth rates of 5% and 3%,
respectively, for our Test & Measurement and Aerospace & Defense
segments, which is down from 6% and 5%, respectively, used in the prior
year. The decrease in the respective growth rates reflects the a
lower backlog of business and the current economic conditions impacting the
customers and markets served. The fair value of our Test &
Measurement and Aerospace & Defense segments would have to decline by over
40% and 25%, respectively, to indicate the potential for an impairment of their
goodwill.
Staff
Comment #3 – Goodwill, page 42
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3.
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In
this regard, please also address the following in the Critical Accounting
Policies section of MD&A in future
filings:
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Provide
a qualitative and quantitative description of the material assumptions
used and a sensitivity analysis of those assumptions based upon reasonably
likely changes.
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To
the extent the valuation assumptions and methodologies used for valuing
goodwill have changed since prior periods, disclose the reasons for the
change and the impact of the
changes.
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Sypris
Response
In
response to the staff’s comments, the Company will revise its goodwill
discussion in the Critical Accounting Policies section of the MD&A to
provide disclosures related to the material assumptions, methodologies and any
related changes to its goodwill valuations. The response to Staff
Comment #2 above included representative additional disclosures anticipated in
response to Staff Comment #3.
Staff
Comment #4 – Note 2. Dana Settlement Agreement, page 46
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4.
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We
note your disclosures here, on page 2 of this filing, and page 49 of your
2007 Form 10-K that you entered into a settlement agreement with Dana
Holding Corporation (Dana) during fiscal 2007. We further note
that you initially recorded a $76.5 million current asset related to the
fair value of this settlement agreement and that you also initially
recognized $20.7 million in income within your statement of operations
during fiscal 2007 and deferred the remaining $55.8
million. Please tell us and revise this note in future filings
to clearly explain how you initially accounted for and determined the fair
value of the Dana settlement agreement. Within your discussion,
please provide a more detailed discussion of the terms of the settlement
agreement and how you accounted for each element of the
agreement. Cite the accounting literature on which you relied
and how you applied the accounting literature to your
situation.
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Ms.
Lynn Dicker
July
16, 2009
Page 4
of 11
Sypris
Response
The Company followed the
accounting guidance set forth under APB 29 to initially account for the Dana
Settlement Agreement. Paragraph 18 of APB 29 states “the Board
concludes that in general accounting for nonmonetary transactions should be
based on the fair values of the assets (or services) involved which is the same
basis as that used in monetary transactions. Thus, the cost of a nonmonetary
asset acquired in exchange for another nonmonetary asset is the fair value of
the asset surrendered to obtain it, and a gain or loss should be recognized on
the exchange. The fair value of the asset received should be used to measure the
cost if it is more clearly evident than the fair value of the asset
surrendered.”
Sypris
received a nonmonetary asset on August 7, 2007 (the Claim) in exchange for the
settlement of various commercial issues as described below. Receipt
of consideration related to the Claim was affirmed by the bankruptcy court on
December 12, 2007. There were no monetary assets exchanged on either
date. The fair value of the Claim was determinable within reasonable limits on
both of these dates based upon the expected cash flow to Sypris upon the
liquidation of the Claim by Sypris. The form of liquidation was to occur in one
of two ways. The first was the sale or transfer of the Claim to a third party
prior to Dana’s emergence from bankruptcy. The second was the receipt of Dana
common stock by Sypris upon Dana’s emergence from bankruptcy and the subsequent
sale of that common stock by Sypris.
In
response to the staff’s comments and request, the Company will include a summary
of the following discussion in its future footnotes and related
disclosures.
On
March 3, 2006, the Company’s largest customer, Dana Corporation
(“Dana”), and 40 of its U.S. subsidiaries, filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York. On
August 7, 2007, the Company entered into a comprehensive settlement
agreement with Dana (the “Settlement Agreement”) to resolve all outstanding
disputes between the parties, terminate previously approved arbitration payments
and replace three existing supply agreements with a single, revised contract
running through 2014. In addition, Dana provided the Company with an
allowed general unsecured non-priority claim in the face amount of $89,900,000
(the “Claim”).
Sypris
and Dana conducted a series of negotiations during the period beginning March 3,
2006 and ending on the settlement date of August 7, 2007. The negotiations
covered a wide range of commercial issues including compliance with the terms
and conditions of past contractual matters and establishing terms and conditions
for a new long-term supply agreement. Throughout these negotiations, Sypris
developed and maintained a discounted cash flow valuation methodology to
determine the potential economic impact to Sypris of each commercial issue under
negotiation and to assign a value to each issue. The discounted cash flow
valuation used the expected annual net cash flow from each commercial issue over
the specific time period associated with the issue. The commercial issues were
tracked and valued individually, however Sypris summarized the commercial issues
into the following elements:
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1.
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Pricing
concessions on future shipments of certain parts under a new supply
agreement;
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2.
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The
transfer of future production for certain parts from Sypris to
Dana;
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Ms.
Lynn Dicker
July
16, 2009
Page 5
of 11
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3.
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Dana’s
obligation under prior supply agreements to transfer the production of
certain parts from Dana to Sypris;
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4.
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Dana’s
obligation under prior supply agreements to transfer contractual
production volumes for certain parts from Dana to Sypris;
and
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5.
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A
commitment by Sypris to relocate certain assets among Sypris’ existing
facilities related to the production of certain parts under a new supply
agreement.
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The Claim
provided to Sypris was agreed to by Sypris and Dana as consideration for the
aggregate economic impact of the various elements the two parties were
negotiating. The Settlement Agreement did not specifically set forth values
attributable to each of the above defined elements, nor did Sypris and Dana
enter into any formal agreement as to the allocation of the Claim. Therefore,
after the aggregate Claim value of $89,900,000 was established, Sypris allocated
the aggregate Claim value to each commercial issue included under the five
defined elements based upon the estimated net present values determined by
Sypris’ internal valuation methodology.
Sypris
recorded the Claim at the estimated fair value on August 7, 2007 in accordance
with APB 29, Accounting for
Nonmonetary Transactions. Since Dana was still in bankruptcy at that
date, the estimated fair value for the Claim was calculated by estimating the
aggregate residual value of Dana (the “Dana Residual Value”) available to all
unsecured claim holders in the bankrupt Dana estate in relation to the aggregate
amount of eligible unsecured claims (the “Eligible Claims”), which included
Sypris’ Claim for $89,900,000. The Dana Residual Value was calculated by
applying a peer-group based market multiple to Dana’s expected earnings before
interest, taxes, depreciation, amortization and restructuring charges (EBITDAR),
as adjusted for certain specific values associated with Dana’s Chapter 11
restructuring plan to arrive at a gross enterprise value. Dana’s anticipated net
debt, convertible preferred shares and minority interests were deducted from
gross enterprise value to arrive at the Dana Residual Value. Sypris initially
estimated the Dana Residual Value at $2,556,800,000 and the Eligible Claims at
$3,000,000,000. The ratio of Dana Residual Value to Total Claims of 85%
($2,556,800,000 divided by $3,000,000,000) represented the expected recovery
rate for the Eligible Claims. Sypris applied the estimated 85% recovery rate to
its Claim of $89,900,000, resulting in an estimated fair value of $76,483,000
for the Claim.
During
the third quarter of 2007, the Company also reviewed Dana’s “Third Amended
Disclosure Statement with respect to Third Amended Joint Plan of Reorganization
of Debtors and Debtors in Possession.” Included in this document was
a letter from the Creditors’ Committee estimating recoveries for similar
claimants to be in the range of 79% - 93% (assuming a total claim pool of
$3.0 billion and $2.5 billion, respectively). Sypris
determined this document provided an independent, third party assessment that
the 85% recovery rate used by Sypris to initially record the estimated fair
value of the Claim was reasonable.
Sypris
allocated the estimated fair value of $76,483,000 to the commercial issues under
each of the five elements related to the Claim. Sypris established the criteria
for revenue recognition of each element of the Claim in accordance with Staff Accounting Bulletin
104, “Revenue
Recognition”
(SAB 104). In accordance with Topic 13 A.1 of SAB 104, each of those
items which required the Company’s continued involvement was deferred and will
be recognized over the applicable period of the involvement. The following table
summarizes the initial valuation of the five elements of the Claim, the 2007
income recognition, and the accounting treatment for each
element:
Ms.
Lynn Dicker
July
16, 2009
Page 6
of 11
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Claim Elements
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Claim Value
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Estimated
Fair Value at
85%
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Recognized
in Income in
2007
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Accounting Treatment
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Pricing
Concessions
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$ | 58,700,000 | $ | 49,895,000 | $ | — |
Deferred
Revenue; Recognize revenue over the contract term established in the new
Supply Agreement based upon future actual and expected units of
production. Pricing concessions effective 1/1/2008 through
contract termination date in 2014.
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Transfer
of Future Production
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$ | 15,400,000 | $ | 13,090,000 | $ | 8,911,000 |
Deferred
Revenue; Recognize revenue over the future transition period during which
Sypris is obligated to produce the parts as set forth in the Settlement
Agreement. Revenue recognized for pro-rata term of transition
period from settlement date of 8/7/2007 through
12/31/07. Balance of revenue to be recognized through
completion of transition period in the first quarter of
2008.
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Transfer
of Prior Parts
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$ | 10,000,000 | $ | 8,500,000 | $ | 8,500,000 |
Recognize
as non-recurring income on the settlement date as the fair value is
attributable to past performance and there is no continuing involvement
required by Sypris.
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Transfer
of Prior Volumes
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$ | 3,800,000 | $ | 3,298,000 | $ | 3,298,000 |
Recognize
as non-recurring income on the settlement date as the fair value is
attributable to past performance and there is no continuing involvement
required by Sypris.
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Relocation
of Assets
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$ | 2,000,000 | $ | 1,700,000 | $ | — |
Accrued
Liability; Reduce liability as future costs are incurred associated with
the relocation of assets.
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Total
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$ | 89,900,000 | $ | 76,483,000 | $ | 20,709,000 | |||||||
On
December 12, 2007, the bankruptcy court approved Dana’s plan of reorganization,
and the Company became entitled to receive distributions of Dana common stock
and cash. As of that date, and as of December 31, 2007, the Company
believed its initial valuation of the value of the Claim, essentially
representing an investment in Dana, remained appropriate. As of
December 31, 2007, the Company’s intent was to liquidate the Dana investment in
2008, and thus, the amount was classified as a current asset as of that
date.
Staff
Comment #5 – Note 2. Dana Settlement Agreement, page 46
Further
to the above, we note that Dana issued 3,090,408, 114,536, 152,506, and 384,931
share of common stock to you on February 11, 2008, April 21, 2008, July 30,
2008, and October 10, 2008, respectively, and that you valued each share at
approximately $18.17 per share. Please tell us and revise your future
filings to disclose how you determined that you should value each share of Dana
common stock at $18.17 per share considering Dana’s common stock was trading on
the New York Stock Exchange at $10.23, $10.12, $6.38, and $3.35 on February 11,
2008, April 21, 2008, July 30, 2008, and October 10, 2008,
respectively.
Ms.
Lynn Dicker
July
16, 2009
Page 7
of 11
Sypris
Response
In light
of the staff’s comments and request, the Company will include a summary of the
following discussion (or substantially similar disclosure), replacing the third
paragraph of Note 2 on page 46, in its future footnotes and related
disclosures.
The
aforementioned cash distribution of $6,891,000 was recorded as a reduction in
the Company’s $76,483,000 recorded fair value basis in the claim. The
remaining balance of the $69,592,000 was equivalent to approximately $18.17 per
share of Dana common stock, based on the number of Dana shares that the Company
expected to receive in consideration for its claim. This amount
represented the Company’s cost basis in their Dana investment and the stock to
be received as consideration for such claim. For the first quarter of
2008, the $69,592,000 was allocated on a pro rata basis as follows: $56,162,000
was attributed to an initial distribution of 3,090,408 shares received by the
Company on February 11, 2008, and the remaining $13,430,000 was attributed
to the expected subsequent distribution of approximately 739,000
shares. For the second quarter of 2008, the remaining $13,430,000 in
recorded fair value was further allocated on a pro rata basis as follows:
$2,081,000 was attributed to 114,536 additional shares actually received on
April 21, 2008 and the remaining $11,349,000 was attributed to the expected
subsequent distribution of approximately 624,000 shares. For the
third quarter of 2008, the remaining $11,349,000 in recorded fair value was
further allocated on a pro rata basis as follows: $2,771,000 was attributed to
152,506 additional shares actually received on July 30, 2008 and the remaining
$8,578,000 was attributed to the expected subsequent distribution of
approximately 472,000 shares. All of these allocations were based on
$18.17 per share – the Company’s cost basis in the shares based on the fair
value of the claim when received and affirmed by the court. There was
no change in the number of shares expected to be received in the aggregate
during this period.
At the
end of each of the first three quarters of 2008, we analyzed whether declines in
the quoted market prices of Dana common stock were temporary or
“other-than-temporary,” in accordance with the factors outlined in SFAS No. 157
and SAB Topic 5M. Based on those factors, the Company determined
these declines to be temporary during the first three quarters of 2008, and
accordingly, the Company reported the differences between Dana’s stock price on
the last day of each quarter and the initial estimated fair value of $18.17 as
“other comprehensive loss” for that quarter. As a result, the
carrying value of the investment at the end of each fiscal quarter was recorded
at the fair market value at each respective date in accordance with SFAS No.
115.
During
the fourth quarter of 2008, the Company initially continued to believe that the
severe turmoil in the financial markets was a temporary phenomenon and that Dana
stock in particular had been speculatively oversold in a manner that did not
reflect its fundamental value, which was still believed to be supportive of the
Company’s recorded value of $18.17 per share. When the Company
received an additional distribution of 384,931 shares of Dana stock on October
10, 2008, $6,995,000 of the remaining $8,578,000 in recorded value was
attributed to those shares, while the final $1,583,000 in recorded value was
attributed to the approximately 87,000 in additional shares (which the Company
still expects to receive). However, as the fourth quarter progressed,
Dana negatively revised its earnings forecasts, its stock price fell
dramatically, and by the end of 2008 the Company had come to believe that Dana’s
stock price was unlikely to recover to the Company’s recorded value within the
foreseeable future.
Ms.
Lynn Dicker
July
16, 2009
Page 8
of 11
Staff
Comment #6 – Note 2. Dana Settlement Agreement, page 46
Finally,
we note here and on page 49 that you recorded $66.8 million of
other-than-temporary impairment during the fourth quarter of 2008 related to
your investment in Dana’s common stock. Please tell us and revise
your future filings to disclose in more detail the facts and circumstances that
led you to determine that your investment in Dana was other-than-temporarily
impaired during the fourth quarter. Within your discussion, please
explain how you determined that the fourth quarter of 2008 was the appropriate
time period to recognize this impairment. Provide to us the results
of your impairment analysis as of the end of each quarter during fiscal
2008.
Sypris
Response
The
Company’s investment in marketable securities consists exclusively of shares in
Dana common stock. The Company’s investment in Dana common stock is
classified as an available-for-sale security in accordance with SFAS No. 115 and
measured at fair value as determined by a quoted market price (a level 1
valuation under SFAS No. 157). At December 31, 2008, the
Company owned 3,742,381 common shares of Dana with a market value of $0.74 per
share. On March 30, June 29 and September 28, 2008 (fiscal Q1, Q2 and
Q3), Dana was trading at $10.06, $5.45 and $5.41 per share,
respectively. The Company performed an impairment analysis as of the
end of each quarter and determined that the difference from the recorded value
at those dates was considered to be temporary. This analysis was
discussed with the audit committee on a quarterly
basis. Additionally, the Company provided disclosures in each of its
10-Q filings during 2008, including discussions quantifying the unrealized loss
and the reasons why the Company believed this loss to be temporary.
As of
March 30, 2008 and June 29, 2008, the economy had been sluggish as a result of a
weak housing market and rising fuel costs. However, the commercial
vehicle markets were still expected to rebound in late 2008 in anticipation of
CAFE emission standards changes effective January 1, 2010, which generally drive
substantial replacement fleet sales. In addition to a cyclical
weakening in the economy, management believed Dana’s capital structure upon
emergence from bankruptcy was temporarily distorting its stock
price. At emergence, the majority of Dana’s stockholders were
unsecured creditors who were not natural holders of Dana stock. This
was believed to be causing temporary downward pressure on the stock price as
those stockholders began liquidating their holdings. Additionally,
approximately one-third of Dana stockholders at the end of the first quarter of
2008 were holders of Series A or B Preferred stock and could not trade the stock
for the first six months following emergence due to contractual “lock up”
restrictions. Furthermore, many equity mutual funds, who would be the
likeliest natural holders of Dana stock, are restricted by their investment
policies from purchasing stock in businesses that have recently emerged from
bankruptcy. This was believed to create a temporary, but very
negative, market environment for Dana stock, continuing through the first half
of 2008. As these restrictions were lifted, the demand for the stock
was expected to increase along with the price. In fact, the market
price for Dana stock was highly erratic during this period, for example: falling
27% in the first seven trading days after emergence from bankruptcy, rising by
40% from March 20th through
May 2nd,
falling by nearly 60% over a seven week period beginning in mid-May and rising
another 40% in just eight trading days from July 7th through
July 17th. Consequently,
management concluded that the difference between the recorded value and the fair
value of Dana’s stock was temporary.
Ms.
Lynn Dicker
July
16, 2009
Page 9
of 11
Economic
volatility and highly erratic market pricing behavior continued throughout the
third quarter at historically unprecedented levels. On September 18,
2008, the Commission issued Release No. 34-58592, “EMERGENCY ORDER PURSUANT TO
SECTION 12(k)(2) OF THE SECURITIES EXCHANGE ACT OF 1934 TAKING TEMPORARY ACTION
TO RESPOND TO MARKET DEVELOPMENTS” (the “Emergency Order”). Among
other things, the Commission’s Emergency Order made it temporarily illegal to
engage in certain short sales of a number of specified companies, stating that:
“Given the importance of confidence in our financial markets as a whole, we have
become concerned about recent sudden
declines in the prices of a wide range of securities. Such price declines
can give rise to questions about the underlying financial condition of an
issuer, which in turn can create a crisis of confidence, without a
fundamental underlying basis.” (Emphasis added.) Three days
later, the Emergency Order was amended to allow the stock market exchanges to
designate additional companies whose stock could not be “shorted,” and the NYSE
promptly added General Motors Corporation to the list. As of September 28, 2008,
the commercial vehicle and automotive sectors of the stock market were in severe
turmoil, despite the fact that automotive sales volumes were still expected to
rebound somewhat in the fourth quarter of 2008, and crude oil prices, which had
peaked early in the third quarter at over $140 per barrel, were trading in the
high $60’s per barrel in October.
In this
environment, the Company’s management strongly believed that commercial vehicle
and automotive stocks had been speculatively oversold and that the government’s
intervention, including the passage of the $700 billion Troubled Asset Relief
Program, would rapidly free up liquidity for banks in the fourth quarter,
resulting in a dramatic improvement in the overall market as stock prices
returned to levels that reflected fundamental values. In particular,
the automotive sector and its supply chain had received or were targeted to
receive substantial financial support from the government, which was expected to
have a positive cascading impact on automotive suppliers in the
future. Based upon these factors, and the Company’s willingness and
financial ability to hold the Dana stock until the expected recovery in
valuations, we continued to assess the impairment in Dana stock as a temporary
phenomenon.
However,
during the late fourth quarter, the financial markets continued to decline and
Dana announced that it was revising its 2008 earnings before interest, taxes,
depreciation and amortization (EBITDA) outlook down approximately 40% from its
Plan of Reorganization and projected significantly lower revenues for 2009 than
previously disclosed. The market reacted negatively to this news and
Dana’s stock price had plummeted to $0.74 per share by the end of
December. As a result of the severity and duration of the decline in
fair value of the Dana stock and the financial condition and near-term prospects
of Dana, the Company determined that its investment in Dana common stock was
other-than-temporarily impaired as of December 31, 2008. Accordingly,
the Company recorded a $66,758,000 impairment charge during the fourth
quarter. Future increases or decreases in the fair value of Dana
common stock will be recorded through other comprehensive income until the
securities are sold or unless future declines are also deemed
other-than-temporary. Further other-than-temporary declines will be
charged to earnings in the period that the declines are considered
other-than-temporary. In accordance with SFAS No. 157, the fair value
of the shares was valued based on quoted market prices in active markets for
identical shares at December 31, 2008.
Ms.
Lynn Dicker
July
16, 2009
Page 10
of 11
Staff
Comment #7 – Note 3. Restructuring, Impairments and Other Nonrecurring Charges,
page 47
We note
your disclosures here and on pages 27 – 28 related to your restructuring plan
that was announced during the fourth quarter of 2008. Please revise
your MD&A in future filings to include the disclosures of the items
identified in SAB Topic 5.P.4.
Sypris
Response
We agree
with the staff’s comments and will revise our MD&A disclosure in future
filings to include the disclosures of the items identified in SAB Topic
5.P.4. The additional disclosure points to be considered by Sypris in
future filings in response to this comment will include:
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Any
material changes and activity in the liability balances of each
significant type of exit costs and involuntary employee termination
benefits.
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This
disclosure was not applicable as of December 31, 2008, as the
restructuring was announced and initially disclosed in the fourth
quarter.
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The
likely effects of management’s plans on financial position, future
operation results and liquidity and the initial period in which these
effects are expected to be
realized.
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In
light of the staff’s comments and request, the Company will include the
following discussion (or substantially similar disclosure) in its future
filings: The restructuring activities are expected to result in $25.0
million in annual savings. The activities generating the
savings are from the following: i) savings of $12.5 million from facility
closings occurring during the second and fourth quarter of 2009, ii)
savings of $7.5 million from operational efficiencies expected to complete
during the third quarter of 2009, iii) savings of $3.0 million from
product costing changes expected to complete during the first quarter of
2009, and iv) savings of $2.0 million from various quality improvement
initiatives expected to be completed by the fourth quarter of
2009.
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Any
deviation in anticipated savings.
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This
disclosure was not applicable as of December 31, 2008, as the
restructuring was announced and initially disclosed in the fourth
quarter.
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The
periods in which material cash outlays are anticipated and the expected
source of their funding.
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In
light of the staff’s comments and request, the Company will include the
following discussion (or substantially similar disclosure) in its future
filings: Of the aggregate $52.4 million in total program costs, the
Company expects approximately $16.0 million to be cash related, the
majority of which will be spent in 2009. The cash outflows
related to these programs are expected to be funded from continuing
operations and the existing revolving credit agreement and are not
expected to have a material adverse impact on the Company’s
liquidity.
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Any
material revisions to exit plans, exit costs or the timing of the plan’s
execution, including the nature and reasons for the
revisions.
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This
disclosure was not applicable as of December 31, 2008, as the
restructuring was announced and initially disclosed in the fourth
quarter.
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Ms.
Lynn Dicker
July
16, 2009
Page 11
of 11
We
appreciate your thorough review of the Company’s filing and your comments
regarding the filing.
Very
truly yours,
Brian A.
Lutes.
Vice
President and CFO