UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
-----
Exchange Act of 1934.
For the quarterly period ended June 30, 2002.
or
Transition report pursuant to Section 13 or 15(d) of the Securities
______
Exchange Act of 1934.
For the transition period from _______ to ________.
Commission file number: 0-24020
SYPRIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1321992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of principal executive offices, including zip code)
(502) 329-2000
(Registrant's telephone number, including area code)
___________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
-----
As of July 20, 2002, the Registrant had 14,111,141 shares of Common Stock
outstanding.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Income Statements for the Three and Six
Months Ended June 30, 2002 and July 1, 2001 .................... 2
Consolidated Balance Sheets at June 30, 2002 and
December 31, 2001 .............................................. 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and July 1, 2001 .................... 4
Notes to Consolidated Financial Statements ....................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders .............. 14
Item 6. Exhibits and Reports on Form 8-K ................................. 15
Signatures ........................................................................... 16
1
Part I. Financial Information
Item 1. Financial Statements
Sypris Solutions, Inc.
Consolidated Income Statements
(in thousands, except for per share data)
Three Months Ended Six Months Ended
-------------------------- ---------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Net revenue:
Outsourced services ................................ $ 61,082 $ 52,246 $ 113,743 $ 98,264
Products ........................................... 12,427 10,906 22,299 22,923
----------- ----------- ---------- ---------
Total net revenue ................................ 73,509 63,152 136,042 121,187
Cost of sales:
Outsourced services ................................ 52,556 45,493 97,369 85,482
Products ........................................... 8,071 6,745 14,662 14,627
----------- ----------- ---------- ---------
Total cost of sales .............................. 60,627 52,238 112,031 100,109
----------- ----------- ---------- ---------
Gross profit ..................................... 12,882 10,914 24,011 21,078
Selling, general and administrative ................... 7,188 6,818 13,702 13,393
Research and development .............................. 932 827 1,763 1,504
Amortization of intangible assets ..................... 3 357 54 692
----------- ----------- ---------- ---------
Operating income ................................. 4,759 2,912 8,492 5,489
Interest expense, net ................................. 660 1,073 1,742 2,202
Other (income) expense, net ........................... (31) 33 (60) (119)
----------- ----------- ---------- ---------
Income before income taxes ....................... 4,130 1,806 6,810 3,406
Income tax expense .................................... 1,325 597 2,180 1,178
----------- ----------- ---------- ---------
Net income ....................................... $ 2,805 $ 1,209 $ 4,630 $ 2,228
=========== =========== ========== =========
Net income per common share:
Basic ............................................ $ 0.20 $ 0.12 $ 0.38 $ 0.23
Diluted .......................................... $ 0.19 $ 0.12 $ 0.36 $ 0.23
Shares used in computing per common share amounts:
Basic ............................................ 13,971 9,786 12,081 9,757
Diluted .......................................... 14,696 9,878 12,736 9,836
The accompanying notes are an integral part of the consolidated financial
statements.
2
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
June 30, December 31,
2002 2001
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ................................................... $ 15,638 $ 13,232
Accounts receivable, net .................................................... 43,849 39,758
Inventory, net .............................................................. 59,282 60,574
Other current assets ........................................................ 6,220 7,991
--------- ---------
Total current assets ...................................................... 124,989 121,555
Property, plant and equipment, net ............................................. 73,709 70,452
Intangible assets, net ......................................................... 15,873 15,926
Other assets ................................................................... 4,422 3,511
--------- ---------
$ 218,993 $ 211,444
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................................................ $ 22,924 $ 26,828
Accrued liabilities ......................................................... 18,152 19,902
Current portion of long-term debt ........................................... -- 7,500
--------- ---------
Total current liabilities ................................................. 41,076 54,230
Long-term debt ................................................................. 40,000 80,000
Other liabilities .............................................................. 6,698 7,094
--------- ---------
Total liabilities ......................................................... 87,774 141,324
Stockholders' equity:
Preferred stock, par value $.01 per share, 981,600 shares
authorized; no shares issued .............................................. -- --
Series A preferred stock, par value $.01 per share, 18,400
shares authorized; no shares issued ....................................... -- --
Common stock, non-voting, par value $.01 per share,
10,000,000 shares authorized; no shares issued ............................ -- --
Common stock, par value $.01 per share, 30,000,000 shares
authorized; 14,093,936 and 9,898,675 shares issued and
outstanding in 2002 and 2001, respectively ................................ 141 99
Additional paid-in capital .................................................. 81,913 25,490
Retained earnings ........................................................... 51,057 46,427
Accumulated other comprehensive income (loss) ............................... (1,892) (1,896)
--------- ---------
Total stockholders' equity ................................................ 131,219 70,120
--------- ---------
$ 218,993 $ 211,444
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
3
Sypris Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended
---------------------------
June 30, July 1,
2002 2001
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income ..................................................................... $ 4,630 $ 2,228
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................... 5,423 4,870
Other noncash charges ....................................................... 558 335
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (4,212) (4,028)
Inventory ................................................................. 1,020 (213)
Other assets .............................................................. 1,753 1,296
Accounts payable .......................................................... 903 786
Accrued liabilities ....................................................... (1,673) 1,285
----------- -----------
Net cash provided by operating activities ................................ 8,402 6,559
Cash flows from investing activities:
Capital expenditures ........................................................... (14,478) (12,934)
Purchase of the net assets of acquired entities ................................ -- (11,486)
Proceeds from sale of assets ................................................... 72 66
Changes in nonoperating assets and liabilities ................................. (323) (464)
----------- -----------
Net cash used in investing activities .................................... (14,729) (24,818)
Cash flows from financing activities:
Net (decrease) increase in debt under revolving credit agreements .............. (47,500) 17,500
Proceeds from issuance of common stock ......................................... 56,233 300
----------- -----------
Net cash provided by financing activities ................................ 8,733 17,800
----------- -----------
Net increase (decrease) in cash and cash equivalents .............................. 2,406 (459)
Cash and cash equivalents at beginning of period .................................. 13,232 14,674
----------- -----------
Cash and cash equivalents at end of period ........................................ $ 15,638 $ 14,215
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
Sypris Solutions, Inc.
Notes to Consolidated Financial Statements
(1) Nature of Business
Sypris is a diversified provider of outsourced services and specialty
products. The Company performs a wide range of manufacturing, engineering,
design, testing and other technical services, typically under multi-year,
sole-source contracts with major companies and government agencies in the
markets for aerospace & defense electronics, truck components & assemblies, and
for users of test & measurement equipment.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries
(collectively, "Sypris" or the "Company"), Sypris Electronics, LLC, Sypris Test
& Measurement, Inc., Sypris Data Systems, Inc., and Sypris Technologies, Inc.,
and have been prepared by the Company in accordance with the rules and
regulations of the Securities and Exchange Commission. All significant
intercompany transactions and accounts have been eliminated. These unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to fairly state the results of operations, financial position and cash flows for
the periods presented, and the disclosures herein are adequate to make the
information presented not misleading. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Actual results for the three and six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements, and notes thereto, for the year ended
December 31, 2001 as presented in the Company's annual report on Form 10-K.
(3) Earnings Per Share
There were no adjustments required to be made to net income for purposes of
computing basic and diluted earnings per share. A reconciliation of the weighted
average shares outstanding used in the calculation of basic and diluted earnings
per share is as follows (in thousands):
Three Months Ended Six Months Ended
-------------------------- ---------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Shares used to compute basic earnings
per share ....................................... 13,971 9,786 12,081 9,757
Dilutive effect of stock options ................... 725 92 655 79
----------- ----------- ----------- -----------
Shares used to compute diluted
earnings per share ............................... 14,696 9,878 12,736 9,836
=========== =========== =========== ===========
5
(4) Inventory
Inventory consists of the following (in thousands):
June 30, December 31,
2002 2001
----------- -----------
(Unaudited)
Raw materials ............................................................ $ 17,305 $ 19,003
Work in process .......................................................... 13,018 9,661
Finished goods ........................................................... 3,666 5,450
Costs relating to long-term contracts and programs, net of amounts
attributed to revenue recognized to date ............................... 34,200 37,908
Progress payments related to long-term contracts and programs ............ (3,611) (6,540)
LIFO reserve ............................................................. (1,092) (987)
Reserve for excess and obsolete inventory ................................ (4,204) (3,921)
----------- -----------
$ 59,282 $ 60,574
=========== ===========
(5) Segment Data
The Company's operations are conducted in two reportable business segments:
the Electronics Group and the Industrial Group. There was no intersegment net
revenue recognized in all of the periods presented. The following table presents
financial information for the reportable segments of the Company for the three
and six months ended June 30, 2002 and July 1, 2001 (in thousands):
Three Months Ended Six Months Ended
-------------------------- ---------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Net revenue from unaffiliated customers:
Electronics Group .......................... $ 49,297 $ 53,480 $ 93,373 $ 103,561
Industrial Group ........................... 24,212 9,672 42,669 17,626
----------- ----------- ----------- -----------
$ 73,509 $ 63,152 $ 136,042 $ 121,187
=========== =========== =========== ===========
Gross profit:
Electronics Group .......................... $ 9,017 $ 9,764 $ 17,705 $ 19,064
Industrial Group ........................... 3,865 1,150 6,306 2,014
----------- ----------- ----------- -----------
$ 12,882 $ 10,914 $ 24,011 $ 21,078
=========== =========== =========== ===========
Operating income:
Electronics Group .......................... $ 2,882 $ 2,870 $ 6,032 $ 6,103
Industrial Group ........................... 3,005 714 4,463 1,112
General, corporate and other ............... (1,128) (672) (2,003) (1,726)
----------- ----------- ----------- -----------
$ 4,759 $ 2,912 $ 8,492 $ 5,489
=========== =========== =========== ===========
(6) Commitments and Contingencies
The Company's Sypris Technologies subsidiary is a co-defendant in two
lawsuits arising out of an explosion at a coker plant owned by Exxon Mobil
Corporation located in Baton Rouge, Louisiana. In each of these lawsuits, it is
alleged that a carbon steel pipe elbow that Sypris Technologies manufactured was
improperly installed and the failure of which caused the explosion. One of the
actions was brought by Exxon Mobil in 1994 in state district court in Louisiana
and claims damages for destruction of the plant, which Exxon Mobil estimates
exceed one hundred million dollars. Sypris Technologies is a co-defendant in
this action with the fabricator who built the pipeline into which the elbow was
incorporated and with
6
the general contractor for the plant. The second action is a class action suit
also filed in 1994 in federal court in Louisiana on behalf of the residents
living around the plant and claims unspecified damages. Sypris Technologies is a
co-defendant in this action with Exxon Mobil, the contractor and the fabricator.
In both actions, the Company maintains that the carbon steel pipe elbow at issue
was appropriately marked as carbon steel and was improperly installed, without
Sypris Technologies' knowledge, by the fabricator and general contractor in
circumstances that required the use of a chromium steel elbow. Although the
Company believes these defenses to be meritorious, there can be no assurance
that the Company will not be found liable for some or all of the alleged
damages. If the Company was to be found liable and the damages exceeded
available insurance coverage, the impact could materially and adversely affect
the Company's financial condition and results of operations.
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.
(7) Adoption of Recently Issued Accounting Standard
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Under SFAS No. 142, goodwill and indefinite lived intangible assets are no
longer amortized but will be reviewed at least annually for impairment.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. The Company completed the
first of the required impairment tests of goodwill and indefinite lived
intangible assets during the three months ended March 31, 2002 and no adjustment
to the carrying value of goodwill was required.
The nonamortization of goodwill has increased the Company's net income and
earnings per share. Following are pro forma results assuming goodwill had not
been amortized prior to January 1, 2002 (in thousands, except for per share
data):
Three Months Ended Six Months Ended
-------------------------- ---------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Reported net income ........................... $ 2,805 $ 1,209 $ 4,630 $ 2,228
Adjustment for amortization of goodwill ....... -- 220 -- 403
----------- ----------- ----------- -----------
Adjusted net income ........................... $ 2,805 $ 1,429 $ 4,630 $ 2,631
=========== =========== =========== ===========
Basic earnings per share as reported .......... $ 0.20 $ 0.12 $ 0.38 $ 0.23
Adjustment for amortization of goodwill ....... -- 0.03 -- 0.04
----------- ----------- ----------- -----------
Adjusted basic earnings per share ............. $ 0.20 $ 0.15 $ 0.38 $ 0.27
=========== =========== =========== ===========
Diluted earnings per share as reported ........ $ 0.19 $ 0.12 $ 0.36 $ 0.23
Adjustment for amortization of goodwill ....... -- 0.02 -- 0.04
----------- ----------- ----------- -----------
Adjusted diluted earnings per share ........... $ 0.19 $ 0.14 $ 0.36 $ 0.27
=========== =========== =========== ===========
There has been no change to the carrying value of the Company's goodwill
since January 1, 2002. Goodwill at June 30, 2002 for the Electronics Group and
the Industrial Group was $13,818,000 and $440,000, respectively. The Company's
intangible assets subject to amortization and the related
7
amortization expense are not material to the Company's consolidated financial
position or results of operations, respectively.
(8) Issuance of Common Stock
On March 26, 2002, the Company completed a public stock offering of
3,600,000 shares of its common stock at $14.50 per share and generated proceeds,
after underwriting discounts and expenses, of approximately $48,844,000. On
April 19, 2002, an over-allotment option was exercised for 500,000 shares at
$14.50 per share and generated proceeds, after underwriting discounts and
expenses, of approximately $6,817,000. The proceeds of the offering were used to
repay debt of $30,000,000 during March 2002 and $22,500,000 during April 2002.
On May 7, 2002, the Company's shareholders approved an amendment to increase the
Company's authorized common stock from 20,000,000 shares to 30,000,000 shares.
(9) Income Taxes
The Company's effective tax rate for the three and six months ended June
30, 2002 was 32.1% and 32.0%, respectively. Reconciling items between the
federal statutory income tax rate and the effective tax rate include
management's estimate for 2002 of research and development tax credits, state
income tax benefits and certain other permanent differences.
(10) Accumulated Other Comprehensive Income
The aggregate fair market value of all interest rate swap agreements
decreased from $728,000 at December 31, 2001 to $722,000 at June 30, 2002 and
was included in other liabilities on the consolidated balance sheet. The change
in fair market value, net of tax of $2,000, was recorded as other comprehensive
income during the six months ended June 30, 2002.
(11) Stock Option Plans
On May 7, 2002, the Company's shareholders approved amendments to certain
of its stock compensation plans for officers, key employees and non-employee
directors to increase the aggregate number of shares of common stock reserved
for issuance thereunder from 3,000,000 to 4,750,000.
(12) Subsequent Event
On July 3, 2002, the Company's credit agreement with its bank syndicate
was amended to increase the aggregate commitment provided thereunder from
$100,000,000 to $125,000,000. Substantially all other terms and conditions of
the credit agreement remained the same.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth certain financial data, expressed as a
percentage of net revenue, from the Company's Consolidated Income Statements for
the three and six months ended June 30, 2002 and July 1, 2001.
Three Months Ended Six Months Ended
----------------------- ----------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
---------- ---------- ---------- ---------
Net revenue ............................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................................... 82.5 82.7 82.4 82.6
-------- ------- -------- -------
Gross profit ........................................... 17.5 17.3 17.6 17.4
Selling, general and administrative .................... 9.8 10.8 10.1 11.1
Research and development ............................... 1.2 1.3 1.3 1.2
Amortization of intangible assets ...................... -- 0.6 -- 0.6
-------- ------- -------- -------
Operating income ....................................... 6.5% 4.6% 6.2% 4.5%
======== ======= ======== =======
Net income ............................................. 3.8% 1.9% 3.4% 1.8%
======== ======= ======== =======
For reporting purposes, the operations of Sypris Electronics, Sypris
Test & Measurement and Sypris Data Systems are included in the Electronics
Group, and Sypris Technologies' operations are included in the Industrial Group.
Segment discussion is included in the following discussion and analysis of our
consolidated results of operations.
Net Revenue. Net revenue was $73.5 million for the second quarter of
2002, an increase of $10.3 million, or 16.4%, from $63.2 million for the second
quarter of 2001. Net revenue was $136.0 million for the first six months of
2002, an increase of $14.8 million, or 12.3%, from $121.2 million for the first
six months of 2001. Backlog at June 30, 2002 was $161.8 million, an increase of
$19.5 million from $142.3 million at July 1, 2001. Backlog for our Electronics
Group and Industrial Group at June 30, 2002 was $115.2 million and $46.6
million, respectively.
Net revenue for our Electronics Group for the second quarter of 2002
was $49.3 million, a decrease of $4.2 million, or 7.8%, from $53.5 million for
the second quarter of 2001. Net revenue for our Electronics Group for the first
six months of 2002 was $93.4 million, a decrease of $10.2 million, or 9.8%, from
$103.6 million for the first six months of 2001. Net revenue from manufacturing
services decreased $4.7 million and $6.8 million in the second quarter and first
six months of 2002, respectively, primarily due to the completion of certain
contracts with aerospace and defense customers during 2001. Although we began
production on new contract awards during the second half of 2001 and the first
quarter of 2002, revenue derived from the new contracts only partially offset
the volume decline attributable to the completion of the mature contracts. Net
revenue from other outsourced services decreased $1.0 million and $2.9 million
in the second quarter and first six months of 2002, respectively, due to weak
economic conditions and a slowdown in the commercial avionics market that
negatively impacted our customers' demand for test and measurement services. We
also divested a test facility in the third quarter of 2001, which accounted for
net revenue of $1.7 million in the first six months of 2001. Net revenue from
product sales increased $1.5 million in the second quarter of 2002, primarily
due to increased sales quantities of data systems products; however, due to low
product sales in the first quarter, net revenue for the comparable six month
periods decreased $0.5 million. Production schedules for the new manufacturing
services contracts with our aerospace and defense customers combined with
economic
9
pressures on our customers for other outsourced services is expected to keep
revenue levels at or below comparable prior periods through the fourth quarter
of 2002.
Net revenue for our Industrial Group for the second quarter of 2002 was
$24.2 million, an increase of $14.5 million, or 150.3%, from $9.7 million for
the second quarter of 2001. Net revenue for our Industrial Group for the first
six months of 2002 was $42.6 million, an increase of $25.0 million, or 142.1%,
from $17.6 million for the first six months of 2001. The contract with Dana
Corporation, which began in the second quarter of 2001 for fully machined,
heavy-duty truck axle shafts and other drive train components, generated
outsourced services revenue of $11.3 million and $19.5 million for the second
quarter and first six months of 2002, respectively, as compared to $2.7 million
for the comparable periods of 2001. Excluding the Dana contract, our Industrial
Group's net revenue increased $5.9 million and $8.2 million for the second
quarter and first six months of 2002, respectively, over the comparable prior
year periods. The increase in net revenue, excluding the Dana contract, was
primarily due to increased production volume for a new contract under which we
began supplying light axle shafts to Visteon Corporation for the Ford F-150,
F-250, F-350 and Ranger series pickup trucks, Expedition, Mustang GT, and the
Lincoln Navigator.
Gross Profit. Gross profit for the second quarter of 2002 was $12.9
million, an increase of $2.0 million, or 18.0%, from $10.9 million for the
second quarter of 2001. Gross profit for the first six months of 2002 was $24.0
million, an increase of $2.9 million, or 13.9%, from $21.1 million for the first
six months of 2001. Gross margin for the second quarter of 2002 increased to
17.5% from 17.3% for the second quarter of 2001. Gross margin for the first six
months of 2002 increased to 17.6% from 17.4% for the first six months of 2001.
Gross profit for our Electronics Group for the second quarter of 2002 was
$9.0 million, a decrease of $0.7 million, or 7.7%, from $9.7 million for the
second quarter of 2001. Gross profit for our Electronics Group for the first six
months of 2002 was $17.7 million, a decrease of $1.4 million, or 7.1%, from
$19.1 million for the first six months of 2001. The reduction in sales volume
for manufacturing and other technical services accounted for a $1.0 million
decrease in second quarter gross profit, which was partially offset by a $0.3
million increase attributable to higher product sales. Cost reductions in
anticipation of the expected decline in sales volume and improved manufacturing
efficiencies have contributed to an increase in gross margin for manufacturing
and other technical services for the comparable six-month periods and partly
offset the impact of the decline in volume on gross profit, resulting in a $0.9
million decrease in gross profit. Product sales decreased for the comparable
six-month periods and, when combined with reduced gross margin, yielded a $0.5
million decrease in gross profit.
Gross profit for our Industrial Group for the second quarter of 2002 was
$3.9 million, an increase of $2.7 million or 236% from $1.2 million for the
second quarter of 2001. Gross profit for our Industrial Group for the first six
months of 2002 was $6.3 million, an increase of $4.3 million or 213% from $2.0
million for the first six months of 2001. The increase in gross profit was
attributable to our revenue growth in the heavy-duty truck market resulting
primarily from the Dana contract. Start-up costs and manufacturing
inefficiencies related to our initial production under the Visteon contract
limited the profit contribution from this new business. We anticipate
profitability will improve during the second half of 2002 as we implement
improvements to our manufacturing processes that are expected to reduce costs on
the Visteon contract.
Selling, General and Administrative. Selling, general and administrative
expense for the second quarter of 2002 was $7.2 million, or 9.8% of net revenue,
as compared to $6.8 million, or 10.8% of net revenue for the second quarter of
2001. Selling, general and administrative expense for the first six months of
2002 was $13.7 million, or 10.1% of net revenue, as compared to $13.4 million,
or 11.1% of net revenue for the first six months of 2001. The increase in
selling, general and administrative expense
10
was primarily attributable to additional management and administrative
infrastructure to support the growth in our Industrial Group, partially offset
by reduced selling expenses of our Electronics Group.
Research and Development. Research and development expense for the second
quarter of 2002 was $0.9 million, or 1.2% of net revenue, as compared to $0.8
million, or 1.3% of net revenue for the second quarter of 2001. Research and
development expense for the first six months of 2002 was $1.8 million, or 1.3%
of net revenue, as compared to $1.5 million, or 1.2% of net revenue for the
first six months of 2001. The increase in research and development expense was
attributable to our Electronics Group and was related to new product releases
for the data systems product lines.
Amortization of Intangible Assets. Amortization of intangible assets for
the first six months of 2002 was $0.1 million as compared to $0.4 million and
$0.7 million for the second quarter and first six months of 2001, respectively.
Amortization of goodwill and indefinite lived intangible assets ceased when we
adopted SFAS No. 142 effective January 1, 2002.
Interest Expense, Net. Interest expense for the second quarter of 2002
was $0.7 million, as compared to $1.1 million for the second quarter of 2001.
Interest expense for the first six months of 2002 was $1.7 million, as compared
to $2.2 million for the first six months of 2001. The decrease in interest
expense for the comparable periods reflects the repayment of debt with proceeds
from our public stock offering combined with a reduction in interest rates. Our
weighted average debt outstanding decreased to approximately $42.3 million for
the second quarter of 2002 from approximately $71.9 million for the second
quarter of 2001. Our weighted average debt outstanding decreased to
approximately $64.8 million for the first six months of 2002 from approximately
$67.6 million for the first six months of 2001. The weighted average interest
rate for the second quarter of 2002 was approximately 5.6% as compared to
approximately 7.7% for the prior period. The weighted average interest rate for
the first six months of 2002 was approximately 5.3% as compared to approximately
8.5% for the prior period. There was no capitalized interest in 2002 as compared
to $0.3 million and $0.7 million for the second quarter and first six months of
2001, respectively.
Income Taxes. Income tax expense was $1.3 million for the second quarter
of 2002 as compared to $0.6 million for the second quarter of 2001. Income tax
expense was $2.2 million for the first six months of 2002 as compared to $1.2
million for the first six months of 2001. The effective tax rate for the first
six months of 2002 was 32.0% as compared to 34.6% for the first six months of
2001. The lower effective tax rate for the first six months of 2002 was
principally due to tax credits and state income tax benefits that we expect to
realize during 2002.
Liquidity, Capital Resources and Financial Condition
Net cash provided by operating activities was $8.4 million for the first
six months of 2002, as compared to $6.6 million for the first six months of
2001. Accounts receivable increased by $4.2 million during the first six months
of 2002, primarily due to second quarter shipments on the Dana and Visteon
contracts and product sales for the Electronics Group. Inventory decreased by
$1.0 million during the first six months of 2002, reflecting inventory
reductions attributable to lower sales volume in the Electronics Group partially
offset by an increase in the Industrial Group's inventory to support the revenue
growth. Accounts payable increased by $0.9 million, excluding the impact of open
accounts payable at the end of the second quarter of 2002 and at December 31,
2001 related to capital expenditures. Accrued liabilities decreased $1.7 million
during the first six months of 2002, primarily due to the timing of payments
related to certain employee compensation and benefit programs.
Net cash used in investing activities was $14.7 million for the first six
months of 2002 as compared to $24.8 million for the first six months of 2001.
Capital expenditures for our Electronics Group and Industrial Group totaled $3.9
million and $10.5 million, respectively, for the first six months
11
of 2002. Capital expenditures for our Electronics Group were principally
comprised of manufacturing, assembly and test equipment. Our Industrial Group's
capital expenditures included new forging and machining equipment to increase
and expand the range of production capabilities. The Industrial Group's
acquistion of certain assets related to the Dana contract for $11.5 million was
included in investing activities for the first six months of 2001.
Net cash provided by financing activities was $8.7 million for the first
six months of 2002 as compared to $17.8 million for the first six months of
2001. We received net proceeds of $55.7 million for our public stock offering
during March and April 2002, $52.5 million of which has been used to reduce debt
through June 30, 2002.
We had total availability for borrowings and letters of credit under the
revolving credit facility of $59.9 million at June 30, 2002, which, when
combined with the cash balance of $15.6 million, provides for total cash and
borrowing capacity of $75.5 million. Our borrowing capacity was increased by
$25.0 million in July 2002, as we agreed with our bank group to raise maximum
borrowings on the revolving credit facility from $100.0 million to $125.0
million. All other terms of the credit agreement remained substantially the
same. Borrowings under the revolving credit facility may be used to finance
working capital requirements, acquisitions and for general corporate purposes,
including capital expenditures. Most acquisitions require the approval of our
bank group.
Our principal commitments at June 30, 2002 consisted of repayments of
borrowings under the credit agreement and obligations under operating leases for
certain of our real property and equipment. We also had purchase commitments
totaling approximately $3.4 million at June 30, 2002, primarily for
manufacturing equipment.
We believe that sufficient resources will be available to satisfy our
cash requirements for at least the next twelve months. Cash requirements for
periods beyond the next twelve months depend on our profitability, ability to
manage working capital requirements and rate of growth. If we make significant
acquisitions or if working capital and capital expenditure requirements exceed
expected levels during the next twelve months or in subsequent periods, we may
require additional external sources of capital. There can be no assurance that
any additional required financing will be available through bank borrowings,
debt or equity financings or otherwise, or that if such financing is available,
it will be available on terms acceptable to us. If adequate funds are not
available on acceptable terms, our business, results of operations and financial
condition could be adversely affected.
Forward-looking Statements
This Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Similar forward-looking
statements are made periodically in reports to the Securities and Exchange
Commission, press releases, reports and documents and in written and oral
presentations to investors, stockholders, analysts and others, regarding future
results or expected developments. Words such as "anticipates," "believes,"
"estimates," "expects," "is likely," "predicts," and variations of such words
and similar expressions are intended to identify such forward-looking
statements. Although we believe that our expectations are based on reasonable
assumptions, we cannot assure that the expectations contained in such statements
will be achieved. Such statements involve risks and uncertainties which may
cause actual future activities and results of operations to be materially
different from those suggested in this report, including, among others: our
dependence on our current management; the risks and uncertainties present in our
business; business conditions and growth in the general economy and the
electronics and industrial markets served by us; competitive factors and price
pressures; availability of third party component parts at reasonable prices;
inventory risks due to shifts in market demand and/or price erosion of purchased
components; changes in product mix; cost and yield issues associated with our
manufacturing facilities; our ability to successfully manage growth; as well as
12
other factors described elsewhere in this report and in our other filings with
the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
On July 26, 2001, we entered into interest rate swap agreements with
three banks that effectively convert a portion of our variable rate debt to a
fixed rate basis through July 2003. We entered into interest rate swap
agreements as a means to reduce the impact of interest rate changes on future
interest expense. Approximately 75% ($30.0 million) of our outstanding debt was
covered by the interest rate swap agreements at June 30, 2002. We are exposed to
financial market risks, including changes in interest rates and foreign currency
exchange rates. Excluding the borrowings included in the interest rate swap
agreements, all other borrowings under our credit agreement bear interest at a
variable rate based on the prime rate, the London Interbank Offered Rate, or
certain alternative short-term rates, plus a margin (1.25% at June 30, 2002)
based upon our leverage ratio. An increase in interest rates of 100 basis points
would result in additional interest expense of approximately $0.1 million on an
annualized basis, based upon our debt outstanding at June 30, 2002. The vast
majority of our transactions are denominated in U.S. dollars; as such,
fluctuations in foreign currency exchange rates have historically had little
impact on us. Inflation has not been a significant factor in our operations in
any of the periods presented, and it is not expected to affect operations in the
near future.
13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 7, 2002 in
Louisville, Kentucky. A proposal to amend Article Sixth of the Company's
Certificate of Incorporation to create a classified Board of Directors was
approved by a vote of the majority of the shares of the Company's common stock
represented at the meeting: 8,753,073 shares were voted in favor of the
proposal; 685,560 were voted against; and 1,361 abstained. Thereafter, at the
meeting, stockholders elected a classified Board of Directors as follows:
Votes in Votes
Director Favor Withheld
Class I (initial term of one year):
Henry F. Frigon ......................... 9,056,702 534,124
Robert E. Gill .......................... 9,056,702 534,124
William L. Healey ....................... 9,056,702 534,124
Class II (initial term of two years):
R. Scott Gill ........................... 9,056,702 534,124
Roger W. Johnson ........................ 9,011,852 578,974
Robert Sroka ............................ 8,789,127 801,699
Class III (initial term of three years):
Jeffrey T. Gill ......................... 9,056,702 534,124
Sidney R. Petersen ...................... 9,012,352 578,474
A proposal to approve amending Article Fifth of the Company's Certificate
of Incorporation to increase the number of shares of authorized common stock
from 20,000,000 shares to 30,000,000 shares was approved by a vote of the
majority of the shares of the Company's common stock represented at the meeting:
9,579,224 shares were voted in favor of the proposal; 10,483 were voted against;
and 1,119 abstained.
A proposal to approve amending Article Eighth of the Company's
Certificate of Incorporation to eliminate stockholder action by written consent
and increase the percentage of stockholders required to call a special meeting
was approved by a vote of the majority of the shares of the Company's common
stock represented at the meeting: 8,795,421 shares were voted in favor of the
proposal; 643,212 were voted against; and 1,361 abstained.
A proposed amendment of the Company's 1994 Stock Option Plan for Key
Employees to increase the number of shares of common stock available for
issuance under the plan from 2,500,000 shares to 4,000,000 shares was approved
by a vote of the majority of the shares of the Company's common stock
represented at the meeting: 9,103,591 shares were voted in favor of the
proposal; 329,662 were voted against; and 6,741 abstained.
A proposed amendment of the Company's Independent Directors' Stock Option
Plan to increase the number of shares of common stock available for issuance
under the plan from 500,000 shares to 750,000 shares was approved by a vote of
the majority of the shares of the Company's common stock represented at the
meeting: 8,850,024 shares were voted in favor of the proposal; 582,467 were
voted against; and 7,503 abstained.
The total number of shares of common stock outstanding as of March 19, 2002, the
record date of the Annual Meeting of Stockholders, was 9,945,953.
14
Item 6. Exhibits and Reports On Form 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of the Company, as amended on
May 7, 2002 (incorporated by reference to Exhibit 4.1 to
the Company's Form S-8 filed on May 9, 2002 (Registration
No. 333-87880)).
3.2 Bylaws of the Company, as amended on May 7, 2002
(incorporated by reference to Exhibit 4.2 to the Company's
Form S-8 filed on May 9, 2002 (Registration No.
333-87880)).
10.22 Sypris Solutions, Inc. 1994 Stock Option Plan for Key
Employees as Amended and Restated effective February 26,
2002 (incorporated by reference to Exhibit 4.5 to the
Company's Form S-8 filed on May 9, 2002 (Registration No.
333-87880)).
10.23 Sypris Solutions, Inc. Independent Directors' Stock Option
Plan as Amended and Restated effective February 26, 2002
(incorporated by reference to Exhibit 4.5 to the Company's
Form S-8 filed on May 9, 2002 (Registration No.
333-87882)).
10.24 Sypris Solutions, Inc. Independent Directors Compensation
Program Amended and Restated on May 7, 2002, dated
September 1, 1995.
10.25 2002B Amendment to Loan Documents between Bank One,
Kentucky, NA, Sypris Solutions, Inc., Sypris Test &
Measurement, Inc., Sypris Technologies, Inc., Sypris
Electronics, LLC, Sypris Data Systems, Inc. and Sypris
Technologies Marion, LLC dated July 3, 2002.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three months ended
June 30, 2002.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYPRIS SOLUTIONS, INC.
(Registrant)
Date: July 29, 2002 By: /s/ David D. Johnson
------------------------ ---------------------------------
(David D. Johnson)
Vice President & Chief Financial
Officer
Date: July 29, 2002 By: /s/ Anthony C. Allen
------------------------ ---------------------------------
(Anthony C. Allen)
Vice President, Controller & Chief
Accounting Officer
16
Exhibit 10.24
SYPRIS SOLUTIONS, INC.
INDEPENDENT DIRECTORS COMPENSATION PROGRAM
ADOPTED ON SEPTEMBER 1, 1995
AMENDED AND RESTATED ON MAY 7, 2002
Description of the Program
Name. The name of this benefit program shall be the "Independent Directors
Compensation Program."
Purpose. The purpose of the Independent Directors Compensation Program is
to enable Sypris Solutions, Inc. (the "Company") to attract, retain and motivate
experienced directors by providing compensation that is competitive with
compensation offered to independent directors of other similarly-situated public
corporations in the United States.
Eligibility and Participation. Only "Independent Directors," defined as
those members of the Board of Directors of the Company (the "Board") who are not
otherwise employed by the Company, its subsidiaries or any affiliate of the
Company in any other capacity, are eligible to participate in the Independent
Directors Compensation Program. Any Independent Director on the Board as of
September 1, 1995 (the "Effective Date") and thereafter shall be eligible for
compensation under the Independent Directors Compensation Program.
Compensation. Independent Directors shall be compensated as set forth
below:
(a) Initial Election Grants and Annual Grants of Stock Options. The
Company shall grant each Independent Director a nonqualified stock option for
the purchase of: (i) up to 10,000 shares of the Company's common stock, $.01 par
value (the "Common Stock") at the time the Independent Director is initially
elected to serve on the Board (the "Initial Election Grant"); and (ii) up to
6,000 shares of the Company's Common Stock at each annual stockholders' meeting
thereafter (the "Annual Grant"), so long as a Director is continuing to serve as
a Director on the date of said annual stockholders' meeting. In the event that
an Independent Director is initially elected to the Board at a time other than
the date of the Company's annual stockholders' meeting, he or she shall receive
an Annual Grant at the subsequent annual stockholders' meeting for a pro rated
number of shares to be determined by multiplying 6,000 by a fraction, the
numerator of which shall be the number of full months which have elapsed since
the date of the Director's initial election and the next annual stockholders'
meeting and the denominator of which shall be 12. All such stock options shall
be granted by the Company to the Independent Directors pursuant to the Company's
Independent Directors' Stock Option Plan (the "Option Plan"). Each of the
options shall be: (i) granted on the dates each of the respective Independent
Directors is initially elected and on the date of each annual stockholders'
meeting; (ii) priced at the fair market value of the Company's common stock, as
determined in accordance with Section 7.C. of the Option Plan, on the respective
date of grant; (iii) immediately exercisable by each of the Independent
Directors on the respective dates of grant; and (iv) subject to the terms and
conditions of the Option Plan and any other terms and conditions which, in
accordance with the Option Plan, are specified in the applicable Stock Option
Agreement entered into by and between the Company and each of the Independent
Directors.
(b) Annual Retainer.
(i) Amount. Each Independent Director shall receive an annual
retainer in the amount of $16,000 (the "Annual Retainer"). In the event that an
Independent Director is initially elected to the Board at a time other than the
date of the Company's annual stockholders' meeting, he or she shall receive a
prorated Annual Retainer (the "Prorated Annual Retainer") the amount of which is
to be determined by multiplying $16,000 by a fraction, the numerator of which
shall be the number of full months which have elapsed since the date of the
Director's initial election to the Board and the next annual stockholders'
meeting and the denominator of which shall be 12.
(ii) Payment. The Annual Retainer or the Prorated Annual
Retainer, as applicable, shall be earned by the Independent Directors and paid
by the Company in equal quarterly installments for each Independent Director.
The quarterly installments of the Annual Retainer or Prorated Annual Retainer
shall be payable, together with any attendance fees (defined below), in arrears
by checks issued to each Independent Director no later than the 15th calendar
day following the end of each of the Company's fiscal quarters during which the
respective Independent Director served on the Board. Alternatively, pursuant to
Paragraph (d) below, each Independent Director may elect to receive his or her
Annual Retainer or Prorated Annual Retainer, together with any attendance fees,
in the form of nonqualified stock options in lieu of cash.
(c) Attendance Fees.
(i) Board Meetings. Each Independent Director shall receive the
sum of $1,200 for each meeting of the Board he or she attends in person or,
alternatively, the sum of $300 for each meeting of the Board in which he or she
participates by telephone (collectively, the "Board Meeting Attendance Fees").
For purposes of the Independent Directors Compensation Program, "attendance"
shall not include execution of an action by written consent of the Board. Board
Meeting Attendance Fees earned by each Independent Director during a fiscal
quarter shall be payable, together with the quarterly installment of the Annual
Retainer or Prorated Annual Retainer, by a check issued no later than the 15th
calendar day following the end of the fiscal quarter. Alternatively, pursuant to
Paragraph (d) below, each Independent Director may elect to receive his or her
Board Meeting Attendance Fees in the form of nonqualified stock options in lieu
of cash.
(ii) Committee Meetings. Independent Directors are entitled to
compensation for attending or participating in meetings of committees of the
Board only if such meetings are held on dates other than the dates of meetings
of the full Board. In the event that committee meetings are held on dates other
than the dates of meetings of the full Board, each Independent Director who
attends a committee meeting in person and serves as the chairperson of the
meeting shall receive the sum of $1,200 per meeting, and each of the other
Independent Directors who attend such a committee meeting in person shall
receive the sum of $900 per meeting. Alternatively, each Independent Director
who, as the chairperson or as a committee member, participates by telephone in
committee meetings of the Board which are held on dates other than the dates of
meetings of the full Board, shall receive the sum of $300 per meeting. (All of
the aforementioned fees in this subparagraph shall hereafter be collectively
referred to as the "Committee Meeting Attendance Fees"). For purposes of the
Independent Directors Compensation Program, "attendance" shall not include
execution of an action by written consent for any committee. Committee Meeting
Attendance Fees earned by each Independent Director during a fiscal quarter
shall be payable, together with the Annual Retainer or Prorated Annual Retainer
and the Board Meeting Attendance Fees, by a check issued to the Independent
Director no later than the 15th calendar day following the end of the fiscal
quarter. Alternatively, pursuant to Paragraph (d) below, each Independent
Director may elect to receive his or her Committee Meeting Attendance Fees in
the form of nonqualified stock options in lieu of cash.
(d) Form of Payment. Each Independent Director may elect to receive
his or her Annual Retainer or Prorated Annual Retainer, Board Meeting Attendance
Fees and Committee Meeting Attendance Fees in the form of nonqualified stock
options in lieu of cash. The election to receive stock options in lieu of cash
must be made by the Independent Director before each January 1 and shall apply
to the sum of the Annual Retainer, Prorated Annual Retainer, Board Meeting
Attendance Fees and Committee Meeting Attendance Fees (collectively, the "Fees")
earned during the following calendar year. Independent Directors initially
elected to the Board other than at an annual stockholders' meeting shall make
the election no later than 10 calendar days after being elected to the Board and
such election shall apply to Fees earned during the remainder of such calendar
year. An Independent Director who fails to make a timely election for the first
calendar year such director is eligible to make an election shall be deemed to
have elected to receive Fees in cash. An Independent Director who fails to make
an election for any subsequent calendar year shall be deemed to have made the
same election such director made for the immediately preceding calendar year.
Such elections, including deemed elections, shall be irrevocable for the
calendar year for which made.
Any stock options issued to an Independent Director in lieu of cash
compensation shall be granted to the respective Independent Director pursuant to
the Option Plan on a quarterly basis, with each grant to be made on the first
day following the end of each of the Company's fiscal quarters (the "Date of
Grant"). The number of shares to be granted under such options shall be
determined by dividing the total of the quarterly installment of the Annual
Retainer or Prorated Annual Retainer, as applicable, plus any Board Meeting
Attendance Fees and any Committee Meeting Attendance Fees earned by the
respective Independent Director during the previous fiscal quarter by 33% of the
fair market value of the Company's Common Stock, as determined in accordance
with Section 7.C. of the Option Plan, on the Date of Grant. The options shall
be: (i) priced at the fair market value of the Company's Common Stock, as
determined in accordance with Section 7.C. of the Option Plan, on the Date of
Grant; (ii) immediately exercisable by each of the Independent Directors on the
respective date of grant; and (iii) subject to the terms and conditions of the
Option Plan and any other terms and conditions which, in accordance with the
Option Plan, are specified in the applicable Stock Option Agreement entered into
by and between the Company and each of the Independent Directors.
Expense Reimbursement. Each Independent Director shall be reimbursed for
travel and other expenses incurred in the performance of his or her duties.
Administration. The Independent Directors Compensation Program is
administered by the Compensation Committee of the Board. The Committee members
are selected by the Board and have no specific term of office.
Resignation from the Board of Directors. The resignation of any Independent
Director shall cause such director to be ineligible to receive any amount of the
Annual Retainer or Prorated Annual Retainer installments not yet paid to him or
her as of the date of resignation. Any attendance fees which have been earned by
the Independent Director in accordance with Paragraph (c) above prior to the
date of resignation shall be paid in the same form and according to the same
timetables described in Paragraph (c) above.
Program Termination or Modification. The Compensation Committee shall
review the Independent Directors Compensation Program on at least an annual
basis and may make changes, alterations or modifications to the program which
are deemed to be in the Company's best interest. Any change, alteration or
modification shall be made by a written instrument consented to by the Board.
The Board may similarly terminate the Independent Directors Compensation Program
at any time if, in the judgment of the Board, such termination is in the
Company's best interest.
IN WITNESS WHEREOF, the Company has caused this Independent Directors
Compensation Program to be executed in its name and on its behalf on May 7,
2002.
SYPRIS SOLUTIONS, INC.
By: /s/ Jeffrey T. Gill
-----------------------------------
Jeffrey T. Gill
President and CEO
Exhibit 10.25
2002B AMENDMENT TO LOAN DOCUMENTS
THIS 2002B AMENDMENT TO LOAN DOCUMENTS (this "Amendment"), is made and
entered into as of the 3rd day of July, 2002, by and among (i) BANK ONE,
KENTUCKY, NA, a national banking association with an office and place of
business in Louisville, Kentucky ("the Agent Bank") (Bank One, Kentucky, NA may
also be referred to as a "Bank"); (ii) the BANKS identified on Schedule 1.1
hereto (each a "Bank" and collectively, the "Banks"); (iii) SYPRIS SOLUTIONS,
INC., a Delaware corporation, with its principal office and place of business
and registered office in Louisville, Jefferson County, Kentucky (the "Borrower")
and (iv) the GUARANTORS identified on Schedule 1.2 hereto (each a "Guarantor"
and collectively, the "Guarantors").
P R E L I M I N A R Y S T A T E M E N T:
A. Certain of the Guarantors and their Affiliates entered into a Loan
Agreement dated as of March 21, 1997, with the Agent Bank (the "Original Loan
Agreement"), whereby the Agent Bank extended in favor of the Guarantors a
revolving line of credit in the amount of $20,000,000, a term loan in the amount
of $10,000,000 and a swing line of credit subfacility in the amount of
$5,000,000.
B. The predecessors to the Borrower and certain of the Guarantors
entered into a 1997A Amended and Restated Loan Agreement dated as of November 1,
1997, with the Agent Bank (the "1997A Loan Agreement"), whereby the Agent Bank
increased the revolving line of credit to $30,000,000 and the term loan to
$15,000,000 and provided the swing line of credit subfacility in the amount of
$5,000,000. The 1997A Loan Agreement was subsequently amended by, among other
amendments, the 1998A Amendment to Loan Documents dated as of February 18, 1998.
C. The Borrower, certain of the Guarantors, the Agent Banks and the
Banks entered into the 1999 Amended and Restated Loan Agreement dated as of
October 27, 1999 (the "1999 Loan Agreement"), which amended, restated and
replaced the Original Loan Agreement and the 1997A Loan Agreement, as amended.
The 1999 Loan Agreement provides for (i) a revolving line of credit in the
amount of $100,000,000, (ii) a swing line subfacility of $5,000,000 and (iii) a
letter of credit subfacility of $15,000,000. The 1999 Loan Agreement was
subsequently amended by the 2000A Amendment to Loan Documents dated as of
November 9, 2000 (the "2000A Amendment").
D. The Borrower, certain of the Guarantors, the Agent and the Banks
entered into the 2001A Amendment to Loan Documents dated as of February 15, 2001
and having an effective date of December 31, 2000 (the "2001A Amendment") in
order to (i) change certain financial covenants and (ii) make certain other
changes as set forth therein.
E. The Borrower, the Guarantors, the Agent and the Banks entered into
the 2002A Amendment to Loan Documents dated as of December 21, 2001 and having
an effective date of January 1, 2002 (the "2002A Amendment") in order to (i) to
restructure, reorganize and/or rename, as applicable, certain of the Guarantors,
and to add a Guarantor and (ii) to amend the Loan Agreement and other Loan
Documents to reflect such changes in the Guarantors and (iii) make certain other
changes as set forth therein. The 1999 Loan Agreement, as amended by the 2000A
Amendment, 2001A Amendment, and the 2002A Amendment is referred to herein as the
"Loan Agreement."
F. The Banks, the Borrower, and the Guarantors wish to further amend
the Loan Agreement and other Loan Documents to, among other things, increase the
revolving line of credit to $125,000,000
and add a new participant Bank (as identified in Schedule 1.1 hereto). Terms not
defined herein shall have the meanings set forth in the Loan Agreement.
G. Subject to the terms set forth herein, the Banks are agreeable to
the increasing of the revolving line of credit and the adding of a Bank as
described in Schedule 1.1.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the mutuality, receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. AMENDMENTS TO LOAN AGREEMENT.
A. Revolving Loan Commitments, Revolving Credit Loans. The aggregate
amount of the Revolving Loan Commitments stated under Section 2.1.A of the Loan
Agreement shall be amended and restated as One Hundred Twenty Five Million
Dollars ($125,000,000).
B. List of Banks. The list of Banks attached hereto as Schedule 1.1
shall replace in its entirety Schedule 1.1 to the Loan Agreement.
C. Schedule of Revolving Loan Commitments. The schedule of revolving
loan commitments and revolving credit facility pro rata shares attached hereto
as Schedule 2.1 shall replace in its entirety Schedule 2.1 to the Loan
Agreement.
D. The following new Section G is added to Section 4.2 of the Loan
Agreement:
4.2 G. 2002B Additional Loan Documents. The Borrower and the
Guarantors, as applicable, shall have delivered to the Agent Bank
the following 2002B Additional Loan Documents:
[1] Amendments to the existing Mortgage and
Assignment of Leases and Rents from ST&M with respect to certain
property in Orange County, Florida in form and substance
acceptable to the Banks (the "ST&M Amendment");
[2] Amendments to the existing Mortgage and
Assignment of Leases and Rents from ST with respect to certain
property in Jefferson County, Kentucky in form and substance
acceptable to the Banks (the "ST Amendment");
[3] Such other documents and instruments as the
Agent Bank may reasonably request.
E. Section 7.6 is modified to read in its entirety as follows:
7.6 Fixed Charge Coverage Ratio. The Borrower shall not permit
the Fixed Charge Coverage Ratio for any period of four consecutive
Fiscal Quarters to fall below 2.0 to 1.0 as of the end of each
Fiscal Quarter.
2. AMENDMENTS TO ST&M GUARANTY AGREEMENT. The Guaranty Agreement
dated as of October 27, 1999 entered into by and among ST&M and the Agent Bank
on behalf of itself and the other Banks (the "ST&M Guaranty") is amended as
follows:
Maximum Liability Amount. Part (b) of the statement of maximum
aggregate liability under Section 2, Guaranty of Payment and
Performance of the ST&M Guaranty is amended and restated as: One
Hundred Twenty Five Million Dollars ($125,000,000), plus accrued
interest, plus costs and expenses.
3. AMENDMENTS TO ST GUARANTY AGREEMENT. The Guaranty Agreement dated
as of October 27, 1999 entered into by and among ST and the Agent Bank on behalf
of itself and the other Banks (the "ST Guaranty") is amended as follows:
Maximum Liability Amount. Part (b) of the statement of maximum
aggregate liability under Section 2, Guaranty of Payment and
Performance of the ST Guaranty is amended and restated as: One Hundred
Twenty Five Million Dollars ($125,000,000), plus accrued interest, plus
costs and expenses.
4. AMENDMENTS TO SE GUARANTY AGREEMENT. The Guaranty Agreement dated
as of October 27, 1999 entered into by and among SE and the Agent Bank on behalf
of itself and the other Banks (the "SE Guaranty") is amended as follows:
Maximum Liability Amount. Part (b) of the statement of maximum
aggregate liability under Section 2, Guaranty of Payment and
Performance of the SE Guaranty is amended and restated as: One Hundred
Twenty Five Million Dollars ($125,000,000), plus accrued interest, plus
costs and expenses.
5. AMENDMENTS TO SDS GUARANTY AGREEMENT. The Guaranty Agreement dated
as of October 27, 1999 entered into by and among SDS and the Agent Bank on
behalf of itself and the other Banks (the "SDS Guaranty") is amended as follows:
Maximum Liability Amount. Part (b) of the statement of maximum
aggregate liability under Section 2, Guaranty of Payment and
Performance of the SDS Guaranty is amended and restated as: One Hundred
Twenty Five Million Dollars ($125,000,000), plus accrued interest, plus
costs and expenses.
6. AMENDMENTS TO MARION GUARANTY AGREEMENT. The Guaranty Agreement
dated as of December 21, 2001 entered into by and among Marion and the Agent
Bank on behalf of itself and the other Banks (the "Marion Guaranty") is amended
as follows:
Maximum Liability Amount. Part (b) of the statement of maximum
aggregate liability under Section 2, Guaranty of Payment and
Performance of the Marion Guaranty is amended and restated as: One
Hundred Twenty Five Million Dollars ($125,000,000), plus accrued
interest, plus costs and expenses.
7. AMENDMENT TO ST&M SECURITY AGREEMENT. The list of documents which,
collectively, compose the Loan Agreement as listed in the introductory paragraph
on the first page of the Security Agreement dated February 15, 2001 between ST&M
and Agent Bank is amended to include the 2002A Amendment and this Amendment.
8. AMENDMENT TO ST SECURITY AGREEMENT. The list of documents which,
collectively, compose the Loan Agreement as listed in the introductory paragraph
on the first page of the Security Agreement dated February 15, 2001 between ST
and Agent Bank is amended to include the 2002A Amendment and this Amendment.
9. AMENDMENT TO SE SECURITY AGREEMENT. The list of documents which,
collectively, compose the Loan Agreement as listed in the introductory paragraph
on the first page of the Security Agreement dated February 15, 2001 between SE
and Agent Bank is amended to include the 2002A Amendment and this Amendment.
10. AMENDMENT TO SDS SECURITY AGREEMENT. The list of documents which,
collectively, compose the Loan Agreement as listed in the introductory paragraph
on the first page of the Security Agreement dated February 15, 2001 between SDS
and Agent Bank is amended to include the 2002A Amendment and this Amendment.
11. AMENDMENT TO MARION SECURITY AGREEMENT. The list of documents
which, collectively, compose the Loan Agreement as listed in the introductory
paragraph on the first page of the Security Agreement dated December 21, 2001
between Marion and Agent Bank is amended to include the 2002A Amendment and this
Amendment.
12. RATIFICATION. Except as specifically amended by the provisions
hereinabove, the Loan Documents remain in full force and effect. The Borrower
and Guarantors reaffirm and ratify all of their respective obligations to Agent
Bank and the Banks under all of the Loan Documents, as amended and modified
hereby, including, but not limited to, the Loan Agreement, the Guaranty
Agreements, the Security Agreements and all other agreements, documents and
instruments now or hereafter evidencing and/or pertaining to the Loan Agreement.
Each reference to all or any of the Loan Documents contained in any other of the
Loan Documents shall be deemed to be a reference to such Loan Document, as
modified hereby.
13. CONDITIONS PRECEDENT. The Banks' obligations under this Amendment
are expressly conditioned upon and subject to the following:
A. The execution and delivery by the Borrower and the
Guarantors, as applicable, of this Amendment and each of the 2002B Additional
Loan Documents described in Section 4.2G of the Loan Agreement;
B. Delivery to the Agent Bank of a copy of the certificate of
the corporate secretary of Borrower certifying resolutions of the Borrower's
board of directors to the effect that execution, delivery and performance of
this Amendment and the 2002B Additional Loan Documents have been duly authorized
and as to the incumbency of those authorized to execute and deliver this
Amendment, the 2002B Additional Loan Documents and all other documents to be
executed in connection herewith;
C. Delivery to the Agent Bank of a copy of the certificate of
the corporate secretary of each corporate Guarantor certifying resolutions of
such Guarantor's board of directors to the effect that execution, delivery and
performance of this Amendment and the 2002B Additional Loan Documents have been
duly authorized and as to the incumbency of those authorized to execute and
deliver this Amendment, the 2002B Additional Loan Documents and all other
documents to be executed in connection herewith;
D. Delivery to the Agent Bank of a copy of the certificate of
the Secretary or other appropriate representative of such Guarantor (i)
certifying as to the authenticity, completeness and accuracy of, and attaching
copies of the written consent of the managers of such Guarantor authorizing the
execution, delivery and performance of this Amendment and the 2002B Additional
Loan Documents to which such Guarantor is a party, and (ii) certifying the names
and true signatures of the officers of such Guarantor authorized to execute and
deliver on behalf of such Guarantor this Amendment and the 2002B Additional Loan
Documents to which such Guarantor is a party;
E. The representations and warranties of the Borrower and the
Guarantors as applicable in this Amendment and the 2002B Additional Loan
Documents shall be true and accurate in all respects; and
F. Delivery to the Agent Bank of opinions of counsel to Borrower and
the Guarantors, satisfactory to the Agent Bank.
14. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE BORROWER. To induce
the Agent Bank and the Banks to enter into this Amendment, the Borrower
represents and warrants to Agent Bank and the Banks as follows:
A. The Borrower has full power, authority, and capacity to enter into
this Amendment and the 2002B Additional Loan Documents to which the Borrower is
a party, and this Amendment and the 2002B Additional Loan Documents to which the
Borrower is a party constitute the legal, valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms.
B. No uncured Event of Default under the Notes or any of the other
Loan Documents has occurred which continues unwaived by the Agent Bank, and no
event which with the passage of time, the giving of notice or both would
constitute an Event of Default, exists as of the date hereof.
C. The Person executing this Amendment and the 2002B Additional Loan
Documents to which the Borrower is a party on behalf of the Borrower is duly
authorized to do so.
D. The representations and warranties made by the Borrower in any of
the Loan Documents are hereby remade and restated as of the date hereof.
E. Except as previously disclosed to the Agent Bank or disclosed in
the Borrower's filings with the Securities and Exchange Commission, copies of
which have been provided previously to the Agent Bank, there are no material
actions, suits, legal, equitable, arbitration or administrative proceedings
pending or threatened against the Borrower, the adverse determination of which
could have a material adverse effect on the Loan Documents, the business
operations or financial condition of the Borrower or the ability of the Borrower
to fulfill its obligations under the Loan Documents.
15. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE GUARANTORS. To induce
the Agent Bank and the Banks to enter into this Amendment, the Guarantors
represent and warrant to the Agent Bank and the Banks as follows:
A. Each Guarantor has full power, authority, and capacity to enter
into this Amendment and the 2002B Additional Loan Documents to which any such
Guarantor is a party, and this Amendment and the 2002B Additional Loan Documents
to which any such Guarantor is a party constitute the legal, valid and binding
obligations of such Guarantor, enforceable against such Guarantor in accordance
with their terms.
B. The Person executing this Amendment and the 2002B Additional Loan
Documents to which such Guarantor is a party on behalf of each Guarantor is duly
authorized to do so.
C. The representations and warranties made by each Guarantor in any
of the Loan Documents are hereby remade and restated as of the date hereof.
D. Except as previously disclosed to the Agent Bank, there are no
material actions, suits, legal, equitable, arbitration or administrative
proceedings pending or threatened against any Guarantor, the adverse
determination of which could have a material adverse effect on the Loan
Documents, the business operations or financial condition of any Guarantor or
the ability of any Guarantor to fulfill its obligations under the Guaranty
Agreement.
16. MISCELLANEOUS.
A. Amendment and Other Fees and Expenses. The Borrower agrees
to pay to or for the account of the Agent Bank, whichever is applicable, upon
the closing of this Amendment (i) the amounts set forth in the fee letter dated
July 2, 2002 from the Agent Bank to the Borrower, (ii) any recording or filing
fees incurred by Agent Bank in connection with this Amendment, and (iii) the
reasonable fees and expenses of Agent Bank's counsel in negotiating, drafting
and closing this Amendment, the 2002B Additional Loan Documents and related
documents.
B. Illegality. In case any one or more of the provisions
contained in this Amendment should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
C. Changes in Writing. No modification, amendment or waiver of
any provision of this Amendment nor consent to any departure by the Borrower or
any of the Guarantors therefrom, will in any event be effective unless the same
is in writing and signed by the Agent Bank, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
D. Successors and Assigns. This Amendment will be binding upon
and inure to the benefit of the Borrower, the Guarantors, the Agent Bank and the
Banks and their respective heirs, executors, administrators, successors and
assigns; provided, however, that neither the Borrower nor the Guarantors may
assign this Amendment in whole or in part without the prior written consent of
the Agent Bank, and the Agent Bank and the Banks at any time may assign this
Amendment in whole or in part, as provided in Section 11 of the Loan Agreement.
E. Counterparts. This Amendment may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Agent Bank, each Bank, the Borrower and each
Guarantor has caused this Amendment to be duly executed as of the day and year
first above written.
BANK ONE, KENTUCKY, NA, as Agent Bank ("the Agent Bank")
By: /s/ James D. Baker, Jr.
-------------------------------
James D. Baker, Jr.
Vice President
BANK ONE, KENTUCKY, NA as a Bank
By: /s/ James D. Baker, Jr.
-------------------------------
James D. Baker, Jr.
Vice President
BANK OF AMERICA, N.A. as a Bank
By: /s/ Bryan Hulker
-------------------------------
Bryan Hulker
Vice President
LASALLE BANK NATIONAL ASSOCIATION as a Bank
By: /s/ A. Mark Mital
-------------------------------
A. Mark Mital
Vice President
SUNTRUST BANK, NASHVILLE, N.A., as a Bank
By: /s/ Anson M. Lewis for Scott T. Corley
----------------------------------------
Scott T. Corley
Director
U.S. BANK NATIONAL ASSOCIATION f/k/a FIRSTAR BANK, N.A., as a Bank
By: /s/ Toby Rau
-------------------------------
Toby Rau
Assistant Vice President
NATIONAL CITY BANK OF KENTUCKY as a Bank
By: /s/ Thomas P. Crockett
-------------------------------
Thomas P. Crockett
Senior Vice President
SYPRIS SOLUTIONS, INC. (the "Borrower")
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Vice President
SYPRIS TEST & MEASUREMENT, INC., a Delaware corporation ("ST&M")
(as a "Guarantor" and solely with respect to Sections 4.2G, 6 and
7 of the Loan Agreement)
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Treasurer
SYPRIS TECHNOLOGIES, INC. a Delaware corporation ("ST")
(as a "Guarantor" and solely with respect to Sections 4.2G,
6 and 7 of the Loan Agreement)
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Treasurer
SYPRIS ELECTRONICS, LLC, a Delaware limited liability
company ("SE") (as a "Guarantor" and solely with respect to
Sections 4.2G, 6 and 7 of the Loan Agreement)
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Treasurer
SYPRIS DATA SYSTEMS, INC., a Delaware corporation ("SDS")
(as a "Guarantor" and solely with respect to Sections
4.2G, 6 and 7 of the Loan Agreement)
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Treasurer
SYPRIS TECHNOLOGIES MARION, LLC, a Delaware limited
liability company ("Marion")(as a "Guarantor") and solely with
respect to Sections 4.2G, 6 and 7 of the Loan Agreement)
By: /s/ David D. Johnson
-------------------------------
David D. Johnson
Treasurer
