We began the year 2000
in terrific shape. Record backlog and strong earnings
combined with a number of significant new business development opportunities
to support a very positive outlook for the coming year.
The trend toward
outsourcing continued to grow and spread across a progressively wider
range of industries. An increasing number of original equipment manufacturers
embraced the use of supply chain specialists to increase flexibility,
reduce costs and improve responsiveness to the needs of their customers.
By all measures,
Sypris was well positioned to benefit from these factors during 2000,
since approximately 80 percent of our revenue is derived from providing
some form of manufacturing or technical service to others.
this was not to be the case. Shortages in the supply of electronic components,
the steep decline in the production of heavy-duty trucks and higher-than-planned
consolidation costs and related production inefficiencies in our data
systems business had a material effect on the Company's financial performance
for the year.
The impact of
these events was further magnified by the need to increase our investment
in people, systems and technology to support upcoming contractual commitments.
Program logic control engineers, automated equipment, a variety of robotics,
and advanced planning and scheduling systems had to be secured and installed
to meet the future production requirements of these new agreements despite
the negative effect on short-term earnings.
As a result, while
revenue increased 7 percent to $217 million from $202 million for the
prior year, earnings declined to $0.32 per share from $0.97 per share
in 1999. The decline in earnings would have been more pronounced had
it not been for the recognition of certain tax credits and the reduction
of a deferred tax valuation allowance.
We are pleased
to report, however, that we were much more successful in a number of
other areas, the result of which has been to strengthen the Company
for the future.
To begin with,
the growth of the Company's backlog accelerated during 2000, increasing
27 percent to a record $161 million from $127 million in 1999. The double-digit
increase was driven primarily by the continued growth in demand for
our manufacturing services.
increased to $64 million from $61 million at year-end 1999 and book
value per share increased to $6.43 from $6.17 at the end of 1999.
increased substantially during the year, reaching almost $24 million,
as the Company invested in the advanced technology and production capability
required to meet the needs of newly awarded long-term manufacturing
agreements. Shipments associated with much of this investment are not
expected to begin until late 2001, but once at full production, are
expected to contribute in a meaningful way to both revenue and earnings.
During the year,
Sypris was awarded a number of important long-term manufacturing and
service agreements, including the following:
- A five-year
agreement with ArvinMeritor to forge and machine heavy-duty truck
axles. Estimated contract value: $120 million.
- Five new contracts
with Raytheon to provide circuit card assemblies for a variety of
programs. Estimated contract value: $24 million.
- A multi-year
agreement with Boeing to supply circuit card assemblies for use in
the Brimstone missile guidance system. Estimated contract value: $23
- A two-year
agreement with Eldec to supply fully tested integrated circuits for
use in commercial avionics power supplies. Estimated contract value:
- A contract
with Northrop Grumman to supply electronic circuit boards for use
in certain smart weapons. Estimated contract value: $3 million.
- Two contracts
with Litton to supply circuit card assemblies for use in portable,
lightweight laser rangefinders and integrated guidance systems. Estimated
contract value: $3 million.
- An agreement
with Honeywell to provide circuit card assemblies for use in the digital
flight control computers of F-16 jet fighters. Estimated contract
value: $2 million.
pursuit of multi-year, sole source agreements is an important part of
our strategy to increase the reliability of our Company's future financial
results. The award of these and other similar agreements represents
a significant milestone in these ongoing efforts.
During the year,
we also entered into an agreement with i2 Technologies to install finite
capacity planning and advanced scheduling systems at certain of our
manufacturing operations. We believe this investment will further enhance
our ability to offer our customers state-of-the-art manufacturing services.
The pursuit of
synergistic acquisitions remains a key component of our strategy to
build a larger, stronger business. At the close of 1999, we announced
the completion of the purchase of the Mobile Calibration and Repair
Service division of Lucent Technologies. We are pleased to report that
the integration of the division has gone extremely well and its performance
has exceeded our expectations.
As we look to the
future, we expect the near-term financial results of the Company will
continue to reflect the effects of the component parts shortage and
the downturn in the heavy-duty truck market. Higher component costs,
production inefficiencies and expenses related to the under absorption
of overhead are expected to continue to place pressure on margins and
we believe the pressures from these external events will abate and our
proven success in booking long-term agreements, combined with the results
of our significant investment in people, systems and technology, will
bear fruit in the form of vastly improved financial results.
In the very near
future, we will be changing the name of our subsidiaries to incorporate
the Sypris brand name and logo. Bell Technologies will become Sypris
Test & Measurement, Group Technologies will become Sypris Electronics,
Metrum-Datatape will become Sypris Data Systems and Tube Turns will
become Sypris Technologies. We believe that the use of the Sypris name
by all subsidiaries will improve our brand recognition with customers,
suppliers, employees and investors. The change is expected to be complete
by January 2002.
In closing, we
want to thank our employees for their dedication and hard work over
this past year. The achievements of 2000 would not have been possible
without their commitment. We also want to thank our customers for the
opportunity to serve them. We are dedicated to providing each of them
with an ever-increasing competitive advantage.
We sincerely appreciate
your investment in Sypris Solutions and encourage you to contact us.
We would be pleased to answer your questions and look forward to your