Sypris
Solutions
2000
Annual Report
Table
of Contents
2000
Financial Highlights
Letter
to Shareholders
Solutions
for
Our
Customers
At
A Glance
Management's
Discussion
and
Analysis
Financial
Statements
Notes
to Consolidated
Financial
Statements
Report
of Independent
Accountants
Selected
Financial Data
Corporate
Directory
Company
Locations
Common
Stock Information
Investor
Information
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.
Unfortunately, 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.
Shareholders' equity 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.
Capital investment 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 million.
- A two-year agreement with Eldec to supply fully tested integrated circuits for use in commercial avionics power supplies. Estimated contract value: $5 million.
- 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.
The successful 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 earnings.
Longer-term, however, 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 comments.
/s/ Jeffrey T. Gill
/s/ Robert T. GillJeffrey T. Gill
President and CEO
Robert
E. Gill Chairman
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