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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 25, 2007
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Sypris Solutions, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-24020 61-1321992
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (502) 329-2000
================================================================================
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On January 25, 2007, the Company provided 2007 guidance for the
full year and for the first quarter in comparison to updated
estimates for 2006.
For additional information, reference is made to the Company's
slide presentation material dated January 25, 2007, which is
included as Exhibit 99 and incorporated herein by reference
thereto. The slide presentation material attached hereto is being
furnished to the SEC and shall not be deemed to be "filed" for any
purpose except as otherwise provided herein and it shall not be
deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, whether made before or after the
date hereof, except as expressly set forth by specific reference
in such filing to the Current Report on Form 8-K.
Section 7 - Regulation FD
Item 7.01 Regulation FD Disclosure.
Attached as Exhibit 99, and incorporated into this Item 7.01 by
reference, is presentation material containing 2007 guidance for
the first quarter and the full year in comparison to updated
estimates for 2006.
A conference call will take place at 9:00 a.m. eastern standard
time on January 25, 2007. The Company's senior management will
discuss such guidance during the conference call. Interested
persons may listen to the conference call via telephone by dialing
913-981-5591 before 9:00 a.m. eastern standard time, or access it
on the Internet at www.sypris.com. The online replay will be
available at approximately 11:00 a.m. eastern standard time on
January 25, 2007 and continue for 30 days. Related presentation
materials will be posted to the "News" section of the Company's
web site at www.sypris.com prior to the call. The presentation
materials will be in Adobe Acrobat format. A separate press
release will not be issued.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number Description of Exhibit
-------------- ----------------------
99 Slide presentation material, furnished solely for the
purpose of incorporation by reference into Items 2.02,
7.01 and 9.01.
<PAGE>
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 hereunto duly authorized.
Dated: January 25, 2007 Sypris Solutions, Inc.
By: /s/ T. Scott Hatton
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T. Scott Hatton
Vice President and Chief Financial
Officer
2
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99 Slide presentation material, furnished solely for the purpose of
incorporation by reference into Items 2.02, 7.01 and 9.01.
2007
Guidance & Market Outlook Conference Call January 25,
2007
1Financial
& Market OutlookJeffrey T. GillPresident and CEOT. Scott HattonVice
President and Chief Financial OfficerPresented by
2
Safe
Harbor StatementEach “forward-looking statement”herein is subject to serious
risks and should not be relied upon, as detailed in our most recent Form
10-K
and Form 10-Q and subsequent SEC filings.Briefly, we currently believe that
such
risks also include: cost and availability of raw materials such as steel,
components, freight, natural gas or utilities; cost and inefficiencies
associated with increasing our manufacturing capacity and launching new
programs; stability and predictability of our costs and margins or our
customers’forecasts, financial conditions, late payments, low-marginproduct mix,
market shares, changing product requirements or scheduling demands; costs
associated with breakdowns or repairs of machinery and equipment; growth
beyond
our productive capacity, cyclical or other downturns, adverse impacts of
new
technologies or other competitive pressures whicherode our margins; cost,
efficiency and yield of our operations including capital investments, working
capital, scraprates, cycle times, injuries, self-insured risks, wages, freight,
production schedules, overtime costs, or expediting costs; failure to make
strategic acquisitions or to integrate and improve results of acquired
businesses or to identify and adequately insure environmental or other risks
in
due diligence; inventory valuation risks due to obsolescence, shrinkage,
theft,price, overstocking or underbilling; changes in government funded or
other
customer programs; reliance on major customers or suppliers, especially in
the
automotive sector where bankruptcies (such as Dana Corporation’s recent filing)
could result in the rejection or modification of our contracts; revised contract
prices or estimates of major contract costs; dependence on, recruitment or
retention of management or other key employees; union negotiations; pension
valuation, health care or other benefit costs; labor relations; strikes;
risks
of foreign operations; currency exchange rates; costs and supply ofdebt,
equity
capital, or insurancedue to poor operating or financial results, new business
risks,credit ratings, debt covenant violations, contract claims, insurance
conditions or regulatory developments; impairments or write-offs of goodwill
or
fixed assets;changes in licenses, security clearances, or other legal rights
to
operate, manage our work force or import and export as needed; weaknesses
in
internal controls; costs of compliance with auditing, regulatory or contractual
obligations; regulatory actions or sanctions; disputes or litigation, involving
customer, supplier, creditor, stockholder, product liability or environmental
claims; war, terrorism or political uncertainty; unanticipated or uninsured
disasters, losses or business risks; inaccurate data about markets, customers
or
business conditions; or unknown risks and uncertainties.
3
⑀⍽Overview ⑀⍽Market Outlook ⑀⍽Conclusion ⑀⍽Driving Change ⑀⍽2007 Forecast
⑀⍽Summary ⑀⍽Q&A Session Agenda
4
⑀⍽2006 Overview -Preliminary Results: ●EPS expected to be in line with prior
guidance -due to report on February 22 ●Revenue, gross profit and net income are
expected to be down year over year >Industrial Group suffered from severe
production inefficiencies,equipment downtime, excessive overtime, expedited
shipments and unplanned employee turnover >Electronics Group experienced
delays in the launch of new programs and lower than expected funding for
data
systems ●Free cash flow remained strong, with full year expectations in the
range of $42 million ●Energy and calibration businesses continued to grow ●In
short, it was a challenging and difficult year, but one that could have been
much more so had it not been for the hard work and dedication ofmany people
Overview
5
⑀⍽Industrial Group -As expected, production of commercial vehicles are forecast
to decline 37% during 2007 (with Class 8 down 46% and Class 5-7 down 26%)
●25%
sequential decline in Q1; 28% sequential decline in Q2, withQ2 and Q3 expected
to be 45% below prior year periods ●21% sequential increase in Q4 -Production is
expected to increase 28% during 2008 (with Class 8up 34% and Class 5-7 up
20%)
-Production of trailers is expected to be flat to down 5% during 2007
-Production of sport utility vehicles and light trucks is forecast to be
flat
during the first half of 2007, to be followed by an increase during the second
half of 2007 -The down cycle followed shortly thereafter by a significant
upturn
will place a premium on planning, execution and responsiveness Market
Outlook
6
Market Outlook⑀⍽Industrial Group-Planned actions●Realign the direct workforce to
volume changes -shift reductions, day eliminations and planned shutdowns
-will
assist in retaining critical skills and minimizing inefficiencies●Take older
equipment out of service, utilizing highly automated new cells to meet customer
demand●Utilize freed up capacity to restructure our existing cost profile by
shifting available capacity to Mexico from US plants●Rebuild key manufacturing
cells and replenish inventory buffers to prepare for the up cycle●Focus on LEAN
initiatives in all areas to refine processes, eliminate waste and improve
output
per man hour●Continue to recruit and top grade personnel-2007 will clearly be
challenging, though it will also present the opportunity to significantly
reestablish the competitive profile of the business ahead of
2008
7
⑀⍽Electronics Group -Aerospace and Defense is expected to show strong double
digit growth during 2007, driven by program launches scheduled for the second
half -Demand for secure communications products continues to increase -Product
line expansions in our Data Systems business are expected to lead to growth
in
this high value-added segment -Test & Measurement is expected to benefit
from the continued growth of calibration services and the award of new
multi-year contracts -In summary, the outlook is positive and we are optimistic
about the long-term potential Market Outlook
8
⑀⍽We must act aggressively to take advantage of the 2007 downturn in the
commercial vehicle business to drive fundamental change throughout our business
-Restructure Business Model ●Realignment of production -LCC output to increase
to 43% from 23% ●Commercial rationalization -exit undesirable programs and
contracts ●Continuous improvement -drive cycle times, productivity and waste
-Consolidate the Supply Chain ●Centralize under Bob Callahan (GE) ●Increased
control over indirect spend and strategic sourcing ●Focus on supply base
consolidation, inventory reduction and costsynergies ●Spend reduction target of
$15.0 million -Business Transformation/ERP ●Corporate Director of Information
Technology being recruited to lead process ●Drive common practices, improve
information flow, eliminate redundancies and overhead
Conclusion
9
-Invest for Growth -Expand Electronics Portfolio ●Development pipeline for
secure communications products ●Increase penetration for space and aerospace
programs ●Expansion of data systems product line -Intelligence and telemetry
●Support continued expansion of calibration ⑀⍽The cost of many of these projects
will have a negative impact on the company’s short-term financial results, but
can be funded by operating cash flows ⑀⍽The potential returns are significant,
and when combined with the effects of the expected expansion of shipments
in
both our Industrial and Electronics groups later in the year, the impact
on
margins and income are forecast to be material ⑀⍽The time to act is now
Conclusion
10
* ’09 YE Run Rate Industrial Group Restructuring / LEAN'06 Est.'09
YE*Δ%
LCC Sales23%43%20 pts.Sales / Sq. Ft.$208$33762%GM%5%9%4 pts.Savings (@
completion)CostsPayback$17M$21M2.5 yrsScope/Timeline200720082009Q2 Q3 Q4
Q1 Q2
Q3 Q4 Q1 Q2 Q3 Q4Phase 1Phase 2Phase 3Phase 4⑀⍽4-Phased approach covering 33
months (Q2’07 -Q4’09)⑀⍽Transition SIG to CoEmodel -standardize component
mfg.⑀⍽Reconfigures mfg. flow (LEAN); Rebuilds key equipment⑀⍽Maximizes 50-60%
LCC wage advantage; reduces logistics⑀⍽Aligns with customers’strategic
intent⑀⍽Delivers significant benefits to Sypris &
customersTransformationEconomics$17M Annualized Savings by YE '09$17M Annualized
Savings by YE '09
11
Supply Chain / Business TransformationFocusFocus⑀⍽Design Common
Processes⑀⍽Leverage Digital/Integrated Tools⑀⍽Automate w/ Common System ⑀⍽Clear
Roles / Responsibilities⑀⍽Line-of-Site Metrics CorporateMulti-Plant / Multi
BusinessSite-SpecificOperationalizeAutomate / IntegrateStandardize /
DesignActionsActions⑀⍽Reduce Transactional Costs⑀⍽Transition to Commodity
Mgmt⑀⍽Accelerate Implementations ⑀⍽Leverage Volume Spend⑀⍽Standardize Buying
Specs/Data⑀⍽Implement Standard SIOP Process20072009$15M in Cost Savings &
$10M Working Capital Reductions over 3 Years$15M in Cost Savings & $10M
Working Capital Reductions over 3 Years
12
Industrial Growth / Commercial Realignment * ’09 YE Run
Rate10545(50)36525536052006 E2007 ETruck
Mkt'08/'09ProductRational-izationProductAddsEnergy2009 E⑀⍽Truck Market
Rebounds-2008 rebounds 28%-2009 up 20%⑀⍽Commercial Realignment-Contract
expiration / realignment opportunities-Rationalize product lines, exiting
low
value add products-Launch new programs, adding higher value added products
and
customers⑀⍽Strong Energy Market GrowthRationalization + / -nets significant
profit improvement2006 -2009 Revenue2006 -2009 RevenueCommercial Realignment20%
’08/’09 Growth Combined w/ Restructuring Delivers 12-13% GM By ’09 YE*20%
’08/’09 Growth Combined w/ Restructuring Delivers 12-13% GM By ’09
YE*
13
Electronics Group Growth21145151081332006 ESecureComm.ProdsRecorder
/ReceiverSpaceTurnkeyCalibration2009 E⑀⍽Broader Offering in Secured
Communications-New classified military product to ramp to full production
in
Q2’07 …$20M / yr-New generation encryption product to launch in Q3’07 …$20M /
yr-R&D investment to provide new product to serve unmet customer needs …$5M
/ yr⑀⍽A&D New Products / New Markets-Intelligence Receivers …$15M+ growth
opportunity-Turnkey Space …increases our content 4X⑀⍽Calibration
Growth-Multi-year and On-site contracts-International growth through customer
baseInvesting for 15+% Annual GrowthInvesting for 15+% Annual GrowthA&D New
Products / Markets2006 -2009 Revenue2006 -2009 Revenue
14
Cash Flow Generation2H'05 -2006Focus & AttentionWorking
CapitalTurnsReceivablesInventoryPayablesCapexQ2'05$1243.9⑀⍽Weekly reviews by
site, account⑀⍽Past due monitoring / credit mgmt⑀⍽Progress Billing⑀⍽Lead time
and buffer reductions⑀⍽Reduce contingency⑀⍽Terms: from inconsistent to
45/60⑀⍽Complete capacity build for industry cycleQ4'06E$72 -$746.8 -7.0⑀⍽Process
metrics/tools imbedded⑀⍽Proactive credit risk assessment & mgmt⑀⍽Billing
timeliness⑀⍽Progress billing on new orders⑀⍽Automated process/tools for
inventory targeting⑀⍽LEAN implementation⑀⍽Manage variation to 60 day target⑀⍽B2B
matching, settlement, & financing tools⑀⍽Facilitizedfor industry
peak⑀⍽Restructuring / LEAN focus2007E -2009E$60 -$808-102007 +Process
EnhancementsFocus Evolving to Process and ToolsFocus Evolving to Process
and
Tools
15
2007 Forecast
16
Class 5-8 Truck Market
Forecast59656854616567425560674558606557616555572004200520062007 F2008
F548192676390914570881004475829751627365782004200520062007 F2008
F2004200520062007 F2008 F262,000341,000380,000207,000278,000North America
Commercial VehicleHeavy-Duty (Class 8)North America Commercial
VehicleMedium-Duty (Class 5-7)2004200520062007 F2008
F233,000250,000267,000198,000238,000⑀⍽2007 heavy duty production down 46%⑀⍽2008
rebounds 34%⑀⍽Medium duty off 26% in 2007⑀⍽2008 bounces back 20%Source: ACT
Production / Build Tables
17
($M, except EPS) TY 2007 Earnings GuidanceRevenueRevenue$498-$500
$410-$4202006E2007EEPSEPS2006E2007E($0.07)-($0.08) ($0.40)-($0.45) Free Cash
FlowFree Cash Flow2006E2007E$41-$43 $15-$20 Revenue down 17%⑀⍽29% decline in
Industrial driven by Commercial Truck cycle⑀⍽23% growth in Electronics Group
driven by a strength in secured communication, products, calibration demand
and
data recordersPBT down $10M⑀⍽($19M) volume loss -Truck decline offset partially
by strong Electronics growth⑀⍽$18M productivity -minimize premium operating
costs; material/mfg yield improvements; sourcing initiatives⑀⍽($2M) SIG
restructuring expense⑀⍽Customer pricing $8M; Inflation ($6M)⑀⍽Investing for
growth -R&D/Selling ($4M)⑀⍽Increased G&A ($4M) and financing charge
($1M)Strong cash flow despite EPS loss⑀⍽$30-$35M of Cash from Operating
Activities⑀⍽$10M in Working Capital reduction⑀⍽$15M in CapEx(3.5% of
Revenue)
18
•Industrial Market declining to flat, except Energy market-Commercial Vehicle
market cycling down before ’08 rebound-Heavy Duty down 40%; Light Duty down 10%;
Trailers -0%-Energy market demand strong for Engineered Products -up
3-4%•Restructure operations and address portfolio profitability -Launch
operational restructuring to implement CoEs; improve rev/sq ft by 62%-Focused
commercial efforts in pricing and portfolio reshapingIndustrialSales V%GM%Sales
V%GM%Sales V%GM%•Planned growth of 32% in revenue …strong 2H driven by
NPI-Strong demand in secured communications market -Full production on 2
security product programs in Q2/Q3-M800 / Silver Phoenix growth in International
markets•Increased investment to meet growth demands-Doubling R&D to fund
customer-driven products-Investment to develop commercial alliances and enter
Intel Receiver market•6% growth in Calibration / Product Test-Booked $12M in
multi-year Calibration business during Q4’06-Expanding to international markets
with partners/domestic customers•Driving for improved margins-Right-sized
Component Screening business in Q4’06-Calibration network efficiencyA & DT
& M(29%)4.1%32%16.7%5%25.4%TY 2007 Segment View
19
($M, except EPS) Q1 2007 Earnings
GuidanceRevenueRevenue2006E2007EEPSEPS2006E2007E$0.05 ($0.13)-($0.15) $130$98
-$102Free Cash FlowFree Cash Flow2006E2007E$3 $0-$3 Revenue down 23%⑀⍽24%
decline in Industrial driven by Commercial Truck cycle⑀⍽21% decline in
Electronics driven by absence of next generation of a single secured
communications program …certification scheduled in Q2PBT down $6M⑀⍽($4M) volume
loss driven by Electronics and Industrial declines⑀⍽Customer pricing $2M; Cost
inflation ($1M)⑀⍽Investing for growth -R&D/Selling ($1M)⑀⍽G&A increase
($1M)⑀⍽Non-recurring financing charge ($1M)Cash flow flat versus ‘06⑀⍽$4-7M of
Cash from Operating Activities⑀⍽Capexat 4% of Revenue
20
Summary⑀⍽Despite
a challenging year ahead, 2007 is expected to be a pivotalyear where
game-changing effortstake hold and drive a lastingand
profitableimpact⑀⍽$11M
in investments are being made in 2007 to deliver on multi-year programs:-SIG
Restructuring Program$17M annualized savings-Supply Chain/Business
Transformation$15M in savings over 3 years-SIG Commercial Re-alignment/Market
rebound3-4 pts. expansion of GM%-Investing for Electronics Growth15% Revenue
CAGR-Maximizing Cash Flow8-10 working capital turnsSypris is Transforming
its
Operating and Financial ModelSypris is Transforming its Operating and Financial
Model