Notes
to Consolidated Financial Statements
NOTE 1. ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Policy
The accompanying consolidated financial statements include the accounts
of Sypris Solutions, Inc. and its wholly-owned subsidiaries (collectively,
"Sypris" or the "Company"). All significant intercompany
accounts and transactions have been eliminated.
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 corporations and government agencies in the
markets for aerospace & defense electronics, truck components &
assemblies, and for users of test & measurement equipment.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the U.S. requires management
to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Contract inventory is stated at actual production costs, reduced by the
cost of units for which revenue has been recognized. Gross contract inventory
is considered work in process. Progress payments under long-term contracts
are specified in the contracts as a percentage of cost and are liquidated
as contract items are completed and shipped. Other inventory is stated
at the lower of cost or market. The first-in, first-out method was used
for determining the cost of inventory excluding contract inventory and
certain other inventory, which was determined using the last-in, first-out
method ("LIFO") (see Note 4). The Companys reserve for
excess and obsolete inventory is primarily based upon forecasted demand
for its product sales, and any change to the reserve arising from forecast
revisions is reflected in cost of sales in the period the revision is
made.
Property, Plant
and Equipment
Property, plant and equipment is stated on the basis of cost. Depreciation
of property, plant and equipment is generally computed using the straight-line
method over their estimated economic lives. For land improvements, buildings
and building improvements, the estimated economic life is generally 40
years. Estimated economic lives range from three to fifteen years for
machinery, equipment, furniture and fixtures. Leasehold improvements are
amortized over the respective lease term using the straight-line method.
Expenditures for maintenance, repairs and renewals of minor items are
expensed as incurred. Major renewals and improvements are capitalized.
Interest cost is capitalized for qualifying assets during the period in
which the asset is being installed and prepared for its intended use.
Capitalized interest cost is amortized on the same basis as the related
depreciation.
Goodwill
Beginning in 2002 with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," goodwill is no longer amortized, but instead tested at least
annually for impairment. Prior to 2002, goodwill was amortized using the
straight-line method over its estimated period of benefit of 15 years
(see "Adoption of Recently Issued Accounting Standards" below).
Goodwill is reported net of accumulated amortization of approximately
$4,146,000 at December 31, 2003 and 2002.
Long-lived Assets
The Company evaluates long-lived assets for impairment and assesses their
recoverability based upon anticipated future cash flows. If facts and
circumstances lead the Companys management to believe that the cost
of one of its assets may be impaired, the Company will write down that
carrying amount to fair value to the extent necessary.
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