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Notes
to Consolidated Financial Statements (continued)
14. Income
Taxes
The Company
accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Accordingly, deferred income taxes have been provided
for temporary differences between the recognition of revenue and expenses
for financial and income tax reporting purposes and between the tax basis
of assets and liabilities and their reported amounts in the financial
statements.
The components
of income taxes related to continuing operations are as follows:
Years ended December 31 1999 1998 1997
-----------------------------------------------------------------------------
(in thousands)
Current:
Federal $ 3,386 $ 2,844 $ 1,171
State 320 441 138
Other 38 37 169
---------------------------------
3,744 3,322 1,478
Deferred:
Federal (630) 1,011 (251)
State (15) (22) (84)
---------------------------------
(645) 989 (335)
---------------------------------
$ 3,099 $ 4,311 $ 1,143
=================================
The Company
files a consolidated federal income tax return which includes all subsidiaries.
Income taxes paid during 1999, 1998 and 1997 totaled $2,136,000, $5,329,000
and $4,747,000, respectively. Income tax refunds received during 1997
totaled $1,373,000. At December 31, 1999, the Company had state net operating
loss carryforwards of approximately $17,800,000 with various expiration
dates.
The following is a reconciliation of income tax
expense to that computed by applying the federal statutory rate of 34%
to income before income taxes, minority interests and discontinued operations:
Years ended December 31 1999 1998 1997
-----------------------------------------------------------------------------
(in thousands)
Federal tax at the statutory rate $ 4,303 $ 3,997 $ 691
State income taxes, net of federal
tax benefit 236 291 47
Change in valuation allowance for
deferred tax asset (1,891) (882) 247
Research and development tax credit (544) - -
Other 995 905 158
---------------------------------
$ 3,099 $ 4,311 $ 1,143
=================================
Deferred income tax assets and liabilities are as follows:
Years ended December 31 1999 1998
-----------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Compensation and benefit accruals $ 992 $ 1,026
Inventory valuation 969 857
Net operating loss carryforward 977 1,041
Accounts receivable allowance 250 310
Defined benefit pension plan 985 1,629
Other 1,279 1,405
---------------------
5,452 6,268
Valuation allowance (3,985) (5,876)
---------------------
1,467 392
Deferred tax liabilities:
Depreciation (1,494) (1,148)
Contract provisions (278) (194)
---------------------
(1,772) (1,342)
---------------------
Net deferred tax liability $ (305) $ (950)
=====================
The valuation
allowance for deferred tax assets decreased by $1,891,000 and $882,000
in 1999 and 1998, respectively. The valuation allowance is recorded on
the Company's deferred tax assets to reduce the total to an amount that
management believes will more likely than not be realized. Realization
of deferred tax assets is dependent upon sufficient taxable income during
the period that temporary differences and carry forwards are expected
to be available to reduce taxable income.
15.
Net Income Per Common Share
For periods
prior to the Reorganization, shares used in computing basic and diluted
net income per common share include the outstanding shares of Sypris common
stock as of the date of the Reorganization and the dilution associated
with common stock options issued prior to the Reorganization. For the
years ended December 31, 1999 and 1998, the computation also gives effect
to the dilution associated with the issuance of common stock options subsequent
to the Reorganization. Additionally, earnings used in the computation
of per share amounts for income from continuing operations and net income
for periods prior to the Reorganization have been adjusted to exclude
the minority interests reflected in the historical financial statements
of GFP.
The following table presents information necessary
to calculate net income per common share:
Years ended December 31 1999 1998 1997
-----------------------------------------------------------------------------
(in thousands, except for per share data)
Shares outstanding:
Weighted average shares outstanding 9,515 9,438 9,424
Effect of dilutive employee stock options 346 355 402
---------------------------------
Adjusted weighted average shares
outstanding and assumed conversions 9,861 9,793 9,826
=================================
Income applicable to common stock:
Income from continuing operations $ 9,556 $ 7,446 $ 1,527
Discontinued operations - - 3,817
---------------------------------
Net income 9,556 7,446 5,344
Minority interests in losses
of consolidated subsidiaries - - (639)
---------------------------------
Net income applicable to common stock $ 9,556 $ 7,446 $ 4,705
=================================
Income per common share:
Basic income per common share:
Income from continuing operations $ 1.00 $ 0.79 $ 0.09
Discontinued operations - - 0.41
---------------------------------
Net income per common share $ 1.00 $ 0.79 $ 0.50
=================================
Diluted income per common share:
Income from continuing operations $ 0.97 $ 0.76 $ 0.09
Discontinued operations - - 0.39
---------------------------------
Net income per common share $ 0.97 $ 0.76 $ 0.48
=================================
16. Segment
Information
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 for all years presented. The following presents financial information
for the reportable segments of the Company:
Years ended December 31 1999 1998 1997
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(in thousands)
Net revenue from unaffiliated customers:
Electronics Group $164,963 $174,396 $185,854
Industrial Group 37,167 37,229 31,501
----------------------------------
$202,130 $211,625 $217,355
==================================
Gross profit:
Electronics Group $ 37,873 $ 41,400 $ 27,079
Industrial Group 7,076 6,523 5,056
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$ 44,949 $ 47,923 $ 32,135
==================================
Operating income:
Electronics Group $ 12,005 $ 11,207 $ 2,501
Industrial Group 4,930 4,329 2,456
General, corporate and other (2,769) (2,685) (3,172)
----------------------------------
$ 14,166 $ 12,851 $ 1,785
==================================
Total assets:
Electronics Group $106,229 $ 90,174 $ 97,978
Industrial Group 26,714 18,905 16,946
General, corporate and other 15,621 12,040 5,684
----------------------------------
$148,564 $121,119 $120,608
==================================
Depreciation and amortization:
Electronics Group $ 6,551 $ 5,933 $ 6,111
Industrial Group 902 825 816
General, corporate and other 129 151 93
Discontinued operations - - 379
----------------------------------
$ 7,582 $ 6,909 $ 7,399
==================================
Capital expenditures:
Electronics Group $ 6,327 $ 4,598 $ 3,329
Industrial Group 7,134 1,185 2,294
General, corporate and other 982 62 108
Discontinued operations - - 15
----------------------------------
$ 14,443 $ 5,845 $ 5,746
==================================
The Company
attributes net revenue to countries based upon the location of its operations.
Prior to June 30, 1997, the Company's Electronics Group had operations
in Latin America (see Note 3). The Company's assets since that date are
located exclusively in the United States. Export sales from the United
States totaled $30,061,000, $25,551,000 and $22,717,000 in 1999, 1998
and 1997, respectively. Following is geographic information regarding
the Company's net revenue:
Years ended December 31 1999 1998 1997
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(in thousands)
United States $ 202,130 $ 211,625 $ 200,424
Latin America - - 16,931
-----------------------------------
$ 202,130 $ 211,625 $ 217,355
===================================
17. Discontinued
Operations
The Company
formerly owned various commercial office buildings, industrial buildings
and land (the "Real Estate Group"). The assets of the Real Estate
Group were divested in a series of transactions beginning in October 1995
and ending in February 1997. The Real Estate Group is accounted for as
a discontinued operation and, accordingly, the results of operations
and related gain on the disposal are segregated in the accompanying consolidated
income statements. The Company received proceeds from the sale of the
real estate of $21,200,000 in 1997. The majority of the proceeds were
used to repay mortgages on the related real estate properties.
18. Quarterly
Financial Information (Unaudited)
The following
is an analysis of certain items in the consolidated income statements
by quarter for the years ended December 31, 1999 and 1998:
1999 1998
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First Second Third Fourth First Second Third Fourth
--------------------------------------------------------------------------------------------------
(in thousands, except for per share data)
Net revenue $ 44,898 $ 49,331 $ 48,291 $ 59,610 $ 55,490 $ 55,196 $ 46,936 $ 54,003
Gross profit 9,720 11,734 12,041 11,454 10,912 13,152 10,960 12,899
Operating income 2,432 3,704 4,364 3,666 2,093 3,772 3,299 3,687
Net income 1,533 2,459 2,763 2,801 1,061 2,087 1,919 2,379
Per share data:
Net income:
Basic 0.16 0.26 0.29 0.29 0.11 0.22 0.20 0.25
Diluted 0.16 0.25 0.28 0.28 0.11 0.21 0.20 0.24
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