Overview
We are a diverse supplier of truck components, oil and gas pipeline components, and aerospace and defense electronics. We offer a wide range of manufactured products, often under multi-year sole-source contracts.
We are organized into two business segments,Sypris Technologies andSypris Electronics .Sypris Technologies , which is comprised ofSypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications.Sypris Electronics , which is comprised ofSypris Electronics, LLC , generates revenue primarily through circuit card and full "box build" manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work. We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry participants that embrace technological innovation and flexibility, coupled with multi-year contractual relationships, as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, have historically created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity and innovation that can result from such investments helps to differentiate us from our competition when it comes to cost, quality, reliability and customer service.
Impact of COVID-19 on our business
The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption and has and may continue to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the continued impact and duration of the COVID-19 pandemic. The Company has continued to operate at each location and sought to remain compliant with government regulations imposed due to the COVID-19 pandemic. The Company began to experience lower revenue late in the first quarter of 2020 due to the COVID-19 pandemic, followed by a more significant impact in the second quarter of 2020, especially within theSypris Technologies group. Towards the end of the second quarter of 2020, some state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. While the COVID-19 pandemic negatively impacted the Company's results of operations, cash flows and financial position in 2020, management implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each of our locations. We implemented modifications beginning in the second quarter of 2020 to preserve adequate liquidity and ensure that our business continued to operate during this uncertain time. With respect to liquidity, we evaluated and took actions to reduce costs and spending across our organization. This included reducing hiring activities, reducing compensation of our Chairman, President and CEO, certain other senior leadership and corporate personnel and our Board of Directors, and limiting discretionary spending. In addition, under the CARES Act, we deferred certain payroll taxes into future years. We also reduced spending on capital investment projects in 2020 and managed working capital to preserve liquidity during this crisis. In addition to these activities, during the second quarter of 2020, the Company secured a$3.6 million term loan with BMO, pursuant to the PPP under the CARES Act. Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments. OnJune 28, 2021 , the Company received notice from BMO that our application for forgiveness of the PPP Loan had been approved. The loan forgiveness request in the amount of$3.6 million was applied to the Company's entire outstanding PPP Loan balance with BMO. During the nine months endedOctober 3, 2021 , the Company recorded a gain on the forgiveness of the PPP Loan and accrued interest in the amount of$3.6 million . OnSeptember 9, 2021 ,President Biden announced a proposed new rule requiring all employers with at least 100 employees to require that their employees be fully vaccinated or tested weekly. OnNovember 4, 2021 , theU.S. Department of Labor's Occupational Safety and Health Administration ("OSHA") issued an emergency regulation to carry out this mandate, which is expected to take effect onJanuary 4, 2022 . As a company with more than 100 employees, it is anticipated that we would be subject to theOSHA regulation concerning COVID-19 vaccination. If these mandates are implemented, the extent of the regulatory impact is unclear and could have an adverse impact on the Company's operations. These or similar vaccine and testing mandates by other governments may result in additional labor shortages and/or increased labor or other expenses for us and our customers and suppliers. Factors deriving from the COVID-19 response that have and may continue to negatively impact sales and gross margin in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the material components we utilize in the manufacture of the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of our customers to conduct their business and purchase our products; and limitations on the ability of our customers to pay us on a timely basis. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. 18 --------------------------------------------------------------------------------
Sypris Technologies Outlook Demand in the North American Class 4-8 commercial vehicle market began to recover in the second half of 2020 following an anticipated market decline in the first half of 2020 that was deepened by the impact of the COVID-19 pandemic. Market conditions have improved since then and have remained favorable through the first nine months of 2021 for commercial vehicles in addition to the automotive, sport utility vehicle and off-highway markets served bySypris Technologies . The outlook for 2022 for the commercial vehicle market indicates stronger demand with production expected to be up 18% over 2021 due to an anticipated improving economic outlook and cyclical growth. Additionally, we believe that the market diversificationSypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to benefit the Company as demand for our products in these markets did not decline as dramatically as demand declined in the Class 8 commercial vehicle market. Depressed oil and gas prices coupled with reduced travel, business closures, and other economic impacts related to the COVID-19 pandemic suppressed near-term oil and natural gas demand, which has adversely impacted the oil and gas markets served by our Tube Turns® brand of engineered product lines. This is causing major pipeline developers to significantly scale back near-term capital investments in new pipeline infrastructure. This has resulted in reduced demand for our products for the oil and gas markets during the second half of 2020 and the first nine months of 2021. However, as commodity prices improve and activity increases, we expect customer demand to increase in the fourth quarter of 2021 compared to 2020.
We will continue to pursue new activities in a wide variety of markets, from light automotive to new energy-related product lines, in order to achieve a more balanced portfolio among our customers, markets and products.
Sypris Electronics Outlook In accordance with theU.S. Department of Defense ("DoD") guidance issued inMarch 2020 designating the Defense Industrial Base as a critical infrastructure workforce, ourSypris Electronics production facility continued to operate in support of essential products and services required to meet national security commitments to theU.S. Government and theU.S. military. TheU.S. Government has taken actions in response to COVID-19 to increase progress payments in new and existing contracts and accelerate contract awards through increased use of Undefinitized Contracting Actions (UCAs) to provide cash flow and liquidity for companies in the Defense Industrial Base, including large prime contractors and smaller suppliers. Certain of the large prime contractors are implementing multiple actions to help support certain suppliers affected by COVID-19, including accelerating payments to subcontractors, such asSypris Electronics . The majority of the government aerospace and defense programs that we support require specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products. We have partnered with our customers to qualify alternative components or suppliers and will continue to focus on our supply chain to attempt to mitigate the impact of supply component shortages on our business. While the COVID-19 outbreak did not have a material impact on our supply chain in 2020 or the first half of 2021, electronic component shortages impacted our third quarter 2021 results and may continue to be a challenge during the remainder of 2021 and 2022. We may not be successful in addressing these shortages and other supply chain issues. During 2020 and the first nine months of 2021, we announced new program awards forSypris Electronics , with certain programs continuing into 2023. In addition to contract awards fromDoD prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts related to the communication and navigation markets, which align with our advanced capabilities for delivering products for complex, high cost of failure platforms. OnMay 28, 2021 , the President ofthe United States submitted toCongress the President's fiscal year (FY) 2022 budget request, which proposes$753 billion for total national defense spending including$715 billion for theDoD , a 1.6% increase above the FY 2021 enacted amounts for both total national defense and theDoD (aU.S. Government fiscal year starts onOctober 1 and ends onSeptember 30 ). This is the first budget over the past decade that is not restricted by the discretionary spending caps under the Budget Control Act of 2011. The budget also proposes to end the use of Overseas Contingency Operations (OCO) as a separate fund to finance overseas operations. However, theU.S. Government has not yet enacted an annual budget for FY 2022. To avert a government shutdown, onSeptember 30, 2021 , a continuing resolution funding measure was enacted to finance allU.S. Government activities throughDecember 3, 2021 . Under the continuing resolution, partial-year funding at amounts consistent with appropriated levels for FY 2021 are available, subject to certain restrictions, but new spending initiatives are not authorized. Importantly, our key programs continue to be supported and funded despite the continuing resolution financing mechanism. However, during periods covered by continuing resolutions or in the event of a government shutdown, we may experience delays in procurement of products and services due to lack of funding, and those delays may affect our results of operations. In the coming months,Congress will need to approve or revise the President's FY 2022 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2022 budget to become law and complete the budget process. In addition to the FY 2022 budget, theU.S. Government continues to face a variety of fiscal and monetary policy issues, including rising debt levels. The legal limit onU.S. debt, commonly known as the debt ceiling, was reinstated onAugust 1, 2021 , after a two-year suspension. OnAugust 2, 2019 , with the passage of the Bipartisan Budget Act of 2019 (BBA-19),Congress suspended the debt ceiling throughJuly 31, 2021 , at which time the debt limit was increased to the amount ofU.S. Government debt outstanding on that date. OnOctober 15, 2021 , the President signed legislation raising the debt limit by$480 billion to$28.9 trillion , which is estimated to provide federal borrowing authority untilDecember 2021 . If the debt ceiling is not raised further, theU.S. Government may not be able to pay for expenditures or fulfill its funding obligations and there could be significant disruption to all discretionary programs, including discretionary programs in which we participate. We expect to compete for follow-on business opportunities as a subcontractor on future builds of several existing government programs. However, the federal budget and debt ceiling are expected to continue to be the subject of considerable uncertainty and the impact on demand for our products and services and our business are difficult to predict. 19 --------------------------------------------------------------------------------
Results of Operations The tables below compare our segment and consolidated results for the three and nine month periods of operations of 2021 to the three and nine month periods of operations of 2020. The tables present the results for each period, the change in those results from 2020 to 2021 in both dollars and percentage change and the results for each period as a percentage of net revenue.
? The first two columns of each table show the absolute results for each period
presented.
? The columns titled “Year-over-year change” and “Year-over-year percentage
Variation “show the variation in results, both in dollars and in percentages. These two
columns indicate favorable changes as positive and unfavorable changes as
negative. For example, when our net income increases from period to period
then this change is displayed as a positive number in both columns. Conversely,
when expenses increase from period to period, this change is indicated as a
negative number in both columns.
? The last two columns of each table present the results for each period in the form of
percentage of net income. In these two columns, the cost of sales and the gross
the profits of each are expressed as a percentage of the net sales of that segment. Those
amounts are shown in italics.
Additionally, as used in the table, “NM” means “not significant”.
Three Months EndedOctober 3, 2021 Compared to Three Months EndedOctober 4, 2020 Year Over Year Results as Percentage of Net Year Over Year Percentage Revenue for the Three Three Months Ended, Change Change Months Ended October 3, October 4, Favorable Favorable October 3, October 4, 2021 2020 (Unfavorable) (Unfavorable) 2021 2020 (in thousands, except percentage data) Net revenue: Sypris Technologies$ 16,693 $ 12,072 $ 4,621 38.3 % 65.0 % 54.5 % Sypris Electronics 8,990 10,082 (1,092 ) (10.8 ) 35.0 45.5 Total 25,683 22,154 3,529 15.9 100.0 100.0 Cost of sales: Sypris Technologies 14,584 10,165 (4,419 ) (43.5 ) 87.4 84.2 Sypris Electronics 7,121 8,450 1,329 15.7 79.2 83.8 Total 21,705 18,615 (3,090 ) (16.6 ) 84.5 84.0 Gross profit: Sypris Technologies 2,109 1,907 202 10.6 12.6 15.8 Sypris Electronics 1,869 1,632 237 14.5 20.8 16.2 Total 3,978 3,539 439 12.4 15.5 16.0 Selling, general and administrative 3,007 2,695 (312 ) (11.6 ) 11.7 12.2 Operating income 971 844 127 15.0 3.8 3.8 Interest expense, net 211 216 5 2.3 0.8 1.0 Other expense, net 132 372 240 64.5 0.5 1.7 Income before taxes 628 256 372 145.3 2.5 1.2 Income tax expense (benefit), net 334 (3,239 ) (3,573 ) NM 1.3 (14.6 ) Net income$ 294 $ 3,495 $ (3,201 ) (91.6 ) 1.1 %$ 15.8 % 20
-------------------------------------------------------------------------------- Nine Months EndedOctober 3, 2021 Compared to Nine Months EndedOctober 4, 2020 . Year Over Year Results as Percentage of Net Year Over Year Percentage Revenue for the Nine Nine Months Ended, Change Change Months Ended October 3, October 4, Favorable Favorable October 3, October 4, 2021 2020 (Unfavorable) (Unfavorable) 2021 2020 (in thousands, except percentage data) Net revenue: Sypris Technologies$ 47,022 $ 33,234 $ 13,788 41.5 % 65.6 % 53.8 % Sypris Electronics 24,612 28,498 (3,886 ) (13.6 ) 34.4 46.2 Total 71,634 61,732 9,902 16.0 100.0 100.0 Cost of sales: Sypris Technologies 41,233 28,605 (12,628 ) (44.1 ) 87.7 86.1 Sypris Electronics 20,298 23,742 3,444 14.5 82.5 83.3 Total 61,531 52,347 (9,184 ) (17.5 ) 85.9 84.8 Gross profit: Sypris Technologies 5,789 4,629 1,160 25.1 12.3 13.9 Sypris Electronics 4,314 4,756 (442 ) (9.3 ) 17.5 16.7 Total 10,103 9,385 718 7.7 14.1 15.2 Selling, general and administrative 9,305 9,124 (181 ) (2.0 ) 13.0 14.8 Operating income 798 261 537 205.7 1.1 0.4 Interest expense, net 644 636 (8 ) (1.3 ) 0.9 1.0 Other expense (income), net 498 (114 ) (612 ) NM 0.7 (0.2 ) Forgiveness of PPP Loan and related interest (3,599 ) - 3,599 NM (5.0 ) - Income (loss) before taxes 3,255 (261 ) 3,516 NM 4.6 (0.4 ) Income tax expense (benefit), net 768 (3,103 ) (3,871 ) NM 1.1 (5.0 ) Net income$ 2,487 $ 2,842 $ (355 ) (12.5 ) 3.5 %$ 4.6 % Net Revenue.Sypris Technologies derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products. Net revenue forSypris Technologies for the three and nine-month periods endedOctober 3, 2021 increased$4.6 million and$13.8 million , respectively, from the prior year comparable periods primarily as a result of the rebound in the commercial vehicle market from the impact of the COVID-19 pandemic experienced during the prior year periods. The net revenue increase for the comparable three-month period was attributable to increased sales volumes of$4.8 million primarily with customers in the commercial vehicle market partially offset by lower energy related product sales of$0.2 million . The net revenue increase for the comparable nine-month period was attributable to increased sales volumes of$15.7 million primarily with customers in the commercial vehicle market, partially offset by decreased energy related product sales of$1.9 million . 21
--------------------------------------------------------------------------------Sypris Electronics derives its revenue primarily from circuit card and full "box build" manufacturing, high reliability manufacturing and systems assembly and integration. Net revenue forSypris Electronics decreased$1.1 million and$3.9 million , respectively, for the three and nine months endedOctober 3, 2021 , from the prior year comparable periods. The decrease in revenue for the three and nine months endedOctober 3, 2021 was primarily related to the completion of a program during the prior year. The follow-on to this program has been awarded and shipments are expected to resume during the fourth quarter of 2021. Additionally, in the first nine months of 2021, sales to our customers serving the communications industry decreased as compared to the first nine months of 2020 due to delayed orders experienced during the first quarter of 2021. Many of these orders were received beginning late in the first quarter and continued in the second and third quarters of 2021 and are expected to be converted to revenue over the balance of the year and in 2022. Certain programs have also been impacted by material availability as receipts of a limited number of specific parts necessary to complete the build of the products were delayed or, in other instances, required us to resource and obtain alternative parts or use alternative suppliers. The order backlog forSypris Electronics is expected to support a stable revenue rate during the balance of 2021 and into 2022, but revenue could continue to be impacted by material availability. Gross Profit.Sypris Technologies' gross profit increased$0.2 million and$1.2 million for the three and nine months endedOctober 3, 2021 , respectively, from the prior year comparable periods. The net increase in volumes contributed to an increase in gross profit of$1.5 million and$4.8 million for the three and nine months endedOctober 3, 2021 , respectively, from the prior year comparable periods. Partially offsetting this increase was an unfavorable product mix, increased operating supply spend, additional equipment maintenance expenses in support of an expected increase in revenue and unfavorable labor productivity experienced in the first quarter of 2021 as new production workers were being trained.Sypris Electronics' gross profit increased$0.2 million and decreased$0.4 million for the three and nine months endedOctober 3, 2021 , respectively, from the prior year comparable periods. The increase in gross profit for the three months endedOctober 3, 2021 was primarily the result of a favorable revenue mix during the quarter. The decrease in gross profit for the nine months endedOctober 3, 2021 was primarily a result of the decrease in revenue during the period, which also had a negative impact on overhead absorption. Selling, General and Administrative. Selling, general and administrative expense increased by$0.3 million and$0.2 million for the three and nine month periods endedOctober 3, 2021 , respectively, as compared to the same periods in 2020. The increase in selling general and administrative expense for the three and nine months endedOctober 3, 2021 was primarily the result of higher employee medical insurance claim expense during the period and an increase in headcount to support the anticipated increase in volumes forSypris Technologies . Selling, general and administrative expense decreased as a percentage of revenue to 11.7% and 13.0% for the three and nine months endedOctober 3, 2021 , respectively from 12.2% and 14.8% for the three and nine months endedOctober 4, 2020 , respectively. Other Expense (Income), Net. The Company recognized other expense, net of$0.1 million and$0.5 million for the three and nine months endedOctober 3, 2021 , respectively. During the three months endedOctober 3, 2021 , the Company recognized pension expense of$0.1 million . For the nine months endedOctober 3, 2021 , the Company recognized foreign exchange related losses of$0.1 million and pension expense of$0.4 million . The Company recognized other expense of$0.4 million and other income, net of$0.1 million for the three and nine months endedOctober 4, 2020 , respectively. During the three months endedOctober 4, 2020 , the Company recognized pension expense of$0.2 million and a loss on the disposal of assets of$0.2 million . For the nine months endedOctober 4, 2020 , the Company recognized net gains of$0.8 million related to the sale of idle assets, partially offset by pension expense of$0.6 million and foreign exchange related losses of$0.1 million . Forgiveness of PPP Loan and related interest. OnJune 28, 2021 , the Company received notice from BMO that BMO had received confirmation from the SBA that the application for forgiveness of the PPP Loan had been approved. The loan forgiveness request in the amount of$3.6 million was applied to the Company's entire outstanding PPP Loan balance with BMO. During the nine months endedOctober 3, 2021 , the Company recorded a gain on the forgiveness of the PPP Loan and accrued interest in the amount of$3.6 million . Income Taxes. The Company's income tax expense for the three and nine months endedOctober 3, 2021 consists primarily of foreign income taxes on its Mexican subsidiaries. The Company's income tax expense for the three and nine months endedOctober 4, 2020 consists primarily of a net deferred tax benefit of$3.3 million , partially offset by currently payable state and local income taxes on domestic operations and foreign income taxes on one of its Mexican subsidiaries. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on the forecast prepared during this prior period, the Company believed it would have sufficient future taxable income to realize its deferred tax assets by its Mexican subsidiaries. Therefore, the Company reversed its valuation allowance recorded in prior years against certain Mexican net deferred tax assets and recognized an income tax benefit of$3.3 million during the three and nine months endedOctober 4, 2020 . Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against allU.S. deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to futureU.S. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made. 22
--------------------------------------------------------------------------------
Liquidity, Capital Resources Paycheck Protection Program. As described above, the Company secured the PPP Loan under the CARES Act during the second quarter of 2020. Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments. The PPP Loan was evidenced by a promissory note in favor of BMO, as lender, with a principal amount of$3.6 million that bears interest at a fixed annual rate of 1.00%. During the fourth quarter of 2020, the Company applied for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning upon receipt of funds from the PPP Loan, subject to limitations and calculated in accordance with the terms of the CARES Act. 23 -------------------------------------------------------------------------------- OnJune 28, 2021 , the Company received notice from BMO that BMO had received confirmation from the SBA that the application for forgiveness of the PPP Loan had been approved. The loan forgiveness request in the amount of$3.6 million was applied to the Company's entire outstanding PPP Loan balance with BMO. During the nine months endedOctober 3, 2021 , the Company recorded a gain on the forgiveness of the PPP Loan and accrued interest in the amount of$3.6 million . Gill Family Capital Management Note. The Company has received the benefit of cash infusions from GFCM in the form of secured promissory note obligations totaling$6.5 million in principal as ofOctober 3, 2021 andDecember 31, 2020 (the "Note"). GFCM is an entity controlled by the Company's Chairman, President and Chief Executive Officer,Jeffrey T. Gill and one of our directors,R. Scott Gill . GFCM,Jeffrey T. Gill andR. Scott Gill are significant beneficial stockholders of the Company. As ofOctober 3, 2021 , our principal commitment under the Note was$2.5 million due onApril 1, 2022 ,$2.0 million onApril 1, 2024 and the balance onApril 1, 2026 . Interest on the Note is reset onApril 1 of each year, at the greater of 8.0% or 500 basis points above the five-yearTreasury note average during the preceding 90-day period, in each case, payable quarterly. The note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the portion of the notes maturing in April of 2022 and 2024. During the first quarter of 2020, the Company provided notice to GFCM of its intention to elect to defer the specified portion of the interest payments due beginning onApril 6, 2020 . All accrued but unpaid interest was paid onJanuary 4, 2021 . Finance Lease Obligations. As ofOctober 3, 2021 , the Company had$2.2 million outstanding under finance lease obligations for both property and machinery and equipment at itsSypris Technologies locations with maturities through 2025 and a weighted average interest rate of 10.04%.
Equipment financing obligations. From
Purchase commitments. We had purchase commitments totaling approximately
Cash Balance. AtOctober 3, 2021 , we had approximately$11.1 million of cash and cash equivalents, of which$5.0 million was held in jurisdictions outside of theU.S. that, if repatriated, could result in withholding taxes. We have projected that our cash and cash equivalents will be sufficient to allow us to continue operations for the next 12 months. Significant changes from our current forecasts, including, but not limited to: (i) the impact of the COVID-19 pandemic and changes in worldwide andU.S. economic conditions, (ii) meaningful shortfalls in projected revenue or sales proceeds from underutilized or non-core equipment, (iii) unexpected costs or expenses, and/or (iv) operating difficulties which cause unexpected delays in scheduled shipments, could require us to seek additional funding or force us to make further reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. Cash Flows Operating Activities. Net cash provided by operating activities was$2.2 million in the first nine months of 2021 as compared to$0.1 million in the same period of 2020. The aggregate increase in accounts receivable in 2021 resulted in a usage of cash of$4.3 million as a result of the increase in revenue forSypris Technologies and an early payment by a customer at the end of 2020. The increase in inventory in 2021 resulted in a usage of cash of$11.3 million . The increase in inventory is primarily in support of new program revenue growth forSypris Electronics anticipated to begin in the fourth quarter of 2021. A significant portion of the inventory receipts was funded through prepayments from customers ofSypris Electronics in 2020 and the first nine months of 2021. Additionally, there was an increase in accounts payable during the first nine months of 2021, providing a source of cash of$6.4 million , resulting from an increase in the purchase of inventory. Accrued and other liabilities increased during the first nine months of 2021, resulting in a source of cash of$10.0 million , primarily as a result of several substantial prepayments from customers ofSypris Electronics to fund the purchase of specific program inventory, resulting in an increase in contract liabilities. Investing Activities. Net cash used in investing activities was$1.8 million for the first nine months of 2021 as compared to cash provided of$0.8 million for the first nine months of 2020. Net cash used in investing activities for the first nine months of 2021 was comprised of capital expenditures of$1.8 million . 24
-------------------------------------------------------------------------------- Net cash used in investing activities for the first nine months of 2020 included proceeds of$2.0 million from the sale of idle assets bySypris Technologies during the period, including the sale of the Broadway Plant, partially offset by capital expenditures of$1.2 million . Financing Activities. Net cash used in financing activities was$0.9 million for the first nine months of 2021 as compared to cash provided of$2.9 million for the first nine months of 2020. Net cash used in financing activities in the first nine months of 2021 included principal payments on finance leases and equipment financing obligations of$0.5 million and payments of$0.4 million for minimum statutory tax withholdings on stock based compensation.
Net cash flow generated from financing activities in the first nine months of 2020 included the proceeds of
Critical Accounting Policies See the information concerning our critical accounting policies included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . There have been no significant changes in our critical accounting policies during the nine months endedOctober 3, 2021 . Forward-looking Statements This Quarterly Report on Form 10-Q, and our other oral or written communications, may contain "forward-looking" statements. These statements may include our expectations or projections about the future of our business, industries, business strategies, prospects, potential acquisitions, liquidity, financial condition or financial results and our views about developments beyond our control, including domestic or global economic conditions, government spending, industry trends and market developments. These statements are based on management's views and assumptions at the time originally made, and, except as required by law, we undertake no obligation to update these statements, even if, for example, they remain available on our website after those views and assumptions have changed. There can be no assurance that our expectations, projections or views will come to pass, and undue reliance should not be placed on these forward-looking statements. A number of significant factors could materially affect our specific business operations and cause our performance to differ materially from any future results projected or implied by our prior statements. Many of these factors are identified in connection with the more specific descriptions contained throughout this report. Other factors which could also materially affect such future results currently include: the impact of COVID-19 and economic conditions on our future operations; possible public policy response to the pandemic, including legislation or restrictions that may impact our operations or supply chain; the impact of potentialU.S. Government COVID-19 vaccine mandates on our ability to attract and retain employees and on our business and results of operations; our failure to successfully complete final contract negotiations with regard to our announced contract "orders", "wins" or "awards"; our failure to successfully win new business; the termination or non-renewal of existing contracts by customers; our failure to achieve and maintain profitability on a timely basis by steadily increasing our revenues from profitable contracts with a diversified group of customers, which would cause us to continue to use existing cash resources or require us to sell assets to fund operating losses; breakdowns, relocations or major repairs of machinery and equipment, especially in ourToluca Plant ; volatility of our customers' forecasts especially in the commercial truck markets and our contractual obligations to meet current scheduling demands and production levels (especially in ourToluca Plant ), which may negatively impact our operational capacity and our effectiveness to integrate new customers or suppliers, and in turn cause increases in our inventory and working capital levels; cost, quality and availability or lead times of raw materials such as steel, component parts (especially electronic components), natural gas or utilities; the cost, quality, timeliness, efficiency and yield of our operations and capital investments, including the impact of tariffs, product recalls or related liabilities, employee training, working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; dependence on, retention or recruitment of key employees and distribution of our human capital; inaccurate data about markets, customers or business conditions; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability, warranty or environmental claims; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; our ability to comply with the requirements of the SBA and maintain forgiveness of all or a portion of our Paycheck Protection Program loan; our inability to develop new or improved products or new markets for our products; our reliance on a few key customers, third party vendors and sub-suppliers; inventory valuation risks including excessive or obsolescent valuations or price erosions of raw materials or component parts on hand or other potential impairments, non-recoverability or write-offs of assets or deferred costs; other potential weaknesses in internal controls over financial reporting and enterprise risk management; failure to adequately insure or to identify product liability, environmental or other insurable risks; unanticipated or uninsured disasters, public health crises, losses or business risks; unanticipated or uninsured product liability claims; the costs of compliance with our auditing, regulatory or contractual obligations; labor relations; strikes; union negotiations; pension valuation, health care or other benefit costs; costs associated with environmental claims relating to properties previously owned; our inability to patent or otherwise protect our inventions or other intellectual property from potential competitors; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; our reliance on revenues from customers in the oil and gas and automotive markets, with increasing consumer pressure for reductions in environmental impacts attributed to greenhouse gas emissions and increased vehicle fuel economy;U.S. government spending on products and services thatSypris Electronics provides, including the timing of budgetary decisions; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; risks of foreign operations; currency exchange rates; war, terrorism, or political uncertainty; cyber security threats and disruptions; our ability to maintain compliance with the Nasdaq listing standards minimum closing bid price; risk related to owning our common stock including increased volatility; or unknown risks and uncertainties and the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . 25
————————————————– ——————————
© Edgar online, source
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/businessoffashion/SX3HO2QIZVB2VAPFVCHL4ANCZI.png)
