Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a diversified provider 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 and Sypris Electronics. Sypris Technologies, which is comprised of Sypris 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 of Sypris 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.
Sypris Technologies Outlook
The Sypris Technologies segment continues to migrate from its historical, concentrated dependence upon the commercial vehicle markets to a more diversified base of customers who place value on our innovation, flexibility and lean manufacturing capabilities. During 2016, the continued strength of the U.S. dollar, the tightening of margins in certain sectors of the commercial vehicle markets and the generally softening of certain key market segments led the Company to reevaluate the strategic importance of each of its customers to the Company’s long-term success. The Company has reduced its reliance on certain of its traditional Tier 1 customers that represent the primary suppliers to the original equipment manufacturers (“OEMs”) in the commercial vehicle markets, while targeting to replace these customers with more diversified, longer-term relationships, especially among the OEMs and others who place a higher value on the Company’s innovation, flexibility and core commitment to lean manufacturing principles. Among the customer programs not being renewed were (i) a supply agreement with Meritor that expired on January 1, 2017 and (ii) the Company’s business with Eaton, both of which utilized production at the Company’s Broadway Plant.
However, the Company continues to supply component parts to Sistemas Automotrices de Mexico, S.A de C.V. (“Sistemas”), Meritor’s joint venture in Mexico. During the fourth quarter of 2018, the Company entered into a new three-year agreement to supply axle shafts, as well as a number of other product lines, to Sistemas for periods of up to six years from the commencement of production.
As a result of these decisions, the Company experienced a significant reduction in its commercial vehicle revenues in 2017. On February 21, 2017, the Board of Directors approved a modified exit or disposal plan with respect to the Broadway Plant, which was substantially complete as of the end of 2017. The Company has relocated certain assets from the Broadway Plant to other manufacturing facilities as needed to serve its existing and targeted customer base and identified underutilized or non-core assets for disposal. Management expects to use a portion of the proceeds from the sale of any underutilized or non-core assets to help fund costs of transferring any additional equipment from the Broadway Plant. Management is currently evaluating options for the real estate and any remaining assets in the Broadway Plant (See Note 6 to the consolidated financial statements in this Form 10-Q).
The oil and gas markets, served by our Tube Turns® brand of engineered product lines, have strengthened along with the overall economy, and domestic pipeline projects continue to be active with U.S. domestic gas and oil production increasing in 2018 and the first half of 2019. We are committed to exploring new product developments and potential new markets, which will be an increasing area of focus for the Company going forward.
We are pursuing new business in a wide variety of markets from light automotive to refrigeration valves to new energy related product lines to achieve a more balanced portfolio across our customers, markets and products. We have recently announced new program awards in each of these markets that have contributed to revenue growth for Sypris Technologies in 2018 and the first half of 2019. We believe these opportunities provide a solid multi-year foundation for growth and that additional prospective business may result in increased revenue going forward.
Sypris Electronics Outlook
In the past few years, we have faced challenges within Sypris Electronics, including the emergence of new competitors to our manufacturing capabilities.
However, we have recently announced new program awards for Sypris Electronics that contributed to revenue in 2018, with certain programs continuing into 2019. In addition to program awards related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded programs related to the communication and navigation markets which align with our advanced capabilities for delivering products for complex, high cost of failure platforms. Full year appropriations for FY 2019 were enacted for all remaining U.S. government agencies and the President proposed an FY 2020 budget requesting nearly $750 billion for national security, which is expected to support program growth and market expansion for the remainder of 2019 for aerospace and defense participants. We expect to compete for follow-on business opportunities on future builds of several existing programs, as our competitiveness is enhanced by the reduction in our overhead structure following our relocation into a new manufacturing facility at the beginning of 2017.
In the near term, certain electronic component shortages and extensive lead-time issues are prevalent in many of the segments in the electronic manufacturing industry that we serve. This had a negative impact on our segment revenues and gross profit in the first six months of 2019. We are working with our customers to qualify alternative components or suppliers to mitigate the impact on our business. We expect that these issues will be resolved for some component shortages in the next 3 to 6 months, but these and other shortages may persist as a challenge beyond 2019. The majority of our aerospace and defense programs 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. As a result, there can be no assurance that we will be successful in addressing these shortages and issues.
Results of Operations
The tables below compare our segment and consolidated results for the three and six month periods of operations of 2019 to the three and six month periods of operations of 2018. The tables present the results for each period, the change in those results from 2018 to 2019 in both dollars and percentage change and the results for each period as a percentage of net revenue.
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●
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The first two columns in each table show the absolute results for each period presented.
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|
|
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●
|
The columns entitled “Year Over Year Change” and “Year Over Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.
|
|
●
|
The last two columns in each table show the results for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each are given as a percentage of that segment’s net revenue. These amounts are shown in italics.
|
In addition, as used in the table, “NM” means “not meaningful.”
Three Months Ended June 30, 2019 Compared to Three Months Ended July 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Over
|
|
|
Year
|
|
|
Results as Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Percentage
|
|
|
Net Revenue for the Three
|
|
|
|
Three Months Ended,
|
|
|
Change
|
|
|
Change
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Favorable
|
|
|
Favorable
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2019
|
|
|
2018
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands, except percentage data)
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$
|
16,878
|
|
|
$
|
15,327
|
|
|
$
|
1,551
|
|
|
|
10.1%
|
|
|
|
69.0
|
%
|
|
|
66.7
|
%
|
Sypris Electronics
|
|
|
7,566
|
|
|
|
7,644
|
|
|
|
(78
|
)
|
|
|
(1.0)
|
|
|
|
31.0
|
|
|
|
33.3
|
|
Total
|
|
|
24,444
|
|
|
|
22,971
|
|
|
|
1,473
|
|
|
|
6.4
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
|
13,915
|
|
|
|
13,397
|
|
|
|
(518
|
)
|
|
|
(3.9)
|
|
|
|
82.4
|
|
|
|
87.4
|
|
Sypris Electronics
|
|
|
6,540
|
|
|
|
6,640
|
|
|
|
100
|
|
|
|
1.5
|
|
|
|
86.4
|
|
|
|
86.9
|
|
Total
|
|
|
20,455
|
|
|
|
20,037
|
|
|
|
(418
|
)
|
|
|
(2.1)
|
|
|
|
83.7
|
|
|
|
87.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
|
2,963
|
|
|
|
1,930
|
|
|
|
1,033
|
|
|
|
53.5
|
|
|
|
17.6
|
|
|
|
12.6
|
|
Sypris Electronics
|
|
|
1,026
|
|
|
|
1,004
|
|
|
|
22
|
|
|
|
2.2
|
|
|
|
13.6
|
|
|
|
13.1
|
|
Total
|
|
|
3,989
|
|
|
|
2,934
|
|
|
|
1,055
|
|
|
|
36.0
|
|
|
|
16.3
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
3,604
|
|
|
|
3,171
|
|
|
|
(433
|
)
|
|
|
(13.7)
|
|
|
|
14.7
|
|
|
|
13.8
|
|
Severance, relocation and other costs
|
|
|
103
|
|
|
|
305
|
|
|
|
202
|
|
|
|
66.2
|
|
|
|
0.4
|
|
|
|
1.3
|
|
Operating income (loss)
|
|
|
282
|
|
|
|
(542
|
)
|
|
|
824
|
|
|
|
152.0
|
|
|
|
1.2
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
232
|
|
|
|
221
|
|
|
|
(11
|
)
|
|
|
(5.0)
|
|
|
|
0.9
|
|
|
|
1.0
|
|
Other (income), net
|
|
|
(1,493
|
)
|
|
|
(1,623
|
)
|
|
|
(130
|
)
|
|
|
(8.0)
|
|
|
|
(6.1
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
1,543
|
|
|
|
860
|
|
|
|
683
|
|
|
|
79.4
|
|
|
|
6.3
|
|
|
|
3.7
|
|
Income tax expense, net
|
|
|
40
|
|
|
|
46
|
|
|
|
6
|
|
|
|
13.0
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,503
|
|
|
$
|
814
|
|
|
$
|
689
|
|
|
|
84.6
|
|
|
|
6.1
|
%
|
|
|
3.5
|
%
|
Six Months Ended June 30, 2019 Compared to Six Months Ended July 1, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Over
|
|
|
Year
|
|
|
Results as Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Percentage
|
|
|
Net Revenue for the Six
|
|
|
|
Six Months Ended,
|
|
|
Change
|
|
|
Change
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Favorable
|
|
|
Favorable
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2019
|
|
|
2018
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands, except percentage data)
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
$
|
33,019
|
|
|
$
|
29,834
|
|
|
$
|
3,185
|
|
|
|
10.7%
|
|
|
|
75.0
|
%
|
|
|
69.5
|
%
|
Sypris Electronics
|
|
|
10,989
|
|
|
|
13,079
|
|
|
|
(2,090
|
)
|
|
|
(16.0)
|
|
|
|
25.0
|
|
|
|
30.5
|
|
Total
|
|
|
44,008
|
|
|
|
42,913
|
|
|
|
1,095
|
|
|
|
2.6
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
|
27,752
|
|
|
|
25,797
|
|
|
|
(1,955
|
)
|
|
|
(7.6)
|
|
|
|
84.0
|
|
|
|
86.5
|
|
Sypris Electronics
|
|
|
11,407
|
|
|
|
12,151
|
|
|
|
744
|
|
|
|
6.1
|
|
|
|
103.8
|
|
|
|
92.9
|
|
Total
|
|
|
39,159
|
|
|
|
37,948
|
|
|
|
(1,211
|
)
|
|
|
(3.2)
|
|
|
|
89.0
|
|
|
|
88.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sypris Technologies
|
|
|
5,267
|
|
|
|
4,037
|
|
|
|
1,230
|
|
|
|
30.5
|
|
|
|
16.0
|
|
|
|
13.5
|
|
Sypris Electronics
|
|
|
(418
|
)
|
|
|
928
|
|
|
|
(1,346
|
)
|
|
|
NM
|
|
|
|
(3.8
|
)
|
|
|
7.1
|
|
Total
|
|
|
4,849
|
|
|
|
4,965
|
|
|
|
(116
|
)
|
|
|
(2.3)
|
|
|
|
11.0
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,058
|
|
|
|
6,319
|
|
|
|
(739
|
)
|
|
|
(11.7)
|
|
|
|
16.0
|
|
|
|
14.7
|
|
Severance, relocation and other costs
|
|
|
201
|
|
|
|
814
|
|
|
|
613
|
|
|
|
75.3
|
|
|
|
0.5
|
|
|
|
1.9
|
|
Operating loss
|
|
|
(2,410
|
)
|
|
|
(2,168
|
)
|
|
|
(242
|
)
|
|
|
(11.2)
|
|
|
|
(5.5
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
449
|
|
|
|
434
|
|
|
|
(15
|
)
|
|
|
(3.5)
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Other (income), net
|
|
|
(1,442
|
)
|
|
|
(1,707
|
)
|
|
|
(265
|
)
|
|
|
(15.5)
|
|
|
|
(3.3
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(1,417
|
)
|
|
|
(895
|
)
|
|
|
(522
|
)
|
|
|
(58.3)
|
|
|
|
(3.2
|
)
|
|
|
(2.1
|
)
|
Income tax expense, net
|
|
|
116
|
|
|
|
86
|
|
|
|
(30
|
)
|
|
|
(34.9)
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,533
|
)
|
|
$
|
(981
|
)
|
|
$
|
(552
|
)
|
|
|
(56.3)
|
|
|
|
(3.5
|
)%
|
|
|
(2.3
|
)%
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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 for Sypris Technologies for the three and six-month periods ended June 30, 2019 increased $1.6 million and $3.2 million from the prior year comparable periods, respectively. The net revenue growth for the comparable three-month period was primarily attributable to increased energy related product sales of $0.8 million and increased sales volume of $0.4 million with customers in the commercial vehicle market. Additionally, price increases with one of our commercial vehicle programs implemented during the fourth quarter of 2018 resulted in an increase of $0.3 million for the three months ended June 30, 2019. The net revenue growth for the comparable six-month periods was primarily attributable to increased sales volume of $2.0 million with customers in the commercial vehicle market, increased energy related product sales of $0.6 million and price increases of $0.6 million.
Sypris Electronics derives its revenue primarily from circuit card and full “box build” manufacturing, high reliability manufacturing and systems assembly and integration. Net revenue for Sypris Electronics decreased $0.1 million and $2.1 million, respectively, for the three and six months ended June 30, 2019, from the prior year comparable periods. Revenue for the first six months of 2019 was partially affected by shortages of certain electronic components and extensive lead-time issues in the electronic manufacturing industry. The first half of 2019 was also impacted by shipments accelerated into the fourth quarter of 2018 as the Company planned for the implementation of a new ERP system effective in January.
Gross Profit.
Sypris Technologies’ gross profit increased $1.0 million and $1.2 million for the three and six months ended June 30, 2019. The net increase in volumes contributed to an increase in gross profit of $0.4 million and $0.5 million for the three and six months ended June 30, 2019, respectively. Additionally, gross profit for the three and six months ended June 30, 2019 was positively impacted by a price increase on a commercial vehicle program implemented during the fourth quarter of 2018 and improvements in supply and maintenance expense.
Sypris Electronics’ gross profit was flat for the three months ended June 30, 2019 and decreased $1.3 million for the six months ended June 30, 2019. The decrease in gross profit was primarily as a result of lower volumes during the periods, driving an increase in unabsorbed overhead. Program mix also factored into the decrease, as the Company experienced declines on certain higher margin legacy programs. The lower volumes on the legacy programs were partially offset by a new program which launched during 2018, which was still in the ramp-up phase for the first half of 2019 and the margin performance was lower than what is expected after full run rates are achieved.
Selling, General and Administrative.
Selling, general and administrative expense increased by $0.4 million and $0.7 million for the three and six month periods ended June 30, 2019, respectively, as compared to the same periods in 2018, primarily as a result of higher employee medical insurance claim expenses during the period as compared to the prior year and consultation costs associated with the Company’s new ERP implementation effective in January.
Other
(Income
)
, Net.
The Company recognized other income, net of $1.4 million for the six months ended June 30, 2019 compared to $1.7 million for the six months ended July 1, 2018. During the six months ended June 30, 2019, the Company recognized a gain in other income of $1.5 million related to a settlement agreement reached with one of its customers during the period (see Note 7). Additionally, the Company recognized a net gain of $0.5 million related to the sale of idle assets, offset by pension expense of $0.5 million.
During the six months ended July 1, 2018, the Company recognized an insurance recovery gain of $2.3 million related to proceeds received related to damage sustained at one of its plants (see Note 7). Additionally, the Company recognized a net loss of $0.2 million related to the sale of idle assets and pension expense of $0.3 million.
Liquidity, Capital Resources
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 of June 30, 2019 and December 31, 2018 (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 and R. Scott Gill are significant beneficial stockholders of the Company. As of June 30, 2019, our principal commitment under the Note was $2.5 million due on April 1, 2021, $2.0 million on April 1, 2023 and the balance on April 1, 2025. The Note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the notes maturing in April of 2021 and 2023, and provide for a first security interest in substantially all of the Company’s assets, including those in Mexico.
Finance
Lease Obligations.
On March 9, 2016, the Company completed the sale of its 24-acre Toluca property for 215 million Mexican Pesos, or approximately $12.2 million in U.S. dollars. Simultaneously, the Company entered into a ten-year lease of the 9 acres and buildings currently occupied by the Company and needed for its ongoing business in Toluca. As a result of the Toluca Sale-Leaseback, the Company has a capital lease obligation of $2.6 million for the building as of June 30, 2019.
In January 2018, the Company entered into a capital lease for $1.3 million for new production equipment installed at its Sypris Electronics facility during 2017. The balance of the lease obligation as of June 30, 2019 was $0.5 million.
In February 2019, the Company entered into a capital lease for $0.3 million for new machinery at its Sypris Technologies facility in the U.S. The balance of the lease obligation as of June 30, 2019 was $0.3 million.
Purchase Commitments.
We had purchase commitments totaling approximately $12.9 million at June 30, 2019, primarily for inventory.
Cash Balance.
At June 30, 2019, we had approximately $4.5 million of cash and cash equivalents, of which $1.2 million was held in jurisdictions outside of the U.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) meaningful shortfalls in projected revenue or sales proceeds from underutilized or non-core equipment, (ii) unexpected costs or expenses, and/or (iii) 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 used by operating activities was $5.8 million in the first six months of 2019 as compared to $2.7 million in the same period of 2018. The aggregate increase in accounts receivable in 2019 resulted in a use of cash of $1.2 million as a result of the increase in revenue and the timing of revenue being weighted toward the last month of the period. The investment in inventory in the first six months of 2019 resulted in a usage of cash of $1.6 million. The increase in inventory primarily relates to the new program revenue growth for Sypris Electronics. A significant portion of the inventory receipts were funded through prepayments from customers of Sypris Electronics in the second half of 2018. Additionally, there was a decrease in accounts payable during the first six months of 2019, which resulted in a usage of cash of $2.4 million. Prepaid expenses and other assets increased during the first six months of 2019, resulting in a usage of cash of $1.2 million, primarily as a result of the timing of the cash receipt associated with a settlement agreement with a customer (See Note 7). Accrued and other liabilities increased during the first six months of 2019, resulting in a source of cash of $0.4 million, primarily as a result of additional prepayments from customers of Sypris Electronics.
Investing Activities.
Cash flows from investing activities was cash neutral for the first six months of 2019 as compared to cash provided of $2.4 million for the first six months of 2018. Net cash used in investing activities for the first six months of 2019 included capital expenditures of $0.7 million offset by proceeds of $0.6 million from the sale of idle asset by Sypris Technologies during the period.
Net cash provided by investing activities for the first six months of 2018 includes $2.3 million from insurance proceeds related to damage sustained at one of its plants from freezing pipes (See Note 7). Additionally, the company received proceeds of $1.4 million from the sale of idle assets by Sypris Technologies during the period. This was partially offset by capital expenditures of $1.2 million during the period.
Financing Activities.
Net cash used in financing activities was $0.4 million for the first six months of 2019 as compared to $0.7 million for the first six months of 2018. Net cash used in financing activities in the first six months of 2019 included capital lease payments of $0.3 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation.
Net cash used in financing activities in the first six months of 2018 included capital lease payments of $0.6 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation.
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 ended December 31, 2018. There have been no significant changes in our critical accounting policies during the six months ended June 30, 2019.
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, trends and market developments. These statements, including those outlined in management’s recovery plan, 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 quantitative effects of the restatement of our previously issued unaudited consolidated interim financial statements as of and for the quarter ended March 31, 2019; the effectiveness of our internal control over financial reporting and our disclosure controls and procedures; our failure to achieve targeted gains and cash proceeds from the anticipated sale of certain equipment; dependence on, retention or recruitment of key employees; our failure to return to 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 other assets to fund operating losses; 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; cost, quality and availability of raw materials such as steel, component parts (especially electronic components), natural gas or utilities; 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; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability or environmental claims; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; our reliance on a few key customers, third party vendors and sub-suppliers; continued shortages and extensive lead-times for electronic components; failure to adequately insure or to identify environmental or other insurable risks; unanticipated or uninsured disasters, losses or business risks; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”; volatility of our customers’ forecasts, scheduling demands and production levels which 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; the costs of compliance with our auditing, regulatory or contractual obligations; our inability to develop new or improved products or new markets for our products; labor relations; strikes; union negotiations; pension valuation, health care or other benefit costs; 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 inability to regain compliance with the NASDAQ listing standards minimum closing bid price in a timely manner; U.S. government spending on products and services that Sypris 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; inaccurate data about markets, customers or business conditions; 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 ended December 31, 2018.