(

)

Recent Accounting Pronouncements

2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014

- Revenue from Contracts with Customers (ASC

606

), which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of ASU

2014

09,

the FASB clarified the new guidance through several additional ASUs; hereinafter the collection of revenue guidance is referred to as “ASC

606.”

ASC

606

is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and any assets recognized from costs incurred to fulfill a contract. The Company adopted the guidance effective

January 1, 2018

using the modified retrospective approach for all contracts

not

completed as of the date of adoption. Results for reporting periods beginning

January

2018

are presented under ASC

606,

while prior period amounts were

not

adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC

605,

Revenue Recognition.

We recorded a net decrease to beginning accumulated deficit of

$170,000

as of

January 1, 2018,

for the cumulative impact of adopting the new guidance. The impact primarily arises from a change in how we account for certain federally funded programs within Sypris Electronics where we transfer control of the products to the customer as they are produced (i.e., a change from recognizing revenue at a point in time to recognizing revenue over time, resulting in revenue being recognized earlier in the process of completing the performance obligation).

The following table summarizes the cumulative effect of the changes to our unaudited consolidated balance sheet as of

January

2018

from the adoption of ASC

606:

							Opening
	Balance at			ASC 606			Balance at
	Dec. 31, 2017			Adjustments			Jan. 1, 2018
Assets
Inventories – net	$	17,641		$	(655	)	$	16,986
Contract assets		0			825			825

Liabilities and Equity
Accumulated deficit	$	(111,591	)	$	170		$	(111,421	)

Under the modified retrospective method of adoption, we are also required to disclose in the

first

year of adoption the hypothetical impact to our financial statements if we had continued to follow our accounting policies under ASC

605

during the period. We estimate that the impact to revenue for the

three

and

nine

months ended

September

30,

2018

would have been an increase of approximately

$24,000

and a decrease of

$1,002,000,

respectively, representing the amount of revenue recognized over time versus at a point in time under ASC

606.

Additionally, the adoption of ASC

606

increased our operating loss and net loss by

$71,000,

or less than

$0.01

per share for the

three

months ended

September

30,

2018

and decreased our operating loss and net loss by

$115,000,

$0.01

per share, for the

nine

months ended

September 30, 2018.

The following table summarizes the effect of adopting ASC

606

on our unaudited consolidated statement of operations for the

three

months ended

September

30,

2018:

	Legacy GAAP			Impact of			As Reported
	Sept. 30, 2018			ASC 606			Sept. 30, 2018

Net revenue	$	21,125		$	(24	)	$	21,101
Cost of sales		19,852			47			19,899
Gross profit		1,273			(71	)		1,202

Selling, general and administrative		2,942			0			2,942
Severance, equipment relocation and other costs		274			0			274
Operating loss		(1,943	)		(71	)		(2,014	)

Interest expense, net		231			0			231
Other (income), net		56			0			56
Income before taxes		(2,230	)		(71	)		(2,301	)

Income tax expense		35			0			35

Net income	$	(2,265	)	$	(71	)	$	(2,336	)

The following table summarizes the effect of adopting ASC

606

on our unaudited consolidated statement of operations for the

nine

months ended

September

30,

2018:

	Legacy GAAP			Impact of		As Reported
	Sept. 30, 2018			ASC 606		Sept. 30, 2018

Net revenue	$	63,012		$	1,002	$	64,014
Cost of sales		56,960			887		57,847
Gross profit		6,052			115		6,167

Selling, general and administrative		9,261			0		9,261
Severance, equipment relocation and other costs		1,088			0		1,088
Operating loss		(4,297	)		115		(4,182	)

Interest expense, net		665			0		665
Other (income), net		(1,651	)		0		(1,651	)
Loss before taxes		(3,311	)		115		(3,196	)

Income tax expense		121			0		121

Net loss	$	(3,432	)	$	115	$	(3,317	)

The following table summarizes the cumulative effect of the changes to our unaudited consolidated balance sheets as of

September

30,

2018

from the adoption of ASC

606:

	Legacy GAAP			Impact of			As Reported
	Sept. 30, 2018			ASC 606			Sept. 30, 2018
Assets
Inventories – net	$	20,397		$	(1,541	)	$	18,856
Contract assets		0			1,826			1,826

Liabilities and Equity
Accumulated deficit	$	(115,023	)	$	285		$	(114,738	)

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (ASC

842

). The new standard was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this update supersedes FASB Accounting Standards Codification (“ASC”)

840,

Leases. The amendments in this ASU are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company will adopt this update beginning on

January 1, 2019

using a modified retrospective transition method. The Company expects to elect certain practical expedients permitted under the transition guidance within the standard where comparative periods of adoption do

not

need to be restated. The Company expects the valuation of right of use assets and lease liabilities, previously described as operating leases, to be the present value of the Company’s forecasted future lease commitments. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations, and expects the amendments will have a material impact on our consolidated financial statements, primarily from the recognition of right-of-use assets and lease liabilities on our consolidated balance sheets and changes to related disclosures.

March 2017,

the FASB issued ASU

No.

2017

07,

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU

2017

). The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. The income statement guidance requires application on a retrospective basis. The Company adopted the ASU on

January 1, 2018,

and as a result operating income increased

$299,000

and other income decreased by

$299,000

for the

nine

months ended

October

2017.

The Company used the practical expedient provided in ASU

2017

that permits the use of the amounts disclosed in its benefit plans notes for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. These changes in presentation do

not

result in any changes to net loss or loss per share. Details of the components of net periodic benefit costs are provided in Note

17.

February 2018,

the FASB issued ASU

No.

2018

02,

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU

2018

). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU

2018

allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of

2017

(the “Tax Act”). The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption in any period is permitted. The Company does

not

expect the adoption of ASU

2018

to have a material impact on the Company’s consolidated financial statements.

August 2018,

the FASB issued ASU

2018

15,

Intangibles-Goodwill and Other-Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU

2018

). ASU

2018

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new guidance will be effective for public companies for fiscal years beginning after

December 15, 2019

and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures.