Sypris Solutions, Inc. Annual Report 1999

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FY1999 Annual Report · Sypris Solutions, Inc.

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About Our

Company

Sypris Solutions is a diversified provider of technology-based outsource services and specialized industrial

products. The Company performs a wide range of manufacturing and technical services, typically under

long-term contracts with major manufacturers. We also manufacture and sell complex data storage systems,

magnetic instruments, current sensors, high-pressure closures and a variety of other industrial products.

Our mission is to become the leading value-added supplier in each of our unique, technically

sophisticated niche markets.

2 Letter to Shareholders

4 Our Mission

6 Manufacturing Services

8 Technical Services

10 Products

12 1999 Financial Review

$217

$212

$202

$14.2

$12.9

Net Revenue
(in millions)

$0.97

$0.76

$1.8

Operating Income
(in millions)

$6.17

$5.04

$0.48

$2.82

$9.6

$7.4

$5.3

Net Income
(in millions)

$127

$106

$87

Diluted Earnings
Per Share

Book Value
Per Share

Order Backlog
(in millions)

Financial Highlights

Years ended December 31
(in thousands, except for per share data)

Income Statement Data:
Net revenue
Gross profit
Operating income
Net income

Per Share Data:
Net income:

Basic
Diluted

December 31
(in thousands)

Balance Sheet Data:
Working capital
Total assets
Total debt
Total shareholders’ equity

1999

1998

Change

$ 202,130
44,949
14,166
9,556

$ 211,625
47,923
12,851
7,446

(4.5%)
(6.2%)
10.2%
28.3%

$
$

1.00
0.97

$
$

0.79
0.76

26.6%
27.6%

1999

1998

Change

$ 53,705
148,564
54,400
60,820

$ 32,121
121,119
28,583
49,359

67.2%
22.7%
90.3%
23.2%

See accompanying Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

To Our

Shareholders

We are pleased to report that 1999 marked a year of continued progress for Sypris Solutions. Employees throughout

the Company worked diligently to accomplish a series of wide-ranging goals that were designed to create a stronger, more

competitive, increasingly profitable corporation. It is our pleasure to report that they were successful.

Earnings per share increased 28 percent to $0.97 per share in 1999 from $0.76 per share for the prior year. Revenue

declined slightly, as expected, to $202 million from $212 million in 1998. Backlog increased 20 percent to $127 million

from $106 million for the prior year, while shareholders’ equity increased 23 percent to $61 million from $49 million at

year-end 1998. The Company’s stock price reflected this progress and increased 52 percent to $9.00 per share as of the end

of December 1999 from just under $6.00 per share at the end of 1998.

The important news, however, is that we believe the Company is now positioned to resume profitable top line growth.

The trend toward outsourcing in the United States continues to accelerate, which should play well to our strengths since

we derive approximately 75 percent of our revenue from an array of sophisticated manufacturing and technical

services that are provided primarily to large original equipment manufacturers. We believe this positive business

environment will be of particular benefit to our Manufacturing Services business, which encompasses a variety of value-

added activities, ranging from the assembly of complex circuit card assemblies to the production of heavy-duty truck axles.

The significant growth in contract awards and backlog during the year was reflective of the Company’s successful efforts

to become a leader in certain segments of the rapidly growing market for outsourcing services. For example, during 1999

we announced two important, multi-year programs with Raytheon with a total estimated value of $71 million. These

contracts extend through the year 2003 and provide for the Company to produce circuit card assemblies that will be

integrated into a number of digital communications systems for use by satellites and aircraft.

In addition, we entered into a three-year contract with Allied Signal with a total estimated value of $35 million, including

options, for the production of circuit card assemblies that will be used in the cockpit display units of the AH64 Apache

Longbow attack helicopter. We also secured an $11 million contract to manufacture secure communications equipment

for the United States Navy Space and Naval Warfare Systems Command, and a $6 million contract to produce complex

circuit card assemblies for use in a ruggedized, hand-held computer produced by Litton Data Systems.

This momentum has carried forward into the new year. In January of 2000, we announced an accord to expand and extend

our strategic partnership with Meritor Automotive. The contract, with an estimated value of $120 million over five years,

calls for Sypris to serve as the sole-source provider of Class V-VIII truck axles in the United States for Meritor through

the year 2004. In addition to the Meritor agreement, we also announced four new contracts with Raytheon during January

and February of 2000 with a total value of more than $21 million.

The award of these and other contracts represent a significant milestone in our efforts to construct a strong, dependable

platform on which to build the business in the future. The successful pursuit of multi-year, sole-source agreements is

an important part of our strategy to increase the dependability and reliability of the Company’s future financial results.

The security and visibility provided by these types of long-term contracts enables us to invest with confidence in

productivity-enhancing equipment that will benefit the Company for years to come.

On the acquisition front, the Company completed the purchase of Terametrix in September and the purchase of the

Calibration and Repair Service division of Lucent Technologies in December. The Lucent transaction is of particular note,

since it added AT&T, Lucent, the Federal Aviation Administration and the National Weather Service to the Company’s

growing list of valuable customers. As a result of this acquisition, we believe that we are now positioned to become the

leading independent outsource provider of calibration and repair services in the United States.

We are pleased with the progress we have made to date and we are optimistic as we look toward the future. More

specifically, we believe that Sypris Solutions is now poised to take advantage of the increasingly rapid consolidation of

the automotive and truck components market, as well as the accelerating trend toward outsourcing in the aerospace and

defense markets. We believe that we possess the special engineering and manufacturing skills that are required to meet the

high-reliability, complex requirements of customers in these sectors. As we address the opportunities in both of these

markets, we will invest to support the needs of those future customers who value long-term partnerships and are willing to

enter into firm, multi-year contractual arrangements.

During the latter part of the year, the Company entered into a new $100 million revolving credit agreement with a bank

syndicate led by Bank One, with Bank of America, LaSalle Bank and SunTrust Bank serving as participants. The new

agreement replaced the Company’s former $40 million credit facility and should provide us with the necessary financial

resources to support our near-term growth initiatives.

In closing, we want to thank our employees for their dedication over this past year. The achievements of 1999 would

not have been possible without their hard work and commitment. We also want to thank our customers for giving us the

opportunity to serve them and we look forward to playing an increasingly important role for each of them in the future.

We sincerely appreciate your investment in Sypris Solutions and we encourage you to contact us. We would be pleased to

answer your questions and look forward to your comments.

Sincerely,

Jeffrey T. Gill
President & CEO

Robert E. Gill
Chairman

Lead
CultivateInve
Develop
Focus

Achieve

Deliver

Our mission
technically sophisticated niche markets. We will do so by continuing to cultivate close,

is to become the leadingvalue-added supplier in each of our unique,

long-term relationships with a select group of customers. We will invest to grow with these

customers. We will developnew compelling value-added services, technologies and products.

We will focuson the selective completion of synergistic acquisitions. And we will achieve

operating synergies and cost efficiencies to improve our competitiveness. We believe that by

so doing, we will be able to exceed the expectations of our customers and deliverconsistent,

dependable financial results and attractive returns for our shareholders over the long-term.

Manufacturing Services

Manufa

Manufacturing Services accounted for approximately 50 percent

of the Company’s revenue during the year. In 1999, we expanded

our partnership with Meritor Automotive and now serve as the

sole-source for Class V-VIII truck axles for Meritor in the

United States. We continued to serve the needs of Honeywell by

We are FAA specification
compliant and we
have a host of other
certifications, including
QS 9000, ISO 9001 and
NASA NHB 5300.4.

providing subassemblies for use in its commercial avionics systems and we initiated production of circuit cards for

Litton’s ruggedized, hand-held computer. We increased the number of long-term

programs for which we provide Raytheon with electronic assemblies for use in a variety

of applications, ranging from missile guidance systems to satellite communications.

And finally, we were pleased to add Allied Signal and Boeing to our growing list of

significant customers.

We expect Manufacturing Services to be a major contributor to our future growth.

We believe that we are uniquely positioned to take advantage of the increasingly rapid

consolidation of the automotive and truck components market, as well as the

accelerating trend toward outsourcing in the aerospace and defense markets. The

growing number of multi-year contract awards that we received during 1999 from customers such as Allied Signal,

Litton, Raytheon and Boeing, were the result of recent decisions by these prime aerospace contractors to embrace

the increased use of specialty outsource partners to improve profitability and reduce working capital.

Honeywell Raytheon Litton Industries John Deere Caterpillar

cturing

Pratt & Whitney Meritor Rockwell Northrop-Grumman Boeing

Techni

AT&T Square-D Boeing NASA Federal Aviation Administration

calTechnical Services

Technical Services accounted for approximately 24 percent of the

Company’s revenue during 1999. During the year, we calibrated

equipment for Honeywell, Intel and Square D, and we tested electronic

components for Boeing, Cisco Systems and Lockheed Martin. We

strengthened our established position as one of the leading providers of

encryption software for use by various agencies of the federal government.

In December of 1999, we completed the acquisition of the Calibration

and Repair Services division of Lucent Technologies, which serves a

variety of important customers, including AT&T, Lucent, the Federal

Aviation Administration and the National Weather Service. The

combination of this business with our own calibration and repair

operations will position the Company to become the leading independent supplier of these unique technical services.

We calibrate
control tower
radar and
directional
beacons for
the FAA across
the country.

We believe Technical Services will benefit in the future from the increasing

trend toward outsourcing by original equipment manufacturers. Additional

consolidation opportunities exist in the market for the calibration and repair of

instruments and we plan to pursue acquisitions to further build upon our

leading position in this market. We also believe that our recent investment in the

development of wafer probe testing services has promising potential. This service,

which is targeted for use by domestic fabless semiconductor manufacturers, received

contractual commitments for substantially all of its initial capacity much sooner than

we had anticipated.

Lucent Technologies Honeywell National Security Agency

Products

Pro

Our recording systems are used by the Johnson Space
Center to track valuable Space Shuttle information.

Products accounted for approximately 26 percent of the Company’s

revenue during 1999. During the year, we continued to provide current

sensors under long-term contracts to Daimler-Chrysler for use in its mass

transit systems and to General Motors for use in its locomotives. We

completed the purchase of Terametrix, which added to our line of telemetry

products, and we entered into distribution agreements with Sony, Storage

Concepts and others to fill openings in our product portfolio. The

successful completion of these transactions enabled us to move closer to

our objective of supplying fully integrated data acquisition, storage and

analysis systems for use by our customers in the space, intelligence and

defense markets.

As we look to the future, we believe Products will benefit from our

new contract to supply Genie with current sensors for use in its latest garage door opening system. In addition,

our new threaded, high-pressure closure will provide us with additional opportunities in the energy markets as

capital spending in this sector begins to recover from 1999 levels. We plan to introduce an updated line of

instruments and probes for use by Agilent Technologies, Toyo and other such customers who market systems for

use in industrial research, laboratory and manufacturing applications. And finally, we will continue to invest in

new product development and partnering opportunities so that we can offer our customers an ever-increasing

array of value-added, feature-competitive products.

Daimler-Chrysler AdTranz General Motors Shell Oil US Navy

ducts

Chevron Lockheed Martin Johnson Space Center US Air Force

SYPRIS

S O L U T I O N S I N C

1999 Financial Review

14 Management’s Discussion and Analysis of

Financial Condition and Results of Operations

18 Consolidated Income Statements

19 Consolidated Balance Sheets

20 Consolidated Statements of Cash Flows

21 Consolidated Statements of Shareholders’ Equity

22 Notes to Consolidated Financial Statements

38 Report of Independent Auditors

39 Financial Summary

40 Corporate Directory

41 Company Locations

42 Common Stock Information

43 Investor Information

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

Results of Operations

The following table sets forth certain data from the Company’s consolidated income statements for the years ended
December 31, 1999, 1998 and 1997, expressed as a percentage of net revenue:

Years ended December 31

1999

1998

1997

Net revenue
Cost of sales

Gross profit

Selling, general and administrative expense
Research and development
Amortization of intangible assets

Operating income

Income from continuing operations

Net income

100.0%
77.8

100.0%
77.4

100.0%
85.2

22.2

11.5
3.2
0.5

7.0%

4.7%

22.6

13.3
2.8
0.4

6.1%

3.5%

14.8

12.3
1.6
0.1

0.8%

0.7%

2.5%

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net revenue totaled $202.1 million in 1999, a decrease of $9.5 million, or 4.5%, from $211.6 million in 1998. Net
revenue for the Electronics Group in 1999 was $164.9 million, a decrease of $9.5 million or 5.4% from $174.4 million in
1998 and net revenue for the Industrial Group in 1999 was $37.2 million, unchanged from 1998. The $9.5 million
decrease in the Electronics Group’s net revenue for 1999 was primarily a result of reduced demand for certain product
offerings. During the fourth quarter of 1999, a portion of the government program funding related to these products was
delayed due to the timing of the federal budget approval process and certain other program spending was suspended prior
to year-end due to year 2000 concerns. The decrease in net revenue for product sales in the fourth quarter of 1999 was
offset by an increase in net revenue for manufacturing services, which experienced increased sales volume during the
second half of 1999. The Electronics Group’s net revenue for the first half of 1999 was $15.8 million below the first half
of 1998. However, net revenue increased in the third and fourth quarters of 1999 by $1.3 million and $5.0 million,
respectively, over the comparative prior year quarters. The growth that occurred during the second half of 1999 is
primarily the result of management’s business development efforts in manufacturing services that began during 1998,
specifically the transition from low-margin contracts to new business opportunities aimed at improving profitability. The
Electronics Group’s backlog increased from $76.7 million to $95.2 million to $107.7 million at December 31, 1997, 1998
and 1999, respectively. The current backlog also consists of higher margin contracts than those in place during 1998. The
Industrial Group continued to increase shipments of truck axles during 1999, thereby offsetting
declines in other forged product lines provided to customers in the aerospace industry and foreign
markets of the oil and gas industry.

22.6% 22.2%

Gross profit totaled $44.9 million in 1999, a decrease of $3.0 million, or 6.3%, from $47.9 million
in 1998. Gross profit for the Electronics Group was $37.9 million in 1999, a decrease of $3.5
million, or 8.5%, from $41.4 million in 1998 and gross profit for the Industrial Group was $7.0
million in 1999, an increase of $0.5 million, or 8.5%, from $6.5 million in 1998. The $3.5 million
decrease in the Electronics Group’s gross profit is comprised of a $4.7 million decrease primarily due
to the decline in product sales described above, which was partially offset by a $1.2 million increase
primarily due to the improved performance of manufacturing services. Operational and financial
control improvements over manufacturing services reflects management’s actions to improve
profitability by focusing on specific manufacturing and service opportunities in which the
Company offers value-added solutions under a competitive cost structure. Additionally, the
Electronics Group’s revenue mix for 1999 as compared to 1998 consisted of a higher percentage of

14.8%

Gross Margin

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

manufacturing services revenue and a lower percentage of product sales, primarily due to revenue mix changes during the
fourth quarter of 1999. Since the margins on manufacturing services are typically lower than product sales, the Electronics
Group’s gross profit percentage decreased to 23.0% in 1999 from 23.7% in 1998. The $0.5 million increase in the
Industrial Group’s gross profit is primarily due to manufacturing efficiencies in the production of forged truck axles and
the increased capacity utilization and cost reductions on certain programs. The productivity and utilization improvements
resulted in an increase in the Industrial Group’s gross profit percentage to 19.0% in 1999 from 17.5% in 1998.

7.0%

6.1%

0.8%

Operating Margin

Selling, general and administrative expense totaled $23.4 million in 1999, a decrease of $4.8
million, or 17.1%, from $28.2 million in 1998. The consolidation of certain functional activities
was the primary cause of the decrease in the year-to-year comparison. Other contributing factors
include workforce reductions in certain operations, a reduction in selling expense attributable to
the decrease in net revenue, and adjustments to the Company’s estimated liability for the sale of
certain assets of the Electronics Group in June 1997, for which a final settlement agreement was
reached during the second quarter of 1999. Also included in 1998 were professional fees and other
costs associated with the Reorganization which were nonrecurring. Research and development
expense totaled $6.4 million in 1999, an increase of $0.5 million, or 7.9%, from $5.9 million in
1998. This increase was generated by the Electronics Group, and reflects management’s continued
support and investment in the data acquisition, storage and analysis product lines.

Amortization of intangible assets totaled $1.0 million in 1999 and in 1998. The amortization is
primarily attributable to goodwill recorded in connection with the Reorganization.

Interest expense totaled $1.7 million in 1999, an increase of $0.4 million, from $1.3 million in 1998. Average outstanding
debt for 1999 exceeded 1998 primarily due to working capital investments and capital expenditures. The weighted
average interest rate was higher in 1999 than in 1998 due to increased rates and a pricing adjustment on the refinancing
completed early in the fourth quarter of 1999.

The provision for income taxes totaled $3.1 million in 1999, a decrease of $1.2 million, from $4.3 million in 1998. The
Company’s effective tax rate in 1999 was 24.5% as compared to 36.7% in 1998. During the fourth quarter of 1999, the
Company recognized a tax benefit of approximately $0.6 million related to a claim for research and development credits
attributable to prior years. The provision for income taxes during 1999 also reflects a reduction in the valuation allowance on
deferred tax assets of $1.9 million as compared to $0.9 million in 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net revenue totaled $211.6 million in 1998, a decrease of $5.8 million, or 2.6%, from $217.4 million in 1997. The
Electronics Group experienced a decrease in net revenue of $11.5 million, while the Industrial Group experienced an
increase of $5.7 million. The $11.5 million decrease in the Electronics Group’s net revenue resulted from the divestiture
of the Company’s Latin American operations, which accounted for net revenue of $16.9 million in 1997, and a decrease
in net revenue from manufacturing and technical services of $10.4 million partially offset by an increase in product sales
of $15.8 million. The $10.4 million decrease in manufacturing and technical services revenue is primarily attributable to
management’s actions to redirect its resources to pursue low-volume, high-mix, complex industrial electronics assembly
and test opportunities which meet specific profitability targets. The $15.8 million increase in product sales includes the
acquisition of certain assets of Datatape Incorporated in November 1997 (the “Datatape Acquisition”) which expanded
the Company’s data acquisition, storage and analysis product line and generated a $24.8 million increase in net revenue
in 1998. The balance of the Electronics Group’s product offerings experienced a $9.0 million decline in net revenue
primarily due to a weakening of demand in domestic and Asian markets. The $5.7 million increase in the Industrial
Group’s net revenue resulted primarily from an increase in shipments to a customer based upon its commitment to use the
Company as its sole source for truck axles in its North American market.

Gross profit totaled $47.9 million in 1998, an increase of $15.8 million, or 49.1%, from $32.1 million in 1997. The
Electronics Group and the Industrial Group accounted for $14.3 million and $1.5 million of the increase in gross profit,
respectively. The Electronics Group’s gross profit was $41.4 million in 1998, an increase of $14.3 million, or 52.9%, from
$27.1 million in 1997. The $14.3 million increase in gross profit was achieved while net revenue for the Electronics Group
declined by $11.5 million to $174.4 million, reflecting the change in revenue mix described above. Gross profit of the
Electronics Group expressed as a percentage of net revenue increased to 23.7% in 1998 from 14.6% in 1997. The
increased product sales volume and improved cost management controls over higher margin manufacturing services

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

contracts accounted for approximately $5.7 million and $7.7 million of the increase in gross profit, respectively. The
Industrial Group’s gross profit was $6.5 million in 1998, an increase of $1.5 million, or 29.0%, from $5.0 million in 1997,
primarily due to the volume increase reflected in net revenue. Gross profit of the Industrial Group expressed as a
percentage of net revenue increased to 17.5% in 1998 compared to 16.1% in 1997, primarily related to increased
capacity utilization and cost reductions on certain programs.

Selling, general and administrative expense totaled $28.2 million in 1998, an increase of $1.5 million, or 5.7%, from
$26.7 million in 1997. The change in revenue mix occurring in the Electronics Group resulted in an increase in selling,
general and administrative expense for the comparable years.

Research and development expense totaled $5.9 million in 1998, an increase of $2.4 million, or 70.3%, from $3.5 million
in 1997. This increase was generated by the Electronics Group, and reflects management’s continued support and
investment in the data acquisition, storage and analysis product lines.

Amortization of intangible assets totaled $1.0 million in 1998, an increase of $0.8 million, from $0.2 million in 1997. This
increase is due to the amortization of goodwill recognized in connection with the Reorganization and the Datatape
Acquisition.

Interest expense totaled $1.3 million in 1998, a decrease of $0.7 million, from $2.0 million in 1997. This decrease is
primarily due to a reduction in the weighted average debt outstanding, a reduction in the Company’s overall costs of
borrowing and a decrease in amortization expense for debt issuance costs and stock warrants issued to a previous lender.
The reduction in debt outstanding in 1998 compared to 1997 is attributable to the repayment of debt from proceeds
generated by the divestiture of the Latin American operations, coupled with repayments generated by the Company’s
improved cash flow from operations in 1998, partially offset by the debt incurred to finance the Datatape Acquisition.
The divestiture proceeds were used to repay in full a credit facility on which the effective interest rate was approximately
300 basis points over the Company’s cost of borrowing under its consolidated credit facility during 1998.

Other income totaled $0.2 million in 1998, a decrease of $2.0 million, from $2.2 million in 1997. Other income in 1997
included the gain recognized on the divestiture of the Latin American operations totaling $3.2 million.

The provision for income taxes totaled $4.3 million, an increase of $3.2 million, from $1.1 million in 1997. The
Company’s effective tax rate in 1998 was 36.7%.

Liquidity, Capital Resources and Financial Condition

Net cash used in operating activities totaled $2.1 million in 1999 as compared to net cash provided by operating
activities of $11.0 million in 1998. The use of cash in operating activities during 1999 was primarily driven by an increase
in inventory to support the growth in the Company’s order backlog and a decrease in accrued liabilities attributable to
cash used to settle or reduce obligations. Inventory increased by $11.3 million during 1999, $11.0 million of which was
associated with the expected shipment schedule for the Electronics Group. Accrued liabilities decreased by $6.7 million
during 1999, which includes, among other things, the final settlement payment made during the second quarter with
respect to the June 1997 asset divestiture transaction, reductions in employee incentive and benefit
accruals, and payments on lease obligations. Accounts receivable decreased by $2.6 million during
1999, primarily due to an improvement in days sales outstanding.

$14.4

Net cash used in investing activities totaled $26.4 million in 1999 as compared to $5.8 million in
1998. Capital expenditures were $14.4 million and $5.8 million in 1999 and 1998, respectively. The
Company also invested $11.6 million for two acquisitions by the Electronics Group. Capital
expenditures by the Electronics Group and the Industrial Group for 1999 were $6.3 million and
$7.1 million, respectively. Capital expenditures for the Electronics Group include information
system upgrades and replacements as well as manufacturing, assembly and test equipment. The
Industrial Group’s capital expenditures relate primarily to increasing production capacity to meet
the expanding needs of its customer base. At December 31, 1999, the Industrial Group also had
commitments to invest $1.4 million in manufacturing equipment to further increase production
capacity, which is expected to be funded through the Company’s cash balances and borrowings
under its revolving credit facility. The Company expects total capital expenditures in 2000 to be
approximately $25.0 million. The planned capital expenditures are for facilities and equipment to
increase capacity, expand production capabilities and improve efficiency through automation.

$5.7

$5.8

Capital
Expenditures
(in millions)

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

Net cash provided by financing activities was $26.5 million in 1999 as compared to net cash used in financing activities
of $2.6 million in 1998. The Company funded the Electronics Group’s acquisitions, the investment in working capital and
capital expenditures in 1999 through additional borrowings under its revolving credit facility.

Under the terms of the credit agreement between the Company and its lenders, the Company had total availability for
borrowings and letters of credit under its revolving credit facility of $45.6 million at December 31, 1999, which, with
certain limitations, can be used for general corporate purposes. This credit agreement contains
customary restrictive covenants, including covenants requiring the Company to maintain certain
financial ratios. Maximum borrowings on the revolving credit facility are $100.0 million, subject to
a $15.0 million limit for letters of credit.

$60.8

$49.4

The Company believes cash generated from operations, existing cash reserves and available
borrowings under its existing credit facility will satisfy the Company’s working capital and capital
expenditure requirements for at least the next twelve months.

$27.7

Year 2000 Compliance

During 1999, the Company completed the process of preparing for the Year 2000 date change. This
process involved assessing, testing and remediation of all significant information technology (“IT”)
and non-IT systems, identifying and communicating with customers, suppliers and other critical
service providers to determine if entities with which the Company transacts business had an
effective plan in place to address the Year 2000 issue, and determining the extent of the Company’s
vulnerability to the failure of third parties to remediate their own Year 2000 issue.

Shareholders’
Equity
(in millions)

To date, the Company has not experienced any significant business disruptions as a result of the
Year 2000 issue. In addition, the Company has not been informed of any such problems experienced
by its customers, suppliers and other critical service providers. Although considered unlikely, it is too soon to conclude
that there will not be any problems arising from the Year 2000 issue, particularly at some of the Company’s customers,
suppliers and other critical service providers. The Company will continue to monitor all business processes throughout
2000 to address any issues and ensure all processes continue to function properly. Contingency plans to address potential
risks in the event of Year 2000 failures will be developed as needed.

As of December 31, 1999, the cost of the Year 2000 project totaled $1,024,000. The Company does not expect to incur
significant costs during 2000 related to ongoing monitoring and support activities for the Year 2000 issue.

Market Risk

The Company had no holdings of derivative financial or commodity instruments at December 31, 1999. The Company
is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. All
borrowings under the Company’s credit agreement bear interest at a variable rate based on the prime rate, the London
Interbank Offered Rate, or certain alternative short-term rates. An increase in interest rates of 100 basis points would
not significantly affect the Company’s net income. Substantially all of the Company’s business is transacted in U.S.
dollars. Accordingly, foreign exchange rate fluctuations have never had a significant impact on the Company, and they
are not expected to in the foreseeable future.

Consolidated Income Statements

Years ended December 31

(in thousands, except for per share data)

Net revenue
Cost of sales

Gross profit

Selling, general and administrative expense
Research and development
Amortization of intangible assets

Operating income

Interest expense, net
Other income, net

Income before income taxes, minority
interests and discontinued operations

Income tax expense

Income before minority interests
and discontinued operations

Minority interests in losses of consolidated subsidiaries

1999

1998

1997

$ 202,130
157,181

$ 211,625
163,702

$ 217,355
185,220

44,949

47,923

32,135

23,388
6,409
986

14,166

1,730
(219)

28,169
5,940
963

12,851

1,298
(204)

12,655

11,757

3,099

4,311

9,556

—

7,446

—

26,658
3,487
205

1,785

1,959
(2,205)

2,031

1,143

888

639

Income from continuing operations

9,556

7,446

1,527

Loss from discontinued operations (net of applicable

taxes of $186)

Gain on disposal of discontinued operations

(net of applicable taxes of $2,160)

—

(375)

4,192

Net income

9,556

7,446

5,344

Earnings per common share:

Income from continuing operations:

Basic
Diluted
Net income:

Basic
Diluted

Shares used in computing per common share amounts:

Basic
Diluted

$
$

1.00
0.97

9,515
9,861

$
$

0.79
0.76

9,438
9,793

$
$

0.09
0.09

0.50
0.48

9,424
9,826

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Balance Sheets

December 31

(in thousands, except for share data)

Assets:

Current assets:

Cash and cash equivalents
Accounts receivable, net
Inventory, net
Other current assets

Total current assets

Property, plant and equipment, net

Intangible assets, net

Other assets

Total assets

Liabilities and shareholders’ equity:

Current liabilities:
Accounts payable
Accrued liabilities
Current portion of long-term debt

Total current liabilities

Long-term debt
Other liabilities

Total liabilities

Commitments and contingencies

Shareholders’ equity:

Preferred stock, no par value, 1,000,000 shares authorized; no shares issued
Common stock, non-voting, par value $.01 per share, 10,000,000 shares

authorized; no shares issued

Common stock, par value $.01 per share, 20,000,000 shares authorized;
9,589,214 and 9,450,593 shares issued and outstanding in 1999 and
1998, respectively

Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of the consolidated financial statements.

1999

1998

$ 10,406
23,793
49,462
4,279

12,387
26,283
38,465
1,724

87,940

78,859

40,192

27,535

18,038

12,500

2,394

2,225

$ 148,564

$ 121,119

$ 11,022
17,813
5,400

13,004
23,651
10,083

34,235

46,738

49,000
4,509

18,500
6,522

87,744

71,760

—

96
23,921
36,876
(73)

—

95
23,238
27,320
(1,294)

60,820

49,359

$ 148,564

$ 121,119

Consolidated Statements of Cash Flows

Years ended December 31

(in thousands)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash

(used in) provided by operating activities:

Depreciation and amortization
Deferred income taxes
Minority interests in losses of consolidated subsidiaries
Provision for excess and obsolete inventory
Provision for doubtful accounts
Gain on disposal of discontinued operations, net of tax
Other noncash charges (credits)

Changes in operating assets and liabilities, net of acquisitions

and dispositions:

Accounts receivable
Inventory
Other assets
Accounts payable
Accrued and other liabilities

1999

1998

1997

9,556

7,446

5,344

7,582
(645)
—
446
(129)
—
133

2,619
(11,277)
(1,704)
(1,997)
(6,652)

6,909
989
—
851
135
—
(258)

1,727
4,245
(1,138)
(1,855)
(8,081)

7,399
(309)
(639)
2,130
718
(4,192)
(1,689)

7,490
(7,657)
(775)
(7,986)
117

Net cash (used in) provided by operating activities

(2,068)

10,970

(49)

Cash flows from investing activities:

Capital expenditures
Proceeds from disposal of assets
Purchase of the net assets of acquired entities
Changes in nonoperating assets and liabilities

(14,443)
14
(11,642)
(343)

(5,845)
380
—
(364)

(5,746)
39,586
(14,400)
(911)

Net cash (used in) provided by investing activities

(26,414)

(5,829)

18,529

Cash flows from financing activities:

Net proceeds (repayments) under revolving credit agreements
Proceeds from long-term debt
Principal payments on long-term debt
Proceeds from issuance of common stock
Payments for redemption of common stock in subsidiaries, net

28,280
—
(2,463)
684
—

720
—
(3,284)
40
(66)

(6,934)
30,650
(37,157)
—
(1,215)

Net cash provided by (used in) financing activities

26,501

(2,590)

(14,656)

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

(1,981)

12,387

2,551

9,836

3,824

6,012

Cash and cash equivalents at end of year

$ 10,406

12,387

9,836

The accompanying notes are an integral part of the consolidated financial statements.

5,344

27,728

7,446
(1,294)
6,152

—

701

3,569

11,169
40

Consolidated Statements of Shareholders’ Equity

Common Stock

Amount

Additional
Paid-In
Capital

Accumulated
Other
Retained Comprehensive
Income (Loss)
Earnings

Total
Shareholders(cid:213)
Equity

(in thousands, except for share data)

Balance at January 1, 1997

314,196

7,892

— $ 14,492

— $ 22,384

Net income and comprehensive income

—

Balance at December 31, 1997

314,196

7,892

Net income
Adjustment in minimum pension liability
Comprehensive income (loss)

—
—
—

—

—
—
—

5,344

19,836

7,446
—
7,446

—

—
(1,294)
(1,294)

8,027,813

(7,808)

7,808

Issuance of shares for conversion of GFP
no par value common stock to Sypris
$.01 par value common stock

Issuance of shares for conversion of

redeemable common stock to Sypris
$.01 par value common stock

Issuance of shares for acquisition of
minority interests in subsidiaries
Excess of fair value of common stock

issued over net assets acquired

Exercise of stock options

205,074

893,822

—
9,688

Balance at December 31, 1998

9,450,593

Net income
Adjustment in minimum pension liability
Comprehensive income

—
—
—

Issuance of shares under Employee

Stock Purchase Plan
Exercise of stock options

15,600
123,021

—

—
—

—

—
—

661

3,560

11,169
40

23,238

27,320

(1,294)

49,359

—
—
—

99
584

9,556
—
9,556

—
—

—
1,221
1,221

9,556
1,221
10,777

—
—

99
585

—
—

—
—
—

—
1

Balance at December 31, 1999

9,589,214

$ 23,921

$ 36,876

(73) $ 60,820

The accompanying notes are an integral part of the consolidated financial statements.

Notes to Consolidated Financial Statements

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”), Bell Technologies, Inc. (“Bell”), Group Technologies Corporation
(“GroupTech”), Metrum-Datatape, Inc. (“Metrum-Datatape”), and Tube Turns Technologies, Inc. (“Tube Turns”). All
significant intercompany accounts and transactions have been eliminated.

Nature of Business
Sypris is a diversified provider of technology-based outsource services and specialized industrial products. The Company
performs a wide range of manufacturing and technical services, typically under long-term contracts with major
manufacturers. The Company also manufactures and sells complex data storage systems, magnetic instruments, current
sensors, high-pressure closures and a variety of other industrial products.

Basis of Presentation
Sypris is a Delaware corporation which was organized in 1997 and began business on March 30, 1998 with the
completion of the merger of Group Financial Partners, Inc. (“GFP”) and two of its subsidiaries, Bell and Tube Turns, with
and into GroupTech, a Nasdaq-traded company in which GFP owned an approximate 80% interest. Effective immediately
thereafter, GroupTech was merged with and into Sypris, a subsidiary created to accomplish the reincorporation in
Delaware. As a result of these and other transactions (collectively referred to herein as the “Reorganization”), Sypris
became the holding company for Bell, GroupTech, Tube Turns and Metrum-Datatape, a wholly-owned subsidiary of
GFP prior to the Reorganization, and succeeded to the listing of GroupTech on the Nasdaq Stock Market under the new
symbol SYPR. In connection with the Reorganization, a one-for-four reverse stock split was effected for shareholders of
record as of March 30, 1998. All references in the financial statements to number of shares and per share amounts of the
Company’s common stock have been retroactively restated to reflect the decreased number of shares outstanding.

The historical financial statements included herein as of and for the periods ended prior to the Reorganization are the
consolidated financial statements of GFP, since GFP is deemed to be the acquirer for accounting purposes. The
Reorganization was accounted for as a downstream merger, in which the merger of GFP and GroupTech was accounted
for as a purchase of the minority interests of GroupTech. The issuance of shares in exchange for the redeemable common
stock held by the Bell and Tube Turns minority shareholders was accounted for as a purchase, and accordingly, the excess
of the fair value of the common stock issued over the fair market value of the proportional share of the net assets of Bell
and Tube Turns was allocated to the assets and liabilities of Bell and Tube Turns and the excess was allocated to goodwill,
which totaled $6,118,000. Minority interest accounting was reflected in the historical financial statements of GFP as of
and for the periods prior to the Reorganization based upon the proportionate share of the equity of GroupTech owned by
minority shareholders.

Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the 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 (see Note 5).

Notes to Consolidated Financial Statements

Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. Buildings and building improvements are depreciated over
their estimated economic lives principally using the straight-line method. Machinery, equipment, furniture and fixtures
are depreciated over their estimated economic lives principally using the straight-line method. Leasehold improvements
are amortized over the 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.

Intangible Assets
Goodwill, patents, non-compete agreements, product drawings and similar intangible assets are amortized over their
estimated economic lives. Currently, intangible assets are being amortized over periods ranging from five to fifteen years,
using the straight-line method. Goodwill is being amortized over a period of fifteen years (see Notes 2 and 7).

Impairment of Long-lived Assets
The Company evaluates long-lived assets, including goodwill, for impairment and assesses their recoverability based upon
anticipated future cash flows. If facts and circumstances lead the Company’s management to believe that the cost of one
of its assets may be impaired, the Company will evaluate the extent to which that cost is recoverable by
comparing the future undiscounted cash flows estimated to be associated with that asset to the asset’s carrying amount
and write down that carrying amount to market value or discounted cash flow value to the extent necessary.

Revenue Recognition
A portion of the Company’s business is conducted under long-term, fixed-price contracts with the U.S. Government and
prime contractors with the U.S. Government. Contract revenue is included in the consolidated statement of operations
as units are completed and shipped using the units of delivery, percentage of completion method of accounting. The costs
attributed to contract revenue are based upon the estimated average costs of all units to be shipped. The cumulative
average costs of units shipped to date is adjusted through current operations as estimates of future costs to complete change
(see “Contract Accounting” below).

Revenue recognized under the percentage of completion method of accounting totaled $90,819,000, $56,867,000 and
$47,887,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Substantially all such amounts were
accounted for under the units of delivery method. All other revenue is recognized as product is shipped and title passes or
when services are rendered.

Contract Accounting
For long-term contracts, the Company capitalizes in inventory direct material, direct labor and factory overhead as
incurred. The Company also capitalizes certain general and administrative costs for estimating and bidding on contracts
awarded (of which approximately $210,000 remained in inventory at December 31, 1999 and 1998). Selling costs are
expensed as incurred. Costs to complete long-term contracts are estimated on a monthly basis. Estimated margins at
completion are applied to cumulative contract revenue to arrive at costs charged to operations.

Accounting for long-term contracts under the percentage of completion method involves substantial estimation processes,
including determining the estimated cost to complete a contract. As contracts may require performance over several
accounting periods, formal detailed cost-to-complete estimates are performed which are updated monthly via performance
reports. Management’s estimates of costs-to-complete change due to internal and external factors such as labor rate and
efficiency variances, revised estimates of warranty costs, estimated future material prices and customer specification and
testing requirement changes. Changes in estimated costs are reflected in gross profit in the period in which they are
known. If increases in projected costs-to-complete are sufficient to create a loss contract, the entire estimated loss is
charged to operations in the period the loss first becomes known. Provisions for losses on firm fixed priced contracts
totaled $807,000, $907,000 and $1,600,000 in 1999, 1998 and 1997, respectively.

Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts receivable.
The Company’s customer base consists of various departments or agencies of the U.S. Government, prime contractors
with the U.S. Government and a number of customers in diverse industries across geographic areas. At December 31,
1999, the Company does not have significant credit risk concentrations. The Company performs periodic credit evaluations
of its customers’ financial condition and does not require collateral on its commercial accounts receivable. Credit losses
are provided for in the financial statements and consistently have been within management’s expectations.

Notes to Consolidated Financial Statements

The Company recognized revenue from the U.S. Government and its agencies of approximately $53,244,000,
$47,178,000 and $40,170,000 during the years ended December 31, 1999, 1998 and 1997, respectively. The Company’s
largest commercial customer for the year ended December 31, 1997 was IBM, which represented approximately 10% of
the Company’s revenue. No other single commercial customer accounted for more than 10% of the Company’s net
revenue for the years ended December 31, 1999, 1998 or 1997.

Stock Based Compensation
Stock options are granted under various stock compensation programs to employees and independent directors (see Note
13). The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”).

Reclassifications
Certain amounts in the Company’s 1998 and 1997 consolidated financial statements have been reclassified to conform
with the 1999 presentation.

2. Mergers and Acquisitions

See “Basis of Presentation” included in Note 1 for a discussion of the Reorganization on March 30, 1998 that resulted
in the formation of Sypris. If the Reorganization had occurred at the beginning of each year, income before minority
interests and discontinued operations in 1998 and 1997 would have been reduced by $103,000 and $413,000, respectively.

During 1999, the Company completed two transactions in which it acquired the assets of the related businesses. The
transactions were accounted for as purchases, in which the combined purchase price of $11,642,000 was allocated based
on the fair values of assets acquired, with the excess amount allocated to goodwill, which totaled $6,607,000. The results
of operations of the acquired businesses have been included in the consolidated financial statements since the respective
acquisition dates. The acquisitions were financed by the Company’s credit agreement (see Note 9).

On November 14, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of Datatape
Incorporated. The transaction was accounted for as a purchase, in which the purchase price of $14,400,000 was allocated
based on the fair values of assets acquired and liabilities assumed, with the excess amount allocated to goodwill, which
totaled $4,631,000. The acquisition was financed by the Company’s credit agreement (see Note 9).

3. Dispositions

On June 30, 1997, the Company sold to SCI Systems, Inc., SCI Systems De Mexico S.A. de C.V. and SCI Holdings, Inc.,
(collectively, “SCI”), all of its investment in the capital stock and/or equity interests of three of its wholly-owned
subsidiaries, Group Technologies S.A. de C.V., Group Technologies Suprimentos de Informatica Industia E Comercio
Ltda. and Group Technologies Integraoes em Electronica Ltda. (the “Latin American Operations”). These three
subsidiaries comprised all of GroupTech’s operations in Latin America. The Company also sold or assigned to SCI certain
assets principally used in or useful to the operations being sold, including accounts receivable, inventory, equipment,
accounts payable and equipment leases. The final sales price of the aforementioned assets totaled approximately
$14,400,000 and the assumption by SCI of certain liabilities. During 1999, the Company repaid $3,614,000 of the initial
sales price paid by SCI in 1997 in accordance with a settlement reached pursuant to the purchase and sale agreement. The
Company recognized a gain of $3,200,000 in 1997 relative to this disposition.

Notes to Consolidated Financial Statements

4. Accounts Receivable

Accounts receivable consists of the following:

December 31

(in thousands)

Commercial

U.S. Government

Allowance for doubtful accounts

1999

1998

$ 18,419

$ 18,789

6,044

24,463

(670)

8,330

27,119

(836)

$ 23,793

$ 26,283

Accounts receivable from the U.S. Government includes amounts due under long-term contracts, all of which are billed
at December 31, 1999 and 1998, of $4,282,000 and $2,203,000, respectively.

Inventory

Inventory consists of the following:

December 31

(in thousands)

Raw materials

Work in process

Finished goods

Costs relating to long-term contracts and programs, net of amounts

attributed to revenue recognized to date

Progress payments related to long-term contracts and programs

LIFO reserve

Reserve for excess and obsolete inventory

1999

1998

$ 12,640

$ 12,308

9,649

1,673

31,258

(1,038)

(430)

(4,290)

10,068

2,085

22,861

(4,224)

(609)

(4,024)

$ 49,462

$ 38,465

The preceding amounts include inventory valued under the last-in, first-out (“LIFO”) method totaling $7,582,000 and
$7,020,000 at December 31, 1999 and 1998, respectively, which approximates replacement cost.

Notes to Consolidated Financial Statements

Property, Plant and Equipment

Property, plant and equipment consists of the following:

December 31

(in thousands)

Land and land improvements

Buildings and building improvements

Machinery, equipment, furniture and fixtures

Facilities in progress

Accumulated depreciation

1999

1998

$ 1,024

991

13,392

70,173

6,327

90,916

(50,724)

12,395

57,824

967

72,177

(44,642)

$ 40,192

$ 27,535

Depreciation expense totaled $6,526,000, $5,934,000 and $6,908,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

Intangible Assets

Intangible assets consists of the following:

December 31

(in thousands)

Costs in excess of net assets of businesses acquired

Other

Accumulated amortization

1999

1998

$ 18,462

$ 11,849

2,954

21,416

(3,378)

3,034

14,883

(2,383)

$ 18,038

$ 12,500

Amortization expense totaled $1,056,000, $975,000 and $491,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

8. Accrued Liabilities

Accrued liabilities consists of the following:

December 31

(in thousands)

Employee benefit plan accruals

Salaries, wages and incentives

Sale of business price adjustment

Other

1999

1998

$ 5,007

5,471

3,694

—

9,112

4,179

3,614

10,387

$ 17,813

$ 23,651

Included in other accrued liabilities are employee payroll deductions, advance payments, accrued operating expenses,
accrued warranty expenses, accrued interest and other items, none of which exceed 5% of total current liabilities.

Notes to Consolidated Financial Statements

Long-Term Debt

Long-term debt consists of the following:

December 31

(in thousands)

Revolving Credit Agreement

Term Loan

Other

Less current portion

1999

1998

$ 54,400

$ 16,870

—

54,400

(5,400)

11,500

213

28,583

(10,083)

$ 49,000

$ 18,500

On October 27, 1999, the Company entered into an amended and restated credit agreement (the “Revolving Credit
Agreement”), under the terms of which a syndicate of banks committed a maximum of $100,000,000 to the Company
for cash borrowings and letters of credit through January 2005. Under the terms of the Revolving Credit Agreement,
interest rates are determined at the time of borrowing and are based on the Company’s choice of the prime rate, the
London Interbank Offered Rate plus a spread, or certain alternative rates, and approximated 7.09% at December 31, 1999.
The Revolving Credit Agreement also requires compliance with a number of financial and non-financial covenants. The
commitment fee on the unused portion of the Revolving Credit Agreement ranges from 0.20% to 0.25% per annum.
Current maturities of long-term debt at December 31, 1999 principally represent amounts due under a short-term
borrowing arrangement included in the Revolving Credit Agreement. The Revolving Credit Agreement replaced a
$30,000,000 revolving credit facility and a $15,000,000 term loan entered into in November 1997.

Interest paid during the years ended December 31, 1999, 1998 and 1997 totaled $1,629,000, $1,664,000 and $2,238,000,
respectively.

10. Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the financial statements at their
carrying amount which approximates fair value because of the short-term maturity of those instruments. The carrying
amount of debt outstanding at December 31, 1999 under the Revolving Credit Agreement approximates fair value, due
to the short period of time that this instrument has been outstanding. The carrying amount of debt outstanding under the
revolving credit facility at December 31, 1998 is assumed to approximate fair value because of the short-term nature of the
instrument. The carrying amount of the term loan at December 31, 1998 is assumed to approximate fair value because there
were not any significant changes in market conditions or specific circumstances since the instrument was recorded.

11. Employee Benefit Plans

The Company sponsors noncontributory defined benefit pension plans (the “Pension Plans”) covering certain employees
of Tube Turns. The Pension Plans covering salaried and management employees provide pension benefits that are based
on the employees’ highest five-year average compensation within ten years before retirement. The Pension Plans
covering hourly employees and union members generally provide benefits at stated amounts for each year of service. The
Company’s funding policy is to make the minimum annual contributions required by the applicable regulations. The
Pension Plans’ assets are primarily invested in equity securities and fixed income securities. The Company recorded an
increase of $1,221,000 and a decrease of $1,294,000 to its minimum pension liability during 1999 and 1998, respectively. No
tax effect was recorded related to these adjustments.

Notes to Consolidated Financial Statements

The following table details the components of pension expense:

Years ended December 31

(in thousands)

1999

1998

1997

Service cost benefits earned during the period

181

163

157

Interest cost of projected benefit obligation

Net amortizations and deferrals

Actual return on plan assets

1,283

554

1,312

474

1,312

889

(1,480)

(1,321)

(1,592)

538

628

766

The following are summaries of the changes in the benefit obligations and plan assets and of the funded status of the
Pension Plans:

December 31

(in thousands)

Change in benefit obligation:

Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Fair value of plan assets at end of year

Funded status of the plans:

Benefit obligation at end of year
Fair value of plan assets at end of year
Funded status of plan (underfunded)
Unrecognized actuarial (gain) loss
Unrecognized prior service cost
Net liability recognized

Balance sheet liabilities (assets):
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income (loss)
Net amount recognized

Assumptions at year end:

Discount rate used in determining present values
Rate of compensation increase
Expected long-term rate of return on plan assets

1999

1998

$ 19,185
181
1,283
(1,549)
(1,241)
$ 17,859

$ 13,146
1,480
944
(1,241)
$ 14,329

$ 17,859
14,329
(3,530)
(821)
608
$ (3,743)

$ 17,195
163
1,312
1,745
(1,230)
$ 19,185

$ 11,924
1,321
1,131
(1,230)
$ 13,146

$ 19,185
13,146
(6,039)
1,126
764
$ (4,149)

$ 4,379
(563)
(73)
$ 3,743

6,203
(760)
(1,294)
4,149

8.00%
4.25%
8.50%

7.00%
3.25%
8.50%

Notes to Consolidated Financial Statements

The Company sponsors defined contribution plans (the “Defined Contribution Plans”) for substantially all employees of
the Company. The Defined Contribution Plans are intended to meet the requirements of Section 401(k) of the Internal
Revenue Code. The Defined Contribution Plans allow the Company to match participant contributions as approved by
the Company’s Board of Directors, and certain of the Defined Contribution Plans include required base contributions and
discretionary contributions. Contributions to the Defined Contribution Plans for 1999, 1998 and 1997 totaled
$2,996,000, $2,661,000 and $1,863,000, respectively.

The Company has partially self-insured medical plans (the “Medical Plans”) covering certain employees. The Medical
Plans limit the Company’s annual obligations to fund claims to specified amounts per participant and in the aggregate.
The Company is adequately insured for amounts in excess of these limits. Employees are responsible, in some instances,
for payment of a portion of the premiums. During 1999, 1998 and 1997, the Company charged $2,802,000, $2,407,000
and $2,265,000, respectively, to operations related to reinsurance premiums, medical claims incurred and estimated, and
administrative costs for the Medical Plans. Claims paid during 1999, 1998 and 1997 did not exceed the aggregate limits.

12. Commitments and Contingencies

The Company leases certain of its real property and certain computer, manufacturing and office equipment under operating
leases with terms ranging from month-to-month to ten years and which contain various renewal and rent escalation clauses.
Future minimum noncancelable lease payments are as follows:

Years ending December 31

(in thousands)

2000

2001

2002

2003

2004 and thereafter

$ 3,591

3,431

2,413

1,587

322

$ 11,344

Rent expense for the years ended December 31, 1999, 1998 and 1997 totaled $3,858,000, $4,701,000 and $3,406,000,
respectively.

Tube Turns is a co-defendant in two separate lawsuits filed in 1993 and 1994, one pending in federal court and one
pending in state district court in Louisiana, arising out of an explosion in a coker plant owned by Exxon Corporation
located in Baton Rouge, Louisiana. The suits are being defended for Tube Turns by its insurance carrier, and the Company
intends to vigorously defend its case. The Company believes that a settlement or related judgment would not result in a
material loss to Tube Turns or the Company.

More specifically, according to the complaints, Tube Turns is the alleged manufacturer of a carbon steel pipe elbow which
failed, causing the explosion which destroyed the coker plant and caused unspecified damages to surrounding property
owners. One of the actions was brought by Exxon and claims damages for destruction of the plant, which Exxon estimates
exceed one hundred million dollars. In this action, Tube Turns is a co-defendant with the fabricator who built the pipe
line in which the elbow was incorporated and with the general contractor for the plant. The second action is a class action
suit filed on behalf of the residents living around the plant and claims damages in an amount as yet undetermined. Exxon
is a co-defendant with Tube Turns, the contractor and the fabricator in this action. In both actions, Tube Turns maintains
that the carbon steel pipe elbow at issue was appropriately marked as carbon steel and was improperly installed, without
the knowledge of Tube Turns, by the fabricator and general contractor in a part of the plant requiring a chromium steel elbow.

The Company is involved in certain litigation and contract issues arising in the normal course of business. While the
outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent therein, management
does not expect that these matters will have a material adverse effect on the consolidated financial position or results of
operations of the Company.

Notes to Consolidated Financial Statements

13. Stock Option and Purchase Plans

The Company has certain stock compensation plans under which options to purchase common stock may be granted to
officers, key employees and non-employee directors. Options may be granted at not less than the market price on the date
of grant. Options are exercisable in whole or in part up to two years after the date of grant and ending ten years after the
date of grant. Options issued under stock compensation plans of subsidiaries prior to the Reorganization were assumed by
the Company without modifying the vesting terms and conditions of the outstanding options. The number of shares
issuable under options assumed pursuant to the Reorganization and the related exercise price of the outstanding options
were determined in accordance with the terms of the Reorganization. The following table summarizes option activity from
the effective date of the Reorganization through December 31, 1999:

Options assumed pursuant to the Reorganization

effective March 30, 1998

Granted
Exercised
Forfeited

Balance at December 31, 1998
Granted
Exercised
Forfeited

Exercise
Price Range

871,987
379,214
(9,688)
(13,125)

$ 1.72 - 31.00
7.00 - 9.13
2.76 - 4.36
3.52 - 15.76

1,228,388
226,352
(123,021)
(19,259)

1.72 - 31.00
5.94 - 9.63
2.76 - 6.68
2.96 - 11.00

Weighted
Average
Exercise
Price

$ 5.33
8.68
4.16
7.36

6.35
7.75
4.75
8.26

Balance at December 31, 1999

1,312,460

$ 1.72 - 31.00

$ 6.71

The following table summarizes certain weighted average data for options outstanding and currently exercisable at
December 31, 1999:

Outstanding

Exercisable

Exercise Price Range

Weighted Average

Remaining
Exercise Contractual
Life

Price

$1.72

$2.76 - $4.12

$4.24 - $6.24

$6.68 - $10.00

$10.52 - $15.76

$16.12 - $23.00

$25.52 - $31.00

Total

156,648

120,578

220,578

765,016

35,533

10,003

4,104

1.72

3.33

4.81

8.28

12.50

18.16

28.86

1,312,460

6.71

2.7

2.0

6.5

3.5

6.4

5.2

5.5

Weighted
Average
Exercise
Price

$ 1.72

3.33

4.98

8.07

12.32

18.16

28.86

156,648

119,953

97,242

308,146

33,658

10,003

4,104

729,754

$ 5.97

The Company’s stock compensation program also provides for the grant of performance-based stock options to key
employees. The terms and conditions of the performance-based option grants provide for the determination of the
exercise price and the beginning of the vesting period to occur when the fair market value of the Company’s common
stock achieves certain targeted price levels. Performance-based options to purchase 16,000 shares and 380,000 shares of

Notes to Consolidated Financial Statements

common stock were granted during 1999 and 1998, respectively. None of the targeted price levels of the performance-
based options were achieved during 1999 or 1998 and, accordingly, these options are excluded from disclosures of options
outstanding at December 31, 1999 and 1998. The aggregate number of shares of common stock reserved for issuance under
the Company’s stock compensation programs as of December 31, 1999 was 3,000,000. The aggregate number of shares
available for future grant as of December 31, 1999 was 1,251,089.

Prior to the Reorganization, stock compensation plans were maintained for each entity. The Company used a formula
price valuation as a basis for establishing a market value for stock which was not publicly traded. The following table
summarizes option activity for periods prior to the Reorganization:

GFP

Tube Turns

Bell

GroupTech

Exercise
Price
Range

Balance at January 1, 1997

6,600

$45.99 - 73.40

75,000

$9.05 - 10.75

109,650

$9.92 - 16.56

1,249,688

$0.84 - 7.75

Granted

Exercised

Forfeited

—

(5,000)

—

9.05

—

806,879

0.88 - 4.03

(36,350)

9.92 - 15.49

(600)

2.75

—

(411,600)

1.06 - 5.25

Balance at December 31, 1997

6,600

45.99 - 73.40

70,000

9.05 - 10.75

73,300

9.92 - 16.56

1,644,367

0.84 - 7.75

Granted

Exercised

Forfeited

—

(10,400)

—

9.92

—

16,080

3.25

(154,000)

1.09 - 1.67

(9,800)

1.09 - 2.75

Balance at March 30, 1998

6,600

$45.99 - 73.40

70,000

$9.05 - 10.75

62,900

$9.92 - 16.56

1,496,647

$0.84 - 7.75

The following table summarizes the weighted average exercise prices for option activity for periods prior to the Reorganization:

GFP

Tube
Turns

Bell

GroupTech

Balance at January 1, 1997

$ 48.90

$ 9.50

$ 13.24

$ 2.30

Granted

Exercised

Forfeited

Balance at December 31, 1997

Granted

Exercised

Forfeited

—

48.90

—

9.05

—

9.54

—

13.85

—

12.94

—

9.92

—

1.29

2.75

2.23

1.82

3.25

1.06

1.40

Balance at March 30, 1998

$ 48.90

$ 9.54

$ 13.45

$ 1.86

The Company applies APB 25 and related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards
(“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the
Company’s employee stock options is equal to the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Pro forma information regarding net income and net income per share is required by SFAS 123, and has been determined
as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value
for options granted by the Company during 1999 and 1998 were estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: expected term of six years, no dividends, a

Notes to Consolidated Financial Statements

volatility factor of the expected market price of the Company’s common stock of 0.755 in 1999 and 0.942 in 1998, and
risk-free interest rates of 6.30% and 5.68% in 1999 and 1998. The weighted average Black-Scholes value of options granted
under the stock option plans during 1999 and 1998 was $5.50 and $6.91.

The fair value for options granted prior to the Reorganization was estimated at the date of grant using a Black-Scholes
option pricing model for options of GroupTech. The following weighted average assumptions were used for options granted
by GroupTech in 1997: expected term of 3.3 years, no dividends, a volatility factor of 1.12, and a risk-free interest rate of
5.75%. The per share weighted average fair value of options granted by GroupTech during 1997 was $1.30. No options
were granted by Tube Turns and Bell during 1997.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options
have characteristics significantly different from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’
vesting period. The Company’s pro forma information is as follows:

Years ended December 31

(in thousands, except for per share data)

Pro forma income from continuing operations

Pro forma net income

Pro forma per share data:

Income from continuing operations:

Basic

Diluted

Net income:

Basic

Diluted

1999

1998

1997

$ 8,533

$ 5,989

546

$ 4,363

$ 0.90

$ 0.87

$ 0.90

$ 0.87

$ 0.63

$ 0.61

$ 0.63

$ 0.61

$ 0.06

$ 0.46

$ 0.44

Effective February 1, 1999, the Company adopted a stock purchase plan to provide substantially all employees who have
satisfied the eligibility requirements to purchase shares of the Company’s common stock on a compensation deduction
basis. The purchase price is the lower of 85% of the fair market value of the common stock on the first or last business
day of the purchase period. Payroll deductions may not exceed $6,000 for any six-month cycle. The stock purchase plan
expires January 31, 2006. At December 31, 1999, there were 284,400 shares available for purchase under the plan. During
1999, a total of 15,600 shares were issued under the plan.

Notes to Consolidated Financial Statements

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

(in thousands)

1999

1998

1997

Current:

Federal

State

Other

Deferred:

Federal

State

$ 3,386

2,844

$ 1,171

320

3,744

(630)

(15)

(645)

441

3,322

1,011

(22)

989

138

169

1,478

(251)

(84)

(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

(in thousands)

1999

1998

1997

Federal tax at the statutory rate

$ 4,303

3,997

State income taxes, net of federal tax benefit

Change in valuation allowance for deferred tax asset

Research and development tax credit

Other

236

(1,891)

(544)

995

291

(882)

—

905

691

247

—

158

$ 3,099

4,311

$ 1,143

Notes to Consolidated Financial Statements

Deferred income tax assets and liabilities are as follows:

Years ended December 31

(in thousands)

Deferred tax assets:

Compensation and benefit accruals

Inventory valuation

Net operating loss carryforward

Accounts receivable allowance

Defined benefit pension plan

Other

Valuation allowance

Deferred tax liabilities:

Depreciation

Contract provisions

1999

1998

992

969

977

250

985

1,279

5,452

(3,985)

1,467

(1,494)

(278)

(1,772)

$ 1,026

857

1,041

310

1,629

1,405

6,268

(5,876)

392

(1,148)

(194)

(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.

Notes to Consolidated Financial Statements

The following table presents information necessary to calculate net income per common share:

Years ended December 31

(in thousands, except for per share data)

Shares outstanding:

Weighted average shares outstanding

Effect of dilutive employee stock options

Adjusted weighted average shares

outstanding and assumed conversions

Income applicable to common stock:

Income from continuing operations

Discontinued operations

Net income

Minority interests in losses of consolidated subsidiaries

1999

1998

1997

9,515

346

9,861

9,438

355

9,793

9,424

402

9,826

$ 9,556

7,446

1,527

—

9,556

—

7,446

—

3,817

5,344

(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
Discontinued operations
Net income per common share

Diluted income per common share:

Income from continuing operations
Discontinued operations
Net income per common share

1.00
—
1.00

0.97
—
0.97

0.79
—
0.79

0.76
—
0.76

0.09
0.41
0.50

0.09
0.39
0.48

Notes to Consolidated Financial Statements

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

(in thousands)

Net revenue from unaffiliated customers:

Electronics Group
Industrial Group

Gross profit:

Electronics Group
Industrial Group

Operating income:
Electronics Group
Industrial Group
General, corporate and other

Total assets:

Electronics Group
Industrial Group
General, corporate and other

Depreciation and amortization:

Electronics Group
Industrial Group
General, corporate and other
Discontinued operations

Capital expenditures:
Electronics Group
Industrial Group
General, corporate and other
Discontinued operations

1999

1998

1997

$ 164,963
37,167
$ 202,130

37,873
7,076
44,949

12,005
4,930
(2,769)
14,166

$ 106,229
26,714
15,621
$ 148,564

6,551
902
129
—
7,582

6,327
7,134
982
—

14,443

174,396
37,229
211,625

$ 185,854
31,501
$ 217,355

41,400
6,523
47,923

11,207
4,329
(2,685)
12,851

27,079
5,056
32,135

2,501
2,456
(3,172)
1,785

90,174
18,905
12,040
121,119

97,978
16,946
5,684
$ 120,608

5,933
825
151
—
6,909

4,598
1,185
62
—

5,845

6,111
816
93
379
7,399

3,329
2,294
108
15

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

(in thousands)

United States

Latin America

1999

1998

1997

$ 202,130

211,625

$ 200,424

—

16,931

$ 202,130

211,625

$ 217,355

Notes to Consolidated Financial Statements

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:

First

Second

Third

Fourth

First

Second

Third

Fourth

1999

1998

(in thousands, except for per share data)

$ 44,898 $ 49,331 $ 48,291 $ 59,610 $ 55,490

$ 55,196

$ 46,936

$ 54,003

9,720

2,432

1,533

11,734

12,041

11,454

10,912

13,152

10,960

12,899

3,704

2,459

4,364

2,763

3,666

2,801

2,093

1,061

3,772

2,087

3,299

1,919

3,687

2,379

0.16

0.26

0.25

0.29

0.28

0.29

0.28

0.11

0.22

0.21

0.20

0.25

0.24

Net revenue

Gross profit

Operating income

Net income

Per share data:

Net income:

Basic

Diluted

Report of Independent Auditors

Board of Directors and Shareholders
Sypris Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Sypris Solutions, Inc. (and predecessor entities as
described in Note 1) as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Sypris Solutions, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

Louisville, Kentucky
February 4, 2000

Financial Summary

Years ended December 31

(in thousands, except for per share data)

Income Statement Data:
Net revenue
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Discontinued operations, net of tax
Net income (loss)

Per Share Data:
Income (loss) from continuing operations:

Basic
Diluted

Net income (loss):

Basic
Diluted

December 31

(in thousands)

Balance Sheet Data:
Working capital
Total assets
Total debt
Total shareholders’ equity

1999

1998

1997

1996

1995

$ 202,130
44,949
14,166
9,556
—
9,556

$ 211,625
47,923
12,851
7,446
—
7,446

$ 217,355
32,135
1,785
1,527
3,817
5,344

$ 308,598
30,383
513
(2,536)
3,457
921

$ 328,977
16,547
(14,816)
(11,765)
3,732
(8,033)

$
$

1.00
0.97

$
$

0.79
0.76

$
$

0.09
0.09

0.50
0.48

$
$

(0.45)
(0.43)

(0.08)
(0.08)

$
$

(1.62)
(1.56)

(1.23)
(1.18)

1999

1998

1997

1996

1995

53,705
148,564
54,400
60,820

$ 32,121
121,119
28,583
49,359

$ 35,123
120,608
31,340
27,728

6,337
132,960
46,597
22,384

$ 26,159
173,028
63,814
21,463

See accompanying Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Corporate Directory

Board of Directors

Robert E. Gill (1†)
Chairman of the Board

Jeffrey T. Gill (1)
President & CEO

Henry F. Frigon (1,2†)
Chairman, President & CEO
CARSTAR, Inc.

R. Scott Gill (1)
Associate
Koenig & Strey, Inc.

William L. Healey (2,3)
Private Investor & Consultant

Roger W. Johnson (3†,4)
Private Investor, Consultant
& Educator

Sidney R. Petersen (2,4†)
Retired Chairman & CEO
Getty Oil, Inc.

Robert Sroka (3,4)
Managing Partner
Lighthouse Holdings LLC

(1) Member of Executive Committee

(2) Member of Compensation Committee

(3) Member of Audit and Finance Committee

(4) Member of Nominating and Governance Committee

(5) Executive Officer

† Committee Chairman

G. Darrell Robertson (5)
President & CEO
Metrum-Datatape Inc.

Thomas W. Lovelock (5)
President & CEO
Group Technologies Corporation

Raymond E. Minter
Vice President of Sales
& Marketing
Group Technologies Corporation

Henry L. Singer II (5)
President & CEO
Bell Technologies Inc.

Robert D. Starnes
Vice President of Sales
Metrum-Datatape Inc.

Glenn W. Turpen
Vice President of Finance
Metrum-Datatape Inc.

William D. Wilkerson III
Vice President of Operations
Metrum-Datatape Inc.

Norman E. Zelesky
Vice President of Finance
Tube Turns Technologies Inc.

Corporate Officers

Robert E. Gill (5)
Chairman of the Board

Jeffrey T. Gill (5)
President & CEO

David D. Johnson (5)
Vice President, CFO
& Treasurer

Richard L. Davis (5)
Senior Vice President
& Secretary

Anthony C. Allen (5)
Vice President, Controller
& Assistant Secretary

Subsidiary Officers

James G. Cocke
Vice President of Finance,
Contracts & Program Management
Group Technologies Corporation

Russell H. Johnson, Jr.
Vice President
& General Manager
Tube Turns Technologies Inc.

John M. Kramer (5)
President & CEO
Tube Turns Technologies Inc.

Kevin H. Kramer
Vice President
& General Manager
Tube Turns Technologies Inc.

Company Locations

Alabama
Metrum-Datatape Inc.
3322 S. Memorial Parkway
Huntsville, AL 35801
Phone: (256) 881-2231

Arizona
Bell Technologies Inc.
2320 West Peoria Ave.
Building D-133
Phoenix, AR 85029
Phone: (602) 395-5900

California
Bell Technologies Inc.
440 N. Bernardo Ave.
Mountain View, CA 94043
Phone: (650) 969-5500

Bell Technologies Inc.
2102 Ringwood Ave.
San Jose, CA 95131
Phone: (408) 954-8050

Bell Technologies Inc.
16340 Roscoe Blvd.
Van Nuys, CA 91406
Phone: (818) 830-9111

Metrum-Datatape Inc.
605 East Huntington Dr.
Monrovia, CA 91016
Phone: (626) 358-9500

Colorado
Metrum-Datatape Inc.
Corporate Headquarters
4800 East Dry Creek Road
Littleton, CO 80122
Phone: (303) 773-4700

Bell Technologies Inc.
4800 East Dry Creek Road
Littleton, CO 80122
Phone: (303) 773-4609

Florida
Bell Technologies Inc.
Corporate Headquarters
6120 Hanging Moss Road
Orlando, FL 32807
Phone: (407) 678-6900

Group Technologies Corporation
Corporate Headquarters
10901 Malcolm McKinley Dr.
Tampa, FL 33612
Phone: (813) 972-6000

Metrum-Datatape Inc.
8 Eighth Street
Shalimar, FL 32579
Phone: (850) 651-5158

Metrum-Datatape Inc.
107 Knickerbocker Avenue
Hillsdale, NJ 07642
Phone: (201) 666-3217

New York
Bell Technologies Inc.
c/o Delphi Harrison
200 Upper Mountain Road
Building 6, Plant Q
Lockport, NY 14094
Phone: (716) 439-3531

Ohio
Bell Technologies Inc.
925 Keynote Circle
Brooklyn Heights, OH 44131
Phone: (216) 741-7040

Bell Technologies Inc.
3162 Presidential Drive
Fairborn, OH 45324
Phone: (937) 427-3444

Pennsylvania
Bell Technologies Inc.
389 Wolf Camp Road
Fair Hope, PA 15538
Phone: (814) 267-5408

South Carolina
Bell Technologies Inc.
c/o Square D
8821 Garners Ferry Road
Columbia, SC 29209
Phone: (803) 695-7874

Tennessee
Bell Technologies Inc.
277 Mallory Station Road
Suite 102
Franklin, TN 37064
Phone: (615) 771-2421

Texas
Bell Technologies Inc.
906 Trinity Drive, Suite H
Mission, TX 78572
Phone: (956) 585-6566

Bell Technologies Inc.
258 East Arapaho, Suite 150
Richardson, TX 75081
Phone: (972) 231-4443

Metrum-Datatape Inc.
5500-B Will Ruth Drive
El Paso, TX 79924
Phone: (915) 757-2547

Tube Turns Technologies Inc.
9801 Westheimer Drive
Suite 302
Houston, TX 77042
Phone: (713) 917-6878

Georgia
Bell Technologies Inc.
1000 Cobb Place Blvd.
Building 200, Suite 240
Kennesaw, GA 30144
Phone: (770) 795-8092

Illinois
Bell Technologies Inc.
2055 Army Trail Road
Suite 108
Addison, IL 60101
Phone: (630) 620-5800

Kentucky
Sypris Solutions Inc.
Corporate Headquarters
101 Bullitt Lane
Suite 450
Louisville, KY 40222
Phone: (502) 585-5544

Tube Turns Technologies Inc.
Corporate Headquarters
2820 West Broadway
Louisville, KY 40211
Phone: (502) 774-6011

Maryland
Bell Technologies Inc.
1321A Mercedes Drive, Suite 3
Hanover, MD 21076
Phone: (410) 850-5056

Metrum-Datatape Inc.
9020 Junction Drive
Annapolis Junction, MD 20701
Phone: (301) 470-0110

Massachusetts
Bell Technologies Inc.
53 Second Avenue
Burlington, MA 01803
Phone: (781) 272-9050

Bell Technologies Inc.
34 Simarano Drive
Marlborough, MA 01752
Phone: (508) 786-9633

Michigan
Bell Technologies Inc.
24301 Catherine Industrial Road
Suite 116
Novi, MI 48375
Phone: (248) 305-5200

New Jersey
Bell Technologies Inc.
650 Liberty Avenue
Union, NJ 07003
Phone: (908) 851-3589

Bell Technologies Inc.
1133 Route 23 South
Wayne, NJ 07470
Phone: (973) 628-1363

Common Stock Information

Since March 30, 1998, the Company’s common stock has been traded on The Nasdaq Stock Market under the symbol
“SYPR.” Prior to that date, the Company’s common stock was traded on The Nasdaq Stock Market under the symbol
“GRTK.” The following table sets forth, for the periods indicated, the high and low sales prices per share of the common
stock as reported by The Nasdaq Stock Market. Prices have been restated to reflect the one-for-four reverse stock split
effective March 30, 1998.

Year ended December 31, 1998:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year ended December 31, 1999:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

$
$
$
$

15.252
11.375
10.375
8.750

8.250
9.750
11.000
10.250

$
$
$
$

9.250
6.500
7.500
5.938

6.375
6.875
9.000
8.625

As of February 4, 2000, there were 1,014 holders of record of the Company’s common stock.

The Company has historically not declared or paid any cash dividend on its common stock. The Company presently
intends to retain all of its earnings for the future operation and growth of its business and does not intend to pay cash
dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon the Company’s
results of operations, earnings, capital requirements, contractual restrictions and other factors considered relevant by the
Board of Directors.

Investor Information

Investor Materials

Corporate Counsel

Forward-Looking Statements

This document contains
various forward-looking
statements. Statements in
this document that are not
historical are forward-looking
statements. Such
statements are subject to
various risks and
uncertainties that could
cause actual results to
vary materially from those
stated. Such risks and
uncertainties include:
economic conditions in
various regions, product
and price competition, raw
material prices, technology
changes, patent issues,
litigation results, legal and
regulatory developments
and other risks and
uncertainties described in
documents filed with the
Securities and Exchange
Commission.

Wyatt, Tarrant & Combs
Citizens Plaza, 28th Floor
Louisville, KY 40202
Phone: (502) 589-5235
Fax: (502) 589-0309

Corporate Address

Sypris Solutions Inc.
101 Bullitt Lane
Suite 450
Louisville, KY 40222
Phone: (502) 585-5544
Fax: (502) 585-1602

Annual Meeting

The Annual Meeting of
Shareholders will be held
on Tuesday, May 2, 2000 at
10:00 a.m., at
101 Bullitt Lane,
Lower Level Seminar Room,
Louisville, Kentucky.

For More Information

To learn more about Sypris
Solutions Inc., visit our site
on the World Wide Web at
www.sypris.com.

The Sypris Web page –
www.sypris.com – is your
entry point for a vast array
of information about Sypris,
including its products,
financial information,
real-time stock quotes, links
to each of its subsidiary
operations and other useful
information.

For investor information,
including additional annual
reports, 10-Ks, 10-Qs or any
other financial literature,
please contact Carroll A.
Dunavent at (502) 585-5544.

Sypris on Nasdaq

The Common Stock of
Sypris trades on The
Nasdaq Stock Market
under the symbol SYPR.

Transfer Agent

First Chicago Trust
Company of New York,
a division of Equiserve
P.O. Box 2500
Jersey City, NJ 07303
Phone: (800) 317-4445
Fax: (201) 222-4151
www.equiserve.com

Independent Auditors

Ernst & Young LLP
400 West Market Street
Suite 2100
Louisville, KY 40202
Phone: (502) 585-1400
Fax: (502) 584-4221

SYPRIS

S O L U T I O N S I N C

101 BULLITT LANE, SUITE 450

LOUISVILLE, KENTUCKY 40222

Phone: (502) 585-5544

Fax: (502) 585-1602