Sypris Solutions, Inc. Annual Report 2010

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FY2010 Annual Report · Sypris Solutions, Inc.

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Stepping Up

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DEAR FELLOW STOCKHOLDERS:

In the fall of 2008, we embarked upon a significant restructuring
plan with the objective to (i) dramatically reduce the fixed cost
structure of the Company through the consolidation of facilities,
(ii) greatly improve our operational effectiveness in terms of
efficiency, quality, scrap and on-time delivery, (iii) strengthen
our organization through the recruitment of experienced
individuals with proven track records of success, (iv) improve
the liquidity of the Company’s balance sheet through the
reduction of debt, and (v) create a growing, profitable enterprise
of which we all could be proud.

The objectives were aggressive and targeted $25 million of
annual savings once fully implemented, with the benefits to be
fairly balanced among the Company’s two business units,
Sypris Electronics and Sypris Technologies. Almost
immediately, the challenge was heightened by the advent of the
recession and the unexpected steep decline of the
transportation industry. It was clearly the time for our
management team to step up.

We are pleased to report that the results to date have exceeded
our expectations. Let us take a moment to walk you through
some of the tangible outcomes that began to contribute to the
Company’s financial results during 2010.

RESULTS

Facilities Consolidation. The Company closed its operations as
planned in San Dimas, California and northern Ohio, and
successfully relocated the production from these plants to other
Sypris locations or subcontractors. In addition, the Company
subsequently vacated leased facilities in Florida, Texas and
Colorado and consolidated these functions in other Sypris
facilities.

As a result, up to approximately 800,000 square feet of facilities
have been closed with an attendant reduction in fixed overhead
expenses. In addition, the cost to produce these transferred
products has been reduced substantially since most of the work
was moved to lower-cost Sypris locations in North America. For
example, Sypris Technologies expects to generate more than
35% of its revenue in 2011 from its Toluca, Mexico operation, up
from 27% in 2008.

The dramatic impact of the restructuring can be seen in other
ways as well. During the fourth quarter of 2008, Sypris
Technologies employed 1,041 people to produce $47.3 million
of revenue. For the fourth quarter of 2010, the business
required only 814 people to produce $47.7 million of revenue,
reflecting a reduction of 227 people and a 29% increase in
revenue per employee. Gross margin expanded from a loss of
3.5% in the fourth quarter of 2008 to a positive 4.0% in the fourth
quarter of 2010, or the equivalent of $14 million on an
annualized basis. As the market recovers and additional
volume returns, the financial leverage is expected to be
significant.

Operational Effectiveness. The Company has made significant
progress in its efforts to improve its manufacturing systems,
efficiency and competitiveness. For example, over the past two
years at Sypris Electronics, significant investments in LEAN
implementation (an estimated 150 Kaizen events in 2010 alone)
and the use of Six Sigma tools have resulted in a 93% improve-
ment in quality (in terms of PPMs), an 83% reduction in cycle
time, a 72% reduction in scrap and an increase in on-time
delivery to 87% for 2010, up from 29% for 2008.

Substantial operational improvements have been achieved at
Sypris Technologies as well, where the business recorded a
75% increase in quality, a 65% reduction in the number of
customer incidents, a 13% reduction in scrap and an increase in
on-time delivery to 93% for 2010, up from 81% for 2008. These
improvements reflect the steadfast commitment of our manage-
ment team to quality and continuous improvement as a
competitive differentiator, and o r organizational depth has
been increased substantially over the past several years in
support of this commitment.

In addition, the Company has made tremendous progress in
terms of improving the quality and safety of its work environ-
ment, which in turn has contributed to the positive results
reported above. Through training, education, careful case
review and investments on the plant floor, our most current,
estimated workers’ compensation claims have declined to $0.1
million in 2010, a drop of more than 90% since 2008.

The results are compelling. The gross margin for Sypris
Electronics expanded by 14.4 percentage points to 22.3% in
2010, up from 7.9% for 2008, or the equivalent of an $11 million
improvement on approximately $75 million of business. The
business employs 135 fewer people and operates out of one
facility instead of three, the result of which has enabled Sypris
Electronics to reduce selling, general and administrative
expenses by $2.4 million for 2010 compared to 2008.

Balance sheet efficiency has also improved dramatically. At
Sypris Technologies, inventory days decreased 14% to 27.7
days in 2010, down from 32.2 days in 2008. Similarly, inventory
turns increased 16% to 13.2 turns in 2010, up from 11.3 turns in
2008. As a result, the business was successful in reducing its
net working capital position during 2010 even as sales
expanded by 26%, or $39.1 million, from the prior year.

Healthcare Cost Improvement. The Company made important
changes to its healthcare plans with a strong focus on user
education, responsibility and wellness. The original objective
was to reduce costs by $1 million on an annualized basis, or
roughly 10% based upon the Company’s experience of $10.4
million for 2008. The actual results have been far more
impressive. The Company’s total healthcare cost for 2010 was
$4.7 million, or $6,012 per insured employee, versus $8,364 per
insured employee for 2008, representing a 54% reduction in
aggregate spend and a 28% reduction in cost per insured
employee.

Organizational Capability. The real story of any business starts
with its people and Sypris is no exception. Over the past
several years, the organizational leadership of both business
units at all levels has been substantially changed and greatly
improved. The successful results of the Company’s
restructuring efforts in many regards reflect the measure and
contribution of these investments in seasoned, professional
talent.

The Sypris Electronics team has been significantly upgraded
with executives who have proven track records of success.
Don Herndon, Jim Long, Debra Weber, Dave Moya, Brian
Maguire, Patricia Ryan, Terry Miller, Dr. Hal Aldridge, Ryan
Duran and Larry Bernicky, among others, reflect the
professional pedigree of those who have joined the team.
These and other individuals, under the leadership of John
Walsh, have been instrumental in driving the dramatic changes
that continue to take place in this business.

At Sypris Technologies, similar improvements have taken place,
including the additions of Paul Larochelle, Steve Straub, Joe
Masching, Phil Singer, Tom Petschke, Jeff Davis, Eric Hodge,
Rob Williams, Casey Meyer and Glenn Fox, to name a few.
The dramatic improvements in quality, efficiency, cost, delivery
and safety reflect the programs and systems that have been
implemented over the past two years by these and other
members of the team.

Balance Sheet Strength. The Company raised nearly $60
million in October of 2009 through the sale of its Test &
Measurement business unit to Tektronix and the liquidation of
3.8 million shares of Dana Holding Corporation (Dana) common
stock that it had received as compensation upon Dana’s exit
from bankruptcy. The Company also generated $4.3 million of
free cash flow since the first quarter of 2009 while funding its
restructuring activities, which included the closure of significant
facilities, the relocation of key production equipment, the
reduction of more than 365 people, the buyout of leases, the
recruitment of executives and the investment in comprehensive
LEAN initiatives, among others. As a result, the Company was
able to reduce net debt to $3.7 million as of December 31, 2010
from its peak of $69.5 million as of the end of the first quarter
2009.

In summary, the results are tangible and expected to be lasting.
The substantial reduction of fixed overhead and healthcare
savings, combined with the significant rebalancing of production
to lower-cost regions and the dramatic improvement in
operating efficiency, has lowered the Company’s cost profile by
more than an estimated $25 million per year based upon
current volumes. The Company reduced its net debt by $65.8
million in parallel with the execution of these restructuring
activities. The full-year benefits of these and other actions are
expected to be realized during 2011 and beyond.

LOOKING FORWARD

With the restructuring now complete, our primary objective
going forward is simple and easy to understand by all in our

organization: to generate consistent, reliable growth in earnings
and cash flow on a sustained basis. The strategies deployed by
each of our business units to achieve this objective vary, but
can best be summarized as follows:

Aerospace & Defense

Invest in Scalable, Patentable Technology. We will make
certain that our R&D investments can be utilized across a
variety of platforms, applications and markets. Significant
investments in next generation electronic key security, secure
computing and network security and resiliency should prove to
be highly scalable. During 2010, we filed eight patent
applications and have plans to complete at least twelve patent
filings in 2011.

Exploit Key Management Expertise. We will leverage unique
expertise and industry standing in the field of key management
to gain access to new applications, partners and markets,
including network defense, critical infrastructure defense and
international Cyber testing.

Create a Lasting Culture of Shingo. We plan to apply for the
Shingo Prize as part of our ongoing efforts to differentiate
Sypris from the competition and create a lasting competitive
advantage. We believe that it will serve as the best practice
model for driving LEAN transformation and institutionalizing the
Sypris Enterprise System.

-Reliability EMS. We will continue

Increase Market Share in Hi
to focus on modernization, space and other high-reliability/
severe environment applications that require unique
certifications and rigorous traceability standards. Particular
attention will be given to emerging markets of interest within the
severe environment segment, such as subsea and deep earth
applications.

Partner to Accelerate Time to Market; Expand Portfolio;
Balance Risk. We will drive business growth by leveraging the
expertise, investments and market access of others. Examples
of new projects launched in 2010 include Global Information
Assurance and Cyber Resiliency (Cassidian); Identity
Authentication (Purdue); Trusted Architecture (Purdue;
Carnegie Mellon); and Security Quality of Service (Georgia
Tech).

Industrial

Drive Readiness. We will invest to prepare for cyclical recovery
to ensure profitable conversion on each dollar of revenue.
Areas of focus will include preventive maintenance,
cross-training and education of employees, spare parts and
tooling, failure analysis, and inventory buffers.

Accelerate LEAN Conversion. We will drive further waste out of
the business, including administrative and manufacturing
processes, to increase flexibility and responsiveness. We will
implement standard work, visual management and cell leaders.

Complete Organizational Development. We will continue to
invest in proven talent to support Readiness, LEAN conversion,
partnering, systems development and integration, and business
development, among others.

Partner to Increase Strategic Value; Diversify. We plan to
expand the portfolio of products provided to existing customers,
gain access to developing markets in India, China and Brazil
and expand our customer base and industries served.

Complete Systems Development and Integration. We will
continue to invest in systems and processes to manage
variability and reduce execution risk and analytical tools to
manage customer order fluctuations, including capacity
planning and analysis.

UNIQUE OPPORTUNITY

We believe that the Company has the unique opportunity to
establish itself as a clear leader in each of its business
segments.

In our Aerospace & Defense segment, the need to address the
burgeoning threat of potential Cyber attacks on our nation’s
military and industrial base requires an area of expertise in
which Sypris Electronics has specialized for 45 years. Recent
collaborations with Purdue University, Georgia Tech, Carnegie
Mellon, Cassidian and Booz Allen Hamilto serve to highlight the
Company’s unique standing in this rapidly growing field. The
Department of Energy contract to develop a centralized
cryptographic key management system to protect our nation’s
electric power grids from Cyber attack reflects this convergence
of key management, cryptography and partnering to address
critical infrastructure vulnerabilities in the Cyber arena.

In our Industrial segment, Sypris Technologies is among the
largest suppliers to Dana and Meritor. We recently executed a
new supply agreement with Meritor for drivetrain components
for Brazil and a multi-year extension of two supply agreements
for components in the U.S. The Company further increased its
market share during the downturn with new contracts with
American Axle, Axle Alliance, Eaton, John Deere and Sistemas
A tomotrice de Mexico The Company believes that it is one of
the leading suppliers of these components in North America,
and with the continuing recovery of the commercial vehicle and
trailer markets, sales are expected to increase significantly
over the next several years.

THANK YOU

As always, we close with a note of thanks. We appreciate the
dedication and commitment of our fellow employees, many of
whom are also stockholders. We count on their passion for
excellence in all that they do to help Sypris grow and evolve
into an ever-increasingly successful company.

We also want to thank our customers and investors, both of
whom place their trust in Sypris and count on us to meet our
commitments for quality, delivery and performance. We
sincerely appreciate your confidence and encourage you to
contact us. We welcome your comments and would be pleased
to answer your questions.

Sincerely,

Jeffrey T. Gill
President & CEO

Robert E. Gill
Chairman of the Board

* Reconciliation of non-GAAP financial measures is available

following the Form 10-K. Please also refer to the “Risk
Factors” Section of our Form 10-K for a discussion of
relevant risks.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark one)
(cid:95)(cid:3)

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year
ended December 31, 2010.

(cid:134)(cid:3)(cid:3)

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the
transition period from ________ to ________.

Commission file number 0-24020
SYPRIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(Address of principal executive
offices, including zip code)

61-1321992
(I.R.S. Employer
Identification No.)

(502) 329-2000
(Registrant’s telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)

(Name of each exchange on which registered)

Common Stock, $.01 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:134) Yes (cid:95) No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:134) Yes (cid:95) No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. (cid:95) Yes (cid:134) No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).(cid:3)(cid:3)(cid:3)(cid:134) Yes (cid:134) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:95)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
(cid:134) Large accelerated filer

(cid:134) Non-accelerated filer(cid:3) (cid:95) Smaller reporting company

(cid:134) Accelerated filer(cid:3)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:134) Yes (cid:95) No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second
fiscal quarter (July 4, 2010) was $42,491,784.

There were 19,574,307 shares of the registrant’s common stock outstanding as of March 4, 2011.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Stockholders to
be held May 10, 2011 are incorporated by reference into Part III to the extent described therein.

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Table of Contents

Part I

Item 1.

Business .......................................................................................................................................

Item 1A.

Risk Factors .................................................................................................................................

Item 1B.

Unresolved Staff Comments .......................................................................................................

Properties .....................................................................................................................................

Legal Proceedings .......................................................................................................................

[Removed and Reserved] ............................................................................................................

Item 2.

Item 3.

Item 4.

Part II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities..................................................................................

Item 6.

Item 7.

Selected Financial Data...............................................................................................................

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

Page

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk ............................................... 28

Item 8.

Item 9.

Financial Statements and Supplementary Data ..........................................................................

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...

Item 9A.

Controls and Procedures..............................................................................................................

Item 9B.

Other Information........................................................................................................................

Part III

Item 10.

Directors, Executive Officers and Corporate Governance.........................................................

Item 11.

Executive Compensation.............................................................................................................

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters.............................................................................................................

Item 13.

Certain Relationships and Related Transactions and Director Independence ...........................

Item 14.

Principal Accountant Fees and Services.....................................................................................

Part IV

Item 15.

Exhibits and Financial Statement Schedules ..............................................................................

Signature Page ...........................................................................................................................................................

In this Form 10-K, “Sypris,” “SYPR,” “the Company,” “we,” “us” and “our” refer to Sypris Solutions, Inc. and its
subsidiaries and predecessors, collectively. “Sypris Solutions” and “Sypris” are our trademarks. All other trademarks,
servicemarks or trade names referred to in this Form 10-K are the property of their respective owners.

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PART I

Item 1. Business

General

We were formed as a Delaware corporation in 1997. We are a diversified provider of outsourced services
and specialty products. We perform a wide range of manufacturing, engineering, design and other technical
services, typically under multi-year, sole-source contracts with corporations and government agencies principally in
the markets for industrial manufacturing and aerospace and defense electronics.

We focus on those markets where we believe we have the expertise, qualifications and leadership position
to sustain a competitive advantage. We target our resources to support the needs of industry participants that
embrace multi-year contractual relationships as a strategic component of their supply chain management. These
contracts, many of which are sole-source by part number and are for terms of up to five years, enable us to invest in
leading-edge processes or technologies to help our customers remain competitive. The productivity, flexibility and
economies of scale that can result offer an important opportunity for differentiating ourselves from the competition
when it comes to cost, quality, reliability and customer service.

Industrial Manufacturing.

We are a significant supplier of forged and machined components, serving the
commercial vehicle, off highway vehicle, light truck and energy markets in North America. We produce drive train
components including axle shafts, gear sets, differential cases, steer axle forgings, and other components under
multi-year, sole-source contracts with ArvinMeritor, Inc. (ArvinMeritor) and Dana Holding Corporation (DHC), the
two primary providers of drive train assemblies for use by the leading truck manufacturers, including Ford Motor
Company (Ford), Freightliner LLC (Freightliner), Mack Trucks, Inc. (Mack), Navistar International Corporation
(Navistar), PACCAR, Inc. (PACCAR) and Volvo Truck Corporation (Volvo). We also supply ArvinMeritor with
trailer axle beams for use by the leading trailer manufacturers, including Great Dane Limited Partnership (Great
Dane), Hyundai Motor Company (Hyundai), Stoughton Trailers, LLC (Stoughton), Utility Trailer Manufacturing
Company (Utility) and Wabash National Corporation (Wabash). We continue to support our customers’ strategies
to outsource non-core operations by supplying additional components and providing additional value added
operations for drive train assemblies. During 2008 and 2009, the commercial vehicle industry experienced a severe
recession highlighted by an unprecedented plunge in industry volumes. The industry was significantly affected by
deteriorating global economic conditions, unstable credit markets and declining consumer confidence. The
economic crisis drove a 38% year-over-year revenue drop within our Industrial Group in 2009. As a result, we
embarked upon a significant restructuring plan which included adjusting our overhead and infrastructure to cope
with the downturn and beginning to diversify our customers. Our diversification strategy resulted in the recent
addition of new long-term agreements in 2010 with Eaton Corporation and American Axle, under which we supply
forgings.

Aerospace & Defense Electronics.

The Electronics Group is organized around two primary business

lines: Information Security Solutions (ISS) and Electronic Manufacturing Services (EMS).

Information Security Solutions (ISS). Our ISS business provides solutions in cyber security,
(cid:120)
secure communications, global electronic key management, Sypris Data Systems branded products,
and product design and development to the United States Government, both defense and civilian
agencies, international government agencies, as well as worldwide defense and aerospace prime
organizations. This group has several long-term contracts with the Department of Defense to design
and build information assurance products, including link encryptors, data recording products and
electronic key fill devices.

Electronic Manufacturing Services (EMS). Our EMS business is focused on circuit card and full
(cid:120)
box build manufacturing, dedicated space and high reliability manufacturing, integrated design and
engineering services, systems assembly and integration, design for manufacturability, and design to
specification work. A sampling of our customers include Honeywell International, Inc. (Honeywell),

Lockheed Martin Corporation (Lockheed), Northrop Grumman Corporation (Northrop Grumman) and
Raytheon Company (Raytheon).

The proposed U.S. defense budget for fiscal 2011 contains provisions to increase spending for activities
related to Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance
(C4ISR), cyber defense and education and secure communications. However, defense spending appears likely to be
relatively flat during 2011. With few new starts and an increase in the Operations & Maintenance (O&M) and
Procurement accounts, we believe there will be a focus on Reset, Maintenance Repair and Overhaul (MRO),
Recapitalization and Service Life Extension Programs. These activities would focus on extending the useful life of
current platforms either through basic repairs to structures, modernizing electronics in a system or complete
overhauls of platforms. There continues to be increased support for spending and government provisions for cyber
and irregular warfare activities, specifically related to cyber security research, education and training, network
defense, secure computing, cloud computing and certification and accreditation training, all of which are expected to
create significant potential opportunities for our ISS business over the long term. Our aerospace and defense
electronics business accounted for approximately 28% of net revenue in 2010.

Industry Overview

We believe the trend toward outsourcing is continuing across a wide range of industries and markets as
outsourcing specialists assume a strategic role in the supply chain of companies of all types and sizes. We expect
the growth in outsourcing expenditures to continue increasing at a rate far higher than the expansion in the overall
economy.

We believe the trend toward outsourcing is continuing because outsourcing frequently represents a more
efficient, lower cost means for manufacturing a product or delivering a service when compared to more vertically
integrated alternatives. While the rate of acceptance of the outsourcing model may vary by industry, we believe the
following benefits of outsourcing are driving this general trend.

Reduced Total Operating Costs and Invested Capital. Outsourcing specialists are frequently able to
produce products and/or deliver services at a reduced total cost relative to that of their customers because of the
ability to allocate the expense for a given set of fixed capacity, including assets, people and support systems, across
multiple customers with diversified needs. In turn, these outsourcing specialists can achieve higher utilization of
their resources and achieve greater productivity, flexibility and economies of scale.

Access to Advanced Manufacturing Capabilities and Processes and Increased Productivity. The ability to
use a fixed set of production assets for a number of customers enables outsourcing specialists to invest in the latest
technology as a means to further improve productivity, quality and cycle times. The magnitude of these investments
can be prohibitive absent the volume and reliability of future orders associated with having a broad array of
customers for the use of those assets.

Focus on Core Competencies. Companies are under intense competitive pressure to constantly rationalize
their operations, invest in and strengthen areas in which they can add the greatest value to their customers and divest
or outsource areas in which they add lesser value. By utilizing the services of outsourcing specialists, these
companies can react more quickly to changing market conditions and allocate valuable capital and other resources to
core activities, such as research and development, sales and marketing or product integration.

Improved Supply Chain Management. We believe that the trend in outsourcing favors specialists that
have the financial, managerial and capital resources to assume an increasingly greater role in the management of the
supply chain for the customer. By utilizing fewer and more capable suppliers, companies are able to greatly
simplify the infrastructure required to manage these suppliers, thereby reducing their costs, risks and logistical
complexity, while improving margins, supply chain reliability, flexibility and long-term strategic planning.

Our Markets

Industrial Manufacturing. The industrial manufacturing markets include truck components and
assemblies, trailer components and specialty closures. The truck components and assemblies market which consists
of the original equipment manufacturers, or OEMs, including Chrysler Group LLC, Ford, Freightliner, General

Motors Company, Mack, Navistar, PACCAR and Volvo, and an extensive supply chain of companies of all types
and sizes that are classified into different levels or tiers. The trailer market consists of OEMs including Great Dane,
Wabash, Utility, Hyundai, Vanguard and Stoughton. Tier I companies represent the primary suppliers to the OEMs
and include ArvinMeritor, DHC, Delphi Automotive LLP, Eaton Corporation and Visteon Corporation (Visteon),
among others. Many of the Tier I companies are confronted with excess capacity, high hourly wage rates, costly
benefit packages and aging capital equipment. Below this group of companies reside numerous suppliers that either
supply the OEMs directly or supply the Tier I companies. In all segments of the truck components and assemblies
and the trailer markets, however, suppliers are under intense competitive pressure to improve product quality and to
reduce capital expenditures, production costs and inventory levels. The specialty closures market consists primarily
of oil and gas pipelines, which are also facing significant pressures to improve quality, reduce costs and defer capital
expenditures.

During 2009, the commercial vehicle industry experienced a severe recession highlighted by an
unprecedented plunge in industry volumes. Deteriorating global economic conditions, unstable credit markets,
rising unemployment and declining consumer confidence have all led to weakened OEMs, many of which were
experiencing financial distress prior to 2009. Along with the general economic decline, the industry continues to
experience declining U.S. production volumes, reduced U.S. domestic OEM market share, intense global
competition, volatile commodity prices and significant pricing pressures. Although production volumes have
increased in fiscal year 2010 as compared to the prior year, they are still below historically normal levels.

In an attempt to combat the deteriorating market, many OEMs are aggressively developing strategies to
reduce costs, which includes reducing the number of suppliers they utilize. These manufacturers are choosing
stronger relationships with fewer suppliers that are capable of investing to support their operations. In response to
this trend, many suppliers have combined with others to gain the critical mass required to support these needs. As a
result, the number of Tier I suppliers is being reduced, but in many cases, the aggregate production capacity of these
companies has yet to be addressed. We believe that as Tier I suppliers seek to eliminate excess capacity, they will
increasingly choose outsourcing as a means to enhance their financial performance, and as a result, companies such
as Sypris will be presented with new business and acquisition opportunities.

Aerospace & Defense Electronics. The consolidation of defense contractors over the past decade has
added to the increased demand for outsourcing specialists. The consolidated companies, some of which have
developed highly leveraged balance sheets as a result of mergers and acquisitions, have been motivated to seek new
ways to raise margins, increase profitability and enhance cash flow. Accordingly, outsourcing specialists, including
Sypris, have been successful in building new relationships with organizations that previously relied more on internal
resources. We believe this trend will continue, and that our extensive experience, capabilities, certifications and
qualifications in the development of security products and services across our businesses will serve to differentiate
us from many of the more traditional outsource suppliers. We also believe that we are well positioned to take
advantage of additional outsourcing activity that may flow from the prime contractors that are awarded contracts
related to increased defense appropriations and expenditures as a result of increased focus on national defense,
homeland security and cyber security.

The market conditions for our ISS business are expected to be favorable over the long term, given the
growing cyber security and intelligence markets. Our EMS business, dedicated to the aerospace and defense market,
faces various market conditions. The nature of providing outsourced manufacturing services to the aerospace and
defense electronics industry differs substantially from the traditional commercial outsourced manufacturing services
industry. The cost of failure can be extremely high, the manufacturing requirements are typically complex and
products are produced in relatively small quantities. Companies that provide these manufacturing services are
required to maintain and adhere to a number of strict and comprehensive certifications, security clearances and
traceability standards.

Our Business Strategy

Our objective is to improve our position in each of our core markets by increasing the number of multi-year
contracts with customers and investing in highly automated production capacity to remain competitive on a global
scale. We intend to serve our customers and achieve this objective by continuing to:

Concentrate on our Core Markets. We are a significant supplier of forged and machined components,
serving the commercial vehicle, off highway vehicle, light truck and energy markets in North America. We have
been an established supplier of manufacturing and technical services to major aerospace and defense companies and
agencies of the U.S. Government for over 40 years. We will continue to focus on those markets where we have the
expertise, qualifications and opportunity for market share to sustain a competitive advantage.

Dedicate our Resources to Support Strategic Partnerships. We will continue to dedicate our resources to
support the needs of industry leaders that embrace multi-year contractual relationships as a strategic component of
their supply chain management and have the potential for long-term growth. We prefer contracts that are sole-
source by part number so we can work closely with the customer to the mutual benefit of both parties. DHC and
ArvinMeritor have awarded us with sole-source supply agreements for certain parts that run through 2014 and 2015,
respectively. Historically, we entered into multi-year manufacturing services agreements with Boeing, Honeywell,
Lockheed Martin, Northrop Grumman and Raytheon. Our success in establishing outsourcing partnerships with key
customers has historically led to additional contracts, and we believe that if we continue to successfully perform on
current contracts, we should have additional growth opportunities with these and other customers.

Pursue the Strategic Acquisition of Assets. Over the long term, we will continue to target the strategic
acquisition of assets that serve to consolidate our position in our core markets, expand our presence outside the U.S.,
create or strengthen our relationships with leading companies and expand our range of value-added services in
return for multi-year supply agreements. We intend to acquire assets that can be integrated with our core businesses
and that can be used to support other customers, thereby improving asset utilization and achieving greater
productivity, flexibility and economies of scale.

Grow Through the Addition of New Value-Added Services. We hope to grow through the addition of new
value-added manufacturing capabilities and the introduction of additional components in the supply chain that
enable us to provide a more complete solution by improving quality and reducing product cost, inventory levels and
cycle times for our customers. In many instances, we offer a variety of state-of-the-art machining capabilities to our
customers in the industrial manufacturing markets that enable us to reduce labor and shipping costs and minimize
cycle times for our customers over the long-term, providing us with additional growth opportunities in the future.
Successfully migrating from design and manufacturing of complex circuit card assemblies to box builds would
increase product content with our customers and would allow us to be a more significant player in the aerospace and
defense market.

We believe that the number and duration of our strategic relationships enable us to invest in our business
with greater certainty and with less risk than others that do not benefit from the type of longer term contractual
commitments we receive from many of our major customers. The investments we make in support of these
contracts are targeted to provide us with the productivity, flexibility, technological edge and economies of scale that
we believe will help to differentiate us from the competition in the future when it comes to cost, quality, reliability
and customer service.

Our Services and Products

We are a diversified provider of outsourced services and specialty products. Our services consist of
manufacturing, technical and other services and products that are delivered as part of our customers’ overall supply
chain management. We provide our customers with services that include software development, design services,
prototype development, product re-engineering, feature enhancement, product ruggedization, cost reduction, product
miniaturization and electro-magnetic interference and shielding. We also apply our core technologies to the
development and production of our own product line of high assurance security components, including
cryptographic key management programs and data encryption and recording products for our U.S. Government and
defense customers. The information below is representative of the types of products we manufacture, services we
provide and the customers and industries for which we provide such products or services.

Industrial Manufacturing:

ArvinMeritor ..............................................Axle shafts and drive train components for medium and heavy-duty

trucks as well as axle beams for trailers.

DHC ...........................................................Drive train components (including axle shafts, differential cases, gear
sets, full float tubes) and steer axle components for use in light,
medium and heavy-duty trucks.

Eaton ..........................................................Transmission shafts for heavy-duty trucks.
Jamison Products .......................................Specialty closures for oil and gas pipelines.

Aerospace & Defense Electronics:

Honeywell ..................................................Complex circuit cards for the color display systems used in military

aircraft.

U.S. Government .......................................Secure communications equipment, global key management solutions
and data recording systems.
Raytheon ....................................................Complex circuit cards for use in a missile guidance system and an

integrated air defense network.

Manufacturing Services

Our manufacturing services typically involve the fabrication or assembly of a product or subassembly
according to specifications provided by our customers. We purchase raw materials or components from our
customers and independent suppliers in connection with performing our manufacturing services. We strive to
enhance our manufacturing capabilities by advanced quality and manufacturing techniques, lean manufacturing,
just-in-time procurement and continuous flow manufacturing, statistical process control, total quality management,
stringent and real-time engineering change control routines and total cycle time reduction techniques.

Industrial Manufacturing Services. We provide our customers with a wide range of capabilities, including
automated forging, extruding, machining, induction hardening, heat-treating and testing services to meet the
exacting requirements. We also design and fabricate production tooling, manufacture prototype products and
provide other value-added services for our customers. Our manufacturing services contracts for the truck
components and assemblies markets are generally sole-source by part number. Part numbers may be specified for
inclusion in a single model or a range of models. Where we are the sole-source provider by part number, we are the
exclusive provider to our customer of the specific parts and for any replacements for these parts that may result from
a design or model change for the duration of the manufacturing contract.

Electronics Manufacturing Services. We provide our customers with a broad variety of solutions, from
low-volume prototype assembly to high-volume turnkey manufacturing. We employ a multi-disciplined engineering
team that provides comprehensive manufacturing and design support to customers. The manufacturing solutions we
offer include design conversion and enhancement, materials procurement, system assembly, testing and final system
configuration. Our manufacturing services contracts for the aerospace and defense electronics market are generally
sole-source by part number.

Products

In addition to our outsourced services, we provide some of our customers with specialized products
including digital and analog data systems and encryption devices used in military applications and specialty closures
and joints used in pipeline and chemical systems. As we look to grow our business, emphasis will be placed on
funding of new products to broaden our portfolio and meet the needs of our customers.

Our Customers

Our customers include large, established companies and agencies of the federal government. We provide
some customers with a combination of outsourced services and products, while other customers may be in a single
category of our service or product offering. Our five largest customers in 2010 were DHC, ArvinMeritor,
Honeywell, Lockheed Martin, and Sistemas, which in the aggregate accounted for 73% of net revenue in 2010. Our

five largest customers in 2009 were DHC, ArvinMeritor, Honeywell and CPU Tech and Northrop Grumman, which
accounted for 66% of net revenue in 2009. In 2010, DHC and ArvinMeritor represented approximately 49% and
13% of our net revenue, respectively. In 2009, DHC and ArvinMeritor represented approximately 40% and 7% of
our net revenue, respectively. In addition, U.S. governmental agencies accounted for 12% and 16% of net revenue
in 2010 and 2009, respectively. The change in customer mix from 2009 to 2010 is partially the result of a higher
concentration of revenues from our Industrial Group. There was no loss of any major customer in 2010.

Geographic Areas

Our operations are located in the U.S. and Mexico. Our Mexican subsidiaries and affiliates are a part of
our Industrial Group and manufacture and sell a number of products similar to those the Industrial Group produces
in the U.S. In addition to normal business risks, operations outside the U.S. may be subject to a greater risk of
changing political, economic and social environments, changing governmental laws and regulations, currency
revaluations and market fluctuations. Fluctuations in foreign currency exchange rates have historically impacted our
earnings only to the extent of remeasurement gains or losses related to U.S. dollar denominated accounts of our
foreign subsidiary, because the vast majority of our transactions are denominated in U.S. dollars. For the year ended
December 31, 2010, other income, net includes foreign currency translation losses of $0.7 million. For 2009, other
income, net included foreign currency translation gains of $0.1 million.

Consolidated net revenues from Mexican operations were $63.8 million, or 24%, and $52.6 million, or
20%, of our consolidated net revenues in 2010 and 2009, respectively. In 2010, net income from our Mexican
operations was $6.8 million as compared to a consolidated loss from continuing operations of $9.7 million. In 2009,
net income from our Mexican operations was $13.3 million as compared to a consolidated loss from continuing
operations of $5.3 million. You can find more information about our regional operating results, including our export
sales, in “Note 20 Segment Information” in Item 8 of this Form 10-K.

Sales and Business Development

Our principal sources of new business originate from the expansion of existing relationships, referrals and
direct sales through senior management, direct sales personnel, domestic and international sales representatives,
distributors and market specialists. We supplement these selling efforts with a variety of sales literature, advertising
in numerous trade media and participation in trade shows. We also utilize engineering specialists extensively to
facilitate the sales process by working with potential customers to reduce the cost of the service they need. Our
specialists achieve this objective by working with the customer to improve their product’s design for ease of
manufacturing, reducing the amount of set-up time or material that may be required to produce the product or by
developing software that can automate the test and/or certification process. The award of contracts or programs can
be a lengthy process, which in some circumstances can extend well beyond 12 months. We may need to commit
resources to potential contracts or programs that we ultimately do not win.

Our objective is to increase the value of the services we provide to the customer on an annual basis beyond
the contractual terms that may be contained in a supply agreement. To achieve this objective, we commit to the
customer that we will continuously look for ways to reduce the cost, improve the quality, reduce the cycle time and
improve the life span of the products and/or services we supply the customer. Our ability to deliver on this
commitment over time is expected to have a significant impact on customer satisfaction, loyalty and follow-on
business.

Competition

The markets that we serve are highly competitive, and we compete against numerous domestic companies
in addition to the internal capabilities of some of our customers. In the truck components and assemblies market, we
compete primarily against companies including Mid-West Forge, Inc., Spencer Forge and Machine, Inc. and Traxle,
which serve as suppliers to many Tier I and smaller companies. In the aerospace and defense electronics market, we
compete primarily against companies including Celestica Inc., Jabil Circuit, Inc., LaBarge, Inc. and Safenet, Inc.
We may face new competitors in the future as the outsourcing industry evolves and existing or start-up companies
develop capabilities similar to ours. In addition, we will face new competitors as we continue to increase and
expand our business.

We believe that the principal competitive factors in our markets include the availability of capacity,
technological capability, flexibility, financial strength and timeliness in responding to design and schedule changes,
price, quality and delivery. Although we believe that we generally compete favorably with respect to each of these
factors, some of our competitors are larger and have greater financial and operating resources than we possess.
Some of our competitors, as compared to us, have a greater geographic breadth and range of services. We also face
competition from manufacturing operations of our current and potential customers that continually evaluate the
relative benefits of internal manufacturing compared to outsourcing. We believe our competitive position to be
good, and the barriers to entry to be high in a significant portion of the markets we serve.

Suppliers

For significant portions of our business, we purchase raw materials and component parts from our
customers or from suppliers chosen by our customers, at prices negotiated by our customers. When these suppliers
increase their prices, cause delays in production schedules or fail to meet our customers’ quality standards, our
customers have contractually agreed to reimburse us for the costs associated with such price increases and not to
charge us for costs caused by such delays or quality issues. Accordingly, our risks are largely limited to accurate
inspections of such materials, timely communications and the collection of such reimbursements or charges, along
with any additional costs incurred by us due to delays in, interruptions of, or non-optimal scheduling of, production
schedules. However, for a growing part of our business, we arrange our own suppliers and assume the additional
risks of price increases, quality concerns and production delays.

Raw steel and fabricated steel parts are a major component of our cost of sales and net revenue for the truck
components and assemblies business. We purchase a significant portion of our steel for use in this business at the
direction of our customers, with any periodic changes in the price of steel being reflected in the prices we are paid
for our services. Increases in the costs of steel or other supplies can increase our working capital requirements,
scrap expenses and borrowing costs.

There can be no assurance that supply interruptions or price increases will not slow production, delay
shipments to our customers or increase costs in the future, any of which could adversely affect our financial results.
Delays, interruptions or non-optimal scheduling of production related to interruptions in raw materials supplies can
be expected to increase our costs.

Research and Development

Our research and development activities are mainly related to our product lines that serve the aerospace and
defense electronics market. Process improvement expenditures related to our outsourced services are not reflected
in research and development expense. Accordingly, our research and development expense represents a relatively
small, but growing, percentage of our net revenue. We invested $3.2 million and $2.8 million in research and
development in 2010 and 2009, respectively.

Patents, Trademarks and Licenses

We own and are licensed under a number of patents and trademarks, however our business as a whole is
not materially dependent upon any one patent, trademark, license or technologically related group of patents or
licenses.

We regard our manufacturing processes and certain designs as proprietary trade secrets and confidential
information. We rely largely upon a combination of trade secret laws, non-disclosure agreements with customers,
suppliers and consultants, and our internal security systems, confidentiality procedures and employee confidentiality
agreements to maintain the trade secrecy of our designs and manufacturing processes.

Government Regulation

Our operations are subject to compliance with regulatory requirements of federal, state and local
authorities, both in the U.S. and in Mexico, including regulations concerning financial reporting and controls, labor
relations, minimum pension funding levels, export and import matters, health and safety matters and protection of
the environment. While compliance with applicable regulations has not adversely affected our operations in the

past, there can be no assurance that we will continue to be in compliance in the future or that these regulations will
not change or that the costs of compliance will not be material to us.

We must comply with detailed government procurement and contracting regulations and with U.S.
Government security regulations, certain of which carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Our failure to comply with our government procurement,
contracting or security obligations could result in penalties or our suspension or debarment from government
contracting, which would have a material adverse effect on our consolidated results of operations.

We are required to maintain U.S. Government security clearances in connection with certain activities of
our Electronics Group. These clearances could be suspended or revoked if we were found not to be in compliance
with applicable security regulations. Any such revocation or suspension would delay our delivery of products to
customers. Although we have adopted policies directed at ensuring our compliance with applicable regulations, and
there have been no suspensions or revocations at our facilities, there can be no assurance that the approved status of
our facilities or personnel will continue without interruption.

We are also subject to comprehensive and changing federal, state and local environmental requirements,
both in the U.S. and in Mexico, including those governing discharges to air and water, the handling and disposal of
solid and hazardous wastes and the remediation of contamination associated with releases of hazardous substances.
We use hazardous substances in our operations and, as is the case with manufacturers in general, if a release of
hazardous substances occurs on or from any properties that we may own or operate, we may be held liable and may
be required to pay the cost of remedying the condition. The amount of any resulting liability could be material.

Employees

As of December 31, 2010, we had a total of 1,133 employees, of which 1,090 are full-time employees, 844
of our employees are engaged in manufacturing and providing our technical services, 17 are engaged in sales and
marketing, 111 are engaged in engineering and 161 engaged in administration. Approximately 445 of our
employees are covered by collective bargaining agreements with various unions that expire on various dates through
2013. Excluding certain Mexico employees covered under an annually ratified agreement, collective bargaining
agreements covering 102 employees expire within the next 12 months. Although we believe overall that our
relations with our labor unions are positive, there can be no assurance that present and future issues with our unions
will be resolved favorably, that negotiations will be successful or that we will not experience a work stoppage,
which could adversely affect our consolidated results of operations.

Internet Access

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 are available free of charge through our website (www.sypris.com) as soon as reasonably practicable
after we electronically file the material with, or furnish it to, the Securities and Exchange Commission.

Item 1A. Risk Factors

Risks Related to Our Business and Forward-Looking Statements

This annual report, and our other oral or written communications, may contain “forward-looking”
statements. These statements may include our expectations or projections about the future of our industries,
business strategies, potential acquisitions or financial results and our views about developments beyond our control
including domestic or global economic conditions, trends and market forces. These statements are based on
management’s views and assumptions at the time originally made and we undertake no obligation to update these
statements, even if, for example, they remain available on our website after our outlook has changed. There can be
no assurance that our expectations, projections or views will come to pass, and you should not place undue reliance
on these forward-looking statements.

A number of significant risk factors could materially affect our specific business operations, and cause our
performance to differ materially from any future results projected or implied by our prior statements, including those
described below. Many of these risk factors are also identified in connection with the more specific descriptions
contained throughout this report.

Customers

We need to generate new business revenues supported by a sustainable competitive advantage.

Our businesses generally require a higher level of new business revenues in order to operate profitably.
Unless we can develop and offer new products and services with a sustainable competitive advantage, we may be
unable to maintain the critical mass of capital investments or talented employees that are needed to succeed in our
chosen markets. In the truck components and assemblies markets, our revenues are highly dependent upon the
overall demand for new vehicles. In the aerospace and defense markets, our revenues are highly dependent upon
new product development, effective marketing and sales activities, the development of additional profitable capacity
(especially in our space engineering programs) and the profitable management of our legacy products and services.

Customer contracts could be less profitable than expected.

We generally bear the risk that our contracts could be unprofitable or less profitable than planned, despite

our estimates of revenues and future costs to complete such contracts.

A material portion of our business is conducted under multi-year contracts, which generally include fixed
prices or periodic price reductions without minimum purchase requirements. Over time, our revenues may not cover
our increasing operating costs which could adversely impact our results. Our financial results are at greater risk
when we accept contractual responsibility for raw material or component prices, when we cannot offset price
reductions and cost increases with operating efficiencies or other savings, when we must submit contract bid prices
before all key design elements are finalized or when we are subjected to other competitive pressures which erode
our margins. The profitability of our contracts also can be adversely affected by unexpected start-up costs on new
programs, operating inefficiencies, ineffective capital investments, inflationary pressures or inaccurate forecasts of
future unit costs.

In the past, we have signed long-term supply agreements with DHC and ArvinMeritor and acquired their
facilities in Morganton, North Carolina and Toluca, Mexico, among other manufacturing assets. Although most of
these acquired facilities have well-established product markets, these customers or their products may not continue
to be successful, product enhancements may not be made in a timely fashion, our long-term pricing agreements
could generate lower margins than anticipated and there can be no assurance that we will successfully restructure or
integrate these operations, including necessary plant shutdowns or transfers of business. In addition, our failure to
identify potential liabilities with respect to certain indemnified environmental and other conditions, or our assertion
of related claims, could adversely affect our operating results, our ability to dispose of idle plant properties or our
customer relationships. Our efforts to restructure, relocate and consolidate a significant number of the operations in
these plants could cause certain of these facilities to operate at underutilized levels which could materially adversely
affect our business, results of operations and financial condition.

Unexpected changes in our customers’ demand levels have harmed our operating results in the past and
could do so in the future. Many of our customers will not commit to firm production or delivery schedules.
Disagreements over pricing, quality, delivery, capacity, exclusivity or trade credit terms could disrupt order
schedules. Orders also fluctuate due to changing global capacity and demand, new products, changes in market
share, reorganizations or bankruptcies, material shortages, labor disputes or other factors that discourage
outsourcing. These forces could increase, decrease, accelerate, delay or cancel our delivery schedules.

Inaccurate forecasting of our customers’ requirements can disrupt the efficient utilization of our
manufacturing capacity, inventories or workforce. If we lose anticipated revenues, we might not succeed in
redeploying our substantial capital investment and other fixed costs, potentially forcing additional plant closures,
impairments of long-lived and other assets or increased losses. If we receive unanticipated orders or rapid increases
in demand, these incremental volumes could be unprofitable due to the higher costs of operating above our optimal
capacity.

We depend on a few key customers in challenging industries for most of our revenues.

Our five largest customers in 2010 were DHC, ArvinMeritor, Honeywell, Lockheed Martin and Sistemas,
collectively accounting for 73% of net revenue. Our five largest customers in 2009 were DHC, ArvinMeritor,
Honeywell, CPU Tech and Northrop Grumman, collectively accounting for 66% of net revenue. In addition, U.S.
governmental agencies accounted for 12% and 16% of net revenue in 2010 and 2009, respectively. The truck
components and assemblies industry has experienced credit risk, highly cyclical market demand, labor unrest, rising
steel costs, bankruptcy and other obstacles, while the aerospace and defense electronics industry has seen
consolidation, increased competition, disruptive new technologies and uncertain funding.

We depend on the continued growth and financial stability of these customers and our core markets, as well
as general economic conditions. Adverse changes affecting these customers, markets or general conditions could
harm our operating results. The truck components and assemblies market is highly cyclical, due in part to regulatory
deadlines, the availability or scarcity of available credit, fluctuations in oil prices and pent-up demand for
replacement vehicles.

Rising costs of steel or component parts could increase our inventory and working capital levels and
present challenges to our customers who seek to pass those costs on to their customers. Many of our customers’
labor disputes, financial difficulties and restructuring needs have created rising uncertainty and risk, which could
increase our costs or impair our business model.

The aerospace and defense industry is pressured by cyclicality, rapid technological change, shortening
product life cycles, decreasing margins, unpredictable funding levels and government procurement and certification
processes. Our aerospace and defense business faces an aging portfolio of legacy products and services which must
be replenished with new technologies if we are to successfully maintain or expand our market shares. Our failure to
address any of these factors, particularly in our secured electronic communications or space engineering programs,
could impair our business model.

There can be no assurance that any of our customers will not default on, delay or dispute payment of, or

seek to reject our outstanding invoices in bankruptcy or otherwise.

Congressional budgetary constraints or reallocations can reduce our government sales.

Our Electronics Group sells manufacturing services and products to a number of U.S. government agencies,
which in the aggregate represented approximately 12% and 16% of our net revenue in 2010 and 2009, respectively.
We also serve as a contractor for large aerospace and defense companies such as Boeing, Honeywell, Lockheed
Martin, Northrop Grumman and Raytheon, typically under federally funded programs, which represented
approximately 11% and 15% of net revenue in 2010 and 2009, respectively.

Our government contracts have many inherent risks that could adversely impact our financial results.
These contracts depend upon the continuing availability of Congressional appropriations. The budget appropriations
process in the United States Congress has at times become highly politicized and unpredictable, including the
growing use of “continuing resolutions” as a temporary approach to the resolution of disputes over funding levels.
Future levels of governmental spending, including delays, declines or reallocations in the funding of certain
programs could adversely affect our financial results, if we are unable to offset these changes with new business or
cost reductions.

Suppliers

Interruptions in the supply of key components could disrupt production.

Some of our manufacturing services or products require one or more components that are available from a
limited number of providers or from sole-source providers. In the past, some of the materials we use, including
steel, certain forgings or castings, capacitors and memory and logic devices, have been subject to industry-wide
shortages or capacity allocations. As a result, suppliers have been forced to allocate available quantities among their
customers, and we have not been able to obtain all of the materials desired. More recently, the tightening of credit
markets has threatened the financial viability of an increasing number of suppliers of key components and raw
materials, and forced unanticipated shutdowns. Our inability to reliably obtain these or any other materials when

and as needed could slow production or assembly, delay shipments to our customers, impair the recovery of our
fixed costs and increase the costs of recovering to customers’ schedules, including overtime, expedited freight,
equipment maintenance, operating inefficiencies, higher working capital and the obsolescence risks associated with
larger buffer inventories. Each of these factors could reduce operating results.

Shortages or increased costs of utilities could harm our business and our customers.

We and our customers depend on a constant supply of electricity and natural gas from utility providers for
the operation of our respective businesses and facilities. In the past, we have experienced power outages which
reduced our ability to deliver products and meet our customers’ demand for those products. If we or our customers
experience future interruptions in service from these providers, our production and/or delivery of products could be
negatively affected. Additionally, due to the heavy consumption of energy in our production process and the
businesses of our customers, if the cost of energy significantly increases, our results of operations, and those of our
customers, could be negatively impacted.

Execution

Contract terminations or delays could harm our business.

We often provide manufacturing services and products under contracts that contain detailed specifications,
quality standards and other terms. If we are unable to perform in accordance with such terms, our customers might
seek to terminate such contracts, demand price concessions or other financial consideration or downgrade our past
performance rating, an increasingly critical factor in federal procurement competitions. Moreover, many of our
contracts are subject to termination for convenience or upon default. These provisions could provide only limited
recoveries of certain incurred costs or profits on completed work, and could impose liability for our customers’ costs
in procuring undelivered items from another source. If any of our significant contracts were to be terminated or not
renewed, we would lose substantial revenues and our operating results as well as prospects for future business
opportunities could be adversely affected.

We are subject to various audits, reviews and investigations, including private party “whistleblower”
lawsuits, relating to our compliance with federal and state laws. Should our business be charged with wrongdoing,
or determined not to be a “presently responsible contractor,” we could be temporarily suspended or debarred for up
to three or more years from receiving new government contracts or government-approved subcontracts.

We must operate more efficiently, or our results could suffer.

If we are unable to improve the cost, efficiency and yield of our operations, our costs could increase and
our financial results could suffer. A number of major obstacles could include: the loss of substantial revenues due to
a sluggish economic recovery; inflationary pressures; increased borrowing due to declining sales, changes in
anticipated product mix and the associated variances in our profit margins; efforts to increase our manufacturing
capacity and launch new programs; efforts to migrate, restructure or move business operations from one location to
another; the breakdown of critical machinery or equipment; the need to identify and eliminate our root causes of
scrap; our ability to achieve expected annual savings or other synergies from past and future business combinations;
inventory risks due to shifts in market demand; obsolescence; price erosion of raw material or component parts;
shrinkage, or other factors affecting our inventory valuations; and an inability to successfully manage growth,
contraction or competitive pressures in our primary markets.

Our management or systems could be inadequate to support our existing or future operations, especially as
we downsize our operating staff to reduce expenses in any extended economic downturn. Growth in our business
could require us to invest in additional equipment to improve our efficiency. We may have limited experience or
expertise in installing or operating such equipment, which could negatively impact our ability to deliver products on
time or with acceptable costs. In addition, a material portion of our manufacturing equipment requires significant
maintenance to operate effectively and we may experience maintenance and repair issues. Our efforts to restructure,
relocate and consolidate a significant number of the operations, especially in our truck component manufacturing
plants, could cause certain of these facilities to operate at underutilized levels, which could materially adversely
affect our business, results of operations and financial condition. In our electronics business, the risk of technical
failures, nonconformance with customer specifications, an inability to deliver next generation products or other
quality concerns could materially impair our operating results.

Our growth strategies could be ineffective due to the risks of further acquisitions.

Our growth strategy has included acquiring complementary businesses. We could fail to identify, finance
or complete suitable acquisitions on acceptable terms and prices. Acquisition efforts could increase a number of
risks, including: diversion of management’s attention; difficulties in integrating systems, operations and cultures;
potential loss of key employees and customers of the acquired companies; lack of experience operating in the
geographic market of the acquired business; an increase in our expenses and working capital requirements; risks of
entering into markets or producing products where we have limited or no experience, including difficulties in
integrating purchased technologies and products with our technologies and products; our ability to improve
productivity and implement cost reductions; our ability to secure collective bargaining agreements with employees;
and exposure to unanticipated liabilities.

Our discovery of, or failure to discover, material issues during due diligence investigations of acquisition
targets, either before closing with regard to potential risks of the acquired operations, or after closing with regard to
the timely discovery of breaches of representations or warranties, or of certain indemnified environmental
conditions, could seriously harm our business.

Competition

Increasing competition could limit or reduce our market share.

We operate in highly competitive environments that include our customers’ internal capabilities. We
believe that the principal competitive factors in our markets include the availability of manufacturing capacity,
technological strength, speed and flexibility in responding to design or schedule changes, price, quality, delivery,
cost management and financial strength. Our earnings could decline if our competitors or customers can provide
comparable speed and quality at a lower cost, or if we fail to adequately invest in the range and quality of
manufacturing services and products our customers require.

Some of our competitors have greater financial and organizational resources, customer bases and brand
recognition than we do. As a result, our competitors may respond more quickly to technological changes or
customer needs, consume lower fixed and variable unit costs, negotiate reduced component prices, and obtain better
terms for financing growth. If we fail to compete in any of these areas, we may lose market share and our business
could be seriously harmed. There can be no assurance that we will not experience increased competition or that we
will be able to maintain our profitability if our competitive environment changes.

Our technologies could become obsolete, reducing our revenues and profitability.

The markets for our products and services are characterized by changing technology and continuing
process development. The future of our business will depend in large part upon the continuing relevance of our
technological capabilities. We could fail to make required capital investments, develop or successfully market
services and products that meet changing customer needs and anticipate or respond to technological changes in a
cost-effective and timely manner. Our inability to successfully launch or sustain new or next generation programs
or product features, especially in accordance with budgets or committed delivery schedules could materially
adversely affect our financial results. We could encounter competition from new or revised technologies that render
our technologies and equipment less profitable or obsolete in our chosen markets, and our operating results may
suffer.

Access to Capital

An inability to obtain favorable financing could impair our growth.

Our operating results could be materially adversely impacted by the costs and supply of debt, equity capital
or insurance. Our future liquidity and capital requirements are difficult to predict because they depend on numerous
factors, including the pace at which we grow our business and acquire new facilities or the loss of anticipated
revenues due to the effects of any extended economic downturn. One method we have used to obtain multi-year
supply agreements is to buy a customer’s non-core manufacturing assets and produce products for them. We may
need to raise substantial additional funds in order to grow this business. We cannot be certain that we will be able to
obtain additional financing on favorable terms or at all. Additional equity financing could result in dilution to

existing holders. If additional financing is obtained in the form of debt, the terms of the debt could place restrictions
on our ability to operate or increase the financial risk of our capital structure. Our ability to borrow under our
current credit facility is conditioned upon our compliance with various financial covenants. We could lose our
access to such financing if we experience adverse changes in our operations, poor financial results, increased risk
profiles of our businesses, declines in our credit ratings, any actual or alleged breach of our debt covenants,
insurance conditions or similar agreements or any adverse regulatory developments. In any extended economic
downturn, we may need to raise capital through the sale of core or non-core assets or businesses and our inability to
successfully do so could materially adversely impact our operating results or access to sufficient capital.

Any inability to raise additional funds as needed could impair our ability to operate and grow our business.
Such financing could be subject to a number of factors, including market conditions, our operating performance and
investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing
unattractive for us.

We may be unable to comply with the covenants in our amended Revolving Credit Facility and Senior Notes.

The financial covenants in our amended Revolving Credit Facility and Senior Notes agreements require us
to achieve certain financial covenants regarding: quarterly minimum net worth and liquidity levels, cumulative
quarterly “EBITDAR” levels (earnings before interest, taxes, depreciation, amortization and restructuring costs),
cumulative quarterly fixed charge ratios and cumulative quarterly debt to EBITDAR ratios, among others. The
agreements also commit the Company to obtain the consent of the Banks and the Noteholders before making any
dividend payments and impose certain fees and interest rate increases. To the extent that collateral is sold outside of
the ordinary course of business, the agreements also provide for certain prepayments to the Banks and the
Noteholders. No assurances can be given that changing business, regulatory or economic conditions might not
cause the Company to violate one or more covenants which could result in default or acceleration of any debt under
the Agreements.

Labor Relations

We must attract and retain qualified employees while successfully managing related costs.

Our future success in a changing business environment, including during rapid changes in the size,
complexity or skills required of our workforce, will depend to a large extent upon the efforts and abilities of our
executive, managerial and technical employees. The loss of key employees, especially in a recovering economic
environment, could have a material adverse effect on our operations. Our future success will also require an ability
to attract and retain qualified employees. Labor disputes or changes in the cost of providing pension and other
employee benefits, including changes in health care costs, investment returns on plan assets and discount rates used
to calculate pension and related liabilities or other requirements to accelerate the level of our pension fund
contributions to reduce or eliminate underfunded liabilities, could lead to increased costs or disruptions of operations
in any of our business units.

Disputes with labor unions could disrupt our business plans.

We currently have collective bargaining agreements covering approximately 445 employees, or
approximately 39% of total employees, of which agreements covering 102 employees expire within the next 12
months. We could experience a work stoppage or other disputes which could disrupt our operations or the
operations of our customers and could harm our operating results.

Regulatory

Environmental, health and safety risks could expose us to potential liability.

We are subject to a variety of environmental regulations relating to the use, storage, discharge and disposal
of hazardous chemicals and substances used in our operations. If we fail to comply with present or future
regulations, we could be forced to alter, suspend or discontinue our manufacturing processes, and pay substantial
fines or penalties.

Groundwater and other contamination has occurred at certain of our current and former facilities during the
operation of those facilities by their former owners, and this contamination may occur at future facilities we operate

or acquire. There is no assurance that environmental indemnification agreements we have secured from former
owners of these properties will be adequate to protect us from liability.

Our Marion, Ohio facility is subject to soil and groundwater contamination involving petroleum
compounds, semi-volatile and volatile organic compounds, certain metals, PCBs and other contaminants, some of
which exceed the state voluntary action program standards applicable to the site. We continue to test and assess this
site to determine the extent of this contamination by the prior owners of the facility. Under our purchase agreement
for this facility, DHC has agreed to indemnify us for, among other things, certain environmental conditions that
existed on the site as of closing and as to which we notified Dana prior to December 31, 2002, subject to certain
other conditions involving Dana’s release of, or continuing right to seek indemnity from, Eaton Corporation, from
which Dana acquired the property.

A leased facility we formerly occupied in Tampa, Florida is subject to remediation activities related to
groundwater contamination involving methyl chloride and other volatile organic compounds, which occurred prior
to our use of the facility, and such contamination extends beyond the boundaries of the facility. The prior operator
of the facility has entered into a consent order with the State of Florida and agreed to remediate the contamination,
the full scope of which has not yet been determined. In addition, certain claims which have been made against the
Company and the former owners or operators of the facility have been fully indemnified by such former owners and
operators, who have assumed the defense of such claims.

We previously acquired certain business assets formerly located at a leased facility in Littleton, Colorado,
where chlorinated solvents had been disposed of on site by a prior owner of the business at the site, contaminating
the groundwater at and around the site. The seller of the assets to us is operating a remediation system on the site
approved by the State of Colorado and has entered into a consent order with the EPA providing for additional
investigation at the site. In addition, Sypris has been contractually indemnified by the prior owners of the facility.

Our Morganton, North Carolina facility is subject to soil and groundwater contamination involving
petroleum compounds, certain metals and other contaminants, some of which may exceed the State of North
Carolina standards applicable to the site. Under our purchase agreement for this facility, Dana had agreed to
indemnify us for, among other things, environmental conditions that existed on the site as of closing and as to which
we notified Dana prior to December 31, 2005. However, such amounts due from Dana have been released in
conjunction with Dana’s Chapter 11 filing and the Company’s comprehensive settlement with Dana. The Company
is aware of no current litigation, material remediation claims or other proceedings with respect to this facility.

Our Toluca, Mexico facility is subject to soil and groundwater contamination involving petroleum
compounds and volatile organic compounds, among other concerns. We continue to test and assess this site to
determine the extent of any contamination by the prior owners of the facility. Under our purchase agreement for this
facility, DHC has agreed to indemnify us for, among other things, environmental conditions that existed on the site
as of closing and as to which we notified Dana prior to June 30, 2006, subject to certain other conditions involving
Dana’s release of, or continuing right to seek indemnity from, Eaton Corporation, from which Dana acquired the
property.

Our Kenton, Ohio facility is subject to soil and groundwater contamination involving petroleum
compounds, volatile organic compounds, certain metals, PCBs and other contaminants. Under our purchase
agreement for this facility, Meritor Heavy Vehicle Systems agreed to indemnify us for, among other things,
environmental conditions that existed on the site as of closing and as to which we notified ArvinMeritor prior to
May 2, 2006.

Adverse regulatory developments or litigation could harm our business.

Our businesses operate in heavily regulated environments. We must successfully manage the risk of
changes in or adverse actions under applicable law or in our regulatory authorizations, licenses and permits,
governmental security clearances or other legal rights to operate our businesses, to manage our work force or to
import and export goods and services as needed. Our business activities expose us to the risks of litigation with
respect to our customers, suppliers, creditors, stockholders or from product liability, environmental or asbestos-
related matters. Potential liabilities associated with discontinued operations, including post-closing indemnifications
or claims related to business or asset dispositions could adversely affect our financial results. We also face the risk

of other adverse regulatory actions, compliance costs or governmental sanctions, as well as the costs and risks
related to our ongoing efforts to design and implement effective internal controls.

Other Risks

We face other factors which could seriously disrupt our operations.

Many other risk factors beyond our control could seriously disrupt our operations, including: risks relating
to war, future terrorist activities, computer hacking or other cyber attacks, political uncertainties or natural disasters
which could shut down our domestic or foreign facilities, disrupt transportation of products or supplies, increase the
costs under our self insurance program or change the timing and availability of funding in our aerospace and defense
electronics markets; risks inherent in operating abroad, including foreign currency exchange rates, adverse
regulatory developments, and miscommunications or errors due to inaccurate foreign language translations or
currency exchange rates; risks relating to natural disasters or other casualties; or our failure to anticipate or to
adequately insure against other risks and uncertainties present in our businesses including unknown or unidentified
risks.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal manufacturing services operations are engaged in electronics manufacturing services for our
aerospace and defense customers and industrial manufacturing services for our truck components and assemblies
customers. The following chart indicates the significant facilities that we own or lease, the location and size of each
such facility and the manufacturing certifications that each facility possesses. The facilities listed below (other than
the corporate office) are used principally as manufacturing facilities.

Location

Market Served

Own or Lease
(Expiration)

Approximate
Square Feet

Certifications

Corporate Office:

Louisville, Kentucky

Manufacturing and Service Facilities:

Kenton, Ohio*

Louisville, Kentucky

Marion, Ohio**

Morganton, North Carolina

Tampa, Florida

Truck Components
& Assemblies

Truck Components
& Assemblies;
Specialty Closures

Truck Components
& Assemblies

Aerospace &
Defense Electronics

Lease (2014)

21,600

Own

550,000

TS 16949

450,000

QS 9000
TS 16949

255,000

TS 16949

360,000

TS 16949
ISO 14001

Lease (2016)

318,000

ISO 9001
ISO 14001
AS 9100
NASA-STD-8739
IPC-A-610, Rev D,
Class 3
J-STD-001, Rev D,
Class 3
CMMI Level 3

Toluca, Mexico

Truck Components
& Assemblies

Own

217,000

TS 16949

* Location closed in 2009.
** Location targeted for closure in 2011.

Below is a listing and description of the various manufacturing certifications or specifications that we

utilize at our facilities.

Certification/Specification

Description

AS 9100............................ A quality management system developed by the aerospace industry to measure
supplier conformance with basic common acceptable aerospace quality requirements.

IPC-A-610 ........................ A certification process for electronics assembly manufacturing which describes
materials, methods and verification criteria for producing high quality electronic
products. Class 3 specifically includes high performance or performance-on-demand
products where equipment downtime cannot be tolerated, end-use environment may
be uncommonly harsh, and the equipment must function when required.

J-STD-001 ........................ A family of voluntary standards of industry-accepted workmanship criteria for

electronics assemblies.

CMMI Level-3 ................. An internationally recognized measure of an organization’s engineering process

maturity.

ISO 9001 .......................... A certification process comprised of quality system requirements to ensure quality in

the areas of design, development, production, installation and servicing of products.

ISO 14001 ........................ A family of voluntary standards and guidance documents defining specific
requirements for an Environmental Management System.

NASA-STD-8739............. A specification for space programs designated by the National Aeronautics and

Space Administration.

QS 9000............................ A certification process developed by the nation’s major automakers that focuses on
continuous improvement, defect reduction, variation reduction and elimination of
waste.

TS 16949 ……………….A quality certification system developed within the automotive sector. Using ISO
9001:2000 as its foundation, ISO/TS 16949:2002 specifies the quality management
system (QMS) requirements for the design, development, production, installation
and servicing of automotive related products.

Item 3. Legal Proceedings

We are involved from time to time in routine litigation and other legal or environmental proceedings
incidental to our business. There are currently no material pending legal proceedings to which we are a party.
Ongoing environmental matters include the following:

(cid:120) Our Marion, Ohio facility is subject to soil and groundwater contamination involving petroleum
compounds, semi-volatile and volatile organic compounds, certain metals, PCBs and other
contaminants, some of which exceed the State of Ohio voluntary action program standards applicable
to the site. Under our purchase agreement for this facility, DHC has agreed to indemnify us for,
among other things, environmental conditions that existed on the site as of closing and as to which we
notified Dana prior to December 31, 2002, to the extent of any indemnification owed to DHC by Eaton
Corporation (Eaton) or any other matters for which DHC has released Eaton.

(cid:120) A leased facility we formerly occupied in Tampa, Florida is currently subject to remediation activities
related to groundwater contamination involving methylene chloride and other volatile organic
compounds which occurred prior to our use of the facility. The contamination extends beyond the
boundaries of the facility. In December 1986, Honeywell, a prior operator of the facility, entered into
a consent order with the Florida Department of Environmental Regulation under which Honeywell
agreed to remediate the contamination, the full scope of which has not yet been determined. We
purchased the assets of a business formerly located on this leased site and operated that business from
1993 until December 1994. Philips Electronics America Corporation (Philips Electronics), the seller of
those assets, has agreed to indemnify us with respect to environmental matters arising from
groundwater contamination at the site prior to our use of the facility. On November 3, 2004, Sypris
Electronics was served as a co-defendant with Honeywell and Phillips Electronics in an environmental
lawsuit filed in the Circuit Court of the Thirteenth Judicial Circuit Hillsborough County, Florida by
Helen Jones and other surrounding landowners, alleging various damages caused by such
contamination. Philips Electronics has agreed to pay for our defense costs.

(cid:120)

In December 1992, we acquired certain business assets formerly located at a leased facility in Littleton,
Colorado. Certain chlorinated solvents disposed of on the site by Honeywell, a previous owner of the
business, have contaminated the groundwater at and around the site. Alliant Techsystems, from which
we acquired the business assets, operates a remediation system approved by the State of Colorado and

has also entered into a consent order with the EPA providing for additional investigation at the site.
Alliant Techsystems has agreed to indemnify us with respect to these matters.

(cid:120) Our Morganton, North Carolina facility is subject to soil and groundwater contamination involving
petroleum compounds, certain metals and other contaminants, some of which exceed the State of North
Carolina notification standards applicable to the site. No litigation or other proceedings are underway
with respect to this site.

(cid:120) Our Toluca, Mexico facility is subject to soil and groundwater contamination involving petroleum
compounds and volatile organic compounds, among other concerns. Under our purchase agreement
for this facility, DHC has agreed to indemnify us for, among other things, environmental conditions
that existed on the site as of closing and as to which we notified Dana prior to June 30, 2006, to the
extent of any indemnification owed to DHC by Eaton or any other matters for which DHC has released
Eaton.

(cid:120) Our Kenton, Ohio facility is subject to soil and groundwater contamination involving petroleum
compounds, volatile organic compounds, certain metals, PCBs and other contaminants. Under our
purchase agreement for this facility, Meritor Heavy Vehicle Systems has agreed to indemnify us for,
among other things, environmental conditions that existed on the site as of closing and as to which we
notified ArvinMeritor prior to May 2, 2006.

Item 4.

[Removed and Reserved]

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not

required to provide the Performance graph required in paragraph (e) of Item 201 of Regulation S-K.

Our common stock is traded on the NASDAQ Global Market under the symbol “SYPR.” The following
table sets forth, for the periods indicated, the high and low closing sale prices per share of our common stock as
reported by the NASDAQ Global Market.

High

Low

Year ended December 31, 2009:

First Quarter...................................................................................... $ 1.80
1.50
Second Quarter .................................................................................
2.85
Third Quarter ....................................................................................
3.48
Fourth Quarter ..................................................................................

Year ended December 31, 2010:

First Quarter...................................................................................... $ 3.37
4.87
Second Quarter .................................................................................
4.19
Third Quarter ....................................................................................
4.37
Fourth Quarter ..................................................................................

$ 0.61
0.50
1.10
2.09

$ 2.55
3.40
3.05
3.06

As of March 4, 2011, there were 838 holders of record of our common stock. No cash dividends were

declared during 2010 or 2009.

Dividends may be paid on common stock only when, as and if declared by our Board of Directors in its
sole discretion. The Company’s debt agreements require the Company to obtain the consent of the banks and
noteholders before making any dividend payments.

Item 6.

Selected Financial Data

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not

required to report the selected financial data in Item 301 of Regulation S-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our consolidated results of operations and financial condition should be read
together with the other financial information and consolidated financial statements included in this Form 10-K. This
discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ
materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including
those discussed in “Risk Factors” and elsewhere in this Form 10-K.

Overview

We are a diversified provider of outsourced services and specialty products. We perform a wide range of
manufacturing, engineering, design, testing and other technical services, typically under multi-year, sole-source
contracts with major companies and government agencies in the markets for aerospace and defense electronics and
truck components and assemblies.

We are organized into two business groups, the Industrial Group and the Electronics Group. The Industrial
Group is comprised of Sypris Technologies, Inc. and its subsidiaries, which generates revenue primarily from the
sale of manufacturing services to customers in the market for truck components and assemblies and from the sale of
products to the energy and chemical markets. Revenue for the Electronics Group is derived primarily from the sale
of manufacturing services, technical services and products to customers in the market for aerospace and defense
electronics.

Our objective is to become the leading outsourcing specialist in each of our core markets for aerospace and
defense electronics, and truck components and assemblies. We have focused our efforts on establishing long-term
relationships with industry leaders who embrace multi-year contractual relationships as a strategic component of
their supply chain management.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements and accompanying notes in conformity with U.S.
generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts
reported. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts
included in our consolidated financial statements. We believe the following critical accounting policies affect our
more complex judgments and estimates. We also have other policies that we consider to be key accounting policies,
such as our policies for revenue recognition in the Industrial Group, including cost of sales; however, these policies
do not meet the definition of critical accounting estimates because they do not generally require us to make
estimates or judgments that are difficult or subjective.

Allowance for Doubtful Accounts. We establish reserves for uncollectible accounts receivable based on
overall receivable aging levels, a specific evaluation of accounts for customers with known financial difficulties and
evaluation of customer chargebacks, if any. These reserves and corresponding write-offs could significantly
increase if our customers experience deteriorating financial results or in the event we receive a significant
chargeback, which is deemed uncollectible.

Goodwill. Goodwill is tested for impairment during the fourth quarter or more frequently if events occur
or circumstances change that would warrant such a review. The Company assesses recoverability using several
methodologies, including a discounted cash flow analysis and comparisons of multiples of enterprise values to
earnings before interest, taxes, depreciation and amortization (EBITDA). The analysis is based upon available
information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost
of capital specific to the reporting unit. A growth rate is used to calculate the terminal value of the reporting unit
and is added to the present value of the forecasted cash flows. The growth rate is the expected rate at which a
reporting unit’s cash flow is projected to grow beyond the period covered by the long-range plan. The cash flow
analysis requires judgment in our evaluation of the business and establishing an appropriate discount rate and
terminal value to apply in the calculation. In selecting these and other assumptions for each business, we consider
historical performance, forecasted operating results, general market conditions and industry considerations specific
to the business. We make significant assumptions and estimates about the extent and timing of future cash flows,

growth rates and discount rates. The cash flows are estimated over a future period of time, which makes those
estimates and assumptions subject to a high degree of uncertainty. The sum of the calculated fair values of each
reporting unit is then reconciled and compared to our total market capitalization, allowing for a reasonable control
premium. If the discounted cash flow analysis yields a fair value estimate less than the reporting unit’s carrying
value, we proceed to step two of the impairment process. In the second step, the implied fair value of the reporting
unit’s goodwill is determined by allocating the reporting unit’s fair value to all of the assets and liabilities of the
reporting unit.

In the fourth quarter of 2010, we conducted the required annual test of goodwill for impairment. There
were no indicators of impairment for the Electronics Group, which is the only remaining reporting unit with
goodwill. While revenue for this reporting unit decreased year over year, profit margins improved to significantly
offset the impact of the net revenue decline. The fair value estimate for the Electronics Group exceeded its carrying
value by approximately 30%. Key assumptions used to determine the fair value estimate of our Electronics Group
during the fourth quarter were the expected after-tax cash flows for the period from 2011 to 2013, a terminal growth
rate of 3.0% and a weighted average cost of capital of 18.2%. The terminal rate is consistent with the prior year
growth rate of 3.0%. Our analysis included a comparison of our market capitalization to the fair value of the entire
enterprise.

We believe that the assumptions and estimates used to determine the fair values of each of our reporting

units were reasonable. However, different assumptions could materially affect the results.

Net Revenue and Cost of Sales. Net revenue of products and services under commercial terms and
conditions are recorded upon delivery and passage of title, or when services are rendered. Related shipping and
handling costs, if any, are included in costs of sales. Net revenue under service-type contracts is recorded as costs are
incurred.

Net revenue under long-term, fixed-price contracts with aerospace and defense companies and agencies of the
U.S. Government is recognized upon shipment. Contract profits are taken into earnings based on actual cost of sales
for units shipped. Prior to a system conversion in 2009, estimated contract profits were recognized based on the
ratio of costs incurred to estimated total costs at completion. The change to recognizing costs on an actual basis from
an estimated basis did not have a material impact to our financial statements and result of operations. Amounts
representing contract change orders or claims are included in revenue when such costs are invoiced to the customer.

Long-lived asset impairment. We perform periodic impairment analysis on our long-lived amortizable
assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.
When indicators are present, we compare the estimated future undiscounted net cash flows of the operations to
which the assets relate to their carrying amount. If the operations are determined to be unable to recover the
carrying amount of their assets, the long-lived assets are written down to their estimated fair value. Fair value is
determined based on discounted cash flows, third party appraisals or other methods that provide appropriate
estimates of value. A considerable amount of management judgment and assumptions are required in performing
the impairment test, principally in determining whether an adverse event or circumstance has triggered the need for
an impairment review. We recorded an immaterial amount of impairment charges in 2010. We recorded
impairment charges of $1.3 million in 2009 within the Industrial Group. While we believe our judgments and
assumptions were reasonable, changes in assumptions underlying these estimates could result in a material impact to
our consolidated financial statements in any given period. See Note 4 to the consolidated financial statements for
further details.

Pension Plan Funded Status. The calculation of pension assets and liabilities involve complex estimation
processes dependent on assumptions developed by us in consultation with our outside advisors such as actuaries.
The assumptions used, including discount rates and return on plan assets, have a significant impact on plan expenses
and obligations. Changes in these rates could significantly impact the actuarially determined amounts recorded in
the statements of financial position. If actual experience differs from expectations, our financial position and results
of operations in future periods could be affected. See Note 14 to the consolidated financial statements for further
details.

A change in the assumed pension discount rate of 25 basis points would result in a change in our pension
obligation as of December 31, 2010 of approximately $0.9 million. A 25 basis point change in the assumed rate of
return would change the 2011 pension expense by approximately $0.1 million.

Discount rates are based upon the construction of a theoretical bond portfolio, adjusted according to the
timing of expected cash flows for the future obligations. A yield curve is based on a subset of these fixed income
investments. The projected cash flows are matched to this yield curve and a present value is developed which is
then calibrated to develop a single equivalent discount rate. Pension benefits are funded through deposits with
trustees that satisfy, at a minimum, the applicable funding regulations. Expected investment rates of return are
based upon input from the plan’s investment advisors and actuary regarding our expected investment portfolio mix,
historical rates of return on those assets, projected future asset class returns and long-term market conditions and
inflation expectations. We believe that the long-term asset allocation on average will approximate the targeted
allocation, and we regularly review the actual asset allocation to periodically rebalance the investments to the
targeted allocation when appropriate.

Actuarial gains or losses may result from changes in assumptions or when actual experience is different
from that expected. Under applicable standards, those gains and losses are not required to be immediately
recognized as expense, but instead may be deferred as part of accumulated other comprehensive income and
amortized into expense over future periods.

Reserve for Excess, Obsolete and Scrap Inventory. We record inventory at the lower of cost, determined
under the first-in, first-out method, or market, and we reserve for excess, obsolete or scrap inventory. These
reserves are primarily based upon management’s assessment of the salability of the inventory, historical usage of
raw materials, historical demand for finished goods and estimated future usage and demand. An improper
assessment of salability or improper estimate of future usage or demand, or significant changes in usage or demand
could result in significant changes in the reserves and a positive or a negative impact on our consolidated results of
operations in the period the change occurs.

Stock-based Compensation. We account for stock-based compensation in accordance with the fair value
recognition provisions using the Black-Scholes option-pricing method, which requires the input of several subjective
assumptions. These assumptions include estimating the length of time employees will retain their vested stock
options before exercising them (expected term), the estimated volatility of our common stock price over the
expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures).
Changes in the subjective assumptions can materially affect the fair value estimate of stock-based compensation and
consequently, the related expense recognized in the consolidated statements of operations.

Income Taxes. We account for income taxes as required by the provisions of ASC 740, Income Taxes,
under which deferred tax assets and liabilities are recognized for the tax effects of temporary differences between
the financial reporting and tax bases of assets and liabilities measured using enacted tax rates.

Management judgment is required in determining income tax expense and the related balance sheet
amounts. In addition, under ASC 740-10, Accounting for Uncertainty in Income Taxes, judgments are required
concerning the ultimate outcome of uncertain income tax positions. Actual income taxes paid may vary from
estimates, depending upon changes in income tax laws, actual results of operations and the final audit of tax returns
by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We believe that our
recorded income tax liabilities adequately provide for the probable outcome of these assessments.

Deferred tax assets are also recorded for operating losses and tax credit carryforwards. However, ASC 740
requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. This assessment is largely dependent upon projected near-term profitability
including the effects of tax planning. Deferred tax assets and liabilities are determined separately for each tax
jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. We have recorded
valuation allowances against deferred tax assets in the U.S. and Mexico where realization has been determined to be
uncertain. However, our Mexican operation, which has historically generated taxable income and expects to
continue to be profitable for the foreseeable future, also has certain deferred tax assets that are expected to be
realized and therefore no valuation allowance has been recorded against such assets as of December 31, 2010.

Since future financial results may differ from previous estimates, periodic adjustments to our valuation allowance
may be necessary.

Results of Operations

We operate in two segments, the Industrial Group and the Electronics Group. The table presented below,
which compares our segment and consolidated results of operations from one year to another, presents the results for
each year, the change in those results from one year to another in both dollars and percentage change and the results
for each year as a percentage of net revenue. The first two data columns in the table show the absolute results for
each year presented. The columns entitled “Year Over Year Change” and “Year Over Year Percentage Change”
show the change in results, both in dollars and percentages. These two columns show favorable changes as positive
and unfavorable changes as negative. For example, when our net revenue increases from one year to the next, that
change is shown as a positive number in both columns. Conversely, when expenses increase from one year to the
next, that change is shown as a negative number in both columns. The last two columns in the table show the results
for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each are
given as a percentage of that segment’s net revenue. These amounts are shown in italics. In addition, as used in this
table, “NM” means “not meaningful.”

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Years Ended
December 31,

2010

2009

Year Over
Year
Change
Favorable
(Unfavorable)

Year Over
Year
Percentage
Change
Favorable
(Unfavorable)

(in thousands, except percentage data)

Results as Percentage of
Net Revenue for the
Years Ended
December 31,

2010

2009

Net revenue:
Industrial Group.......................................................... $ 191,153 $ 152,021 $ 39,132
Electronics Group .......................................................
75,501
Total net revenue ...................................................... 266,654

113,879
265,900

(38,378) (33.7)
0.3

754

25.7%

Cost of sales:
Industrial Group.......................................................... 182,150
Electronics Group .......................................................
58,637
Total cost of sales ..................................................... 240,787

155,682
94,200
249,882

(26,468) (17.0)
37.8
3.6

35,563
9,095

Gross profit (loss):
Industrial Group..........................................................
Electronics Group .......................................................
Total gross profit.......................................................

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

9,003
16,864
25,867

27,721
3,150
113
2,296

(3,661)
19,679
16,018

12,664
345.9
(2,815) (14.3)
61.5
9,849

28,192
2,801
114
7,696

471
1.7
(349) (12.5)
0.9
70.2

1
5,400

Operating loss ...............................................................

(7,413) (22,785)

15,372

67.5

Interest expense, net......................................................
(Gain) on sale of marketable securities.........................
Other income, net..........................................................
Loss from continuing operations before income taxes..

2,379
—
(1,088)
(8,704)

4,289

1,910

44.5
(18,255) (18,255) NM
210.0
(2.8)

(351)
(8,468)

737
(236)

Income tax expense (benefit) ........................................

1,004

(3,160)

(4,164) NM

Loss from continuing operations...................................

(9,708)

(5,308)

(4,400) (82.9)

Income (loss) from discontinued operations, net of tax

(496)

7,998

(8,494) NM

71.7%
28.3
100.0

57.2%
42.8
100.0

95.3
77.7
90.3

4.7
22.3
9.7

10.4
1.2
0.0
0.9

(2.8)

0.9
0.0
(0.4)
(3.3)

0.4

(3.6)

(0.2)

102.4
82.7
94.0

(2.4)
17.3
6.0

10.6
1.1
0.0
2.9

(8.6)

1.6
(6.9)
(0.1)
(3.2)

(1.2)

(2.0)

3.0

Net income (loss).......................................................... $ (10,204) $

2,690 $ (12,894) NM %

(3.8)%

1.0%

Net Revenue.

The Industrial Group derives its revenue from manufacturing services and product sales.
Net revenue in the Industrial Group increased $39.1 million to $191.2 million in 2010. Increased volumes for
medium and heavy-duty commercial truck components contributed to increased revenue of approximately
$32.2 million. Increased volumes for trailer axle beams also resulted in a $6.7 million net revenue increase from the
prior year. Manufacturing services for a new commercial vehicle customer resulted in increased revenue of
$1.1 million for the year ended December 31, 2010. Additionally, sales of our specialty closure products increased
$1.0 million. Partially offsetting the volume increase was a decline of $2.8 million due to the discontinued sale of
axle shafts to a light truck customer.

The Electronics Group derives its revenue from product sales and technical outsourced services. Net
revenue in the Electronics Group decreased $38.4 million to $75.5 million in 2010. The decrease is primarily a
result of the completion of shipments of certain products and the completion of several EMS programs, partially
offset by an increase in sales of certain data recording products. The completed EMS programs primarily consisted
of circuit board assembly services provided to certain contractors for the U.S. government. Although the Electronics
Group continues to provide electronic manufacturing services to U.S. prime government contractors and other
subcontractors, we are pursuing those programs which align with our high reliability capabilities for aerospace and
defense customers and typically involve manufacturing lower volume, higher mix components. Revenues for our
Electronics Group are expected to remain relatively flat in the near-term.

Gross Profit.

The Industrial Group’s gross profit increased $12.7 million to a profit of $9.0 million in
2010 as compared to a loss of $3.7 million in the prior year. The increase in sales volume resulted in an increase in
gross profit of approximately $7.2 million. The Industrial Group also realized an increase in gross profit of
$5.8 million as a result of productivity improvements attributable to restructuring activities and an increase of
$1.7 million as a result of favorable employment benefit rates. Partially offsetting this was a $0.7 million cost
increase due to the strengthening of the Mexican peso as compared to the prior year. Additionally, the
discontinuation of axle shaft sales to a light truck customer reduced gross profit by $1.2 million from the prior year.

The Electronics Group’s gross profit decreased $2.8 million to $16.9 million in 2010 primarily as a result
of lower revenues. The Electronics Group also recognized sustaining engineering charges of approximately
$1.0 million during 2010 related to design changes on certain products shipped during the year. Our continuous
improvement, Lean and Six Sigma quality initiatives drove cost reductions which served to partially offset the gross
profit change attributable to the volume decline and engineering charges. Gross profit as a percentage of revenue for
2010 increased to 22.3% from 17.3% in 2009, reflecting a change in mix from lower margin programs within the
EMS business to higher margin product and aerospace sales during the period.

Selling, General and Administrative. Selling, general and administrative expense decreased $0.5 million
in 2010 primarily due to reductions in compensation and employee benefit costs partially offset by additional selling
efforts within our Electronics Group.

Research and Development. Research and development costs increased $0.3 million in 2010 in support of

the Electronics Group’s self-funded product and technology development activities.

Restructuring Expense, Net. As a result of the Company’s restructuring program, we recorded
$2.3 million and $7.7 million related to these initiatives during 2010 and 2009, respectively. The charge for the year
ended 2010 consisted of $0.4 million for employee severance and benefit costs, $0.2 million in equipment relocation
costs and $1.7 million in other various charges, primarily related to mothball costs associated with closed or partially
closed facilities and charges related to the consolidation of two Electronics Group locations. The charge for the year
ended 2009 consisted of $1.0 million for employee severance and benefit costs, $1.7 million in deferred contract
costs, $1.6 million in equipment relocation costs, $1.3 million in non-cash asset impairments, and $2.1 million in
other various charges. In 2011, we expect to incur approximately $0.7 million in additional equipment relocation
costs, and approximately $0.2 million in other exit costs. See Note 4 to the consolidated financial statements
included in this Form 10-K.

Interest Expense, Net.

Interest expense for the year ended December 31, 2010 decreased $1.9 million
primarily due to a decrease in the weighted average debt outstanding, partially offset by an increase in the weighted
average interest rates. Our weighted average debt outstanding decreased to $20.2 million during 2010 from
$64.3 million during 2009. The weighted average interest rate increased to 9.3% in 2010 from 7.4% in 2009.

Interest expense incurred on the debt required to be repaid from the net proceeds of the sale of Sypris
Test & Measurement was allocated to discontinued operations. During the year ended December 31, 2009,
$2.5 million of interest expense was allocated to discontinued operations based on the $34.0 million in debt required
to be repaid as a result of the transaction.

Other Income, Net. Other income, net increased $0.7 million to $1.1 million for 2010 from $0.4 million
in 2009, primarily due to the sale of idle equipment within the Industrial Group for a gain of $1.3 million. This was
partially offset by foreign currency translation losses of $0.7 million in 2010 as compared to translation gains of
$0.1 million in 2009.

Income Taxes. The 2010 income tax provision consists of current and deferred tax expense of
$0.4 million and $0.6 million, respectively. The current tax expense is primarily attributable to certain minimum
taxes required to be paid by our Mexican subsidiary. The deferred tax expense includes an increase in the valuation
allowance on our domestic deferred tax assets of $3.5 million offset by a decrease in the valuation allowance on our
foreign deferred tax assets of $3.1 million. The domestic valuation allowance increase is primarily due to the
transfer of a liability and related deferred tax asset from our Mexican subsidiary to a domestic subsidiary for which
all deferred tax assets are fully reserved. The foreign valuation allowance decrease is primarily due to the receipt of
an income tax refund by our Mexican subsidiary related to prior years which was previously reserved. The 2009
income tax provision includes a benefit of $5.1 million recorded due to the required intraperiod tax allocation
resulting from the loss from continuing operations and income from discontinued operations. Additionally, the
Company recorded an additional valuation allowance of approximately $0.9 million and state taxes of $0.1 million
related to the sale of Sypris Test & Measurement during 2009. The remaining provision recorded in 2009 is
associated with our foreign subsidiaries and includes minimum taxes required to be paid in Mexico.

Discontinued Operations. On October 26, 2009, the Company sold all of the outstanding stock of its
wholly owned subsidiary, Sypris Test & Measurement, for approximately $39.0 million. In accordance with
requirements of ASC 205-20-45 (formerly SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets), the results of the Test & Measurement segment have been reported as discontinued operations for all
periods presented. This business was previously included within the Electronics Group. During the second quarter
of 2010, the Company was made aware of a potential warranty claim from a former customer of Sypris Test &
Measurement. As of December 31, 2010, the Company estimates that its total liability arising from this claim will
not exceed $0.5 million, which was charged to income (loss) from discontinued operations, net of tax for the year
ended December 31, 2010 in the Company’s consolidated statements of operations. There can be no assurance that
similar potential claims will not emerge in the future or that relevant facts and circumstances will not change,
necessitating future changes to the estimated liability.

Quarterly Results

The following table presents our unaudited condensed consolidated statements of operations data for each
of the eight quarters in the two-year period ended December 31, 2010. The quarterly results are presented on a 13-
week period basis. We have prepared this data on the same basis as our audited consolidated financial statements
and, in our opinion, have included all normal recurring adjustments necessary for a fair presentation of this
information. You should read these unaudited quarterly results in conjunction with our consolidated financial
statements and related notes included elsewhere in this annual report. The consolidated results of operations for any
quarter are not necessarily indicative of the results to be expected for any subsequent period.

First

Second

Third

Fourth

First

Second

Third

Fourth

2010

2009

(in thousands, except per share data)

Net revenue:
Industrial Group ..................... $ 44,106 $ 46,571 $ 52,737 $ 47,739 $ 37,498 $ 36,941 $ 37,164 $ 40,418
25,679
20,675
Electronics Group ..................
Total net revenue....................
66,097
73,412
Cost of sales:
Industrial Group .....................
Electronics Group ..................
Total cost of sales...................

41,652
15,240
56,892

44,285
13,986
58,271

50,403
15,541
65,944

45,810
13,870
59,680

37,060
20,434
57,494

38,571
26,364
64,935

40,200
26,955
67,155

39,851
20,447
60,298

18,797
62,903

16,535
63,106

25,552
62,716

32,437
69,378

30,211
67,709

19,494
67,233

Gross profit (loss):
Industrial Group .....................
Electronics Group ..................
Total gross profit....................
Selling, general and

administrative ......................
Research and development.......
Amortization of

intangible assets ...................
Restructuring expense, net .......
Operating loss ..........................
Interest expense, net .................
Gain on sale of marketable

securities ..............................
Other expense (income), net.....
(Loss) income from continuing
operations, before tax...........
Income tax expense (benefit) ...
(Loss) income from continuing
operations ............................
(Loss) income from discontinued
operations, net of tax............
Net (loss) income ..................... $
Basic income (loss) per share:

Income (loss) per share from
continuing operations......... $
Income (loss) per share from
discontinued operations .....
Net income (loss) per share.. $

Diluted income (loss) per share:
Income (loss) per share from
continuing operations......... $
Income (loss) per share from
discontinued operations .....
Net income (loss) per share.. $

2,454
3,557
6,011

6,575
153

2,286
2,549
4,835

6,983
320

28
413
(1,158)
601

28
1,002
(3,498)
583

—
466

—
(688)

2,334
5,134
7,468

7,120
496

29
626
(803)
612

—
(177)

1,929
5,624
7,553

7,043
2,181

(2,702)
3,256
554

(1,630)
6,073
4,443

7,746
959

6,994
844

104
5,118
5,222

6,861
664

567
5,232
5,799

6,591
334

28
255
(1,954)
583

28
1,981
(10,160)
711

28
1,732
(5,155)
1,449

28
1,528
(3,859)
1,828

30
2,455
(3,611)
300

—
(689)

—
307

—
(384)

—
(7)

(18,255)
(267)

(2,225)
199

(3,393)
571

(1,238)
457

(1,848)
(223)

(11,178)
355

(6,220)
413

(5,680)
(3,776)

14,611
(151)

(2,424)

(3,964)

(1,695)

(1,625)

(11,533)

(6,633)

(1,904)

14,762

—
(2,424) $

(300)
(4,264) $

(196)
(1,891) $

—

188

(1,625) $ (11,345) $

(145)
(6,778) $

135

7,820
(1,769) $ 22,582

(0.13) $

(0.21) $

(0.09) $

(0.63) $

(0.36) $

(0.10) $

0.74

—
(0.13) $

(0.02)
(0.23) $

(0.01)
(0.10) $

—
(0.09) $

0.01
(0.62) $

(0.01)
(0.37) $

0.01
(0.09) $

0.42
1.16

(0.13) $

(0.21) $

(0.09) $

(0.63) $

(0.36)

(0.10)

0.73

—
(0.13) $

(0.02)
(0.23) $

(0.01)
(0.10) $

—
(0.09) $

0.01
(0.62) $

(0.01)
(0.37) $

0.01
(0.09) $

0.42
1.15

Liquidity, Capital Resources and Financial Condition

There are numerous risks and uncertainties relating to the global economy and the commercial vehicle and
aerospace and defense industries that could materially affect our financial condition, future results of operations and
liquidity. These risks and uncertainties could result in decreased sales, limited access to credit, rising costs,
increased competition, customer or supplier bankruptcies, delays in customer payment terms and acceleration of
supplier payments, growing inventories and failure to meet debt covenants.

As a result of a decline in the overall economy, we took significant actions during 2009 and 2010 to reduce
our cost base and improve profitability, including various plant shutdowns and other workforce reductions. Based
on our current forecast for 2011, we expect to be able to meet the financial covenants of our amended credit
agreements and have sufficient liquidity to finance our operations. However, changing business, regulatory and
economic conditions may mean that actual results will vary from our forecasts. See our risk factors discussed in
Item 1A of this Form 10-K.

Our ability to service our indebtedness will require a significant amount of cash. Our ability to generate
this cash will depend largely on future operations. Based upon our current level of operations and our 2011 business
plan, we believe that cash flow from operations, available cash and available borrowings under our amended credit
agreements will be adequate to meet our liquidity needs for at least the next twelve months.

On October 26, 2009, the Company amended its Revolving Credit Agreement and Senior Notes
agreements. The Loan Amendment extends the maturity date of the Revolving Credit Agreement from
January 15, 2010 through January 15, 2012, while the Note Amendments implement the same maturity date for the
Senior Notes. The Company used certain net proceeds from the sale of the Test & Measurement business and of the
Company’s holdings of Dana Holding Corporation common stock to reduce the lending commitments under the
Revolving Credit Agreement from $50.0 million to approximately $21.0 million and under the Senior Notes from
$30.0 million to approximately $13.3 million. The Amendments substituted new financial covenants regarding:
quarterly minimum net worth and liquidity levels, cumulative quarterly “EBITDAR” levels (earnings before interest,
taxes, depreciation, amortization and restructuring costs), cumulative quarterly fixed charge ratios and cumulative
quarterly debt to EBITDAR ratios, among others. The Amendments also commit the Company to obtain the consent
of the banks and the noteholders before making any dividend payments and impose certain fees and interest rate
increases. To the extent that marketable securities or other collateral is sold outside of the ordinary course of
business, the Amendments also provide for certain prepayments to the banks and the noteholders. The Company
expects to be able to comply with the amended covenants. However, no assurances can be given that changing
business, regulatory or economic conditions might not cause the Company to violate one or more covenants which
could result in default or acceleration of any debt under the Agreements.

In 2011, we anticipate refinancing the Revolving Credit Agreement and Senior Notes that mature in
January 2012 with a new debt facility, but there can be no assurance that we will be able to on terms favorable to us.

Net cash provided by operating activities of continuing operations was $1.9 million in 2010, as compared
to $0.7 million in 2009. The cash flow associated with our accounts receivable and inventory during 2010 reflects
the change in net revenue mix between our Industrial and Electronics Groups. The Industrial Group’s net revenue
increase of $39.1 million resulted in cash investments in accounts receivable and inventory of $5.4 million and
$2.2 million, respectively. The Electronics Group’s net revenue decrease of $38.4 million generated cash from
accounts receivable and inventory of $1.9 million and $2.9 million, respectively. The impact on accounts payable
from the change in revenue mix was a source of cash for the Industrial Group of $4.2 million and a use of cash by
the Electronics Group of $0.9 million. Other current assets decreased in 2010 and provided $3.6 million primarily
due to a $3.2 million tax refund received by our Mexican subsidiary and the timing of prepaid items. Accounts
payable increased in 2010 and provided $3.1 million primarily due to increased purchases by our Industrial Group
and the timing of payments to our suppliers. Accrued and other liabilities decreased in 2010 and used $1.2 million
primarily as a result of the payout of state taxes related to the gain on discontinued operations recognized in 2009
and the payout of various restructuring accruals. This was partially offset by various payroll and benefit related
accruals.

Net cash used by investing activities of continuing operations was $0.7 million in 2010 as compared to net
cash provided of $50.8 million in 2009. Net cash used by investing activities of continuing operations included

$2.2 million of capital expenditures. Additionally, the Industrial Group sold certain idle equipment during the year,
which generated $1.4 million of cash. If revenues continue to increase within the Industrial Group, the Company
expects capital expenditures will increase in future periods to support the growth. Net cash provided by investing
activities in 2009 includes net proceeds of $34.4 million from the sale of the Test & Measurement business.
Additionally, we liquidated our holding of DHC common stock during the fourth quarter of 2009 for approximately
$21.0 million in net cash proceeds.

The Company’s financing activities were cash neutral for the year ended December 31, 2010 as compared
to net cash used in financing activities of $51.2 million in 2009, primarily due to principal paydowns to reduce the
outstanding debt under the Revolving Credit Agreements and Senior Notes. Additionally, we paid $1.1 million in
financing fees in conjunction with modifications of our debt in 2009.

We had total borrowings under our revolving credit facility of $10.0 million at December 31, 2010, and an
unrestricted cash balance of $16.6 million. Approximately $11.2 million of the unrestricted cash balance relates to
our Mexican subsidiaries. Maximum borrowings on the Revolving Credit Agreement are $20.9 million. Standby
letters of credit up to a maximum of $15.0 million may be issued under the Credit Agreement of which $1.9 million
were issued at December 31, 2010.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements for a full description of recent accounting
pronouncements, including the respective dates of adoption and effects on our results of operations and financial
condition.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not

required to report the quantitative and qualitative measures of market risk specified in Item 305 of Regulation S-K.

Item 8.

Financial Statements and Supplementary Data

SYPRIS SOLUTIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management’s Report on Internal Control Over Financial Reporting...................................................................... 30

Report of Independent Registered Public Accounting Firm ..................................................................................... 31

Report of Independent Registered Public Accounting Firm ..................................................................................... 32

Consolidated Statements of Operations.................................................................................................................... 33

Consolidated Balance Sheets.................................................................................................................................... 34

Consolidated Statements of Cash Flows................................................................................................................... 35

Consolidated Statements of Stockholders’ Equity.................................................................................................... 36

Notes to Consolidated Financial Statements............................................................................................................. 37

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Sypris Solutions, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal
control system was designed to provide reasonable assurance to Sypris management and its Board of Directors
regarding the preparation and fair presentation of published consolidated financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can only provide reasonable assurance with respect to the accuracy of
consolidated financial statement preparation and presentation.

Under the supervision and with participation of our management, including the Chief Executive Officer and
Chief Financial Officer, we assessed the effectiveness of Sypris Solutions, Inc.’s internal control over financial
reporting as of December 31, 2010. In making our assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on our
assessment, we concluded that as of December 31, 2010, Sypris’ internal control over financial reporting is effective
based on these criteria.

Ernst & Young LLP, our independent auditors and a registered public accounting firm, has audited and
reported on the consolidated financial statements of Sypris Solutions, Inc. and on the effectiveness of our internal
controls over financial reporting. The reports of Ernst & Young LLP are contained in this Annual Report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Sypris Solutions, Inc.

We have audited Sypris Solutions, Inc.’s internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Sypris Solutions, Inc.’s management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying “Management’s Report on Internal Control
Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Sypris Solutions, Inc. maintained, in all material respects, effective internal control over

financial reporting as of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Sypris Solutions, Inc. as of December 31, 2010 and 2009,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended,
and our report dated March 15, 2011 expressed an unqualified opinion thereon.

Louisville, Kentucky
March 15, 2011

/s/ ERNST & YOUNG LLP

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Sypris Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Sypris Solutions, Inc. (the Company) as
of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and
cash flows for the years then ended. 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 the standards of the Public Company Accounting Oversight
Board (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 financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Sypris Solutions, Inc. at December 31, 2010 and 2009, and the consolidated
results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Sypris Solutions, Inc.’s internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 15, 2011 expressed an unqualified opinion
thereon.

/s/ ERNST & YOUNG LLP

Louisville, Kentucky
March 15, 2011

SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)

Years ended December 31,

2010

2009

Net revenue:

Outsourced services ...................................................................................................... $ 221,587
45,067
Products ........................................................................................................................

$ 207,814
58,086

Total net revenue .......................................................................................................

266,654

265,900

Cost of sales:

Outsourced services ......................................................................................................
Products ........................................................................................................................

206,795
33,992

206,237
43,645

Total cost of sales ......................................................................................................

240,787

249,882

Gross profit................................................................................................................

25,867

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

Operating loss............................................................................................................

Interest expense, net .........................................................................................................
Gain on sale of marketable securities ...............................................................................
Other income, net .............................................................................................................

27,721
3,150
113
2,296

(7,413)

2,379
—
(1,088)

16,018

28,192
2,801
114
7,696

(22,785)

4,289
(18,255)
(351)

Loss from continuing operations before income taxes ..............................................

(8,704)

(8,468)

Income tax expense (benefit)............................................................................................

1,004

Loss from continuing operations ..............................................................................

(9,708)

Income (loss) from discontinued operations, net of tax....................................................

(496)

(3,160)

(5,308)

7,998

Net income (loss)....................................................................................................... $

(10,204)

2,690

Basic income (loss) per share:

Income (loss) per share from continuing operations ................................................. $
Income (loss) per share from discontinued operations ..............................................
Net income (loss) per share ....................................................................................... $

(0.52)
(0.03)
(0.55)

Diluted income (loss) per share:

(0.52)
(0.03)
(0.55)

Cash dividends per common share ................................................................................... $

—

(0.29)
0.43
0.14

—

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

SYPRIS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)

ASSETS

Current assets:

Cash and cash equivalents............................................................................................. $
Restricted cash - current................................................................................................
Accounts receivable, net ...............................................................................................
Inventory, net ................................................................................................................
Other current assets.......................................................................................................

Total current assets .......................................................................................................

Restricted cash..................................................................................................................
Property, plant and equipment, net ...................................................................................
Goodwill ...........................................................................................................................
Other assets.......................................................................................................................

December 31,

2010

2009

16,592
3,000
41,434
30,264
5,717

97,007

—
68,590
6,900
7,195

$ 15,608
74
38,317
29,042
6,406

89,447

3,000
80,280
6,900
10,320

Total assets ................................................................................................................ $ 179,692

$ 189,947

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable .......................................................................................................... $
Accrued liabilities .........................................................................................................
Current portion of long-term debt.................................................................................

Total current liabilities ..............................................................................................

Long-term debt .................................................................................................................

Other liabilities .................................................................................................................

39,488
22,763
2,000

64,251

21,305

34,338

$ 36,185
22,279
4,000

62,464

19,305

41,960

Total liabilities...........................................................................................................

119,894

123,729

Stockholders’ equity:

Preferred stock, par value $0.01 per share, 975,150 shares authorized; no shares

issued.........................................................................................................................

Series A preferred stock, par value $0.01 per share, 24,850 shares authorized; no

shares issued ..............................................................................................................

Common stock, non-voting, par value $0.01 per share, 10,000,000 shares

authorized; no shares issued ......................................................................................

Common stock, par value $0.01 per share, 30,000,000 shares authorized;

19,964,348 shares issued and 19,663,229 outstanding in 2010 and 20,015,128
shares issued and 19,472,499 outstanding in 2009....................................................
Additional paid-in capital..............................................................................................
Retained deficit .............................................................................................................
Accumulated other comprehensive loss........................................................................
Treasury stock, 301,119 and 542,629 shares in 2010 and 2009, respectively...............

—

199
148,555
(74,629)
(14,324)
(3)

200
147,644
(64,434)
(17,187)
(5)

Total stockholders’ equity .........................................................................................

59,798

66,218

Total liabilities and stockholders’ equity................................................................... $ 179,692

$ 189,947

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

SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years ended December 31,

2010

2009

(10,204)
(496)
(9,708)

2,690
7,998
(5,308)

Cash flows from operating activities:

Net income (loss) .......................................................................................................... $
Income (loss) from discontinued operations .................................................................
Loss from continuing operations...................................................................................
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................................................................................
Gain on sale of marketable securities ........................................................................
Deferred income taxes...............................................................................................
Non-cash compensation.............................................................................................
Deferred revenue recognized.....................................................................................
Deferred loan costs recognized..................................................................................
Non-cash restructuring charges and asset impairment charges .................................
Provision for excess and obsolete inventory .............................................................
Other noncash items ..................................................................................................
Contributions to pension plans ..................................................................................
Changes in operating assets and liabilities:
Accounts receivable.................................................................................................
Inventory..................................................................................................................
Other current assets .................................................................................................
Accounts payable.....................................................................................................
Accrued and other liabilities ....................................................................................

Net cash provided by operating activities - continuing operations ........................
Net cash (used in) provided by operating activities - discontinued

operations ...........................................................................................................
Net cash provided by operating activities ..............................................................

Cash flows from investing activities:

Capital expenditures......................................................................................................
Proceeds from sale of discontinued operations .............................................................
Proceeds from sale of marketable securities .................................................................
Proceeds from sale of assets..........................................................................................
Changes in nonoperating assets and liabilities..............................................................

Net cash (used in) provided by investing activities - continuing operations..........
Net cash used in investing activities - discontinued operations .............................
Net cash (used in) provided by investing activities................................................

Cash flows from financing activities:

Net change in debt under revolving credit agreements .................................................
Payments on Senior Notes ............................................................................................
Debt modification costs ................................................................................................
Cash dividends paid ......................................................................................................

Net cash used in financing activities......................................................................

14,724
—
604
1,062
(6,112)
382
4
(1,871)
725
(821)

(3,261)
660
3,626
3,138
(1,231)

1,921

(196)
1,725

(2,233)
—
—
1,446
46

(741)
—
(741)

—
—
—
—

—

15,190
(18,255)
(3,887)
1,016
(6,279)
1,248
3,062
979
2,199
(98)

(181)
16,686
2,590
(5,993)
(2,259)

710

2,584
3,294

(5,507)
34,442
21,024
133
673

50,765
(964)
49,801

(33,000)
(16,695)
(1,123)
(386)

(51,204)

1,891

13,717

Net increase in cash and cash equivalents ........................................................................

984

Cash and cash equivalents at beginning of year ...............................................................

15,608

Cash and cash equivalents at end of year ......................................................................... $

16,592

$ 15,608

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

SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for share data)

Common Stock

Amount

Additional Retained
(Deficit)
Earnings

Paid-In
Capital

Accumulated
Other
Comprehensive
Income
(Loss)

Treasury
Stock

January 1, 2009 balance....................................

19,296,003 $

195 $ 146,741 $ (67,205)

$ (19,744) $

Net income........................................................
Employee benefit related ..................................
Foreign currency translation adjustment ...........
Comprehensive income.....................................

—
—
—
—

Restricted common stock grant.........................
Noncash compensation .....................................
Treasury stock...................................................
Retire treasury stock .........................................
December 31, 2009 balance..............................

721,000
31,200
(554,212)
(21,492)

19,472,499

Net loss .............................................................
Employee benefit related ..................................
Foreign currency translation adjustment ...........
Comprehensive (loss) income...........................

—
—
—
—

302,000
31,200
(91,690)
(50,780)

—
—
—
—

5
—
—
—
200

—
—
—
—

—
—
—
(1)

—
—
—
—

2,690
—
—
2,690

—
1,324
1,233
2,557

(7)
935
5
(30)

—
81
—
—
147,644 (64,434)

—
—
—
—
(17,187)

(10,204)
—
—
—
—
—
— (10,204)

(5)
1,053
—
(137)

—
9
—
—

—
103
2,760
2,863

—
—
—
—

December 31, 2010 balance..............................

19,663,229 $

199 $ 148,555 $ (74,629)

$ (14,324) $

(2)

—
—
—
—

2
—
(23)
18
(5)

—
—
—
—

3
—
(1)
—

(3)

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

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

(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”) and have been prepared by the Company in
accordance with the rules and regulations of the Securities and Exchange Commission. The Company’s operations
are domiciled in the United States (U.S.) and Mexico and serve a wide variety of domestic and international
customers. All significant intercompany accounts and transactions have been eliminated.

Nature of Business

Sypris is a diversified provider of outsourced services and specialty products. The Company performs a
wide range of manufacturing, engineering, design and other technical services, typically under multi-year, sole-
source contracts with corporations and government agencies in the markets for truck components and assemblies
and aerospace and defense electronics. The Company provides such services through its Industrial and Electronics
Groups (Note 20).

Use of Estimates

The preparation of the consolidated financial statements and accompanying notes in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported. Changes in facts and circumstances could have a significant impact on the resulting estimated
amounts included in our consolidated financial statements. Actual results could differ from these estimates.

Discontinued Operations

The Company classifies a business component that either has been disposed of or is classified as held for
sale as a discontinued operation if the cash flows of the component has been or will be eliminated from ongoing
operations and the Company will no longer have any significant continuing involvement in the component. The
results of operations of the discontinued operations through the date of sale, including any gains or losses on
disposition, are aggregated and presented on one line on the statement of operations. See Note 2 for additional
information regarding discontinued operations.

Cash Equivalents and Restricted Cash

Cash equivalents include all highly liquid investments with a maturity of three months or less when
purchased. Restricted cash includes money held in escrow pursuant to the sale of Sypris Test & Measurement in
connection with certain customary representations, warranties, covenants and indemnifications of the Company.
Restricted cash in 2009 also includes amounts funded to the Company by a landlord under a lease agreement signed
in 2006. Under the terms of the lease, the funds were required to be expended on leasehold improvements prior to
June 2010.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value. Costs for raw materials, work in
process and finished goods, excluding contract inventory included in the Electronics Group, is determined under the
first-in, first-out method. Indirect inventories, which include perishable tooling, repair parts and other materials
consumed in the manufacturing process but not incorporated into finished products are classified as raw materials.

Costs on long-term contracts and programs in progress represent recoverable costs incurred for production
or contract-specific materials and equipment, allocable operating overhead, advances to suppliers and where
appropriate, pre-contract engineering and design expenses. General administrative expenses are expensed as
incurred.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company’s reserve for excess and obsolete inventory is primarily based upon forecasted demand for
its product sales, and any change to the reserve arising from forecast revisions is reflected in cost of sales in the
period the revision is made.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is generally
computed using the straight-line method over their estimated economic lives. For land improvements, buildings and
building improvements, the estimated economic life is generally 40 years. Estimated economic lives range from
three to fifteen years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over
the shorter of their economic life or the respective lease term using the straight-line method. Expenditures for
maintenance, repairs and renewals of minor items are expensed as incurred. Major rebuilds and improvements are
capitalized.

Interest cost is capitalized for qualifying assets during the period in which the asset is being installed and

prepared for its intended use. Capitalized interest cost is amortized on the same basis as the related depreciation.

Long-lived Assets

The Company reviews the carrying value of amortizable long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the asset to the undiscounted future net cash
flows expected to be generated by the asset. If facts and circumstances indicate that the carrying value of an asset or
groups of assets, as applicable, is impaired, the long-lived asset or groups of long-lived assets are written down to
their estimated fair value.

Goodwill

Goodwill is tested for impairment during the fourth quarter or more frequently if events occur or
circumstances change that would warrant such a review. The Company assesses recoverability using several
methodologies, including a discounted cash flow analysis and comparisons of multiples of enterprise values to
earnings before interest, taxes, depreciation and amortization (EBITDA). The analysis is based upon available
information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost
of capital specific to the reporting unit. A growth rate is used to calculate the terminal value of the reporting unit
and is added to the present value of the forecasted cash flows. The growth rate is the expected rate at which a
reporting unit’s cash flow is projected to grow beyond the period covered by the long-range plan. The cash flow
analysis requires judgment in our evaluation of the business and establishing an appropriate discount rate and
terminal value to apply in the calculation. In selecting these and other assumptions for each business, we consider
historical performance, forecasted operating results, general market conditions and industry considerations specific
to the business. We make significant assumptions and estimates about the extent and timing of future cash flows,
growth rates and discount rates. The cash flows are estimated over a future period of time, which makes those
estimates and assumptions subject to a high degree of uncertainty. The sum of the calculated fair values of each
reporting unit is then reconciled and compared to our total market capitalization, allowing for a reasonable control
premium. If the discounted cash flow analysis yields a fair value estimate less than the reporting unit’s carrying
value, we proceed to step two of the impairment process. In the second step, the implied fair value of the reporting
unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities of the
reporting unit. The Company tested goodwill for impairment as of December 31, 2010 and 2009. There were no
indicators of impairment at December 31, 2010 and 2009. As of December 31, 2010 and 2009, the carrying value of
goodwill for the Electronics Group was $6,900,000.

Deferred Revenue

Deferred revenue for the Electronics Group is recorded when payments are received in advance for service
agreements and extended warranties on certain products and is amortized into revenue on a straight-line basis over
the contractual term. Deferred revenue for the Industrial Group is generally associated with the Dana Holding
Corporation (DHC) settlement (Note 3) and will be amortized into income on a units-of-production basis over the

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

term of the related supply agreement. See Notes 10 and 11 for the amount of deferred revenue included in accrued
liabilities and other liabilities.

Income Taxes

The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities
are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in
the consolidated financial statements, using the statutory tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless
it is more likely than not that such assets will be realized. The Company recorded an increase to the valuation
allowance of $3,486,000 and $868,000 through income tax expense for its domestic operations in 2010 and 2009,
respectively (Note 18).

In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax
positions. The Company assesses its income tax positions and records tax benefits for all years subject to
examination based upon management’s evaluation of the facts, circumstances, and information available at the
reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the
Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon
ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax
positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized
in the financial statements. Where applicable, associated interest has also been recognized.

The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences
between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance
with ASC 740, Income Taxes. The Company recognizes interest accrued related to unrecognized tax benefits in
income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

Net Revenue and Cost of Sales

Net revenue of products and services under commercial terms and conditions are recorded upon delivery
and passage of title, or when services are rendered. Related shipping and handling costs, if any, are included in costs
of sales. Net revenue under service-type contracts is recorded as costs are incurred.

Net revenue under long-term, fixed-price contracts with aerospace and defense companies and agencies of the
U.S. Government is recognized upon shipment. Contract profits are taken into earnings based on actual cost of sales
for units shipped. Prior to a system conversion in 2009, estimated contract profits were recognized based on the
ratio of costs incurred to estimated total costs at completion. The change from recognizing costs on an actual basis
from an estimated basis did not have a material impact to our financial statements and result of operations. Amounts
representing contract change orders or claims are included in revenue when such costs are invoiced to the customer.

Product Warranty Costs

The provision for estimated warranty costs is recorded at the time of sale and is periodically adjusted to reflect
actual experience. The Company’s warranty liability, which is included in accrued liabilities in the accompanying
balance sheets, as of December 31, 2010 and 2009, was $866,000 and $1,008,000, respectively. The Company’s
warranty expense for the years ended December 31, 2010 and 2009 was $525,000 and $136,000, respectively.

Additionally, the Company sells three and five-year extended warranties for one of its link encryption
products. The revenue from the extended warranties is deferred and recognized ratably over the contractual term. As
of December 31, 2010 and 2009, the Company had deferred $2,076,000 and $1,558,000, respectively, related to
extended warranties. At December 31, 2010, $491,000 is included in accrued liabilities and $1,585,000 is included in
other liabilities in the accompanying balance sheets. At December 31, 2009, the entire balance is included in other
liabilities.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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 a number of customers in diverse industries across
geographic areas, primarily in North America and Mexico, various departments or agencies of the U.S. Government,
and aerospace and defense companies under contract with the U.S. Government. 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 consolidated financial statements and consistently have been within
receivable outstanding at
Approximately 54% and 53% of accounts
management’s expectations.
December 31, 2010 and 2009, respectively are due from the Company’s two largest customers. More specifically,
Dana Holding Corporation (DHC) and ArvinMeritor, Inc. (ArvinMeritor) comprise 36% and 18%, respectively, of
December 31, 2010 outstanding accounts receivables. Similar amounts at December 31, 2009 were 41% and 12%,
respectively.

The Industrial Group’s largest customers for the year ended December 31, 2010 were DHC and
ArvinMeritor, which represented approximately 49% and 13%, respectively, of the Company’s total net revenue.
DHC and ArvinMeritor were the Company’s largest customers for the year ended December 31, 2009, which
represented approximately 40% and 7%, respectively, of the Company’s total net revenue. The Company
recognized revenue from contracts with the U.S. Government and its agencies approximating 12% and 16% of net
revenue for the years ended December 31, 2010 and 2009, respectively. No other single customer accounted for
more than 10% of the Company’s total net revenue for the years ended December 31, 2010 or 2009.

Risks and Uncertainties

There are numerous risks and uncertainties relating to the global economy, weakened capital markets and
the automotive industry that could materially affect the Company’s future financial performance and liquidity.
These risks and uncertainties could result in decreased sales, limited access to credit, rising costs, increased
competition, customer or supplier bankruptcies, delays in customer payment terms and acceleration of supplier
payments, growing inventories and failure to meet debt covenants.

Foreign Currency Translation

The functional currency for the Company’s Mexican subsidiary is the Mexican peso. Assets and liabilities
are translated at the period end exchange rate, and income and expense items are translated at the period end
weighted average exchange rate. The resulting translation adjustments are recorded in comprehensive income (loss)
as a separate component of stockholders’ equity. Remeasurement gains or losses for U.S. dollar denominated
accounts of the Company’s Mexican subsidiary are included in other expense, net.

Collective Bargaining Agreements

Approximately 445, or 39% of the Company’s employees, all of which are in the Industrial Group, are
covered by collective bargaining agreements. Excluding certain Mexico employees covered under an annually
ratified agreement, collective bargaining agreements covering 102 employees, or 9% of the Company’s workforce,
expire within the next 12 months. Certain Mexico employees are covered by an annually ratified collective
bargaining agreement and represent approximately 303 employees, or 27% of the Company’s workforce.

Adoption of Recently Issued Accounting Standards

In September 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance which
amends the criteria for allocating a contract’s consideration to individual services or products in multiple-deliverable
arrangements. The guidance requires that the best estimate of selling price be used when vendor specific objective or
third-party evidence for deliverables cannot be determined. This guidance is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The adoption of this update is not expected to have a significant impact on our consolidated financial
position, results of operations or cash flows.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Reclassifications

Certain amounts in the Company’s 2009 consolidated financial statements have been reclassified to

conform to the 2010 presentation.

(2)

Discontinued Operations

On October 26, 2009, the Company sold all of the stock of its wholly owned subsidiary, Sypris Test &
Measurement, for $39,000,000, of which $3,000,000 was deposited in an 18-month escrow account in connection
with certain customary representations, warranties, covenants and indemnifications of the Company. During 2010,
the Company was made aware of a potential warranty claim from a former customer of Sypris Test & Measurement.
The Company estimates that its total liability arising from this claim will not exceed, $496,000, of which $196,000
has been paid as of December 31, 2010. The remaining amount has been reserved in accrued liabilities on the
Company’s consolidated balance sheets. There can be no assurance that similar potential claims will not emerge in
the future or that relevant facts and circumstances will not change, necessitating future changes to an estimated
liability. This charge is included in discontinued operations, net in the consolidated statement of operations.

The Test & Measurement business provided technical services for the calibration, certification and repair of
test and measurement equipment in and outside the U.S., and prior to the sale was a part of the Company’s
Electronics Group. The Company used proceeds of $34,000,000 from the sale to reduce the amounts outstanding
under its Revolving Credit Agreement and Senior Notes.

The results of the Test & Measurement segment have been reported as discontinued operations in the
consolidated statements of operations for all periods presented. In accordance with the provisions of ASC 205-20-
45-6 (formerly Allocation of Interest to Discontinued Operations EITF 87-24), interest expense incurred on the debt
required to be repaid from the net proceeds of the sale has been allocated to discontinued operations. During the
year ended December 31, 2009, interest expense allocated to discontinued operations was $2,455,000, based on the
$34,000,000 in debt required to be repaid as a result of the transaction.

The key components of income from discontinued operations related to the Test & Measurement segment

were as follows (in thousands):

Years Ended December 31,
2009

2010

(Unaudited)

Net revenue....................................................................................................................... $
Cost of sales and operating expense .................................................................................
Allocated interest expense ................................................................................................
Gain from disposition .......................................................................................................
Income before taxes..........................................................................................................
Income taxes.....................................................................................................................
Income (loss) from discontinued operations..................................................................... $

—
(496)
—
—
(496)
—
(496)

$ 41,126
(38,504)
(2,455)
12,917
13,084
5,086
7,998

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(3)

Dana Settlement Agreement

On March 3, 2006, the Company’s largest customer, Dana Corporation (“Dana”), and 40 of its U.S.
subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York. On August 7, 2007, the Company entered into a
comprehensive settlement agreement with Dana (the “Settlement Agreement”) to resolve all outstanding disputes
between the parties, terminate previously approved arbitration payments and replace three existing supply
agreements with a single, revised contract running through 2014. In addition, Dana provided the Company with an
allowed general unsecured non-priority claim in the face amount of $89,900,000 (the “Claim”).

The Claim provided to Sypris was agreed to by Sypris and Dana as consideration for the aggregate
economic impact of the various elements the two parties were negotiating. After the aggregate Claim value of
$89,900,000 was established, Sypris recorded the claim at the estimated fair value of $76,483,000 and allocated the
estimated fair value to each commercial issue negotiated. Each of those issues requiring the Company’s continued
involvement was deferred and will be recognized over the applicable period of the involvement.

The Claim entitled the Company to receive an initial distribution of 3,090,408 shares of common stock in
Dana Holding Corporation (“DHC”), the right to participate in additional distributions of reserved shares of
common stock of DHC if certain disputed matters are ultimately resolved for less than Dana’s reserves for those
matters (estimated by the Company to represent an additional 739,000 shares) and the right to receive a distribution
of cash of $6,891,000.

During 2008, the Company received distributions of DHC common stock totaling 3,742,381 shares and a
cash distribution of $6,891,000. As of December 31, 2010, the Company has received approximately 98% of the
total common shares it expects to receive.

The Company determined that its investment in DHC common stock was other-than-temporarily impaired
as of December 31, 2008. Accordingly, the Company recorded a $66,758,000 non-cash impairment charge during
the fourth quarter of 2008 based on DHC’s closing stock price of $0.74 per share on December 31, 2008.

During the fourth quarter of 2009, the Company liquidated its holdings in DHC common stock for

approximately $21,024,000 in net cash proceeds. The Company recognized a gain of $18,255,000 on the sale.

At December 31, 2010, the Company’s right to participate in additional distributions of DHC common
stock, presently estimated to be 87,000 additional shares, is carried at $64,000 in other assets. Had these shares been
received at December 31, 2010, the Company would have recorded a $1,434,000 unrealized holding gain to other
comprehensive loss.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Restructuring, Impairments and Nonrecurring Charges

As announced during the fourth quarter of 2008, the Company committed to a restructuring program, which
included the closure of its Kenton, Ohio facility, significant reductions in the workforce in its Marion, Ohio facility
and the integration of its Electronics Group subsidiaries. The purpose of the restructuring program is to reduce fixed
costs, accelerate integration efficiencies, exit certain unprofitable product lines and significantly improve operating
earnings on a sustained basis. As a result of these initiatives, the Company recorded restructuring charge of
$2,296,000, and $7,696,000, in 2010 and 2009, respectively. Of the $2,296,000 recorded, $964,000 was recorded
within the Industrial Group and $1,332,000 was recorded within the Electronics Group. Of these costs, $346,000
was for severance and benefit-related costs, $227,000 related to equipment relocation costs, $4,000 represented non-
cash impairment costs and $1,719,000 represented other costs, primarily related to mothball costs associated with
closed or partially closed facilities and the consolidation of facilities within the Electronics Group. Of the expected
aggregate $55,955,000 of pre-tax costs for the total program, the Company expects $16,454,000 will be cash
expenditures, the majority of which has been spent at December 31, 2010.

A summary of the pre-tax restructuring charges is as follows (in thousands):

Total
Program

Severance and benefit-related costs................................. $ 4,046
13,521
Asset impairments ...........................................................
17,798
Deferred contract costs write-offs ...................................
7,895
Inventory related charges ................................................
2,799
Equipment relocation costs .............................................
1,501
Asset retirement obligations............................................
3,209
Contract termination costs...............................................
5,186
Other................................................................................

Costs Incurred

2010

346
4
—
—
227
—
—
1,719

Total
Recognized
to date

Remaining
Costs to be
Recognized

$ 4,046
13,521
17,798
7,895
2,091
1,501
3,209
5,017

$ —
—
—
—
708
—
—
169

A summary of restructuring activity and related reserves at December 31, 2010 is as follows (in thousands):

$ 55,955

2,296

$ 55,078

877

Accrued
Balance at
Dec. 31,
2009

Severance and benefit related costs................................. $
Asset impairments ...........................................................
Equipment relocation costs .............................................
Asset retirement obligations............................................
Contract termination costs...............................................
Other................................................................................

211
—
—
1,395
918
—
$ 2,524

2010
Charge

346
4
227
—
—
1,719
2,296

Cash
Payments
or Asset
Write-Offs

Accrued
Balance at
Dec. 31,
2010

(290)
(4)
(227)
(222)
(459)
(1,719)
$ (2,921)

267
—
—
1,173
459
—
$ 1,899

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

A summary of total charges by reportable segment is as follows (in thousands):

Industrial
Group

Electronics
Group

Total

Severance and benefit-related costs............................. $
Asset impairments .......................................................
Deferred contract costs write-offs ...............................
Inventory related charges ............................................
Equipment relocation costs .........................................
Asset retirement obligations........................................
Contract termination costs...........................................
Other............................................................................

2,562
13,521
—
—
2,069
1,501
1,868
1,386

1,484
—
17,798
7,895
22
—
1,341
3,631

4,046
13,521
17,798
7,895
2,091
1,501
3,209
5,017

22,907

32,171

$ 55,078

The total pre-tax costs of $55,955,000 expected to be incurred includes $23,784,000 within the Industrial
Group and $32,171,000 within the Electronics Group. The Company expects to incur additional pre-tax costs of
$877,000, all within the Industrial Group.

(5)

Accounts Receivable

Accounts receivable consists of the following (in thousands):

Commercial .......................................................................................... $
U.S. Government..................................................................................

35,389
6,598

$ 35,854
2,820

December 31,

2010

2009

Allowance for doubtful accounts..........................................................

41,987
(553)

38,674
(357)

41,434

$ 38,317

Accounts receivable from the U.S. Government includes amounts due under long-term contracts, all of

which are billed at December 31, 2010 and 2009, of $6,598,000 and $2,820,000 respectively.

(6)

Inventory

Inventory consists of the following (in thousands):

Raw materials....................................................................................... $
Work in process....................................................................................
Finished goods......................................................................................
Costs relating to long-term contracts and programs .............................
Reserve for excess and obsolete inventory...........................................

4,758
6,171
3,729
16,431
(825)

3,916
5,933
2,899
17,288
(994)

30,264

$ 29,042

December 31,

2010

2009

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(7)

Other Current Assets

Other current assets consist of the following (in thousands):

Deferred contract costs......................................................................... $
Prepaid expenses ..................................................................................
Other.....................................................................................................

December 31,

2010

2009

1,094
1,444
3,179

5,717

1,463
1,296
3,647

6,406

Included in other current assets are deferred taxes and income taxes refundable for the Company’s Mexican

subsidiary and other items, none of which exceed 5% of total current assets.

(8)

Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

December 31,

2010

2009

Land and land improvements ............................................................... $
Buildings and building improvements..................................................
Machinery, equipment, furniture and fixtures ......................................
Construction in progress.......................................................................

3,906
26,528
167,580
2,093

3,789
26,796
167,121
3,683

Accumulated depreciation....................................................................

(131,517)

(121,109)

68,590

$ 80,280

200,107

201,389

Depreciation expense totaled approximately $14,611,000 and $15,076,000 for the years ended
December 31, 2010 and 2009, respectively. In addition, there were capital expenditures of approximately $152,000
and $46,000 included in accounts payable or accrued liabilities at December 31, 2010 and 2009, respectively.

(9)

Other Assets

Other assets consist of the following (in thousands):

Intangible assets:
Gross carrying value:

Industrial Group ............................................................................ $
Electronics Group..........................................................................
Total gross carrying value......................................................

Accumulated amortization:

Industrial Group ............................................................................
Electronics Group..........................................................................
Total accumulated amortization.............................................

Intangible assets, net ..............................................................
Deferred tax assets, net.........................................................................
Prepaid benefit cost ..............................................................................
Other.....................................................................................................

December 31,

2010

2009

800
125
925

(593)
(110)
(703)

222
4,854
—
2,119

7,195

800
125
925

(504)
(85)
(589)

336
7,373
62
2,549

$ 10,320

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Intangible assets consist primarily of long-term supply agreements in the Industrial Group and software
rights in the Electronics Group. The weighted average amortization period for intangible assets was 8 years at
December 31, 2010 and 2009. Deferred tax assets, net relate to the Company’s Mexico operations and resulted
primarily from deferred revenue related to the DHC settlement agreement. Other at December 31, 2010 includes
unamortized loan costs for the Revolving Credit Agreement and Senior Notes of approximately $241,000 and
$164,000, respectively. Unamortized loan costs at December 31, 2009 were $442,000 and $315,000, respectively.
Amortization expense for intangible assets is expected to be $103,000, $89,000 and $30,000 in each of the three
fiscal years subsequent to December 31, 2010, respectively.

(10)

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

Salaries, wages, employment taxes and withholdings.......................... $
Employee benefit plans ........................................................................
Income, property and other taxes .........................................................
Deferred revenue ..................................................................................
Restructuring accruals ..........................................................................
Other.....................................................................................................

December 31,

2010

2009

5,615
1,747
457
8,097
1,899
4,948
22,763

3,608
2,515
1,435
6,521
2,524
5,676
$ 22,279

Included in other accrued liabilities are accrued operating expenses, accrued warranty expenses, accrued
interest and other items, none of which exceed 5% of total current liabilities. Deferred revenue at
December 31, 2010 and 2009 includes $6,884,000 and $6,111,000, respectively, related to the Dana settlement.

(11)

Other Liabilities

Other liabilities consist of the following (in thousands):

Deferred revenue .................................................................................. $
Noncurrent pension liability.................................................................
Other.....................................................................................................

December 31,

2010

2009

26,134
7,730
474
34,338

$ 32,991
8,504
465
$ 41,960

Included in other liabilities is deferred compensation and other items, none of which exceed 5% of total
liabilities. Deferred revenue at December 31, 2010 and 2009 includes $24,549,000 and $31,433,000, respectively,
related to the Dana settlement and will be amortized through 2014.

(12)

Long-Term Debt

Long-term debt consists of the following (in thousands):

Revolving Credit Agreement................................................................ $ 10,000
13,305
Senior notes ..........................................................................................

$ 10,000
13,305

December 31,

2010

2009

Less current portion..............................................................................

23,305
2,000

23,305
4,000

21,305

$ 19,305

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In March 2009, the Company’s Revolving Credit Agreement and Senior Notes were amended to, among
other things, i) waive the defaults as of December 31, 2008, ii) limit total borrowings, iii) revise the maturity date for
the Credit Agreement and Senior Notes to January 15, 2010, iv) revise certain financial covenants, v) restrict the
payment of dividends, vi) require mandatory prepayment to the extent that marketable securities or other collateral is
sold, and vii) increase the interest rate structure.

On October 26, 2009, the Company amended its Revolving Credit Agreement and Senior Notes
agreements. The Loan Amendment extends the maturity date of the Revolving Credit Agreement from
January 15, 2010 through January 15, 2012, while the Note Amendments implement the same maturity date for the
Senior Notes. The Company used certain net proceeds from the sale of the Test & Measurement business and of the
Company’s holdings of DHC common stock to reduce the lending commitments under the Revolving Credit
Agreement from $50,000,000 to approximately $20,965,000 and under the Senior Notes from $30,000,000 to
approximately $13,305,000. The Amendments substituted new financial covenants regarding: quarterly minimum
net worth and liquidity levels, cumulative quarterly “EBITDAR” levels (earnings before interest, taxes, depreciation,
amortization and restructuring costs), cumulative quarterly fixed charge ratios and cumulative quarterly debt to
EBITDAR ratios, among others. The Amendments also commit the Company to obtain the consent of the Banks
and the Noteholders before making any dividend payments and impose certain fees and interest rate increases. To
the extent that marketable securities or other collateral is sold outside of the ordinary course of business, the
Amendments also provide for certain prepayments to the Banks and the Noteholders.

As a result of the aforementioned modifications, the Company deferred $1,123,000 of loan costs, which are

being amortized from other assets in the consolidated balance sheets.

Under the terms of the Revolving Credit Agreement, interest rates are determined at the time of borrowing
and are based on the London Interbank Offered Rate plus a margin of 5.75% through December 31, 2010 and
7.75% thereafter. The Company also pays a fee of 0.50% on the unused portion of the aggregate commitment.

At December 31, 2010, the Company had total availability for borrowings and letters of credit under the
Revolving Credit Agreement of $9,079,000 along with an unrestricted cash balance of $16,592,000 which provides
for total cash and borrowing capacity of $25,671,000. Approximately $11,204,000 of the unrestricted cash balance
relates to the Company’s Mexican subsidiaries. Standby letters of credit up to a maximum of $15,000,000 may be
issued under
issued at
December 31, 2010 and 2009, respectively.

the Revolving Credit Agreement of which $1,886,000 and $2,291,000 were

The weighted average interest rate for outstanding borrowings at December 31, 2010 was 8.6%. The
weighted average interest rates for borrowings during the years ended December 31, 2010 and 2009 were 9.3% and
7.4%, respectively. Interest incurred during the years ended December 31, 2010 and 2009 totaled approximately
$2,458,000 and $6,795,000, respectively, including amounts allocated to discontinued operations. The Company had
no capitalized interest in 2010 or 2009. Interest paid during the years ended December 31, 2010 and 2009 totaled
approximately $1,922,000 and $4,714,000, respectively.

Based on the current forecast for 2011, the Company expects to be able to meet the financial covenants of its
amended debt agreements and has sufficient liquidity to finance its operations. Although the Company believes the
assumptions underlying its current forecast are realistic, the Company has considered the possibility of lower revenues
and other risk factors. If the Company experiences lower revenues than anticipated, the Company believes it can still
comply with the amended debt covenants and satisfy the liquidity needs of the business during 2011. However, there is
a high degree of instability in the current environment, and it is possible that certain scenarios would result in the
Company’s non-compliance with financial covenants under the Revolving Credit Facility and Senior Notes.

Non-compliance with the covenants would provide the debt holders with the ability to demand immediate
repayment of all outstanding borrowings under the Revolving Credit Facility and Senior Notes. Accordingly, the
inability to comply with covenants, obtain waivers for non-compliance, or obtain alternative financing would have a
material adverse effect on the Company’s financial position, results of operations and cash flows.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Based upon the Company’s current level of operations, and its 2011 business plan, the Company believes
that cash flow from operations, available cash and available borrowings under its amended credit agreements will be
adequate to meet its liquidity needs for at least the next twelve months.

The Revolving Credit Agreement and Senior Notes are secured by substantially all domestic assets of the

Company and a security interest in the stock of its foreign affiliates.

(13)

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the consolidated financial
statements at their carrying amount which approximates fair value because of the short-term maturity of those
instruments. The fair value for the Senior Notes exceeded the carrying value by approximately $965,000 at
December 31, 2010. The carrying amount of debt outstanding at December 31, 2010 and 2009 under the Credit
Agreement approximates fair value because borrowings are for terms of less than six months and have rates that reflect
currently available terms and conditions for similar debt.

(14)

Employee Benefit Plans

The Industrial Group sponsors noncontributory defined benefit pension plans (the Pension Plans) covering
certain of its employees. 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. All of the Company’s pension plans are frozen to new participants and certain plans are frozen to
additional benefit accruals. 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 following table details the components of pension (income) expense (in thousands):

Service cost .......................................................................................... $
Interest cost on projected benefit obligation.........................................
Net amortizations and deferrals............................................................
Expected return on plan assets .............................................................

44
2,204
532
(2,594)

52
2,357
759
(2,340)

186

828

Years ended December 31,

2010

2009

The following are summaries of the changes in the benefit obligations and plan assets and of the funded

status of the Pension Plans (in thousands):

December 31,

2010

2009

Change in benefit obligation:

Benefit obligation at beginning of year ............................................ $
Service cost.......................................................................................
Interest cost.......................................................................................
Actuarial loss ....................................................................................
Benefits paid.....................................................................................

41,423
44
2,204
1,255
(2,832)

$ 38,914
52
2,357
2,728
(2,628)

Benefit obligation at end of year ...................................................... $

42,094

$ 41,423

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31,

2010

2009

Change in plan assets:

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

32,898
3,477
821
(2,832)

$ 29,838
5,590
98
(2,628)

Fair value of plan assets at end of year............................................. $

34,364

$ 32,898

Underfunded status of the plans ........................................................... $

(7,730)

(8,525)

Balance sheet assets (liabilities):

Other assets....................................................................................... $
Accrued liabilities.............................................................................
Other liabilities .................................................................................

—
—
(7,730)

62
(83)
(8,504)

Net amount recognized..................................................................... $

(7,730)

(8,525)

Pension plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation .............................................................. $
Accumulated benefit obligation........................................................
Fair value of plan assets....................................................................

42,094
42,068
34,364

$ 39,907
39,829
31,319

Projected benefit obligation and net periodic pension
cost assumptions:
Discount rate.......................................................................................
Rate of compensation increase ...........................................................
Expected long-term rate of return on plan assets................................

5.70 %
4.00
8.25

Weighted average asset allocation:

Equity securities..................................................................................
Debt securities ....................................................................................

63 %
37

Total....................................................................................................

100 %

6.35 %
4.00
8.25

59 %
41

100 %

Investments in our defined benefit plans are stated at fair value. The fair values of our pension plan assets

as of December 31, 2010, are as follows (in thousands):

Quoted Prices
In Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Asset categories:

Cash and cash equivalents .................................................................. $
Equity investments:

U.S. Large Cap................................................................................
U.S. Mid Cap ..................................................................................
U.S. Small Cap................................................................................
World Equity...................................................................................
Fixed income securities ......................................................................

380

—

—
1,167
1,041
4,145
12,406

15,225
—
—
—
—

Total Plan Assets ................................................................................ $

19,139

$ 15,225

The Company uses December 31 as the measurement date for the Pension Plans. Total estimated
contributions expected to be paid to the plans during 2010 ranges from $600,000 to $800,000, which represents the
minimum funding amounts required by federal law. The expected long-term rates of return on plan assets for
determining net periodic pension cost for 2010 and 2009 were chosen by the Company from a best estimate range
determined by applying anticipated long-term returns and long-term volatility for various assets categories to the

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

target asset allocation of the plan. The target asset allocation of plan assets is equity securities ranging 55-65% and
fixed income securities ranging 35-45% of total investments.

Accumulated other comprehensive loss at December 31, 2010 includes $14,401,000 of unrecognized
actuarial losses that have not yet been recognized in net periodic pension cost: The actuarial loss included in
accumulated other comprehensive loss and expected to be recognized in net periodic pension cost during the fiscal
year ended December 31, 2011 is $557,000.

At December 31, 2010, the benefits expected to be paid in each of the next five fiscal years, and in

aggregate for the five fiscal years thereafter are as follows (in thousands):

2011...............................................................................................................................
2012...............................................................................................................................
2013...............................................................................................................................
2014...............................................................................................................................
2015...............................................................................................................................
2016-2020 .....................................................................................................................

3,074
3,215
3,188
3,225
3,236
15,714

$ 31,652

The Company sponsors a defined contribution plan (the Defined Contribution Plan) for substantially all
employees of the Company. The Defined Contribution Plan is intended to meet the requirements of Section 401(k)
of the Internal Revenue Code. The Defined Contribution Plan allows the Company to match participant
contributions and provide discretionary contributions. Effective March 2009, the Company suspended the
participant match for all participants other than those covered by a union contract. Effective October 2010, the
Company reinstated a 1% match for those same participants. Contributions to the Defined Contribution Plan in
2010 and 2009 totaled approximately $332,000 and $587,000, respectively.

The Company has self-insured medical plans (the Medical Plans) covering substantially all domestic
employees. The number of employees participating in the Medical Plans was approximately 693 and 696 at
December 31, 2010 and 2009, respectively. The Medical Plans limit the Company’s annual obligations to fund
claims to specified amounts per participant. The Company is adequately insured for amounts in excess of these
limits. Employees are responsible for payment of a portion of the premiums. During 2010 and 2009, the Company
charged approximately $4,771,000 and $6,820,000, respectively, to operations related to medical claims incurred
and estimated, reinsurance premiums, and administrative costs for the Medical Plans.

In addition, certain of the Company’s non-U.S. employees are covered by various defined benefit and
defined contribution plans. The Company’s expenses for these plans related to continuing operations totaled
approximately $225,000 and $212,000 in 2010 and 2009, respectively. The aggregate benefit plan assets and
accumulated benefit obligation of these plans are not significant.

(15)

Commitments and Contingencies

The Company leases certain of its real property and certain equipment, vehicles and computer hardware
under operating leases with terms ranging from month-to-month to ten years and which contain various renewal and
rent escalation clauses. Future minimum annual lease commitments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31, 2010 are as follows (in thousands):

2011...............................................................................................................................
2012...............................................................................................................................
2013...............................................................................................................................
2014...............................................................................................................................
2015...............................................................................................................................
2016 and thereafter........................................................................................................

2,578
2,000
2,035
1,806
1,710
1,749

$ 11,878

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Rent expense for the years ended December 31, 2010 and 2009 totaled approximately $2,494,000 and

$3,733,000, respectively.

As of December 31, 2010, the Company had outstanding purchase commitments of approximately

$22,850,000 primarily for the acquisition of inventory and manufacturing equipment.

The Company bears insurance risk as a member of a group captive insurance entity for certain general
liability, automobile and workers’ compensation insurance programs, a self insured worker’s compensation program
and a self-insured employee health program. The Company records estimated liabilities for its insurance programs
based on information provided by the third-party plan administrators, historical claims experience, expected costs of
claims incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated
insurance-related liabilities on a quarterly basis. As facts change, it may become necessary to make adjustments that
could be material to the Company’s consolidated results of operations and financial condition. The Company believes
that its present insurance coverage and level of accrued liabilities are adequate.

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. For example, the Company has purchased certain plants with
various potential environmental issues under purchase agreements which include indemnification provisions for,
among other things, environmental conditions that existed on the sites at closing.

(16)

Stock Option and Purchase Plans

The Company’s stock compensation program provides for the grant of restricted stock (including
performance-based restricted stock), unrestricted stock, stock options and stock appreciation rights. A total of
3,000,000 shares of common stock were reserved for issuance under the 2004 Equity Plan. On May 11, 2010, the
2004 Equity Plan was replaced with the 2010 Sypris Omnibus Plan. A total of 3,655,088 shares of common stock
were registered for issuance under the Plan. Additionally, awards under the 2004 Plan that are cancelled without
having been fully exercised or vested are available again for new awards under the Omnibus Plan. The aggregate
number of shares available for future grant as of December 31, 2010 and 2009 was 3,356,731 and 725,972,
respectively.

The 2004 Equity Plan provides for restrictions which lapse after one, two, three or four years for certain
grants or for certain other shares, one-third of the restriction is removed after three, five and seven years,
respectively. The 2010 Omnibus Plan provides for restrictions which lapse after three years. During the restricted
period, which is commensurate with each vesting period, the recipient has the right to receive dividends and voting
rights for the shares. Generally, if a recipient leaves the Company before the end of the restricted period or if
performance requirements, if any, are not met, the shares will be forfeited.

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. Stock option grants under the 2004 Equity Plan include both six and ten year lives
along with graded vesting over three, four and five years of service. Stock option grants under the 2010 Omnibus
Plan include a six year life along with graded vesting over three, four and five years of service.

Compensation expense is measured based on the fair value at the date of grant and is recognized on a
straight-line basis over the vesting period. Fair value for restricted shares is equal to the stock price on the date of
grant, while the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes
option-pricing method. The Company uses historical Company and industry data to estimate the expected price
volatility, the expected option life, the expected forfeiture rate and the expected dividend yield. The risk-free rate is
based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following weighted average assumptions were used to estimate the fair value of options granted using

the Black-Scholes option-pricing model:

Expected life (years).................................................................................
Expected volatility....................................................................................
Risk-free interest rates..............................................................................
Expected dividend yield ........................................................................... —

2010
4.0
90.7 %
2.22 %

2009
4.0
65.5 %
1.97 %
—

Years ended December 31,

On February 25, 2009, the Company granted 296,000 restricted stock awards under a long-term incentive
program. Fifty percent of the awards vest on each of the first and second anniversaries of the grant date.
Additionally, the Company granted 405,000 restricted stock awards under a special incentive key employee award
program. These shares vest on the third anniversary of the grant date. The Company also granted 300,000 options
on February 25, 2009 with a five year life and cliff vesting at three years of service.

Effective as of March 2, 2009, the Company’s Compensation Committee exercised its discretion under a
long-term incentive program to cancel 336,201 shares of previously awarded, Performance Restricted Stock. As the
performance requirements for these awards had not been probable, no additional expense was recognized during the
period.

On March 2, 2010, the Company granted 302,000 restricted stock awards under a long-term incentive
program, with cliff vesting at three years of service. The Company also granted 131,889 options on March 2, 2010
with a five year life and cliff vesting at three years of service. The Company also granted 27,500 options through
administrative grants during 2010. The grants did not have a significant impact on the Company’s consolidated
financial statements during the current period.

A summary of the restricted stock activity is as follows (excluding performance restricted stock):

Nonvested shares at January 1, 2010..................................................................
Granted ...........................................................................................................
Vested .............................................................................................................
Forfeited..........................................................................................................

Number of
Shares
920,920
302,000
(140,246)
(67,187)

Weighted
Average
Grant Date
Fair Value
2.99
$
2.85
2.86
2.22

Nonvested shares at December 31, 2010............................................................

1,015,487

3.02

The total fair value of shares vested during 2010 and 2009 was $384,000 and $183,000, respectively. In
conjunction with the vesting of restricted shares and payment of taxes thereon, the Company received into treasury
50,780 and 21,492 restricted shares, respectively, at an average price of $2.74 and $1.41 per share, respectively, the
closing market price on the date the restricted stock vested. Such repurchased shares were immediately cancelled.

A summary of the performance restricted stock activity is as follows:

Nonvested shares at January 1, 2010..................................................................
Forfeited..........................................................................................................

Number of
Shares

40,493
(29,003)

Weighted
Average
Grant Date
Fair Value
5.80
$
6.11

Nonvested shares at December 31, 2010............................................................

11,490

5.03

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table summarizes option activity for the year ended December 31, 2010:

Outstanding at January 1, 2010 ........................
Granted .........................................................
Forfeited........................................................
Expired..........................................................
Outstanding at December 31, 2010 ..................

Weighted-
average
Exercise Price
Per Share
5.45
3.11
4.67
10.74
4.96

Number of
Shares
1,226,275
159,389

(19,600)
(54,045)

1,312,019

Weighted-
average
Remaining
Term

Aggregate
Intrinsic
Value

2.28

$1,494,000

Exercisable at December 31, 2010 ...................

619,830

7.69

0.86

2,000

The weighted average grant date fair value based on the Black-Scholes option pricing model for options
granted in the years ended December 31, 2010 and 2009 was $2.03 and $0.51 per share, respectively. There were no
options exercised in 2010 or 2009.

As of December 31, 2010, there was $2,233,000 of total unrecognized compensation cost, after estimated
forfeitures, related to unvested share-based compensation granted under the plans. That cost is expected to be
recognized over a weighted-average period of 1.4 years. The total fair value of option shares vested was $146,000
and $432,000 during the years ended December 31, 2010 and 2009, respectively.

(17)

Stockholders’ Equity

The Company has a stockholder rights plan, under which each stockholder owns one right for each
outstanding share of common stock owned. Each right entitles the holder to purchase one one-thousandth of a share
of a new series of preferred stock at an exercise price of $63.00. The rights trade along with, and not separately
from, the shares of common stock unless they become exercisable. If any person or group acquires or makes a
tender offer for 15% or more of the common stock of the Company (except in transactions approved by the
Company’s Board of Directors in advance) the rights become exercisable, and they will separate, become tradable,
and entitle stockholders, other than such person or group, to acquire, at the exercise price, preferred stock with a
market value equal to twice the exercise price. If the Company is acquired in a merger or other business
combination with such person or group, or if 50% of its earning power or assets are sold to such person or group,
each right will entitle its holder, other than such person or group, to acquire, at the exercise price, shares of the
acquiring company’s common stock with a market value of twice the exercise price. The rights will expire on
October 23, 2011, unless redeemed or exchanged earlier by the Company, and will be represented by existing
common stock certificates until they become exercisable.

As of December 31, 2010, 24,850 shares of the Company’s preferred stock were designated as Series A
Preferred Stock in connection with the adoption of the stockholder rights plan. There are no shares of Series A
Preferred Stock currently outstanding. The holders of Series A Preferred Stock will have voting rights, be entitled to
receive dividends based on a defined formula and have certain rights in the event of the Company’s dissolution. The
shares of Series A Preferred Stock shall not be redeemable. However, the Company may purchase shares of Series
A Preferred Stock in the open market or pursuant to an offer to a holder or holders.

The Company’s accumulated other comprehensive loss consists of employee benefit related adjustments

and foreign currency translation adjustments.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The components of comprehensive income (loss), net of tax, are as follows for the periods indicated (in

thousands):

Years ended December 31,

2010

2009

Net income (loss) ................................................................................ $

(10,204)

2,690

Other comprehensive income (loss):

Foreign currency translation

adjustments....................................................................................
Pension adjustments – U.S................................................................
Pension adjustments – Mexico .........................................................

2,760
160
(57)

1,233
1,281
43

Total comprehensive income (loss)...................................................... $

(7,341)

5,247

Accumulated other comprehensive loss consisted of the following (in thousands):

Foreign currency translation adjustments............................................. $
Employee benefit related adjustments, net of tax of $2,512 – U.S. .....
Employee benefit related adjustments – Mexico..................................

(1,944)
(11,889)
(491)

2010

2009

(4,704)
(12,049)
(434)

Accumulated other comprehensive loss ............................................... $

(14,324)

(17,187)

December 31,

For the years ended December 31, 2010 and 2009, other expense, net includes foreign currency

remeasurement losses of $652,000 and remeasurement gains of $15,000, respectively.

(18)

Income Taxes

The Company accounts for income taxes under the liability method. 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
consolidated financial statements.

The components of loss from continuing operations before taxes are as follows (in thousands):

Domestic............................................................................................. $
Foreign................................................................................................

(13,307)
4,603

(21,915)
13,447

(8,704)

(8,468)

The components of income tax (benefit) expense applicable to continuing operations are as follows (in

thousands):

Years ended December 31,

2010

2009

Current:
Federal ................................................................................................ $
State ....................................................................................................
Foreign................................................................................................
Total current income tax expense..................................................

(219)
(64)
683
400

—
198
529
727

Years ended December 31,

2010

2009

Deferred:
Federal ................................................................................................
State ....................................................................................................
Foreign................................................................................................
Total deferred income tax expense (benefit) .................................

3,067
419
(2,882)
604

(3,003)
(518)
(366)
(3,887)

1,004

(3,160)

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Income tax expense/benefit for each year is allocated to continuing operations, discontinued operations,
extraordinary items, other comprehensive income, the cumulative effects of accounting changes, and other charges or
credits recorded directly to shareholders’ equity. ASC 740-20-45 Income Taxes, Intraperiod Tax Allocation, Other
Presentation Matters (formerly FAS 109 Accounting for Income Taxes, Par.140) includes an exception to the general
principle of intraperiod tax allocations. The codification source states that the tax effect of pretax income or loss
from continuing operations generally should be determined by a computation that considers only the tax effects of
items that are included in continuing operations. The exception to that incremental approach is that all items (i.e.
extraordinary items, discontinued operations, etc.) be considered in determining the amount of tax benefit that results
from a loss from continuing operations and that benefit should be allocated to continuing operations. That is, when a
company has a current period loss from continuing operations, management must consider income recorded in other
categories in determining the tax benefit that is allocated to continuing operations. This includes situations in which
a company has recorded a full valuation allowance at the beginning and end of the period, and the overall tax
provision for the year is zero. The intraperiod tax allocation is performed once the overall tax provision has been
computed and allocates that provision to various income statement (continuing operations, discontinued operations),
OCI and balance sheet captions. While the intraperiod tax allocation does not change the overall tax provision, it
results in a gross-up of the individual components. Additionally, tax jurisdictions must be considered separately;
therefore the allocation to the U.S. and Mexico must be looked at separately.

As the Company experienced a loss from continuing operations in the U.S. for the year ended
December 31, 2009 and income from discontinued operations due to the sale of Sypris Test & Measurement during
2009, the Company has allocated income tax expense against the discontinued operations income in 2009 using a
38.9% effective tax rate. Income tax benefit related to continuing operations for the years ended December 31, 2009
includes a benefit of $5,085,000 due to the required intraperiod tax allocation. Conversely, income from
discontinued operations for the years ended December 31, 2009 includes a charge of $5,085,000. The Company does
not expect any U.S. federal taxes to be paid for 2009 or 2010 given the available NOL carryforwards for U.S. federal
tax purposes.

The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State
income taxes paid in the U.S. during 2010 and 2009 totaled $591,000 and $150,000, respectively. Foreign income
taxes paid during 2010 and 2009 totaled $1,313,000 and $301,000, respectively. Foreign refunds received in 2010
and 2009 were $3,200,000 and $2,869,000, respectively. The 2010 foreign refund included $724,000 of interest and
inflationary adjustments. The Company received federal refunds of $261,000 in 2010. No federal refunds were
received in 2009. At December 31, 2010, the Company had $96,291,000 of federal net operating loss carryforwards
available to offset future federal taxable income, which will expire in various amounts from 2024 to 2030. At
December 31, 2010, the Company had $30,493,000 of state net operating loss carryforwards available to offset
future state taxable income, the majority of which relates to Florida. Such carryforwards reflect income tax losses
incurred which will expire on December 31 of the following years (in thousands):

2011............................................................................................................................... $
2018...............................................................................................................................
2026...............................................................................................................................
2027...............................................................................................................................
2028...............................................................................................................................
2029...............................................................................................................................
2030...............................................................................................................................

5,999
464
627
3,520
8,316
3,544
8,023

$ 30,493

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following is a reconciliation of income tax benefit applicable to continuing operations to that computed

by applying the federal statutory rate to loss from continuing operations before income taxes (in thousands):

Years ended December 31,

2010

2009

Federal tax benefit at the statutory rate ................................................ $
Current year permanent differences .....................................................
State income taxes, net of federal tax impact .......................................
Deemed dividend from foreign subsidiary ...........................................
Mexican minimum taxes ......................................................................
Effect of tax rates of foreign subsidiaries.............................................
Currency translation effect on temporary differences ..........................
Provision to return reconciliation .........................................................
Valuation allowance.............................................................................
Other.....................................................................................................

(3,046)
(251)
(519)
—
252
(1,395)
(364)
—
6,639
(312)

(2,964)
108
(303)
4,026
—
(1,633)
(467)
(154)
(1,591)
(182)

1,004

(3,160)

As discussed in Note 3, in 2009, the Company liquidated its holding in DHC common stock for
$21,024,000 in net cash proceeds. The Company’s Mexican subsidiary recorded an intercompany receivable for
$11,504,000, which represented its share of the sale proceeds. However, all cash proceeds remained in the U.S.,
including the portion allocated to the Mexican subsidiary, therefore the intercompany receivable is reportable as a
foreign deemed dividend in the U.S. as Subpart F income under IRS Section 956. The $11,504,000 deemed
dividend was included in the calculation of 2009 U.S. taxable income (see $4,026,000 amount in the above
reconciliation). The current tax that would be payable as a result of this dividend will be applied against existing
U.S. net operating loss carryforwards. This item is not considered to be a temporary difference and no deferred
taxes were calculated on this item. Future cash distributions from the Mexican subsidiary to the U.S. will be
excluded from taxable income up to the amount of this deemed dividend reported in 2009.

Deferred income tax assets and liabilities are as follows (in thousands):

December 31,

2010

2009

Deferred tax assets:
Compensation and benefit accruals .................................................... $
Inventory valuation.............................................................................
Federal and state net operating loss carryforwards.............................
Deferred revenue ................................................................................
Accounts receivable allowance ..........................................................
Contract provisions.............................................................................
Defined benefit pension plan..............................................................
Foreign deferred revenue and other provisions ..................................
AMT credits .......................................................................................
Other...................................................................................................

Domestic valuation allowance............................................................
Foreign valuation allowance...............................................................

2,884
3,436
39,133
6,789
215
—
2,427
11,190
185
668
66,927
(50,756)
(4,320)

Total deferred tax assets................................................................

11,851

2,631
7,606
29,176
2,389
139
138
2,696
17,091
431
1,537
63,834
(40,865)
(7,441)

15,528

Deferred tax liabilities:
Depreciation .......................................................................................

Total deferred tax liabilities ..........................................................

(4,981)

(5,878)

Net deferred tax asset ........................................................................... $

6,870

9,650

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

ASC 740, Income Taxes, (formerly SFAS No. 109, Accounting for Income Taxes), requires that a valuation
allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be
realized. The loss incurred in the year ended December 31, 2010, and the net cumulative loss for the current and
prior two years, represents negative evidence under the provisions of ASC 740 requiring the Company to establish a
valuation allowance against domestic deferred tax assets. This valuation allowance offsets assets associated with
future tax deductions, carryforward items and impairment of marketable securities. Until an appropriate level and
characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on
its net deferred tax assets related to future U.S. and certain non-U.S. tax benefits.

The Company generated $9,912,000 in deferred tax assets at its Mexican subsidiary associated with the
impairment of marketable securities in 2008. These deferred tax assets were the result of losses recorded for book
purposes on the portion of such marketable securities allocated to the Mexican subsidiary. During 2009, the
marketable securities appreciated in value and were sold at a gain compared to the December 31, 2008 impaired
book value. This sale resulted in a change in the related Mexican deferred tax asset of $2,471,000 in 2009. In 2010,
the Company was able to recover a portion of the taxes paid in 2008 related to the receipt of the marketable
securities, resulting in a change of $3,121,000 in the Mexican deferred tax asset. The remaining Mexican deferred
tax asset of $4,320,000 has been fully reserved as of December 31, 2010. The net deferred tax asset balances of
$6,870,000 and $9,650,000 at December 31, 2010 and 2009, respectively, are attributable to the Mexican subsidiary.
The Company has been profitable in Mexico in the past and anticipates continuing profitability in the future.

The ASC Income Tax topic includes guidance for the accounting for uncertainty in income taxes
recognized in an enterprise’s financials. Specifically, the guidance prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax

benefits is as follows (in thousands):

December 31,

2010

2009

Unrecognized tax benefits at beginning of period .............................. $
Increases based on tax positions of prior years ..................................
Decreases based on tax positions of prior years .................................
Increases based on tax positions related to the current year ...............
Lapse in statute of limitations.............................................................

Unrecognized tax benefits at end of period ........................................ $

200
—
—
—
—

200

200
—
—
—
—

200

If the Company’s positions are sustained by the taxing authority in favor of the Company, the entire
balance at December 31, 2010 would reduce the Company’s effective tax rate. The Company does not expect its
unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes accrued
interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2010 and 2009,
the Company does not have an accrual for the payment of tax-related interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign
jurisdictions. The Internal Revenue Service (IRS) is not currently examining the Company’s U.S. income tax
returns for 2006 through 2010, for which the statute has yet to expire. In addition, open tax years related to state and
foreign jurisdictions remain subject to examination but are not considered material.

The Company intends to indefinitely reinvest foreign earnings outside the U.S., and has not provided an
estimate for any U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries that might be
payable if these earnings were repatriated. However, the Company believes that U.S. foreign tax credits would, for
the most part, eliminate any additional U.S. tax.

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(19)

Earnings (Loss) Per Common Share

Effective January 1, 2009, the Company adopted the provisions of ASC 260-10-45-61A which requires that
unvested share-based payment awards that contain nonforfeitable rights to dividends be considered participating
securities. Participating securities are required to be included in the earnings per share calculation pursuant to the
two-class method. The two-class method is an earnings allocation formula that treats a participating security as
having rights to earnings that would otherwise have been available to common shareholders. Unvested restricted
stock granted by the Company is considered a participating security since it contains a non-forfeitable right to
dividends. The following table presents information necessary to calculate earnings (loss) per common share under
the two class method (in thousands, except per share data):

Years ended December 31,

2010

2009

Earnings attributable to stockholders:

Loss from continuing operations attributable to stockholders. ....................... $
Discontinued operations, net of tax.................................................................
Net income (loss) ............................................................................................ $
Less distributed and undistributed earnings allocable to restricted
award holders ................................................................................................

(9,708)
(496)
(10,204)

(5,308)
7,998
2,690

—

(119)

Net income (loss) allocable to common stockholders ........................................ $ (10,204)

2,571

Basic earnings (loss) per common share attributable to stockholders:

Continuing operations. .................................................................................... $
Discontinued operations..................................................................................
Net income (loss) ............................................................................................ $

Diluted earnings (loss) per common share attributable to stockholders:

(0.52)
(0.03)
(0.55)

(0.29)
0.43
0.14

Weighted average shares outstanding – basic. ................................................
Weighted average additional shares assuming
conversion of potential common shares ........................................................
Weighted average shares outstanding – diluted. .............................................

18,605

18,473

—
18,605

41
18,514

Our potentially dilutive securities include potential common shares related to our stock options and
restricted stock. Diluted earnings per share considers the impact of potentially dilutive securities except in periods
in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.
Diluted earnings per share excludes the impact of potential common shares related to our stock options in periods in
which the option exercise price is greater than the average market price of our common stock for the period. All
potential common shares were excluded from earnings per share for the year ended December 31, 2010 because the
effect of inclusion would be anti-dilutive. There were 1,174,000 potential common shares excluded from diluted
earnings per share for the year ended December 31, 2009

(20)

Segment Information

The Company is organized into two business groups, the Industrial Group and the Electronics Group. The
segments are each managed separately because of the distinctions between the products, services, markets,
customers, technologies, and workforce skills of the segments. The Industrial Group provides manufacturing
services for a variety of customers that outsource forged and finished steel components and subassemblies. The
Industrial Group also manufactures high-pressure closures and other fabricated products. The Electronics Group
provides manufacturing and technical services as an outsourced service provider and manufactures complex data
storage systems. Revenue derived from outsourced services for the Industrial Group accounted for 67% and 53% of
total net revenue in 2010 and 2009, respectively. Revenue derived from outsourced services for the Electronics

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Group accounted for 16% and 25% of total net revenue in 2010 and 2009, respectively. There was no intersegment
net revenue recognized for any year presented.

The following table presents financial information for the reportable segments of the Company (in

thousands):

Years ended December 31,

2010

2009

Net revenue from unaffiliated customers:
Industrial Group................................................................................ $ 191,153

$ 152,021

Electronics Group .............................................................................

75,501

113,879

$ 266,654

$ 265,900

Gross profit:

Industrial Group................................................................................ $

Electronics Group .............................................................................

9,003
16,864

(3,661)
19,679

25,867

$ 16,018

Restructuring expense, net:

Industrial Group................................................................................ $

Electronics Group .............................................................................

Operating (loss) income:

Industrial Group................................................................................ $

Electronics Group .............................................................................
General, corporate and other.............................................................

964
1,332

2,296

(1,083)
1,964
(8,294)

4,014
3,682

7,696

(16,644)
2,194
(8,335)

(7,413)

(22,785)

Depreciation and amortization:

Industrial Group................................................................................ $

Electronics Group .............................................................................
General, corporate and other.............................................................

12,477
2,048
199

$ 12,217
2,689
284

14,724

$ 15,190

Non-cash restructuring charges and asset
impairment charges:
Industrial Group................................................................................ $

Electronics Group .............................................................................

Capital expenditures:

Industrial Group................................................................................ $

Electronics Group .............................................................................
General, corporate and other.............................................................

4
—

1,255
978
—

2,233

1,366
1,696

3,062

3,959
1,493
55

5,507

December 31,

2010

2009

Total assets:

Industrial Group................................................................................ $ 127,432
42,910
9,350

Electronics Group .............................................................................
General, corporate and other.............................................................

$ 126,347
46,742
16,858

$ 179,692

$ 189,947

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company’s export sales from the U.S. totaled $28,488,000 and $26,725,000 in 2010 and 2009,
respectively. Approximately $63,805,000 and $52,589,000 of net revenue in 2010 and 2009, respectively, and
$21,298,000 and $22,079,000 of long lived assets at December 31, 2010 and 2009, respectively, relate to the
Company’s international operations.

(21)

Quarterly Financial Information (Unaudited)

The following is an analysis of certain items in the consolidated statements of operations by quarter for the

years ended December 31, 2010 and 2009:

First

Second

Third

Fourth

First

Second

Third

Fourth

2010

2009

(in thousands, except for per share data)

6,011
(1,158)

Net revenue........................... $ 62,903 $ 63,106 $ 73,412 $ 67,233 $ 67,709 $ 69,378 $ 62,716 $ 66,097
5,799
7,468
Gross profit ...........................
Operating loss .......................
(3,611)
(803)
Net income (loss)
continuing operations........
Net income (loss)
discontinued operations ....
Net income (loss) .................

7,553
(1,954) (10,160)

7,820
(1,769) 22,582

—
(2,424)

(300)
(4,264)

(145)
(6,778)

(196)
(1,891)

(1,625) (11,533)

(1,625) (11,345)

4,835
(3,498)

4,443
(5,155)

5,222
(3,859)

(1,904) 14,762

(6,633)

(3,964)

(1,695)

(2,424)

554

135

188

—

Basic income (loss) per share:
Income (loss) per share from
continuing operations...... $
Income (loss) per share from
discontinued operations ..
Net income (loss) per share $

Diluted income (loss) per share:
Income (loss) per share from
continuing operations...... $
Income (loss) per share from
discontinued operations ..
Net income (loss) per share $

(0.13) $

(0.21) $

(0.09) $

(0.63) $

(0.36) $

(0.10) $

0.74

—
(0.13) $

(0.02)
(0.23) $

(0.01)
(0.10) $

—
(0.09) $

0.01
(0.62) $

(0.01)
(0.37) $

0.01
(0.09) $

0.42
1.16

(0.13) $

(0.21) $

(0.09) $

(0.63) $

(0.36) $

(0.10) $

0.73

—
(0.13) $

(0.02)
(0.23) $

(0.01)
(0.10) $

—
(0.09) $

0.01
(0.62) $

(0.01)
(0.37) $

0.01
(0.09) $

0.42
1.15

Cash dividends declared
per common share............. $ — $ — $ — $

— $ —

— $

—

(22)

Subsequent Events

In January 2011, the Company recognized a gain of $3,000,000 in connection with the settlement of a

dispute regarding prior year volumes with one of its customers.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s
management, including the President and Chief Executive Officer (the CEO) and the Chief Financial Officer (the
CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the
Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and
procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

The management of Sypris Solutions, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Management’s report on internal control over financial reporting is included in Part II, Item 8 of this Form 10-K.
Additionally, Ernst & Young LLP, our independent auditors and a registered public accounting firm, has issued a
report on Sypris Solutions, Inc.’s internal control over financial reporting, which is included in Part II, Item 8 of this
Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

The information required herein is incorporated by reference from sections of the Company’s Proxy
Statement titled “Section 16(a) Beneficial Ownership Reporting Compliance,” “Governance of the Company –
Committees of the Board of Directors,” “Governance of the Company – Audit and Finance Committee,” “Proposal
One, Election of Directors,” and “Executive Officers,” which Proxy Statement will be filed with the Securities and
Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

The Company has adopted a Code of Business Conduct that applies to all of its directors, officers (including
its chief executive officer, chief financial officer, chief accounting officer and any person performing similar functions)
and employees. The Company has made the Code of Business Conduct available on its website at www.sypris.com.

Item 11. Executive Compensation

The information required herein is incorporated by reference from sections of the Company’s Proxy
Statement titled “2010 Director Compensation,” “Governance of the Company,” “Summary Compensation Table,”
and “Outstanding Equity Awards at Fiscal Year-End 2010,” which Proxy Statement will be filed with the Securities
and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required herein is incorporated by reference from the section of the Company’s Proxy
Statement titled “Stock Ownership of Certain Beneficial Owners” which Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

Equity Compensation Plan Information

The following table provides information as of December 31, 2010 with respect to shares of Sypris

common stock that may be issued under our equity compensation plans.

Plan Category

Equity Compensation Plans Approved by

Stockholders ...............................................

Equity Compensation Plans Not Approved

by Stockholders ..........................................
Total ................................................................

Number of Securities
To be Issued Upon
Exercise of
Outstanding Options
(a)

Weighted Average
Exercise Price of
Outstanding
Options (b)

Number of Securities
Remaining Available For
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a)) (c)

1,312,019(1) $

4.96

3,356,731(2)

—
1,312,019

—
4.96

—
3,356,731

(1) Consists of (a) 189,095 outstanding options under the 1994 Stock Option Plan for Key Employees (“1994 Key
Plan”), which Plan expired on October 27, 2004, (b) 69,827 outstanding options under the 1994 Independent
Directors’ Stock Option Plan, which Plan expired on October 27, 2004, (c) 1,025,597 outstanding options
under the 2004 Equity Plan, (d) and 27,500 outstanding under the 2010 Omnibus Plan.

(2) Shares remaining available for issuance under the 2010 Omnibus Plan.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required herein is incorporated by reference from the sections of the Company’s Proxy
Statement titled “Governance of the Company –Transactions with Related Persons” and “Governance of the
Company – Independence” which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to instruction G(3) of the General Instructions to Form 10-K.

Item 14. Principal Accountant Fees and Services

The information required herein is incorporated by reference from the section of the Company’s Proxy
Statement titled “Relationship with Independent Public Accountants,” which Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report:

1. Financial Statements

The financial statements as set forth under Item 8 of this report on Form 10-K are included.

2. Exhibits

Exhibit
Number

3.1

3.2

4.1

4.2

4.3

4.4

10.1

10.2

10.3

10.4

Description

Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q for the quarterly period ended June 30, 2004 filed on August 3, 2004
(Commission File No. 000-24020)).

Bylaws of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Registration
Statement on Form S-8 filed May 9, 2002 (No. 333-87880)).

Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Form
10-K for the fiscal year ended December 31, 1998 filed on March 5, 1999 (Commission File No. 000-
24020)).

Rights Agreement dated as of October 23, 2001 between the Company and LaSalle Bank National
Association, as Rights Agent, including as Exhibit A the Form of Certificate of Designation and as
Exhibit B the Form of Right Certificate (incorporated by reference to Exhibit 4.1 to the Company’s
Form 8-K filed on October 23, 2001 (Commission File No. 000-24020)).

Notice of Removal of Rights Agent and Appointment of Successor Rights Agent and Amendment
No. 1 to the Rights Agreement effective as of September 8, 2008 (incorporated by reference to Exhibit
4.1 to the Company’s Form 10-Q for the quarterly period ended September 28, 2008 filed on
November 5, 2008 (Commission File No. 000-24020)).

Notice of Removal of Rights Agent and Appointment of Successor rights Agent and Amendment to
the Right Agreement effective as of October 26, 2009 (incorporated by reference to Exhibit 4.1 to the
Company’s Form 10-Q for the quarterly period ended April 4, 2010 filed on May 18, 2010
(Commission File No. 000-24020)).

Purchase and Sale Agreement among Honeywell Inc., Defense Communications Products Corporation
(prior name of Group Technologies Corporation) and Group Financial Partners, Inc. dated May 21,
1989 (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-
1 filed May 18, 1994 (Registration No. 33-76326)).

Purchase and Sale Agreement among Alliant Techsystems Inc., MAC Acquisition I, Inc. and Group
Technologies Corporation dated December 31, 1992 (incorporated by reference to Exhibit 10.16 to the
Company’s Registration Statement on Form S-1 filed May 18, 1994 (Registration No. 33-76326)).

Purchase and Sale Agreement among Philips Electronic North America Corporation and Group
Technologies Corporation dated June 25, 1993 (incorporated by reference to Exhibit 10.17 to the
Company’s Registration Statement on Form S-1 filed May 18, 1994 (Registration No. 33-76326)).

Asset Purchase Agreement dated April 6, 2001 by and between Tube Turns Technologies, Inc. and
Dana Corporation as amended by a First Amendment dated May 4, 2001 and as amended by a Second
Amendment on May 15, 2001 (incorporated by reference to Exhibit 2.1 to the Company’s Form 10-Q
for the quarterly period ended June 30, 2001 filed on July 30, 2001 (Commission File No. 000-
24020)).

Exhibit
Number

10.5

10.6

10.6.1

10.6.2

10.6.3

10.6.4

10.6.5

10.6.6

10.6.7

Description

Asset Purchase Agreement between Sypris Technologies, Inc. and Dana Corporation dated
December 8, 2003 (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for the
fiscal year ended December 31, 2003 filed on February 12, 2004 (Commission File No. 000-24020)).

1999 Amended and Restated Loan Agreement between Bank One, Kentucky, NA, Sypris Solutions,
Inc., Bell Technologies, Inc., Tube Turns Technologies, Inc., Group Technologies Corporation and
Metrum-Datatape, Inc. dated October 27, 1999 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-K for the fiscal year ended December 31, 1999 filed on February 25, 2000
(Commission File No. 000-24020)).

2000A Amendment to Loan Documents between Bank One, Kentucky, NA, Sypris Solutions, Inc.,
Bell Technologies, Inc., Tube Turns Technologies, Inc., Group Technologies Corporation and
Metrum-Datatape, Inc. dated November 9, 2000 (incorporated by reference to Exhibit 10.6.1 to the
Company’s Form 10-K for the fiscal year ended December 31, 2000 filed on March 2, 2001
(Commission File No. 000-24020)).

2001A Amendment to Loan Documents between Bank One, Kentucky, NA, Sypris Solutions, Inc.,
Bell Technologies, Inc., Tube Turns Technologies, Inc., Group Technologies Corporation and
Metrum-Datatape, Inc. dated February 15, 2001 (incorporated by reference to Exhibit 10.6.2 to the
Company’s Form 10-Q for the quarterly period ended April 1, 2001 filed on April 30, 2001
(Commission File No. 000-24020)).

2002A Amendment to Loan Documents between Bank One, Kentucky, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc. and Sypris Technologies Marion, LLC dated December 21, 2001 (incorporated by
reference to Exhibit 10.6.3 to the Company’s Form 10-K for the fiscal year ended December 31, 2001
filed on January 31, 2002 (Commission File No. 000-24020)).

2002B Amendment to Loan Documents between Bank One, Kentucky, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc. and Sypris Technologies Marion, LLC dated July 3, 2002 (incorporated by reference to
Exhibit 10.25 to the Company’s Form 10-Q for the quarterly period ended June 30, 2002 filed on July
29, 2002 (Commission File No. 000-24020)).

2003A Amendment to Loan Documents between Bank One, Kentucky, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc. and Sypris Technologies Marion, LLC dated October 16, 2003 (incorporated by
reference to Exhibit 99.1 to the Company’s Form 10-Q for the quarterly period ended September 28,
2003 filed on October 29, 2003 (Commission File No. 000-24020)).

2005A Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated March
10, 2005 (incorporated by reference to Exhibit 10.6.6 to the Company’s Form 10-K for the fiscal year
ended December 31, 2004 filed on March 11, 2005 (Commission File No. 000-24020)).

2005B Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated May 10,
2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 5, 2005
(Commission File No. 000-24020)).

Exhibit
Number

10.6.8

10.6.9

10.6.10

10.6.11

10.6.12

10.6.13

10.7

10.7.1

10.7.2

Description

2005C Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated August
3, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on August 5,
2005 (Commission File No. 000-24020)).

2006A Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated February
28, 2006 (incorporated by reference to Exhibit 10.6.9 to the Company’s Form 10-K for the fiscal year
ended December 31, 2005 filed on March 15, 2006 (Commission File No. 000-24020)).

Amended and Restated Loan Agreement dated as of April 6, 2007 between Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris
Technologies Mexican Holdings, LLC; and JP Morgan Chase Bank, N.A., LaSalle Bank National
Association, and National City Bank (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K filed on April 11, 2007 (Commission File No. 000-24020)).

2007A Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated
September 17, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on
November 2, 2007 (Commission File No. 000-24020)).

2009A Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data
Systems, Inc., Sypris Technologies Marion, LLC and Sypris Technologies Kenton, Inc. dated
April 1, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q/A filed on
November 20, 2009 (Commission File No. 000-24020)).

2009B Amendment to Loan Documents between JP Morgan Chase Bank, NA, Sypris Solutions, Inc.,
Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies
Marion, LLC and Sypris Technologies Kenton, Inc. dated October 26, 2009 (incorporated by reference
to Exhibit 10.6.13 to the Company’s Form 10-K for the fiscal year ended December 31, 2009 filed on
March 23, 2010 (Commission File No. 000-24020)).

Note Purchase Agreement between The Guardian Life Insurance Company of America, Connecticut
General Life Insurance Company, Life Insurance Company of North America, Jefferson Pilot
Financial Insurance Company, Jefferson-Pilot Life Insurance Company, Jefferson Pilot LifeAmerica
Insurance Company, and Sypris Solutions, Inc. dated as of June 10, 2004 (incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended June 30, 2004 filed on
August 3, 2004 (Commission File No. 000-24020)).

First Amendment to Note Purchase Agreement between The Guardian Life Insurance Company of
America, Connecticut General Life Insurance Company, Life Insurance Company of North America,
Jefferson Pilot Financial Insurance Company, Jefferson-Pilot Life Insurance Company, Jefferson Pilot
LifeAmerica Insurance Company, and Sypris Solutions, Inc. dated as of August 3, 2005 (incorporated
by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 5, 2005 (Commission File
No. 000-24020)).

Second Amendment to Note Purchase Agreement between The Guardian Life Insurance Company of
America, Connecticut General Life Insurance Company, Life Insurance Company of North America,
Jefferson Pilot Financial Insurance Company, Jefferson-Pilot Life Insurance Company, Jefferson Pilot
LifeAmerica Insurance Company, and Sypris Solutions, Inc. dated as of March 13, 2006 (incorporated
by reference to Exhibit 10.7.2 to the Company’s Form 10-K for the fiscal year ended December 31,
2005 filed on March 15, 2006 (Commission File No. 000-24020)).

Exhibit
Number

10.7.3

10.7.4

10.7.5

10.8

10.8.1

10.8.2

10.8.3

10.9

10.10*

10.11*

Description

Third Amendment to the Note Purchase Agreement dated as of April 6, 2007 between Sypris
Solutions, Inc., Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC,
Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc.,
Sypris Technologies Mexican Holdings, LLC; and The Guardian Life Insurance Company Of
America, Connecticut General Life Insurance Company , Life Insurance Company of North America,
Jefferson Pilot Financial Insurance Company, Lincoln National Life Insurance Company, Lincoln Life
& Annuity Company of New York (incorporated by reference to Exhibit 10.2 to the Company’s Form
8-K filed on April 11, 2007(Commission File No. 000-24020)).

Fourth Amendment to the Note Purchase Agreement dated as of April 1, 2009 between Sypris
Solutions, Inc., Sypris Test & Measurement, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC,
Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc.,
Sypris Technologies Mexican Holdings, LLC; and The Guardian Life Insurance Company Of
America, Connecticut General Life Insurance Company , Life Insurance Company of North America,
Jefferson Pilot Financial Insurance Company, Lincoln National Life Insurance Company, Lincoln Life
& Annuity Company of New York (incorporated by reference to Exhibit 10.2 to the Company’s Form
10-Q/A filed on November 20, 2009 (Commission File No. 000-24020)).

Security Interest Agreement dated April 6, 2007 (incorporated by reference to Exhibit 10.3 to the
Company’s Form 8-K filed on April 11, 2007(Commission File No. 000-24020)).

Lease between John Hancock Mutual Life Insurance Company and Honeywell, Inc. dated April 27,
1979; related Notice of Assignment from John Hancock Mutual Life Insurance Company to Sweetwell
Industrial Associates, L.P., dated July 10, 1986; related Assignment and Assumption of Lease between
Honeywell, Inc. and Defense Communications Products Corporation (prior name of Group
Technologies Corporation) dated May 21, 1989; and related Amendment I to Lease Agreement
between Sweetwell Industries Associates, L.P. and Group Technologies Corporation dated October 25,
1991, regarding Tampa industrial park property (incorporated by reference to Exhibit 10.2 to the
Company’s Registration Statement on Form S-1 filed May 18, 1994 (Registration No. 33-76326)).

Agreement related to Fourth Renewal of Lease between Sweetwell Industries Associates, L.P. and
Group Technologies Corporation dated November 1, 2000, regarding Tampa industrial park property
(incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K for the fiscal year ended
December 31, 2000 filed on March 2, 2001 (Commission File No. 000-24020)).

Agreement related to Fifth Renewal of Lease between Sweetwell Industries Associates, L.P. and
Group Technologies Corporation dated October 12, 2006, regarding Tampa industrial park property
(incorporated by reference to Exhibit 10.8.2 to the Company’s Form 10-K for the fiscal year ended
December 31, 2006 filed on March 14, 2007 (Commission File No. 000-24020)).

Agreement related to Sixth Renewal of Lease between Sweetwell Industries Associates, L.P. and
Group Technologies Corporation dated August 13, 2008, regarding Tampa industrial park property
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended
September 28, 2008 filed on November 5, 2008 (Commission File No. 000-24020)).

Lease between Metrum-Datatape, Inc. (assignee of Metrum, Inc.) and Alliant Techsystems, Inc. dated
March 29, 1993 and amended July 29, 1993, May 2, 1994, November 14, 1995, December 4, 1996 and
February 12, 1998 regarding 4800 East Dry Creek Road Property (incorporated by reference to Exhibit
10.25 to the Company’s Form 10-Q for the quarterly period ended June 28, 1998 filed on August 4,
1998 (Commission File No. 000-24020)).

Sypris Solutions, Inc. 1994 Stock Option Plan for Key Employees as Amended and Restated effective
February 26, 2002 (incorporated by reference to Exhibit 4.5 to the Company’s Form S-8 filed on May
9, 2002 (Registration No. 333-87880)).

Sypris Solutions, Inc. Share Performance Program For Stock Option Grants dated July 1, 1998
(incorporated by reference to Exhibit 10.28 to the Company’s Form 10-Q for the quarterly period
ended June 28, 1998 filed on August 4, 1998 (Commission File No. 000-24020)).

Exhibit
Number

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

10.24*

10.25*

Description

Sypris Solutions, Inc. Independent Directors’ Stock Option Plan as Amended and Restated effective
February 26, 2002 (incorporated by reference to Exhibit 4.5 to the Company’s Form S-8 filed on May
9, 2002 (Registration No. 333-87882)).

Sypris Solutions, Inc., Directors Compensation Program As Amended and Restated Effective February
24, 2004 and as amended December 15, 2004, (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on December 21, 2004 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Directors Compensation Program adopted on September 1, 1995 Amended and
Restated on March 1, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on March 3, 2005 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Directors Compensation Program adopted on September 1, 1995 Amended and
Restated on February 20, 2007 (incorporated by reference to Exhibit 10.16 to the Company’s Form 10-
K for the fiscal year ended December 31, 2006 filed on March 14, 2007 (Commission File No. 000-
24020)).

Sypris Solutions, Inc. Directors Compensation Program adopted on September 1, 1995 Amended and
Restated on December 17, 2008 (incorporated by reference to Exhibit 10.17 to the Company’s Form
10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 (Commission File No. 000-
24020)).

Sypris Solutions, Inc. Executive Bonus Plan, effective as of January 1, 2003 (incorporated by reference
to Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended March 30, 2003 filed on
April 30, 2003 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Incentive Bonus Plan, effective as of January 1, 2004 (incorporated by reference
to Exhibit 10.17 to the Company’s Form 10-K for the fiscal year ended December 31, 2004 filed on
March 11, 2005 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Incentive Bonus Plan, effective as of January 1, 2005 (incorporated by reference
to Exhibit 10.2 to the Company’s Form 8-K filed on March 3, 2005 (Commission File No. 000-
24020)).

Sypris Solutions, Inc. Incentive Bonus Plan, effective as of January 1, 2007 (incorporated by reference
to Exhibit 10.1 to the Company’s Form 8-K filed on April 9, 2008 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Incentive Bonus Plan, effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended March 30, 2008 filed on
April 30, 2008 (Commission File No. 000-24020)).

Form of 2009 Sypris Three-Year Bonus Agreement, effective as of May 12, 2009. (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended July 5, 2009
filed on August 18, 2009 (Commission File No. 000-24020)).

2004 Sypris Equity Plan effective as of April 27, 2004 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-Q for the quarterly period ended March 31, 2004 filed on April 30, 2004
(Commission File No. 000-24020)).

2010 Sypris Omnibus Plan effective as of May 11, 2010 (incorporated by reference to Exhibit 10.1 to
the Company’s Registration Statement on Form S-8 filed on May 19, 2010 (Commission File No. 333-
166951)).

Form of Amendment to Stock Option Agreements to Accelerate Vesting Periods for Certain
“Underwater” Options for grants to executive officers and other key employees (incorporated by
reference to Exhibit 10.25 to the Company’s Form 10-K for the fiscal year ended December 31, 2004
filed on March 11, 2005 (Commission File No. 000-24020)).

10.26*

Employment Agreement by and between Metrum-Datatape, Inc. and G. Darrell Robertson dated
February 28, 2000 (incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K for the
fiscal year ended December 31, 2000 filed on March 2, 2001 (Commission File No. 000-24020)).

Exhibit
Number

10.27

10.28

10.29*

10.30*

10.31*

10.32*

10.33*

10.34*

10.35*

10.36*

10.37*

10.38*

10.39*

10.40

Description

Underwriting Agreement dated March 20, 2002 among Sypris Solutions, Inc., Needham & Company,
Inc. and A.G. Edwards & Sons, Inc. (incorporated by reference to Exhibit 10.20 to the Company’s
Form 10-Q for the quarterly period ended March 31, 2002 filed on April 29, 2002 (Commission File
No. 000-24020)).

Underwriting Agreement dated March 11, 2004 among Sypris Solutions, Inc. and Needham &
Company, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the
quarterly period ended March 31, 2004 filed on April 30, 2004 (Commission File No. 000-24020)).
Amendment to Stock Option Agreements to David D. Johnson (incorporated by reference to Exhibit
10.7 to the Company’s Form 10-Q filed on May 6, 2005 (Commission File No. 000-24020)).

Sypris Solutions, Inc. Incentive Bonus Plan (July 1, 2005 – December 31, 2005) (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 27, 2005 (Commission File No.
000-24020)).

Long-term Incentive Program and Form of Long-term Incentive Award Agreements for Grants to
Executive Officers and Other Key Employees (incorporated by reference to Exhibit 10.4 to the
Company’s Form 8-K filed on June 27, 2005 (Commission File No. 000-24020)).

Amended Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term
Incentive Award Agreements for Grants to Executive Officers and Other Key Employees (incorporated
by reference to Exhibit 10.10 to the Company’s Form 10-Q filed on August 5, 2005 (Commission File
No. 000-24020)).

Amended 2007 Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term
Incentive Award Agreements for Grants to Executive Officers (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed on March 7, 2007 (Commission File No. 000-24020)).

Amended 2009 Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term
Incentive Award Agreements for Grants to Executive Officers (incorporated by reference to Exhibit
10.17 to the Company’s Form 10-K for the fiscal year ended December 31, 2008 filed on
March 31, 2009 (Commission File No. 000-24020)).

Amended 2010 Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term
Incentive Award Agreements for Grants to Executive Officers (incorporated by reference to Exhibit
10.1 to the Company’s Form 10-Q filed on May 18, 2010 (Commission File No. 000-24020)).

Form of Amendment to Stock Option Agreements to Accelerate Vesting Periods for Certain
“Underwater” Options for grants to executive officers and other key employees (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 6, 2006 (Commission File No.
000-24020)).

Form of Employment Agreement between Sypris Solutions, Inc. and participants in the Sypris
Solutions, Inc. Executive Long-Term Incentive Program for 2009 dated March 9, 2009 (incorporated
by reference to Exhibit 99.1 to the Company’s From 8-K filed on March 13, 2009 (Commission File
No. 000-24020)).

Form of Employment Agreement between Sypris Solutions, Inc. and participants in the Sypris
Solutions, Inc. Executive Long-Term Incentive Program for 2010 dated March 2, 2010 (incorporated
by reference to Exhibit 10.2 to the Company’s From 10-Q filed on May 18, 2010 (Commission File
No. 000-24020)).

Form of Employment Agreement between Sypris Solutions, Inc. and participants in the Sypris
Solutions, Inc. Executive Long-Term Incentive Program for 2011 dated March 2, 2011.

Preliminary Settlement Agreement between Sypris Solutions, Inc, and Dana Corporation (Debtor in
Possession) dated May 10, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-
K filed on May 10, 2006 (Commission File No. 000-24020)).

10.41*

Form of Refund Agreement to Award Cash Incentive Grants (incorporated by reference to Exhibit 10.2
to the Company’s Form 8-K filed on January 17, 2007 (Commission File No. 000-24020)).

Exhibit
Number

10.42*

10.43*

10.44

10.45

Description

Form of Standard Terms of Executive Awards Granted Under the 2007 Stock Option Exchange
Program (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 18, 2007
(Commission File No. 000-24020)).

Form of Standard Terms of Executive Awards Granted Under the 2008 Stock Option Exchange
Program (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 4, 2008
(Commission File No. 000-24020)).

Redacted copy of Settlement Agreement with Dana Corporation signed on July 24, 2007 and effective
as of August 7, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on
November 2, 2007 (Commission File No. 000-24020)).

Settlement Agreement with Dana Corporation signed on July 24, 2007 and effective as of August 7,
2007, replaces redacted copy of Settlement Agreement with Dana Corporation signed on July 24, 2007
and effective as of August 7, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form
10-Q filed on August 7, 2008 (Commission File No. 000-24020)) .

10.46

Redacted copy of Supply Agreement with Dana Corporation signed on July 24, 2007 and effective as
of August 7, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on
November 2, 2007 (Commission File No. 000-24020)).

Subsidiaries of the Company

Consent of Ernst & Young LLP

31.1

CEO certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.

31.2

CFO certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.

CEO and CFO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes - Oxley Act of 2002.

* Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on
March 15, 2011.

SYPRIS SOLUTIONS, INC.
(Registrant)

/s/ Jeffrey T. Gill
(Jeffrey T. Gill)
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities indicated on March 15, 2011:

/s/ Robert E. Gill
(Robert E. Gill)

/s/ Jeffrey T. Gill
(Jeffrey T. Gill)

/s/ Brian A. Lutes
(Brian A. Lutes)

/s/ Rebecca R. Eckert
(Rebecca R. Eckert)

/s/ John F. Brinkley
(John F. Brinkley)

/s/ William G. Ferko
(William G. Ferko)

/s/ R. Scott Gill
(R. Scott Gill)

/s/ William L. Healey
(William L. Healey)

/s/ Sidney R. Petersen
(Sidney R. Petersen)

/s/ Robert Sroka
(Robert Sroka)

Chairman of the Board

President, Chief Executive Officer and Director

Vice President and Chief Financial Officer
(Principal Financial Officer)

Controller
(Principal Accounting Officer)

Director

[THIS PAGE INTENTIONALLY LEFT BLANK]

Use of Non-GAAP Financial Information:

To supplement our consolidated financial statements presented on a GAAP basis, Sypris Solutions, Inc.
uses non-GAAP financial measures. We believe non-GAAP financial measures are appropriate to
enhance an overall understanding of our past financial performance and also our prospects for the future.
These adjustments to our current period GAAP results are made with the intent of providing both
management and investors a more complete understanding of the Company’s underlying operational
results and trends and our marketplace performance. The presentation of this additional information is
not meant to be considered in isolation or as a substitute for financial measures prepared in accordance
with generally accepted accounting principles in the United States.

RECONCILIATION OF NET DEBT
(in thousands)

December 31,
2010

April 5,
2009

(Unaudited)

Current portion of long-term debt ...................................................................................... $
Long-term debt ..................................................................................................................
Less cash and cash equivalents .......................................................................................
Less restricted cash ..........................................................................................................

2,000
21,305
(16,592)
(3,000)

$ 75,000
—
(5,080)
(450)

Net debt ............................................................................................................................ $

3,713

$ 69,470

RECONCILIATION OF INVENTORY TURNS AND INVENTORY DAYS
(in thousands, except for turns and days data)

December 31,

2008

2007

December 31,

2010

2008

(Unaudited)

Inventory, net:

Industrial Group ............................................................................................................. $ 13,833
16,431

Electronics Group ..........................................................................................................

$ 20,561
26,814

$ 30,264

$ 47,375

Cost of sales:

Industrial Group ............................................................................................................. $ 182,150
58,637

Electronics Group ..........................................................................................................

$ 233,356
103,114

$ 240,787

$ 336,470

Industrial Group cost of sales ............................................................................................ $ 182,150

$ 233,356

Industrial Group inventory, net .......................................................................................... $ 13,833

$ 20,561

Industrial Group inventory turns ........................................................................................

13 .2

11.3

Industrial Group inventory, net .......................................................................................... $ 13,833

$ 20,561

Industrial Group cost of sales ............................................................................................ $ 182,150

$ 233,356

Industrial Group inventory days on hand (using 365 days)................................................

27.7

32.2

RECONCILIATION OF FREE CASH FLOW
(in thousands)

Twenty-One
Months Ended
Year Ended
December 31, December 31, December 31,
2010

Nine Months
Ended

2009

2010

(Unaudited)

Consolidated Cash Flow Statement:

Cash flows from operating activities:

Net cash provided by operating activities – continuing

operations ..................................................................................... $ 10,337

1,921

8,416

Net cash provided by (used in) operating activities – discontinued

operations ......................................................................................

2,576

(196)

2,772

Net cash provided by operating activities ..........................................

12,913

1,725

11,188

Cash flows from investing activities:

Capital expenditures .............................................................................
Proceeds from sale of discontinued operations ....................................
Proceeds from sale of marketable securities ........................................
Proceeds from sale of assets ...............................................................
Changes in nonoperating assets and liabilities .....................................

Net cash provided by (used in) investing activities – continuing

operations ......................................................................................
Net cash used in investing activities – discontinued operations ........

(6,046)
34,442
21,024
1,553
577

51,550
(785)

Net cash provided by (used in) investing activities ....

.
...

....................

50,765

Cash flows from financing activities:

Net change in debt under revolving credit facility .................................
Payments on Senior Notes ...................................................................
Debt modification costs ........................................................................

(35,000)
(16,695)
(4 71
)

Net cash used in financing activities . ....................

................

...........

(52,166)

(2,233)
—
—
1,446
46

(741)
—

(741)

—
—
—

—

(3,813)
34,442
21,024
107
531

52,291
(785)

51,506

(35,000)
(16,695)
(4 71)

(52,166)

Net increase in cash and cash equivalents ..............................................

11,512

984

10,528

Cash and cash equivalents at beginning of period ...................................

5,080

15,608

5,080

Cash and cash equivalents at end of period ............................................ $ 16,592

$ 16,592

$ 15,608

Free Cash Flow:

Net cash provided by operating activities – continuing operations ........... $ 10,337
(6,046)
Capital expenditures ................................................................................

Free cash flow ...................................................................................... $

4,291

1,921
(2,233)

8,416
(3,813)

(312)

4,603

RECONCILIATION OF REVENUE PER EMPLOYEE
(in thousands, except for employee data)

December 31,
December 31,

Three Months Ended
December 31,

2008

2007

2010

2008

(Unaudited)

Net revenue:

Industrial Group ............................................................................................................. $ 47,739
19,494

Electronics Group ..........................................................................................................

$ 47,293
33,370

Number of employees:

Industrial Group .............................................................................................................
Electronics Group ..........................................................................................................
General, corporate and other ........................................................................................

$ 67,233

$ 80,663

814
298
21

1,133

1,041
433
26

1,500

Net revenue – Industrial Group ......................................................................................... $ 47,739

$ 47,293

Number of employees – Industrial Group ..........................................................................

814

1,041

Net revenue per employee – Industrial Group .................................................................. $

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C
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EXECUTIVE OFFICERS

BRIAN A. LUTES
Vice President & CFO

JOHN R. MCGEENEY
General Counsel and Secretary

RICHARD L. DAVIS
Senior Vice President

ANTHONY C. ALLEN
Vice President, Treasurer and
Assistant Secretary

PAUL G. LAROCHELLE
Vice President, Sypris Solutions,
and President, Sypris Technologies

JOHN J. WALSH
Vice President, Sypris Solutions,
and President, Sypris Electronics

BOARD OF DIRECTORS

ROBERT E. GILL (4)
Chairman of the Board

JEFFREY T. GILL (4)
President & CEO

R. SCOTT GILL
Managing Broker
Baird & Warner, a residential
real estate brokerage firm

JOHN F. BRINKLEY (1 , 3)
Retired General Manager
North American Automotive
Operations Export Sales
Ford Motor Company

WILLIAM G. FERKO (2 , 3)
Senior Vice President and
Chief Risk Management Officer,
Republic Bank & Trust Company

WILLIAM L. HEALEY (1, 3 )
Private Investor & Consultant

SIDNEY R. PETERSEN (2)
Retired Chairman & CEO
Getty Oil, Inc.

ROBERT SROKA (1, 2)
Principal
Rockland Advisory Group, LLC,
an investment banking firm

(1) Member of Compensation Committee
(2) Member of Audit and Finance Committee
(3) Member of Nominating and Governance Committee
(4) Execu(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Committee Chairman

CORPORATE HEADQUARTERS
Sypris Solutions, Inc.
101 Bullitt Lane
Suite 450
Louisville, KY 40222
Phone: (502) 329-2000
Fax: (502) 329-2036

ANNUAL MEETING
The Annual Meeting of Stockholders will be
held on Tuesday, May 10, 2011 at 10:00 a.m.
at 101 Bullitt Lane, Lower Level Seminar
Room, Louisville, Kentucky.

INVESTOR MATERIALS
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 its subsidiary
operations, corporate governance and other useful
information.

For investor information, stockholders and prospective
investors are welcome to contact us with questions or
requests for additional information. Our Form 10-K for
fiscal 2010 and other reports filed with the Securities and
Exchange Commission are available at www.sypris.com
or upon written request to Lynn W. Boon, Corporate
Services Manager, 101 Bullitt Lane, Suite 450, Louisville,
Kentucky 40222.

SYPRIS ON NASDAQ
The common stock of Sypris
trades on the NASDAQ Global
Market under the symbol SYPR.

TRANSFER AGENT
Computershare
P.O. Box 43078
Providence, RI 02940
Phone: (800) 622-6757

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
400 West Market Street
Suite 2400
Louisville, KY 40202
Phone: (502) 585-1400
Fax: (502) 584-4221

SECURITIES COUNSEL
Hogan Lovells US LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
Phone: (202) 637-5600
Fax: (202) 637-5910

101 Bullitt Lane, Suite 450 Louisville, Kentucky 40222
Phone: (502) 329-2000 Fax: (502) 329-2036
www.sypris.com

SUBSIDIARY HEADQUARTERS

Sypris Electronics LLC
10901 North McKinley Drive Tampa, Florida 33612
Phone: (813) 972-6000 Fax: (813) 972-6704

Sypris Technologies Inc.
101 Bullitt Lane, Suite 205 Louisville, Kentucky 40222
Phone: (502) 420-1222 Fax: (502) 420-1232