Sypris Solutions, Inc. Annual Report 2014

FY2014 Annual Report · Sypris Solutions, Inc.

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Starting a New Chapter

Dear Fellow Stockholders:

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The financial results for 2014 reflect the continued strong
operational performance of our Industrial Group offset by
challenges faced by our Electronics Group. Revenue, gross
profit and operating income increased when compared to the
prior year period, while earnings improved to a loss of $0.06 per
share from a loss of $0.51 per share for the prior year.

We are investing to support future growth opportunities for the
Industrial Group, with targeted expenditures in additional
production technologies and product engineering capabilities.
We also filed patent applications for new drivetrain components
that have the potential to reduce the associated product weight
by up to 16%.

The year had a number of bright spots, with cash flow
generated from operations increasing to $3 million, up from
breakeven for 2013. We continued to make investments in
research and development and capital equipment to support our
future operations. Our balance sheet will serve as an important
asset as we look to diversify and grow the business profitably.

Our investments in process improvements, as well as the initial
positive results from our highly productive partnership with
Toyota and the Toyota Production System (TPS), have already
increased our baseline manufacturing efficiencies and improved
equipment uptime, while simultaneously reducing cycle times
and increasing capacity.

During 2015, we plan to further increase Toyota’s involvement in
our operations, expanding TPS activities into other component
manufacturing cells, where the continued growth of the natural
gas, oil and petrochemical markets is beginning to place
pressure on our production capacity. We remain optimistic that
the Company will realize substantial additional benefits as we
continue to implement the tools and culture of TPS throughout
our organization.

SEGMENTS

Revenue for our Industrial Group increased 17% from the prior
year to $322 million in 2014, reflecting a 17% increase in
medium and heavy-duty truck production. Gross profit for the
year increased 33% to $42 million, reflecting a 150 basis point
improvement in gross margin to 13%.

The strength of this segment’s performance during 2014 was
evident in a wide range of metrics. EBITDA was $36 million, just
over 11% of sales, while free cash flow was $19 million, a 19%
increase from the prior year. Return on net assets, an important
metric for our capital-intensive business, was 49% in 2014.

Safety comes first at Sypris, and the Industrial Group expanded
safety training at each facility by implementing the DuPont
STOP Behavior Safety Program. We will continue to proactively
invest in this important area to protect our employees and strive
to be accident-free.

We continue to expand our partnership with Toyota, as
mentioned above, with the goal of even greater cost savings in
the years ahead. We have TPS projects underway at each
facility and are initiating new projects as we continue to
customize and embed TPS into the Sypris culture. We believe
this can be a transformative process for our employees and our
culture.

We are engaged in several business development activities and
have proposals pending with both existing and new customers.
We are also evaluating opportunities to expand through joint
ventures in developing markets.

Revenue for our Electronics Group was $33 million in 2014,
resulting in a loss at the gross profit line of $3 million.

Certain programs of the Electronics Group are directly with the
U.S. Department of Defense and other government agencies, or
with prime contractors for the U.S. government. The U.S.
government’s deficit-reduction efforts and other program
funding delays continued to negatively impact planned
shipments during 2014.

We continue to pursue opportunities domestically and with
foreign customers to expand and diversify the Electronic
Group’s customer base. Our business development pipeline has
delivered results, as evidenced by our successful onboarding of
several key manufacturing service programs during 2014.

Our investments in critical research and development projects
continue and are successfully advancing our core technologies
to the demonstration stage. Our ability to introduce these
technologies to our customers enabled us to win a key
customer-funded program for the development of the next
generation cryptographic field-programmable gate array
TM
processor under the brand name of Sypher .

We successfully demonstrated a proof of concept for
SiOMetrics , which is a breakthrough security technology that
utilizes cryptography to protect the unique “fingerprint” of the
silicon wafer for identity authentication. This product has the
potential to be used in a wide variety of commercial
applications, including Cloud computing, mobile payment, retail
transaction and enterprise computing systems, among others.

The momentum behind our Sypris Cyber Range continued to
build during 2014 as business opportunities with foreign
governments increased, leading to an agreement with our
teaming partner NEC Asia Pacific to develop a Cyber Security
Lab for the Department of Homeland Affairs in Singapore. NEC
is providing the hardware for the platform, including the Internet
traffic generation equipment, while we are supplying the
simulation and training software. This important project is
expected to be commissioned in the second quarter of 2015.

SUBSEQUENT EVENTS

Unfortunately, by year end it became apparent that our
contractual dispute with Dana Holding Corporation (Dana) was
not going to be resolved or settled through the continuation of
our long-term supply agreement. The impact of this dispute and
the discontinuation of the Dana business on the Company’s
future financial outlook are expected to be material, since Dana
represented approximately 59% of consolidated net revenue in
2014.

In response to this outcome, the Company has reduced
headcount, implemented a wage freeze, lowered executive
compensation, reduced managerial salaries and scheduled
hours at plants impacted by the change, and arranged for
additional financing to support the Company's short-term
liquidity needs as it transitions to life after Dana.

We have also made decisions that are designed to protect the
strategic core of our Industrial Group by not reducing headcount
to the extent current volume would otherwise dictate. In the
short-term, we are deploying these valuable people to prepare
our plants for new programs, expand our TPS and 5S initiatives,
and perform preventive maintenance on all material pieces of
equipment, among other initiatives. Our objective is for these
people to be fully utilized by new business as new customers
are added.

We expect the brunt of the financial impact to be felt during the
first half of 2015, after which the combined contribution from
reduced costs and new program launches is anticipated to have
an increasingly positive impact on the Company’s cash flow
from operations and bottom line results. With regard to our
dispute with Dana, we believe that the lawsuit is likely to take
years to resolve, with any potential outcome in favor of the
Company to be of a financial nature.

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Our Industrial Group will endeavor to recover its position as a
leading supplier to the commercial vehicle market in the years
ahead. We believe our human and capital resources are not
only unique, but also among the best in the industry, and we will
continue to invest to expand both our market share and our
customer relationships.

Industry forecasts for the Class 5-8 commercial vehicle market
currently predict an increase of 9% in 2015 over the prior year’s
volumes. We also expect growth in the light truck, trailer and oil
and natural gas markets, which may provide opportunities for
our company.

We will pursue new business for our available capacity, with the
objective to both recapture our operating leverage and diversify
our customer and market concentrations. And we will seek to
further improve profitability for the Industrial Group through our
deployment of TPS and the acceleration of our lean conversion.

Surfacing and solving problems is one of the important facets of
TPS that we will strive to embed into our culture.

Our Electronics Group remains committed to improving our
portfolio through product and customer diversification. We are
transforming the business to achieve a more balanced mix of
hardware and software solutions to meet the dynamic needs of
our markets.

Key areas of focus for this business include securing funding
from potential partners in Silicon Valley to accelerate the
introduction of SiOMetrics into a variety of commercial
markets; seizing on the global demand for resilient threat
response training through the Sypris Cyber Range; expanding
international sales for secure communication products; and
broadening our electronic manufacturing service offerings for
severe environments.

We are actively exploring external growth opportunities for both
segments of our business, including synergistic acquisitions,
acquiring unique manufacturing assets and forming joint
ventures through our industry relationships.

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 increasingly successful company.

We also want to thank our customers and stockholders, all 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.

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

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

(cid:134)(cid:3)(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, 2014.
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)

Common Stock, $.01 par value

(Title of each class)

(Name of each exchange on which registered)
The NASDAQ Stock Market LLC

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

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:3)(cid:95) 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:134)
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.
(cid:134) Non-accelerated filer(cid:3) (cid:95) Smaller reporting company
(cid:134) Large accelerated filer
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 (June 29, 2014) was $62,343,462.
There were 20,456,044 shares of the registrant’s common stock outstanding as of March 10, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be
held May 5, 2015 are incorporated by reference into Part III to the extent described therein.

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

Table of Contents

Part I

Item 1.

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

Item 1A.

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

Item 1B.

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

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

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

Mine Safety Disclosures..............................................................................................................

Item 2.

Item 3.

Item 4.

Part II

Item 5.

Market for 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 .............................................. 32

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 Accounting Fees and Services .....................................................................................

Part IV

Item 15.

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

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

In this Annual Report on Form 10-K, “Sypris,” “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 Annual Report on Form 10-K are the property of their
respective owners.

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, often under sole-source contracts with corporations and government agencies principally in the markets for
industrial manufacturing and aerospace and defense electronics.

We are organized into two business groups, the Industrial Group and the Electronics Group. The Industrial
Group, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the
sale of goods and manufacturing services to customers in the market for truck components and assemblies and from
the sale of products to the energy and chemical markets. The Electronics Group, which is comprised of Sypris
Electronics, LLC and its subsidiary, generates revenue primarily from the sale of manufacturing services, technical
services and products to customers in the market for 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, historically, have been renewed for terms of up to five
years, create opportunities 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 Group (the Industrial Group). Through our Industrial Group, 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 the capacity to produce drive train components including axle
shafts, gear sets, differential cases, steer axle forgings, and other components for ultimate 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 Meritor Inc. (Meritor) 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
support our customers’ strategies to outsource non-core operations by supplying additional components and
providing additional value added operations for drive train assemblies. Over the past several years, we had
implemented a restructuring plan that allowed us to adjust our overhead and infrastructure to be more in line with
projected levels of customer demand and market requirements. The plan was largely successful, resulting in
significant and permanent cost reductions that have lowered our operating breakeven levels. The plan also included
a diversification strategy which has resulted in the recent addition of long-term agreements with Eaton Corporation
(Eaton) and American Axle & Manufacturing, Inc., under which we supply forgings. We have recently initiated a
similar effort to meet the new challenges of reduced revenues from Dana Holding Corporation (Dana), traditionally
our largest customer. In 2014 and 2013, Dana represented approximately 59% and 58% of our net revenue,
respectively. In 2015, we do not expect to continue doing business directly with Dana, although we may have new
opportunities to supply certain of Dana’s competitors who are in some cases gaining market share with Dana’s
customers. Due to the loss of our largest customer, we will need to cut costs and rebuild our revenues over time.
While we hope to take advantage of our excess capacity through these ongoing actions, especially if global
economic conditions and the strength of the commercial vehicle industry remain at historically high levels, there can
be no assurances that such conditions will continue or that our efforts to cut costs will be successful. See “Risk
Factors – Customer contracts may not be renewed on acceptable terms or at all. Our largest customer Dana has
repudiated our supply relationship” in Part I, Item 1A of this Annual Report on Form 10-K. Our sales of engineered
products such as pressurized closures, insulated joints and other specialty products, primarily to oil and gas pipelines
and related energy markets have remained an independent source of diversified revenues and are becoming an area
of greater focus for the Company going forward. We are continually exploring new product developments and
potential new markets, which will be an increasing area of focus for the Company going forward.

Aerospace & Defense Electronics Group (the Electronics Group). Our Electronics Group is organized
around three primary business lines: Information Security Solutions (ISS), Electronic Manufacturing Services
(EMS) and Cyber Security and Analytics (Cyber).

(ISS). Our

Information Security Solutions

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in secure
communications, global electronic key management, Sypris Data Systems branded products, and
product design and development to the U.S. Government, both defense and civilian agencies,
international government agencies, as well as worldwide aerospace and defense prime contractors.
This group has several contracts with the Department of Defense to design and build information
assurance products, including link encryptors, data recording products and electronic key fill devices.

ISS business provides solutions

(cid:120)(cid:3) Electronic Manufacturing Services (EMS). Our EMS business is focused on circuit card and full
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. Our customers include large aerospace and defense companies such as Lockheed
Martin Corporation (Lockheed Martin), Northrop Grumman Corporation (Northrop Grumman) and
Exelis Inc. (Exelis).

(cid:120)(cid:3) Cyber Security and Analytics (Cyber). Our Cyber business includes a variety of software,
hardware and service solutions designed to help our customers better train and equip their security
personnel to protect their operations and sensitive information from theft, disruption or other harm in
an increasing hostile and volatile, global cyber environment.

The industry and business environment of our Electronics Group continues to be shaped by policy and
budget decisions of the U.S. Government, as well as economic conditions. Recent actions of Congress and the
Administration indicate an ongoing emphasis on federal budget deficit reduction. It is likely that U.S. government
discretionary spending levels for Fiscal Year 2016 and beyond will continue to be subject to significant pressure,
including risk of future sequestration cuts. Significant uncertainty also continues with respect to program-level
appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies within the overall
budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future
procurement decisions associated with the authorization and appropriations process could result in reductions,
cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on
the results of the Company’s operations, financial position and/or cash flows.(cid:3)(cid:3)Our Electronics Group accounted for
approximately 9% of net revenue in 2014.

Our Markets

Industrial Group. The industrial manufacturing markets include truck components and assemblies, trailer
components and specialty closures. The truck components and assemblies market 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 Meritor, Dana,
Delphi Automotive LLP, Eaton and Visteon Corporation, among others. 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.

Electronics Group. As noted above, the U.S. Government continues to focus on developing and
implementing spending, tax and other initiatives to reduce the deficit, create jobs and stimulate the economy. This
process and the spending reductions to defense programs has adversely impacted our portfolio of business in this
segment, which is dependent upon discretionary appropriations for defense programs. Although we believe that our
products and programs are well aligned with national defense and other priorities, shifts in domestic and
international spending and tax policy, changes in security, defense and intelligence priorities, the affordability of our

products and services, changes in or preferences for new or different technologies, general economic conditions and
other factors may affect the level of funding for existing or proposed programs. Uncertainty over budget plans and
national security spending may prove challenging for our customers, as well as the defense industry as a whole.

Market conditions for our ISS and Cyber businesses are expected to be favorable over the long term, given
the growing cyber security and intelligence markets. However, market conditions for our EMS business, dedicated
to the aerospace and defense market, are characterized by a number of obstacles. The nature of providing
outsourced manufacturing services to the aerospace and defense electronics industry differs substantially from the
commercial electronics manufacturing 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. As mentioned above, U.S. Government and private
customer spending levels remain uncertain.

Our Business Strategy

Our objective is to improve our position in each of our core markets by increasing our number of multi-
year contracts with customers and investing in highly innovative and efficient 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 and qualifications to achieve a competitive advantage.

Dedicate our Resources to Support Strategic Partnerships. We will continue to prioritize 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. Meritor and
Meritor’s Brazilian subsidiary have awarded us with sole-source supply agreements for certain parts that run through
at least 2015 and 2016, respectively. During 2013, Sypris and Dana executed an amendment to extend our current
sole-source supply agreement through 2019. While Dana has repudiated this amendment, we are seeking to enforce
the amendment through pending arbitration and litigation proceedings (see “Risk Factors – Customer contracts may
not be renewed on acceptable terms or at all. Our largest customer Dana has repudiated our supply relationship” in
Part I, Item 1A of this Annual Report on Form 10-K). In 2015, we do not expect to do any significant business
directly with Dana, and we intend re-allocate resources to other long-term multi-year contractual relationships or
opportunities in the Industrial and Electronics Groups.

Pursue the Strategic Acquisition of Assets. Over the long term, we may consider the strategic acquisition
of assets 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 target 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 should 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 have historically received from certain key 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. 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 Group:

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

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

trucks as well as axle beams for trailers.

Electronics Group:

Northrop Grumman ....................................Circuit card assembly and sub-assembly design and build for electronic
sensors and systems ranging from radar and targeting systems to
tactical ground stations, navigation systems and integrated avionics.

U.S. Government .......................................Secure communications equipment, global key management solutions
and data recording systems.
Lockheed Martin ........................................Complex circuit cards for use in some of the nation’s high priority

Exelis .........................................................Complex circuit cards and subassemblies for use in weapons systems,

targeting and warning systems.

space programs.

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, six sigma, total quality management, stringent and
real-time engineering change control routines and total cycle time reduction techniques.

Industrial Manufacturing Services. We offer our customers 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 value added
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, process and tooling development,
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 contract manufacturing services, we offer specialized products including light
weight axle components, digital and analog data systems and encryption devices used in military applications, a
variety of cyber security training and identity authentication solutions, and specialty closures and joints used in
pipeline and chemical systems. As we look to grow our products business and seek to replace the revenues lost from
the Dana relationship, greater emphasis will be placed on the commercialization 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 offerings. Our five largest customers in 2014 were Dana, Meritor, Sistemas
Corporation (Sistemas), Axle Alliance and Northrop Grumman, which in the aggregate accounted for 85% of net
revenue. Our five largest customers in 2013 were Dana, Meritor, Sistemas, Northrop Grumman and Eaton, which in
the aggregate accounted for 81% of net revenue. In 2014, Dana and Meritor represented approximately 59% and
16% of our net revenue, respectively. In 2013, Dana and Meritor represented approximately 58% and 15% of our
net revenue, respectively. In addition, U.S. governmental agencies accounted for 2% and 3% of net revenue in 2014
and 2013, respectively. Dana has repudiated the extension of our long term supply agreement and is not expected to
be a direct customer in 2015 (see “Risk Factors – Customer contracts may not be renewed on acceptable terms or at
all. Our largest customer Dana has repudiated our supply relationship.” in Part I, Item 1A of this Annual Report on
Form 10-K).

Geographic Areas and Currency Fluctuations

We are located in the U.S., Mexico, Denmark and the U.K. 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. Our Denmark subsidiary is a sales office and is part of our Electronics Group. Our U.K
subsidiary is a sales office and is part of our Industrial Group. 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 primarily impacted our earnings only to the extent of remeasurement gains or losses related to
U.S. dollar denominated accounts of our foreign subsidiaries, because the vast majority of our transactions are
denominated in U.S. dollars. For the year ended December 31, 2014, other income, net, included foreign currency
transaction gains of $0.7 million. For 2013, other income, net, included foreign currency transaction losses of
$0.3 million.

Net revenues from Mexican operations, primarily from Dana, were $111.2 million, or 31%, and
$95.4 million, or 31%, of our consolidated net revenues in 2014 and 2013, respectively. The loss of Dana’s
revenues will create significant challenges for the Company, especially in the near-term as we seek to control our
costs while rebuilding and diversifying our customer base. In 2014, net income from our Mexican operations was
$10.8 million, as compared to our consolidated net loss of $1.2 million. In 2013, net income from our Mexican
operations was $7.7 million, as compared to our consolidated net loss of $9.9 million. You can find more
information about our regional operating results, including our export sales, in “Note 20 Segment Information” to
our consolidated financial statements included in Item 8 of this Annual Report on 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 participating 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 or by reducing the amount of set-up time or material that may be required to produce the product.

The award of contracts or programs can be a lengthy process, which in some circumstances can extend well beyond
12 months. Upon occasion, we 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.

Since January 1, 2015, a number of Dana’s customers and suppliers have contacted us, requesting that we
either supply component parts to them, directly to Dana or to Dana’s competitors. We are continuing to explore
these various opportunities as they arise, but there can be no assurances that our efforts to develop new sources of
revenues will be successful.

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 other component suppliers such as Ramkrishna Forgings Limited, Mid-West Forge, Inc.,
GNA Axles Limited, US Manufacturing Corporation, 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 such as Celestica Inc., Jabil Circuit, 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 attempt to increase and expand our business.

We believe that the principal competitive factors in our markets include the availability of capacity,
currency exchange rates (especially in low-cost countries), 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, as compared to us,
are larger and have greater financial and operating resources, greater geographic breadth and range of services,
customer bases and brand recognition than we do. 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.

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 percentage of our net revenue. Company-sponsored research and development costs are expensed as incurred.
We invested $0.6 million and $3.0 million in research and development in 2014 and 2013, respectively. Customer-
sponsored research and development costs are incurred under U.S. Government-sponsored contracts and require us
to provide a product or service meeting certain defined performance or other specifications (such as designs).
Customer-sponsored research and development is accounted for under the milestone method and included in our net
revenue and cost of sales (see Critical Accounting Policies and Estimates in Item 7 of this Annual Report on Form
10-K).

Patents, Trademarks and Licenses

We own or license a number of patents and trademarks, but 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, in the U.S., the U.K., Denmark and 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, 2014, we had a total of 1,332 employees, of which 1,064 were engaged in
manufacturing and providing our technical services, 19 were engaged in sales and marketing, 104 were engaged in
engineering and 145 were engaged in administration. Approximately 683 of our employees were covered by
collective bargaining agreements with various unions that expire on various dates through 2017. Excluding certain
Mexico employees covered under an annually ratified agreement, there are no collective bargaining agreements that
expire within the next 12 months. In response to the loss of significant revenues from Dana, traditionally our largest
customer, we have engaged in layoffs during the first quarter of 2015, and our ability to maintain our workforce
depends on our ability to attract and retain new and existing customers. Although we believe overall that 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, the markets in which we operate, potential acquisitions, contracts with customers, new business
opportunities or financial results and our views about developments beyond our control including government
spending, 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, except as may be required by law. 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(cid:3)

We anticipate operating losses in the near term as we seek to generate new business revenues to replace the
loss of our largest customer.

Our businesses generally will require a higher level of new business revenues in order to operate profitably.
The recent loss of revenues from Dana has accelerated our need to launch new programs with existing customers
and to diversify our business by adding new customers. While we expect to generate operating losses in the near
term due to the loss of Dana as a customer, we intend to steadily increase our revenues over this time with new or
existing customers by utilizing our excess manufacturing capacity. Unless we can develop and offer new products
and services to existing customers or obtain new customers, we may be unable to maintain the critical mass of
capital investments or talented employees that are needed to succeed in our chosen markets or to maintain our
existing facilities, which could result in additional restructuring or exit costs. There can be no assurance that we will
be able to generate enough additional revenue to offset the loss of revenues from Dana through new or existing
customers.

Customer contracts may not be renewed on acceptable terms or at all. Our largest customer Dana has
repudiated our supply relationship and stopped placing orders with us as of the end of 2014.

Until recently, our two largest customers, Dana and Meritor, had contracts with expiration dates of
December 31, 2014 and, for a portion of the Meritor goods, May 2, 2015. In 2014, Dana and Meritor represented
approximately 59% and 16% of our revenues. While we have renewed the Meritor agreement and have executed an
extension of the Dana contract through 2019, Dana has repudiated that extension, which repudiation is currently
being litigated and arbitrated (see “Legal Proceedings in Part I, Item 3 of this Annual Report on Form 10-K). Even
if we prevail on some or all of the items under dispute, we do not expect to retain Dana as a customer. In 2015, we
do not expect to do business directly with Dana. Our inability to replace the loss of Dana business while effectively
controlling our costs would materially adversely affect our business, results of operations and financial condition.

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, historically, has been 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 Dana and Meritor and acquired their
facilities in Morganton, North Carolina and Toluca, Mexico, among other manufacturing assets. Although most of
these acquired facilities have had well-established product markets, the Company does not currently expect to
continue doing business directly with Dana. In addition, Meritor’s products may not continue to be successful,
product enhancements may not be made in a timely fashion, and any long-term pricing agreements could generate
lower margins than anticipated. If any of these facilities are required to operate at underutilized levels for extended
periods of time, especially those plants with traditionally higher percentages of Dana business, it 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 may 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. We have recently lost
our largest customer and continue to have substantial customer concentration.

Our five largest customers in 2014 were Dana, Meritor, Sistemas, Axle Alliance and Northrop Grumman,
collectively accounting for 85% of net revenue. Our five largest customers in 2013 were Dana, Meritor, Sistemas,
Northrop Grumman and Eaton, collectively accounting for 81% of net revenue. In 2015, we do not currently expect
to continue doing business directly with Dana. Our inability to replace the loss of Dana business while effectively

controlling our costs would materially adversely affect our business, results of operations and financial condition. In
2015 and beyond, we will need to attract new clients and attempt to diversify our customer base from a limited
number of potential customers and with longer lead times often being required for new programs.

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 experienced 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 economic 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 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 share. 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. In addition, the existence of these factors may
result in fewer customers in our target markets due to consolidation, bankruptcy, competitive or other market
reasons, making it more difficult to obtain new clients and diversify our customer base in the near future.

Congressional budgetary constraints or reallocations could 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 2% and 3% of our net revenue in 2014 and 2013, respectively.
We also serve as a contractor for large aerospace and defense companies such as Lockheed Martin, Northrop
Grumman and Exelis, typically under federally funded programs, which represented approximately 4% and 5% of
net revenue in 2014 and 2013, respectively.

The Electronics Group already has been significantly adversely affected by declines in the overall
government defense market due to the effects of sequestration, and may be further affected if funding for programs
in which we participate, either by selling services and products directly to U.S. government agencies or as a
subcontractor to prime contractors such as Lockheed Martin, Northrop Grumman and Excelis, is reduced, delayed or
cancelled. Our ability to obtain new contract awards also could be negatively affected.

Congress and the Administration continue to debate these funding issues, but reductions in U.S. military
spending also could materially adversely affect the results of our Electronics Group, and we expect that certain
military and defense programs will experience delays while the receipt of government approvals remain pending.

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(cid:3)

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. Some of our suppliers have struggled to
implement reliable quality control systems which can negatively impact our operating efficiency and financial
results. In downward business cycles, 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 adversely affect 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(cid:3)

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 repudiated,
terminated or not renewed, such as the Dana contract described above, we would lose substantial revenues, and our
operating results as well as prospects for future business opportunities could be adversely affected. For example, as
described above, our supply agreement with Dana represented approximately 59% of our revenues in 2014, and this
agreement has been repudiated by Dana effective as of December 31, 2014 (see “Legal Proceedings” in Part I, Item
3 of this Annual Report on Form 10-K).

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 than usual due to lower revenues.

If we are unable to improve the cost, efficiency and yield of our operations, and if we are not able to control
costs, our financial results could suffer and we could be forced to sell assets, refinance our debt at higher costs or
take other measures to restructure our operations or capital structure. A number of major obstacles could include: an
inability to effectively control costs during our efforts to replace the loss of Dana revenues; the loss of other
substantial revenues due to a sluggish economic recovery; inflationary pressures; increased borrowing due to
declines in 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 while we work to replace the loss of Dana revenues. New
customers or new contracts, particularly with new product offerings, could require us to invest in additional
equipment or other capital expenditures. 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 Group, 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 associated with further acquisitions.

Our growth strategy has included acquiring complementary businesses. We could fail to identify, obtain
financing or complete suitable acquisitions on acceptable terms and prices. Acquisition efforts entail 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; 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.

Cyber security risks could negatively affect operations and result in increased costs.

Our Electronics Group, as a U.S. defense contractor, and our Company overall, face cyber security threats,
threats to the physical security of our facilities and employees and terrorist acts, as well as the potential for business
disruptions associated with information technology failures and natural disasters.

We routinely experience cyber security threats, threats to our information technology infrastructure and
attempts to gain access to our sensitive information, as do our customers, suppliers and subcontractors. Prior cyber
attacks directed at us have not had a material impact on our financial results. Due to the evolving nature of these
security threats, however, the impact of any future incident cannot be predicted.

Although we work cooperatively with our customers and our suppliers, subcontractors, and other partners
to seek to minimize the impacts of cyber threats, other security threats or business disruptions, we must rely on the
safeguards put in place by those entities, and those safeguards might not be effective.

The costs related to cyber security or other security threats or disruptions may not be fully insured or
indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the
services we provide to customers, loss of competitive advantages derived from our research and development
efforts, early obsolescence of our products and services, our future financial results, our reputation or our stock
price.

Competition(cid:3)

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,
currency exchange rates (especially in low-cost countries), 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, as compared to us, are larger and have greater financial and organizational
resources, geographic breadth and range of services, 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. In particular, the Company is currently developing new products and pursuing new programs in an attempt
to replenish the Electronics Group’s revenue stream, which has been declining since 2009. However,
commercializing the new products and programs is costly, has been slower than anticipated and is not expected to
result in significant revenue in 2015. The launch of any new products or programs within the Electronics Group
may not be successful.

Access(cid:3)to(cid:3)Capital

An inability to obtain new financing could require us to sell assets and could impair our ability to continue
operations.

As previously disclosed, we amended our existing credit facility (the “Credit Facility”) in March 2015 in
response to the changes in our business arising out of the loss of Dana as a customer. We are currently seeking to
attempt to locate suitable debt financing to supplement or replace the Credit Facility on or prior to its maturity in
January 2016. The amended Credit Facility requires us to make certain repayments through additional financing or
the sale of marketable assets prior to maturity and includes other provisions designed to incentivize us to make early
repayments to the lender, such as rising interest rates.

The timeframes during which we need to obtain such financing may make it more difficult to obtain on
acceptable terms. Without the addition of junior capital, we do not believe conventional bank lending will be
available to us in the near-term due to the recent loss of Dana revenues, among other factors. 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. Additional equity financing or debt financing with an equity component (such
as warrants) could result in dilution to existing holders.

Our ability to borrow under the Credit Facility is conditioned upon our compliance with various financial
covenants. If we fail to meet those covenants, it could accelerate our need to obtain alternative financing. If
unsuccessful, we may need to raise capital through the sale of core or non-core assets or businesses, and our inability
to do so could materially adversely impact our operating results, financial results or ability to continue operations.

Our ability to finance expansion or new business opportunities may be limited.

Our future liquidity and capital requirements depend on numerous factors other than bank borrowings or
debt financing, including the pace at which we can replace the loss of Dana revenues. One method we have
historically used to increase our revenues and obtain multi-year supply agreements is to buy a customer’s non-core
manufacturing assets and produce products for them. We may not be able to raise funds necessary to pursue this
strategy under our existing and future debt agreements which could further limit our ability to replace the loss of
revenues.

We may be unable to comply with the covenants in our amended Credit Facility.

The financial covenants in our amended Credit Facility require us to achieve certain financial and other
business results. In March 2015, certain covenants were amended to allow for current and future compliance. A
failure to comply with these or other covenants could, if we were unable to obtain a waiver or another amendment of
the covenant terms, cause an event of default that would cause our debt under the Credit Facility to become
immediately due and payable. We have also agreed to repay a portion of our loan balances by September 30, 2015
in the event that such amount is not raised either through additional subordinated debt or the sale of collateral. Our
failure or inability to do so in accordance with our amended Credit Facility could cause an event of default that
would cause the debt under the Credit Facility to become immediately due and payable. In the event that our
outstanding debt under the Credit Facility was declared immediately due and payable, we may be required to sell
assets which could impair our ability to continue operations.

Labor(cid:3)Relations(cid:3)

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, as we are experiencing in connection with the recent loss of Dana
revenues, 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, especially those with engineering or production expertise in our core business lines. 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.

As of December 31, 2014, we had collective bargaining agreements covering approximately 683 employees
(all of which were in the Industrial Group), or 51% of total employees. Excluding certain Mexico employees
covered under an annually ratified agreement, there are no collective bargaining agreements that expire within the
next 12 months. Certain Mexico employees are covered by an annually ratified collective bargaining agreement.
These employees represented approximately 36% of the Company’s workforce, or 474 employees at year end. In
response to the loss of significant revenues from Dana, traditionally our largest customer, we have engaged in
layoffs during the first quarter of 2015 and our ability to maintain our workforce depends on our ability to attract
and retain new and existing customers. 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.

The Marion, Ohio property formerly owned by Sypris 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. The
property was sold in March 2013 to Whirlpool Corporation (Whirlpool). Whirlpool has indemnified the Company
against the legacy environmental risks on the property.

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. 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, Dana 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, from which Dana acquired the property.

The Kenton, Ohio property formerly owned by Sypris 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 property, Meritor agreed to indemnify us for, among other things, environmental
conditions that existed on the site as of closing and as to which we notified Meritor prior to May 2, 2006. The
building and real property were sold in January 2012.

Our business is also subject to potential liabilities with respect to health and safety matters. We are
required to comply with federal, state, local and foreign laws and regulations governing the health and safety of our
workforce, and we could be held liable for damages arising out of human exposure to hazardous substances or other
dangerous working conditions. Health and safety laws and regulations are complex and change frequently. As a
result, our future costs to comply with such laws or the liabilities incurred in the event of any violations may
increase significantly.

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. 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(cid:3)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, or political uncertainties; risks relating to
natural disasters or other casualties 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; 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

Corporate(cid:3)Office:(cid:3)

Segment (Market
Served)

Own or Lease
(Expiration)

Approximate
Square Feet

Certifications

Louisville, Kentucky

Lease (2024)

21,600

Manufacturing(cid:3)and(cid:3)Service(cid:3)Facilities:(cid:3)

Louisville, Kentucky

Industrial Group

Own

450,000

(Truck Components
& Assemblies;
Specialty Closures)

Morganton, North Carolina

Industrial Group

Own

360,000

(Truck Components
& Assemblies)

Tampa, Florida

Electronics Group

Lease (2016)

318,000

(Aerospace &
Defense
Electronics)

QS 9000
TS 16949

TS 16949
ISO 14001

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

Industrial Group

Own

217,000

TS 16949

(Truck Components
& Assemblies)

In addition, we lease space in one other facility in Copenhagen, Denmark, which is utilized as a sales office

for our Electronics Group.

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

utilize at various of 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.

Certification/Specification

Description

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

electronic 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 litigation and other legal or environmental proceedings incidental to
our business. On November 25, 2013, Sypris Technologies, Inc. initiated an arbitration proceeding against Dana
Limited under the Non-Administered Arbitration Rules of the International Institute for Conflict Prevention &
Resolution alleging that Dana Limited had entered and then repudiated a five year extension of the parties’ long
term supply agreement, to run through 2019. Sypris seeks contractual damages associated with Dana’s repudiation
of the extended agreement and the resulting loss of these revenues. On December 30, 2013, Sypris filed a Notice of
Supplemental Claims in the same arbitration proceeding, seeking up to approximately $9 million in damages for
Dana’s alleged breach of the parties’ original 2007 supply agreement; Dana has filed a counterclaim for certain
unpaid price rebates in the amount of approximately $3 million. On January 17, 2014, Dana initiated a declaratory
judgment action in the Court of Common Pleas for Lucas County, Ohio challenging the arbitrability of the existence
and enforceability of the extended supply agreement and seeking a ruling that the extended agreement was
unenforceable. On February 28, 2015, the Lucas County Court granted Dana’s motion, and Sypris has initiated an
appellate review of that ruling in the Sixth District Court of Appeals for Ohio.

Ongoing environmental matters include the following:

(cid:120)(cid:3) The Marion, Ohio property formerly owned by Sypris 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. The property was sold in March 2013 to Whirlpool. Whirlpool has indemnified
the Company against the legacy environmental risks on the property.

(cid:120)(cid:3)

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)(cid:3) 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)(cid:3) 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, Dana 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 Dana by Eaton or any other matters for which Dana has released
Eaton.

(cid:120)(cid:3) The Kenton, Ohio property formerly owned by Sypris 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 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 Meritor prior to May 2, 2006. The building and real property were sold in January 2012, and
the building was subsequently razed by the buyer. Under the terms of the sale agreement, no
warranties relating to the property were made including existing environmental conditions and all
liability has been passed to the buyer.

Item 4. Mine Safety Disclosures

Not applicable.

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, 2014:

First Quarter ...................................................................................... $ 3.14
Second Quarter .................................................................................
6.10
5.66
Third Quarter ....................................................................................
3.69
Fourth Quarter ..................................................................................

Year ended December 31, 2013:

First Quarter ...................................................................................... $ 4.49
Second Quarter .................................................................................
3.96
3.39
Third Quarter ....................................................................................
3.22
Fourth Quarter ..................................................................................

$ 2.76
2.76
3.47
2.36

$ 3.60
3.06
3.03
2.57

As of March 10, 2015, there were 700 holders of record of our common stock. The amount of cash

dividends declared per share for each fiscal quarter in 2014 and 2013 is presented in the table below.

Dividends per
Common Share

Year ended December 31, 2014:

First Quarter ...................................................................................... $ 0.02
Second Quarter .................................................................................
0.02
0.02
Third Quarter ....................................................................................
0.02
Fourth Quarter ..................................................................................

Year ended December 31, 2013:

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 Credit Facility, as recently amended, prohibits dividend payments, as further
described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity
and Capital Resources” below. As a result, we do not anticipate paying dividends for the remainder of 2015.

The following table summarizes our shares of common stock repurchased during the three months ended

December 31, 2014 (dollars in thousands except per share data):

Period
9/29/2014 – 10/26/2014
10/27/2014 – 11/23/2014
11/24/2014 – 12/31/2014

Total
Number
of Shares
Purchased (a)

Average
Price
Paid per
Share

Maximum

as a Part of

that May Yet Be

Total Number of
Shares Purchased Dollar Value of Shares
Publicly Announced Purchased Under the
Plans or Programs Plans or Programs (b)
3,917
3,877
3,877

8,772 $
12,190 $
— $

3.26
3.32
—

11,616
12,190

$
$
— $

(a)(cid:3) The total number of shares purchased includes shares purchased under the Executive Equity
Repurchase Agreement (described below). The Company also withholds shares from employees to
satisfy either the exercise price of stock options exercised or the statutory withholding tax liability
resulting from the vesting of restricted stock awards. Shares of common stock withheld to satisfy tax
withholding obligations were immediately cancelled.

(b)(cid:3) On December 20, 2011, our Board of Directors approved and we announced an authorization for the
repurchase of up to $5.0 million of our outstanding shares of common stock. The Board also
authorized an Executive Equity Repurchase Agreement whereby management, including officers and
directors, would grant the Company a first right to purchase shares held by such individuals, at current
market prices (calculated as the average of the previous five days’ closing prices), any time a party to
the agreement departed the Company or intended to sell more than 1,500 shares of common stock.
The agreement has a five-year term, subject to earlier termination by the Company, and participation
by each individual is voluntary.

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 Annual Report
on 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 “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-
K.

Overview

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 sole-source contracts with
corporations and government agencies principally in the markets for industrial manufacturing and aerospace and
defense electronics.

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

We focus on those markets where we have the expertise, qualifications and leadership position to sustain a
competitive advantage. We target our resources to support the needs of industry leaders 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, historically, have been renewed for sufficient periods to 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 our competitors
when it comes to cost, quality, reliability and customer service.

Industrial Group Outlook

General economic and industry specific market conditions have begun to stabilize for our Industrial Group,
and improvements in the overall U.S. economy contributed to improved consumer confidence levels in 2014. In
North America, production levels for light, medium and heavy duty trucks have steadily increased over the past five
years from a low in the depressed economic environment of 2008 and 2009. The commercial vehicle industry
overall is expecting modest growth in production levels through 2015.

Despite the industry’s market outlook, our Industrial Group’s production levels are expected to decline
significantly in 2015. Our shipments to Dana ceased on December 31, 2014, in the context of a dispute over the
enforceability of a five-year contract renewal signed by the parties in 2013. In 2014, Dana represented
approximately 59% of our net revenue (see “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-
K). In July 2013, Sypris and Dana signed an amended and restated supply agreement to extend the supply
agreement term beyond December 31, 2014, the binding effect of which is currently in dispute. Dana has repudiated
this July 2013 agreement, and Dana has ceased ordering any components from us effective December 31, 2014.
Sypris disputes Dana’s ability to do so and is seeking to recover its lost margins and additional remedies with
respect to the revenues to which Sypris was entitled under the renewed agreement.

Dana initiated an ancillary action in Ohio state court challenging the arbitrability of the existence and
enforceability of the amended and restated July 2013 supply agreement on January 17, 2014. The parties have
conducted discovery, and the Ohio trial court has granted an initial motion for judgment on the pleadings or
summary judgment, which Sypris has appealed. If the case goes to trial and if ruled in the Company’s favor, the
dispute would revert to the arbitrator to determine damages.

The parties have also asserted various damages claims against each other arising out of their prior supply
agreement and have sought the assistance of an arbitrator in connection with these disputes. The parties have had an

arbitration hearing in January 2015, but the arbitrator has yet to rule. Even if we prevail on the merits in the
arbitration or litigation proceedings, there can be no assurance as to the size or timing of any monetary damages
awarded.

The loss of Dana’s revenues will create significant challenges for the Company, especially in the near-term

as we seek to control our costs while rebuilding and diversifying our customer base.

Revenue Recovery Plans

As a result of the dispute with Dana and the loss of the Dana business, the Company has taken significant
actions during the fourth quarter of 2014 and the first quarter of 2015 to pursue new business opportunities with
existing and potential customers, identify alternative uses for the related assets and certain other contingency plans.
For example, since January 1, 2015, a variety of prospective and existing customers, seeking new or expanded
relationships with suppliers that have available manufacturing capacity, have toured our operating plants in
Kentucky, North Carolina and Mexico as part of their due diligence efforts in connection with a number of potential
projects in the commercial vehicle, agricultural equipment and off-highway vehicle component markets. These
markets are generally experiencing strong current demand and limited available manufacturing capacity. As a result,
the Company is aggressively targeting these new opportunities to utilize our excess capacity for future growth.
However, there can be no assurance that our plans to mitigate the loss and to effectively manage our costs during the
transition will be successful. See “Risk Factors – Customer contracts may not be renewed on acceptable terms or at
all. Our largest customer Dana has repudiated our supply relationship.” in Part I, Item 1A of this Annual Report on
Form 10-K. See also Note 2 “Loss of a Key Customer and Management’s Recovery Plans” to the consolidated
financial statements in this Form 10-K.

Electronics Group Outlook

We continue to face challenges within the Electronics Group, such as the conclusion of several U.S.
Department of Defense programs that the Company supported as a subcontractor, the loss of a key commercial
space customer who decided to begin insourcing programs that had been previously outsourced to the Electronics
Group, the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending
patterns globally, the emergence of new competitors to our product and service offerings, as well as federal
government spending uncertainties in the U.S. and the allocation of funds by the U.S. Department of Defense.

The Electronics Group’s revenue has declined year-over-year since 2009 primarily due to our inability to
replace the declining demand for certain legacy products and services with competitive new offerings. While we
have begun to generate revenue from the ramp-up of new electronic manufacturing services and other technical
service programs, the process of fully replacing our legacy programs will continue through 2015 and 2016. The
Company is continuing to develop new products and pursuing new programs to attempt to replenish its revenue
stream within the Electronics Group.

The U.S. Government's continued focus on addressing federal budget deficits and the growing national debt
exacerbates this challenging environment for the Electronics Group. It is likely that U.S. government discretionary
spending levels for Fiscal Year 2016 and beyond will continue to be subject to significant pressure, including risk of
future sequestration cuts. Significant uncertainty also continues with respect to program-level appropriations for the
U.S. Department of Defense (U.S. DoD) and other government agencies within the overall budgetary framework
described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions
associated with the authorization and appropriations process could result in reductions, cancellations and/or delays
of existing contracts or programs. Congress and the Administration continue to debate these long and short-term
funding issues, but reductions in U.S. DoD spending could materially and adversely affect the results of our
Electronics Group, and we expect that certain military and defense programs will experience delays while the receipt
of government approvals remain pending.

As a result, the Company expects ongoing uncertainty within this segment for at least the next twelve
months. For the longer term, we are continuing to evaluate new investments in products and programs to further
improve the attractiveness of our business portfolio, with a specific emphasis on trusted solutions for identity
management, cryptographic key distribution and cyber analytics. There can be no assurance that the Company’s
investment in and efforts to introduce new products and services will result in new business or revenue. In addition,

while the Company continues to evaluate and implement cost reduction measures in this segment, the Company’s
currently contemplated cost reduction measures may not be able to reduce its cost structure to offset the impact of
lower revenues. Should revenues fail to increase in future periods, the Company is considering further cost
reductions or other downsizing measures, which could be costly and adversely impact our financial performance.

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 policies 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 annually as of December 31 or more frequently if
impairment indicators arise. If impairment indicators arise, a step one assessment is performed to identify any
possible goodwill impairment in the period in which the indicator is identified. Beginning in March 2013, we noted
certain indicators relating to our Electronics Group reporting unit that were significant enough to conclude that an
impairment indicator existed as of March 31, 2013. Specifically, the Company experienced emerging uncertainty
regarding certain key programs within the Electronics Group’s space business beginning in the latter part of the first
quarter of 2013, as one key customer communicated its strategic sourcing decision to begin insourcing programs that
had been previously outsourced to the Electronics Group. As a result, the Electronics Group’s short term revenue
forecasts were materially affected. Further, the Company experienced a decline in the market value of its equity
subsequent to March 31, 2013. As a result of the analysis, the Electronics Group’s goodwill was deemed to be
impaired as of March 31, 2013, resulting in a non-cash impairment charge of $6.9 million, representing the
segment’s entire goodwill balance.

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 on fixed-price contracts is recognized as services are performed. Revenue is deferred until all
of the following have occurred: (1) there is a contract in place, (2) delivery has occurred, (3) the price is fixed or
determinable, and (4) collectability is reasonably assured. Contract profits are taken into earnings based on actual
cost of sales for units shipped. Amounts representing contract change orders or claims are included in revenue when
such costs are invoiced to the customer.

The Company periodically enters into research and development contracts with customers related primarily
to key encryption products. When the contracts provide for milestone or other interim payments, the Company will
recognize revenue under the milestone method in accordance with Accounting Standards Codification (“ASC”) 605-
28, Revenue Recognition – Milestone Method. The Company had one contract in process as of December 31, 2014
being accounted for under the milestone method. The milestone method requires the Company to deem all
milestone payments within each contract as either substantive or non-substantive. That conclusion is determined
based upon a thorough review of each contract and the deliverables to which the Company has committed to in each
contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount
of the corresponding defined payment is commensurate with the effort required to achieve such milestone or the
value of the delivered item. The payment associated with each milestone relates solely to past performance and is
deemed reasonable upon consideration of the deliverables and the payment terms within the contract. Milestones
may include, for example, the successful completion of design review or technical review, the submission and

acceptance of technical drawings, delivery of hardware, software or regulatory agency certifications. All milestones
under the contract in process as of December 31, 2014 were deemed substantive. Revenue recognized through the
achievement of multiple milestones during 2014 and 2013 amounted to $3.1 million and $0.7 million, respectively.
There are no performance, cancellation, termination or refund provisions in the arrangement that contain material
financial consequences to the Company.

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 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.

The Industrial Group performed an asset recoverability test for one of its asset groups totaling
approximately $33.1 million as of December 31, 2014. The Company concluded that the undiscounted sum of
estimated future cash flows exceeded the carrying value for such asset group, and accordingly, no impairment was
recognized. 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.

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, including 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 consolidated balance sheets. If actual experience differs from expectations, our financial position and results of
operations in future periods could be affected.

A change in the assumed pension discount rate of 100 basis points would result in a change in our pension
obligation as of December 31, 2014 of $4.8 million. A change in the assumed rate of return on plan assets of 100
basis points would result in a $0.1 million change in the estimated 2015 pension expense.

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.

Our Mexican operations also have certain deferred tax assets that are expected to be realized. The
Company has been profitable in Mexico in the past, and while we do not expect to be profitable in 2015 due to the
loss of the Dana business, we expect to be profitable in 2016 and thereafter. Therefore no valuation allowance has
been recorded against such assets as of December 31, 2014.(cid:3)(cid:3)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
compares our segment and consolidated results of operations from 2014 to 2013. The table 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.

(cid:120)(cid:3) The first two columns in each table show the absolute results for each period presented.

(cid:120)(cid:3) The columns entitled “Year-Over-Year Change” and “Year-Over-Year Percentage Change” show the
change in results, both in dollars and percentages. These two columns show favorable changes as
positive and unfavorable changes as negative. For example, when our net revenue increases from one
period to the next, that change is shown as a positive number in both columns. Conversely, when
expenses increase from one period to the next, that change is shown as a negative number in both
columns.

(cid:120)(cid:3) The last two columns in each table show the results for each period as a percentage of net revenue. In
these two columns, the cost of sales and gross profit for each are given as a percentage of each
segment’s net revenue. These amounts are shown in italics.

In addition, as used in the table, “NM” means “not meaningful.”

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Year Ended
December 31,

2014

2013

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
Year Ended
December 31,

2014

2013

Net revenue:
Industrial Group .......................................................... $ 322,262
Electronics Group .......................................................
32,514
Total net revenue ...................................................... 354,776

Cost of sales:
Industrial Group .......................................................... 280,241
Electronics Group .......................................................
35,705
Total cost of sales ..................................................... 315,946

$276,136 $ 46,126

34,578
310,714

(2,064)
44,062

16.7%
(6.0)
14.2

90.8%
9.2
100.0

88.9%
11.1
100.0

244,498
36,163
280,661

(35,743) (14.6)
1.3
(35,285) (12.6)

458

87.0
109.8
89.1

88.5
104.6
90.3

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

42,021
(3,191)
38,830

31,638
(1,585)
30,053

10,383
32.8
(1,606) (101.3)
29.2
8,777

Selling, general and administrative ...............................
Research and development ...........................................
Amortization of intangible assets ..................................
Impairment of goodwill ................................................

35,531
579
—
—

30,464
3,047
30
6,900

(5,067) (16.6)
81.0
2,468
NM
30
NM
6,900

Operating income (loss) ................................................

2,720 (10,388)

13,108

Interest expense, net ......................................................
Other (income), net .......................................................
Income (loss) before income taxes ..............................

617
(1,282)
3,385

522
(930)
(9,980)

(95) (18.2)
37.8
352
NM
13,365

13.0
(9.8)
10.9

10.0
0.1
—
—

0.8

0.2
(0.4)
1.0

11.5
(4.6)
9.7

9.8
1.0
0.0
2.2

(3.3)

0.2
(0.3)
(3.2)

Income tax expense (benefit), net .................................

4,569

(93)

(4,662) NM

1.3

—

Net loss ........................................................................ $

(1,184) $

(9,887) $

8,703

88.0

(0.3)%

(3.2)%

Net Revenue. The Industrial Group derives its revenue from manufacturing services and product sales.
Net revenue in the Industrial Group increased $46.1 million from the prior year to $322.3 million in 2014. Increased
volumes accounted for $44.5 million of the increase in revenue for the year ended December 31, 2014, while pricing
accounted for $1.7 million. The increases in volumes are primarily attributable to the overall improvement in the
class 5-8 North American commercial vehicle market and increased demand for components for the trailer and light
truck markets.

The Electronics Group derives its revenue from product sales and technical outsourced services. Net
revenue in the Electronics Group decreased $2.1 million to $32.5 million in 2014, primarily due to a decrease in
sales of certain encryption products and data systems products. The Electronics Group is currently developing new
products and pursuing new programs in an attempt to replenish its revenue stream; however, commercializing the
new products and programs is costly and has been slower than anticipated. Additionally, the Electronics Group’s
outlook continues to be negatively affected by budgetary and funding uncertainty within the U.S. Department of
Defense and other factors. For information about the budgetary and funding uncertainty, see “Risk Factors –
Congressional budgetary constraints or reallocations could reduce our government sales” in Part I, Item 1A of this
Annual Report on Form 10-K.

Gross Profit. The Industrial Group’s gross profit increased $10.4 million to $42.0 million in 2014 as
compared to $31.6 million in the prior year. The net increase in sales volumes and pricing resulted in increased
gross profit of approximately $8.8 million and $1.6 million, respectively for the year ended December 31, 2014 and
depreciation expense declined $1.8 million. Partially offsetting this was approximately $1.8 million of additional
costs for increased maintenance and repair on manufacturing equipment, overtime charges and other labor
inefficiencies and increased supplies, scrap and other expenses.

The Electronics Group’s gross profit decreased $1.6 million to a loss of $3.2 million in 2014. The decrease
is primarily the result of lower revenues and an unfavorable mix in sales of lower margin products and services.
Although variable contribution margins for the Electronics Group’s programs are positive for all periods presented,
the under-absorbed fixed costs at the corresponding levels of revenue has resulted in negative results at the gross
profit line. The challenges for both revenue growth and cost reductions discussed above under “Electronics Group
Outlook” are reflected in this lack of profitability, and management is evaluating cost structure countermeasures if
revenues from new products and programs do not materialize.

Selling, General and Administrative. Selling, general and administrative expense increased $5.1 million
to $35.5 million in 2014 as compared to $30.5 million in 2013. Selling, general and administrative expense
increased as a percentage of revenue to 10.0% in 2014 from 9.8% in 2013. The increase is primarily related to an
increase in legal expenses regarding contract negotiations and litigation (see Note 2 “Loss of a Significant Customer
and Management’s Recovery Plans” to the consolidated financial statements in this Form 10-K) and the year over
year increase in costs of our medical claims incurred and related charges. While we intend to cut costs in 2015 in
response to the loss of Dana as a customer, we intend to continue to pursue our legal remedies in the dispute with
Dana and expect to continue to incur legal expenses in 2015, although at reduced levels in comparison to 2014.

Research and Development. Research and development costs were $0.6 million and $3.0 million for the
years ended December 31, 2014 and 2013, respectively, primarily in support of the Electronics Group’s self-funded
product and technology development activities. Certain research and development projects during the year ended
December 31, 2014 have been customer funded and therefore reduced the level of investment required by the
Company from 2013. In addition, the Company has prioritized, and in some cases suspended or deferred
discretionary investment levels which could adversely impact our ability to develop new products or service
offerings.

Impairment of Goodwill. Goodwill is tested for impairment annually as of December 31 or more
frequently if impairment indicators arise. If impairment indicators arise, a step one assessment is performed to
identify any possible goodwill impairment in the period in which the indicator is identified. Beginning in March
2013, we noted certain indicators relating to our Electronics Group reporting unit that were significant enough to
conclude that an impairment indicator existed. Specifically, the Company experienced emerging uncertainty
regarding key programs within the Electronics Group’s space business beginning in the latter part of the first quarter
of 2013, as one key customer communicated its strategic sourcing decision to begin insourcing programs that had
been previously outsourced to the Electronics Group. As a result, the Electronics Group’s short term revenue

forecasts were materially affected. Further, the Company experienced a decline in the market value of its equity
subsequent to March 31, 2013. As a result of the analysis, the Electronics Group’s goodwill was deemed to be
impaired, resulting in a non-cash impairment charge of $6.9 million for the year ended December 31, 2013,
representing the segment’s entire goodwill balance.

Interest Expense, Net.

Interest expense for the year ended December 31, 2014 increased $0.1 million
primarily due to an increase in the weighted average debt outstanding. The weighted average interest rate increased
slightly to 2.5% in 2014 from 2.4% in 2013, while our weighted average debt outstanding increased to $16.6 million
during 2014 from $13.2 million during 2013. As a result of recent amendments to the Credit Facility in 2015, which
increased the Company’s interest rate structure, interest expense is expected to increase going forward.

Other (Income), Net. Other (income), net increased $0.4 million to $1.3 million for 2014 from
$0.9 million in 2013. Other income, net for the year ended December 31, 2014 includes gains of $0.7 million within
the Industrial Group from the receipt of federal grant funds for improvements made under a flood relief program,
along with foreign currency related gains of $0.7 million related to the net U.S. dollar denominated monetary asset
position of our Mexican subsidiaries for which the Mexican peso is the functional currency. Other income for the
year ended December 31, 2013 includes gains of $1.5 million from the sale of idle assets primarily within the
Industrial Group offset by foreign currency transaction losses of $0.3 million.

Income Taxes. The 2014 income tax provision consists of current tax expense of $3.5 million and
deferred tax expense of $1.1 million. The 2013 income tax provision consists of current tax expense of $1.2 million
and a deferred tax benefit of $1.3 million. The current tax expense in both years is primarily attributable to taxes
paid by our Mexican subsidiaries. Included in deferred taxes in both years is an increase in the valuation allowance
on U.S. deferred tax assets. The 2013 deferred tax benefit also includes a $2.4 million benefit recorded due to the
required intraperiod tax allocation resulting from the loss from continuing operations and other comprehensive
income. Additionally, our Mexican subsidiaries recognized a deferred tax benefit in 2013 related to the recovery of
certain deferred tax assets that were previously reserved for by a valuation allowance.

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, 2014. 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 on Form 10-K. 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

2014

2013

(in thousands, except per share data)

8,405
84,244

9,403
93,113

Net revenue:
Industrial Group ..................... $ 75,839 $ 83,710 $ 82,555 $ 80,158 $ 71,149 $ 74,432 $ 66,650 $ 63,905
9,954
7,649
Electronics Group ..................
Total net revenue ....................
73,859
90,204
Cost of sales:
Industrial Group .....................
Electronics Group ..................
Total cost of sales ...................
Gross profit (loss):
Industrial Group .....................
Electronics Group ..................
Total gross profit ....................
Selling, general and

9,299
(1,090)
8,209

7,417
(156)
7,261

8,858
(522)
8,336

64,685
8,995
73,680

72,327
9,959
82,286

73,256
8,739
81,995

69,973
8,012
77,985

63,039
7,296
70,335

65,574
8,256
73,830

59,233
9,784
69,017

56,652
10,827
67,479

(955)
9,230

7,057
87,215

7,262
78,411

7,734
82,166

9,628
76,278

7,253
(873)
6,380

(590)

(556)

10,827

10,185

11,154

11,383

10,564

(34)

8,110

8,076

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

intangible assets ...................
Impairment of goodwill ............
Operating income (loss) ..........
Interest expense, net .................
Other (income) expense, net .....
Income (loss) before tax ...........
Income tax expense (benefit) ...
Net income (loss) ..................... $
Income (loss) per common share:

7,992
151

—
—
2,421
132
(528)
2,817
1,165
1,652 $

9,141
10

—
—
1,676
155
75
1,446
1,076

370 $

8,273
116

10,125
302

7,158
877

7,598
1,419

7,689
547

—
—
(180)
179
(397)
38
1,197
(1,159) $

—
—
(1,197)
151
(432)
(916)
1,131
(2,047) $

22
6,900
(6,881)
146
(1,195)
(5,832)
627
(6,459) $

8
—
(689)
120
(259)
(550)
944
(1,494) $

—
—
(975)
124
38
(1,137)
858
(1,995) $

Basic .................................... $

0.08 $

0.02 $

(0.06) $

(0.11) $

(0.34) $

(0.08) $

(0.10) $

Diluted ................................. $

0.08 $

0.02 $

(0.06) $

(0.11) $

(0.34) $

(0.08) $

(0.10) $

8,019
204

—
—
(1,843)
132
486
(2,461)
(2,522)
61

—

Liquidity and Capital Resources

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. The loss of Dana as a customer will
require us in 2015 to cut costs significantly, invest in equipment or make other capital expenditures to support new
business and incur other costs. As a result, the Company is forecasting reduced levels of available liquidity which
will require closer monitoring of the timing of capital expenditures and cash flows in order to manage its business
operations.

In response to the dispute with Dana and the loss of the Dana business as of January 1, 2015, we have taken
significant actions during the fourth quarter of 2014 and the first quarter of 2015 to pursue new business opportunities
with existing and potential customers, identify alternative uses for the related assets and other contingency plans.
Based on our current forecast for 2015, we expect to be able to meet the financial covenants of our amended Credit
Facility and have sufficient liquidity to finance our operations through 2015. Although we believe the assumptions
underlying our current forecast are reasonable, we have considered the possibility of even lower revenues and other

risks. If we are unable to achieve our forecasted revenue or if our costs are higher than expected, we may be required
to sell additional assets to repay indebtedness. Any such sale of assets may hinder or delay our plans to increase our
revenues.

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 including the success of our revenue recovery plans. As disclosed
elsewhere in this report, our 2015 results are expected to be significantly impacted by the loss of Dana. However,
based upon our current level of operations and our 2015 business plan, we expect to be able to meet the financial
covenants of our amended Credit Facility and have sufficient liquidity to finance our operations throughout 2015.
However, changing business, competitive, regulatory and economic conditions and other factors could cause our
actual results to vary from our forecasts.

If we have insufficient cash flow to fund our liquidity needs and are unable to refinance our indebtedness or
raise additional capital, we would risk being in default under our existing amended Credit Facility, unless our lender
agreed to modify or waive such requirements. In such circumstances, we believe that the Company would have the
ability to sell certain of its assets, particularly its underutilized manufacturing facilities, if necessary to repay its
outstanding indebtedness. However, we may be unable to pursue certain opportunities for new revenues and may be
required to defer our planned capital expenditures as a result. See “Risk Factors – An inability to obtain new financing
could require us to sell assets and could impair our ability to continue operation.” in Part I, Item 1A of this Annual
Report on Form 10-K.

As of December 31, 2014, the Company’s Credit Facility provided potential total availability of up to
$50.0 million with an option, subject to certain conditions, to increase total potential availability to $60.0 million in
the future. Actual borrowing availability under the Credit Facility is determined by a monthly borrowing base
collateral calculation that is based on specified percentages of the value of eligible accounts receivable, inventory
and machinery and equipment, less certain reserves and subject to certain other adjustments. Based on that
calculation, at December 31, 2014, we had actual total borrowing availability under the Credit Facility of
$28.3 million, of which we had drawn $17.0 million, leaving $10.6 million available for borrowing, after accounting
for the letter of credit. Along with an unrestricted cash balance of $7.0 million, we had total cash and available
borrowing capacity of $17.6 million as of December 31, 2014. Approximately $4.7 million of the unrestricted cash
balance relates to our Mexican subsidiaries. Standby letters of credit up to a maximum of $5.0 million could be
issued under the Credit Facility of which $0.8 million were issued at December 31, 2014 and 2013. Obligations
under the Credit Facility are guaranteed by all of our U.S. subsidiaries and are secured by a first priority lien on
substantially all domestic assets of the Company.

We also had purchase commitments totaling approximately $7.4 million at December 31, 2014, primarily

for manufacturing equipment and inventory.

As of December 31, 2014, the Company was in compliance with all covenants. However, during the first
quarter of 2015, the Company faced potential defaults under certain covenants of the Credit Facility caused
primarily by the loss of Dana as a customer (see Note 2 “Loss of a Key Customer and Management’s Recovery
Plans” to the consolidated financial statements in this Form 10-K). The Credit Facility was amended (the
“Amendment”) during the first quarter of 2015 to, among other things, (i) waive certain existing or potential events
of default, (ii) limit total borrowings to $25.0 million, (iii) restrict the payment of dividends, (iv) increase the
applicable margin on borrowings which will result in an initial interest rate of approximately 6% and increasing by
50 basis points beginning June 2015 and each month thereafter to an estimated interest rate of 10% in January 2016,
(v) revise the maturity date to January 15, 2016, (vi) revise certain financial covenants to include a minimum
cumulative free cash flow covenant, (vii) establish minimum excess availability of $1.0 million initially, through
May 31, 2015, and then in the amount of $5.0 million or before September 30, 2015, and (viii) require the Company
to raise new capital by securing subordinated debt or divesting certain real property or a combination thereof on or
before September 30, 2015 (and, if earlier than September 30, 2015, to maintain minimum excess availability of
$5 million thereafter). As of March 24, 2015, we had actual total borrowing availability under the Credit Facility of
$21.6 million, of which we had drawn $16.8 million, leaving $4.0 million available for borrowing, after accounting
for the letter of credit.

Under the terms of the Amendment, the Company has also agreed to raise new capital by
September 30, 2015, through (i) additional subordinated indebtedness of the Company, (ii) the sale of all or a

portion of the Company's property in Toluca, Mexico, or (iii) a combination thereof, in each case, in a minimum
amount agreed to by the Company and the lender.

In connection with the Amendment, the Company has received the proceeds of new subordinated
indebtedness from Gill Family Capital Management, Inc. ("Gill Family Capital Management") in an amount of
$4.0 million. Gill Family Capital Management is an entity controlled by our president and chief executive officer,
Jeffrey T. Gill and one of our directors, R. Scott Gill. Gill Family Capital Management, Inc., Jeffrey T. Gill and R.
Scott Gill are significant beneficial stockholders in the Company. The promissory note bears interest at a rate of
8.00% per year and matures on April 12, 2016. All principal and interest on the promissory note will be due and
payable on the maturity date.

The Credit Facility contains a number of covenants that, among other things, limit or restrict our ability to
dispose of assets, incur additional indebtedness, incur guarantee obligations, engage in sale and leaseback
transactions, prepay other indebtedness, modify organizational documents and certain other agreements, create
restrictions affecting subsidiaries, make dividends and other restricted payments without bank approval, create liens,
make investments, make acquisitions, engage in mergers, change the nature of our business and engage in certain
transactions with affiliates.

Financial Condition

Operating Activities. Net cash provided by operating activities was $3.0 million in 2014, as compared to
cash used of $0.3 million in 2013. Cash of $9.1 million was used to finance an increase in accounts receivables
resulting from higher revenues and a change in payment terms with one of our largest customers. Similarly,
increases in accounts payable provided cash of $2.4 million. Decreases in inventory provided cash of $4.3 million
as one of our largest customers within the Industrial Group moved to a consigned basis during the fourth quarter and
lower purchases within the Electronics Group to align with its shipment forecast for the first quarter of 2015.
Accrued liabilities increased and provided $3.2 million reflecting the net impact of $3.5 million received from
customers related to deferred revenue on certain Electronics Group programs.

Investing Activities. Net cash used in investing activities was $5.2 million in 2014 as compared to
$2.8 million in 2013. Net cash used in investing activities for 2014 included $5.3 million of capital expenditures.
Net cash used in investing activities in 2013 includes capital expenditures of $5.1 million partially offset by
proceeds from the sale of idle assets of $2.3 million primarily within the Industrial Group.

Financing Activities. Net cash used in financing activities was $9.5 million in 2014 as compared to net
cash provided of $3.1 million in 2013. During 2014, the Company reduced its debt under the Credit Facility by
$7.0 million, paid dividends of $1.6 million and paid $0.9 million for the repurchase of stock and minimum statutory
tax withholdings on stock-based compensation. Net cash provided by financing activities in 2013 included
$5.0 million in additional borrowing under the Credit Facility partially offset by $1.2 million in dividend payments
and $0.7 million for the repurchase of stock and minimum statutory tax withholdings on stock-based compensation.

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 as of December 31, 2014.

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 provide the quantitative and qualitative disclosures about 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 ...................................................................... 34

Report of Independent Registered Public Accounting Firm ..................................................................................... 35

Consolidated Statements of Operations .................................................................................................................... 37

Consolidated Statements of Comprehensive Loss .................................................................................................... 38

Consolidated Balance Sheets .................................................................................................................................... 39

Consolidated Statements of Cash Flows ................................................................................................................... 40

Consolidated Statements of Stockholders’ Equity .................................................................................................... 41

Notes to Consolidated Financial Statements............................................................................................................. 42

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). 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, 2014. 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 (2013). Based
on our assessment, we concluded that as of December 31, 2014, Sypris’ internal control over financial reporting is
effective based on these criteria.

This annual report does not include an attestation report of the Company’s registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company (non-accelerated filer) to provide only management’s report in this annual
report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Sypris Solutions, Inc.
Louisville, Kentucky

We have audited the accompanying consolidated balance sheet of Sypris Solutions, Inc. (the Company) as
of December 31, 2014, and the related consolidated statements of operations, comprehensive loss, stockholders'
equity, and cash flows for the year 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 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 the financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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, 2014, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 2 and Note 12 to the consolidated financial statements, the Company lost a key
customer as of January 1, 2015 and amended their debt agreement as of March 12, 2015. This customer represented
59% of 2014 net revenue.

Louisville, Kentucky
March 31, 2015

/s/ CROWE HORWATH LLP

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Sypris Solutions, Inc.

We have audited the accompanying consolidated balance sheet of Sypris Solutions, Inc. (the
Company) as of December 31, 2013, and the related consolidated statement of operations, comprehensive
loss, stockholders' equity, and cash flows for the year 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 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 the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our
audit provides 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, 2013, and the consolidated
results of their operations and their cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles.

Louisville, Kentucky
March 11, 2014

/s/ ERNST & YOUNG LLP

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

Year ended December 31,

2014

2013

Net revenue:

Outsourced services ...................................................................................................... $ 322,159
32,617
Products ........................................................................................................................

$ 276,471
34,243

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

354,776

310,714

Cost of sales:

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

288,081
27,865

252,663
27,998

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

315,946

280,661

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

38,830

Selling, general and administrative ...................................................................................
Research and development ...............................................................................................
Amortization of intangible assets .....................................................................................
Impairment of goodwill ....................................................................................................

35,531
579
—
—

30,053

30,464
3,047
30
6,900

Operating income (loss) ............................................................................................

2,720

(10,388)

Interest expense, net .........................................................................................................
Other (income), net ...........................................................................................................

Income (loss) before income taxes ............................................................................

Income tax expense (benefit), net .....................................................................................

617
(1,282)

3,385

4,569

522
(930)

(9,980)

(93)

Net loss ...................................................................................................................... $

(1,184)

(9,887)

Loss per common share:

Basic .......................................................................................................................... $
Diluted ....................................................................................................................... $

(0.06)
(0.06)

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

0.08

$
$

(0.51)
(0.51)

0.08

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

SYPRIS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)

Year ended December 31,

2014

2013

Net loss ............................................................................................................................. $

(1,184)

(9,887)

Other comprehensive (loss) income:

Foreign currency translation adjustments, net of tax of $153 in

2013 ...........................................................................................................................
Employee benefit related, net of tax of $2,284 in 2013 ................................................

Other comprehensive (loss) income, net of tax .........................................................

(2,830)
(4,471)

(7,301)

240
3,588

3,828

Total comprehensive loss ................................................................................................. $

(8,485)

(6,059)

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 ............................................................................................. $
Accounts receivable, net ...............................................................................................
Inventory, net ................................................................................................................
Other current assets .......................................................................................................

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

Property, plant and equipment, net ...................................................................................
Other assets .......................................................................................................................

December 31,

2014

2013

7,003
47,666
29,031
5,666

89,366

37,654
2,661

18,674
38,533
34,422
5,403

97,032

44,683
4,568

Total assets ................................................................................................................ $ 129,681

$ 146,283

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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

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

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

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

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

39,027
18,775
17,000

74,802

—

7,991

82,793

36,684
23,806
—

60,490

24,000

5,541

90,031

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;

20,567,735 shares issued and 20,485,043 outstanding in 2014 and 20,448,007
shares issued and 20,399,649 outstanding in 2013 ....................................................
Additional paid-in capital ..............................................................................................
Retained deficit .............................................................................................................
Accumulated other comprehensive loss ........................................................................
Treasury stock, 82,692 and 48,358 shares in 2014 and 2013, respectively...................

—

206
151,314
(79,596)
(25,035)
(1)

204
150,569

(76,786)
(17,734)
(1)

56,252

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

46,888

Total liabilities and stockholders’ equity ................................................................... $ 129,681

$ 146,283

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

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

Year ended December 31,

2014

2013

(1,184)

(9,887)

Cash flows from operating activities:

Net loss ......................................................................................................................... $
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................................................................................
Deferred income taxes ...............................................................................................
Non-cash compensation .............................................................................................
Deferred revenue recognized .....................................................................................
Deferred loan costs recognized ..................................................................................
Gain on sale of assets ................................................................................................
Provision for excess and obsolete inventory .............................................................
Goodwill impairment.................................................................................................
Other noncash items ..................................................................................................
Contributions to pension plans ..................................................................................
Changes in operating assets and liabilities:
Accounts receivable .................................................................................................
Inventory ..................................................................................................................
Prepaid expenses and other assets ...........................................................................
Accounts payable .....................................................................................................
Accrued and other liabilities ....................................................................................

Net cash provided by (used in) operating activities ...............................................

Cash flows from investing activities:

Capital expenditures ......................................................................................................
Proceeds from sale of assets ..........................................................................................

Net cash used in investing activities ......................................................................

Cash flows from financing activities:

Net change in debt under Credit Facility ......................................................................
Common stock repurchases...........................................................................................
Indirect repurchase of shares for minimum statutory tax withholdings ........................
Cash dividends paid ......................................................................................................
Proceeds from issuance of common stock ....................................................................

Net cash (used in) provided by financing activities ...............................................

10,409
1,050
1,597
(8,657)
78
(19)
1,150
—
(993)
(1,090)

(9,091)
4,276
(143)
2,425
3,237

3,045

(5,259)
30

(5,229)

(7,000)
(426)
(429)
(1,635)
3

(9,487)

12,401
(1,286)
1,689
(8,000)
78
(1,516)
1,251
6,900
565
(663)

(19)
(1,708)
(556)
705
(247)

(293)

(5,053)
2,265

(2,788)

5,000
(36)
(657)
(1,216)

—

3,091

Net (decrease) increase in cash and cash equivalents .......................................................

(11,671)

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

18,674

18,664

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

7,003

18,674

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)

Additional Retained Comprehensive

Accumulated
Other

Common Stock

Amount

Paid-In
Capital

(Deficit)
Earnings

Income
(Loss)

Treasury
Stock

January 1, 2013 balance ....................................

20,155,268 $

202 $ 149,576 $ (65,282)

$ (21,562) $

(1)

Net loss .............................................................
Employee benefit related ..................................
Foreign currency translation adjustment, net of
tax .................................................................
Comprehensive income (loss) ...........................

Cash dividends, $0.08 per common share .........
Common stock repurchases ..............................
Restricted common stock grant .........................
Noncash compensation .....................................
Exercise of stock options ..................................
Treasury stock ...................................................
Retire treasury stock .........................................

—
—

—

(11,675)
288,000
42,000
97,608
(57,000)
(114,552)

—
—

—
—
3
—
—
—
(1)

—
—

—
(36)
(3)
1,689
—
—
(657)

(9,887)
—

—
(9,887)

(1,623)
—
—
6
—
—
—

—
3,588

240
3,828

—
—
—
—
—
—
—

—
—

—
—
—
—
—
—
—

December 31, 2013 balance ..............................

20,339,649

204

150,569 (76,786)

(17,734)

(1)

Net loss .............................................................
Employee benefit related, net of tax .................
Foreign currency translation adjustment ...........
Comprehensive loss ..........................................

—
—
—
—

—

(104,501)
283,000
48,000
56,217
(98,000)
(99,322)

—
—
—
—

—
—
3
—
—
—
(1)

—
—
—
—

—
(426)
—
1,597
3
—
(429)

(1,184)
—
—
(1,184)

(1,637)
—
—
11
—
—
—

—
(4,471)
(2,830)
(7,301)

—
—
—
—
—
—
—

—
—
—
—

—
—
—
—
—
—
—

December 31, 2014 balance ..............................

20,485,043 $

206 $ 151,314 $ (79,596)

$ (25,035) $

(1)

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

SYPRIS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013

(1)

Organization and Significant Accounting Policies(cid:3)

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.), Mexico, Denmark and the U.K. and serve a wide variety of domestic and
international customers. All 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, often under 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. See Note
20 for additional information regarding our segments.

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.

Fair Value Estimates

The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date as follows: Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active
markets. Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other
inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
financial instruments. Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair
value measurements.

Cash Equivalents

Cash equivalents include all highly liquid investments with a maturity of three months or less when

purchased.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value. Costs for raw materials, work in
process and finished goods 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.

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.

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

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.

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 for sale and held for use 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.

The Industrial Group performed an asset recoverability test for one of its asset groups totaling
approximately $33,118,000 as of December 31, 2014. The Company concluded that the undiscounted sum of
estimated future cash flows exceeded the carrying value for such asset group, and accordingly, no impairment was
recognized.

Goodwill

Goodwill is tested for impairment annually as of December 31 or more frequently if impairment indicators
arise. If impairment indicators arise, a step one assessment is performed to identify any possible goodwill
impairment in the period in which the indicator is identified. Beginning in March 2013, we noted certain indicators
relating to our Electronics Group reporting unit that were significant enough to conclude that an impairment
indicator existed. Specifically, one key customer within the Electronics Group’s space business communicated its
strategic sourcing decision to begin insourcing programs that had been previously outsourced to the Electronics
Group. Overall, the Electronics Group has been more impacted by declines in the overall government defense
market than originally anticipated as the effects of sequestration have become clearer since its initial effective date
on March 1, 2013. For example, sales of certain data recording products were significantly reduced due to the
impact of sequestration on our customers, and the loss of commercial space business was due in part to our
customer’s efforts to offset unrelated losses of government business due to sequestration. Consequently, the
Electronics Group’s short term revenue forecasts were materially affected. As a result of the analysis, the
Electronics Group’s goodwill was deemed to be impaired, resulting in a non-cash impairment charge of
$6,900,000 for the year ended December 31, 2013, representing the segment’s entire goodwill balance.

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 Electronics Group also includes prepayments received prior to the
time when products are shipped. When the related products are shipped, the related amount recorded as deferred
revenue is recognized as revenue. Deferred revenue for the Industrial Group is generally associated with the Dana
settlement and was amortized into income on a units-of-production basis over the term of the related supply
agreement period. See Note 3 for information regarding the Dana settlement, and see Note 10 for the amount of
deferred revenue included in accrued liabilities at December 31, 2014 and 2013.

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

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.

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.

The Company expects to repatriate available non-U.S. cash holdings in 2015 to support management’s
strategic objectives and fund ongoing U.S. operational cash flow requirements; therefore current earnings from non-
U.S. operations are not treated as permanently reinvested. The U.S. income tax recorded in 2014 on these non-U.S.
earnings is expected to be offset by the benefit of a partial release of a valuation allowance on deferred tax assets
associated with our U.S. net operating loss carryforwards. Should the U.S. valuation allowance be eliminated at
some future date, the U.S. tax on foreign earnings not permanently reinvested may have a material effect on our
effective tax rate. For the year ending December 31, 2014, the Company expects any additional tax expense from
non-U.S. withholding and other taxes expected to be incurred on the repatriation of current earnings will not be
material.

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 on fixed-price contracts is recognized as services are performed. Revenue is deferred until all
of the following have occurred (1) there is a contract in place, (2) delivery has occurred, (3) the price is fixed or
determinable, and (4) collectability is reasonably assured. Contract profits are taken into earnings based on actual
cost of sales for units shipped. Amounts representing contract change orders or claims are included in revenue when
such costs are invoiced to the customer.

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

acceptance of technical drawings, delivery of hardware, software or regulatory agency certifications. All milestones
under the contract in process as of December 31, 2014 were deemed substantive. Revenue recognized through the
achievement of multiple milestones during 2014 and 2013 amounted to $3,050,000 and $675,000, respectively.
There are no performance, cancellation, termination or refund provisions in the arrangement that contain material
financial consequences to the Company.

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, 2014 and 2013, was $825,000 and $1,439,000, respectively. The Company’s
warranty expense for the years ended December 31, 2014 and 2013 was $43,000 and $660,000, respectively.

Additionally, the Company sells three and five-year extended warranties for certain link encryption products.
The revenue from the extended warranties is deferred and recognized ratably over the contractual term. As of
December 31, 2014 and 2013, the Company had deferred $839,000 and $1,567,000, respectively, related to extended
warranties. At December 31, 2014, $344,000 is included in accrued liabilities and $495,000 is included in other
liabilities in the accompanying balance sheets. At December 31, 2013, $751,000 is included in accrued liabilities and
$816,000 is included in other liabilities in the accompanying balance sheets.

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
management’s expectations. Approximately 79% and 69% of accounts receivable outstanding at December 31, 2014
and 2013, respectively, are due from the Company’s two largest customers. More specifically, Dana and Meritor
comprise 57% and 22%, respectively, of December 31, 2014 outstanding accounts receivables. Similar amounts at
December 31, 2013 were 47% and 22%, respectively.

The Industrial Group’s largest customers for the year ended December 31, 2014 were Dana and Meritor,
which represented approximately 59% and 16%, respectively, of the Company’s total net revenue. Dana and Meritor
were also the Company’s largest customers for the year ended December 31, 2013, which represented approximately
58% and 15%, respectively, of the Company’s total net revenue. The Company recognized revenue from contracts
with the U.S. Government and its agencies approximating 2% and 3% of net revenue for the years ended
December 31, 2014 and 2013, respectively. No other single customer accounted for more than 10% of the
Company’s total net revenue for the years ended December 31, 2014 or 2013.

Sypris and Dana have signed an amended and restated supply agreement, the binding effect of which is
currently in dispute. Dana has repudiated this agreement and ceased purchasing goods supplied by Sypris. Sypris
disputes Dana’s ability to exercise such rights. Meritor, and Meritor’s Brazilian subsidiary have awarded us with
sole-source supply agreements for certain parts that run through at least 2015, and 2016 respectively.

Foreign Currency Translation

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

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

Collective Bargaining Agreements

Approximately 683, or 51% of the Company’s employees, all in the Industrial Group, were covered by
collective bargaining agreements at December 31, 2014. Excluding certain Mexico employees covered under an
annually ratified agreement, there are no collective bargaining agreements that expire within the next 12 months.
Certain Mexico employees are covered by an annually ratified collective bargaining agreement. These employees
represented approximately 36% of the Company’s workforce, or 474 employees as of December 31, 2014.

Adoption of Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or a Tax Credit Carryforward Exists,” which states that entities should present the unrecognized
tax benefit as a reduction of the deferred tax asset for a net operating loss (“NOL”) or similar tax loss or tax credit
carryforward rather than as a liability when the uncertain tax position would reduce the NOL or other carryforward
under the tax law. The Company will be required to adopt this new standard on a prospective basis in the first
interim reporting period of fiscal 2015, though early adoption is permitted as is a retrospective application. We do
not anticipate that the adoption of this standard will have a material effect on the Company’s results of operations,
financial position or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU
supersedes the revenue recognition requirements in “Accounting Standard Codification 605 - Revenue Recognition”
and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which a company expects to
be entitled in exchange for those goods or services. The new guidance will also require new disclosures about the
nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU
is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years and
early adoption is not permitted. The guidance allows for either a full retrospective or a modified retrospective
transition method. The Company is currently assessing the impact of the adoption of ASU 2014-09 on its results of
operations, financial position and cash flows.

In April 2014, the FASB issued guidance that revises the definition of a discontinued operation. The
revised definition limits discontinued operations reporting to disposals of components of an entity that represent
strategic shifts that have (or will have) a major effect on operations and financial results. The guidance also requires
new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a
discontinued operation. The guidance will apply to covered transactions that occur after 2014 and was optional for
the initial reporting of disposals completed or approved in 2014.

(2)

Loss of a Key Customer and Management’s Recovery Plans

Our supply agreement with Dana Holding Corporation (“Dana”) was originally scheduled to expire on
December 31, 2014. For the year ended December 31, 2014, Dana represented approximately 59% of our net
revenue.

In July 2013, Sypris and Dana signed an amended and restated supply agreement to extend the supply
agreement term beyond December 31, 2014, the binding effect of which is currently in dispute. Dana has repudiated
this July 2013 agreement, and Dana has ceased ordering any components from us effective December 31, 2014.
Sypris disputes Dana’s ability to do so and is seeking to recover its lost margins and additional remedies with
respect to the revenues to which Sypris was entitled under the renewed agreement.

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

As a result of the dispute with Dana and the loss of the Dana business, the Company has taken significant
actions during the fourth quarter of 2014 and the first quarter of 2015, including but not limited to the following: (i)
quoting new business opportunities with existing and potential customers resulting from the strength of the
commercial vehicle market and a perceived shift in market share among tier one suppliers, (ii) reduced workforce at
the locations most impacted by the loss of Dana, (iii) reduced employment costs by reduced work schedules, senior
management pay reductions, deferral of merit increases and certain benefit payments, and (iv) utilized labor for
preventative maintenance on equipment and facilities, deployment of Toyota Production System and refurbishing
the overall appearance of facilities to attract customers. The Company has engaged an investment banking firm to
provide financial advisory services in connection with its effort to secure new subordinated debt. The Company has
also engaged a commercial real estate firm to provide advisory and brokerage services related to a potential
transaction involving certain real property owned by the Company. However, there can be no assurance that our
plans to mitigate the loss and to effectively manage our costs during the transition will be successful. Additionally,
the Company amended its Credit Facility in March 2015 to support management’s plans and provide liquidity
through January 2016. (See Note 12 “Credit Facility” for further discussion on liquidity).

As of December 31, 2014, the Company had net accounts receivable and net accounts payable specifically

related to Dana of $27,363,000 and $18,912,000, respectively.

(3)

Dana Claim

On March 3, 2006, 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 the Company was agreed to by the Company 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, the Company recorded the claim at the estimated fair value of $76,483,000.
The revenues and resulting net income associated with the Company’s continued involvement were deferred and
were recognized over the remaining period of the Company’s supply agreement with Dana, through
December 31, 2014. For the years ended December 31, 2014 and 2013, the Company recognized revenue of
$8,657,000 and $8,000,000, respectively, related to the Claim. The Claim has been fully amortized as of
December 31, 2014.

(4)

Other (Income), Net

During the year ended December 31, 2014, the Industrial Group received $714,000 from the receipt of
federal grant funds for improvements made under a flood relief program. Additionally, the Company recognized
foreign currency transaction gains of $655,000 for the year ended December 31, 2014 related to the net U.S. dollar
denominated monetary asset position of our Mexican subsidiaries for which the Mexican peso is the functional
currency. For the year ended December 31, 2013, the Company recognized net gains of $1,516,000 related to the
disposition of idle assets and foreign currency transaction losses of $298,000. These gains and losses are included in
other (income), net on the consolidated statements of operations.

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

(5)

Accounts Receivable

Accounts receivable consists of the following (in thousands):

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

47,228
727

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

47,955
(289)

36,245
2,620

38,865
(332)

47,666

38,533

December 31,

2014

2013

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

which are billed at December 31, 2014 and 2013, of $727,000 and $2,620,000 respectively.

(6)

Inventory

Inventory consists of the following (in thousands):

Raw materials ....................................................................................... $
Work in process ....................................................................................
Finished goods......................................................................................
Reserve for excess and obsolete inventory ...........................................

16,687
11,702
6,991
(6,349)

19,372
16,436
5,017
(6,403)

29,031

34,422

December 31,

2014

2013

(7)

Other Current Assets

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

Prepaid expenses .................................................................................. $
Other .....................................................................................................

December 31,

2014

2013

1,499
4,167

5,666

1,690
3,713

5,403

Included in other current assets are deferred taxes for the Company’s Mexican subsidiaries, income taxes

refundable, deferred software development costs and other items, none of which exceed 5% of total current assets.

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

(8)

Property, Plant and Equipment

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

December 31,

2014

2013

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

2,770
26,055
158,816
2,100

2,999
26,053
161,207
2,133

189,741

192,392

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

(152,087)

(147,709)

37,654

44,683

Depreciation expense totaled approximately $10,409,000 and $12,371,000 for the years ended
December 31, 2014 and 2013, respectively. In addition, there were capital expenditures of approximately $52,000
and $135,000 included in accounts payable or accrued liabilities at December 31, 2014 and 2013, respectively.

(9)

Other Assets

Other assets consist of the following (in thousands):

Deferred tax assets, net .........................................................................
Other .....................................................................................................

December 31,

2014

2013

1,575
1,086

2,661

2,401
2,167

4,568

Deferred tax assets, net relate to the Company’s Mexico operations. Other assets at December 31, 2014

and 2013 includes unamortized loan costs of approximately $109,000 and $187,000, 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 ..................................................................................
Other .....................................................................................................

December 31,

2014

2013

2,758
1,437
2,439
6,120
6,021
18,775

4,696
1,244
532
12,357
4,977
23,806

Included in other accrued liabilities are accrued operating expenses, accrued warranty expenses, accrued
interest, accrued legal fees and other items, none of which exceed 5% of total current liabilities. Deferred revenue at
December 31, 2013 included $8,657,000 related to the Dana settlement.

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

(11)

Other Liabilities

Other liabilities consist of the following (in thousands):

Noncurrent pension liability ................................................................. $
Other .....................................................................................................

December 31,

2014

2013

7,400
591
7,991

4,620
921
5,541

Included in other liabilities are accrued long-term warranty expenses and other items, none of which exceed

5% of total liabilities.

(12)

Credit Facility

On May 12, 2011, the Company entered into a Credit Facility that provided potential total availability up to
$50,000,000 to support short-term funding needs and letters of credit. Loans made under the Credit Facility were
scheduled to mature with the commitments thereunder to terminate in May 2016. The Credit Facility originally
provided for an option, subject to certain conditions, to increase potential total availability to $60,000,000 in the
future. Borrowing availability under the Credit Facility is also determined by a monthly borrowing base collateral
calculation that is based on specified percentages of the value of eligible accounts receivable, inventory and
machinery and equipment, less certain reserves and subject to certain other adjustments.

Based on the above mentioned calculation, at December 31, 2014, the Company had actual total
availability for borrowings and letters of credit under the Credit Facility of $28,337,000 of which we had drawn
$17,000,000, leaving $10,582,000 still available for borrowing, after accounting for the letter of credit. Along with
an unrestricted cash balance of $7,003,000, we had total cash and available borrowing capacity of $17,585,000 as of
December 31, 2014. Approximately $4,652,000 of the unrestricted cash balance relates to the Company’s Mexican
subsidiaries. Standby letters of credit up to a maximum of $5,000,000 could be issued under the Credit Facility of
which $755,000 and $806,000 were issued at December 31, 2014 and 2013, respectively.

Obligations under the Credit Facility are guaranteed by all of our U.S. subsidiaries and are secured by a

first priority lien on substantially all domestic assets of the Company.

The weighted average interest rate for outstanding borrowings at December 31, 2014 was 2.6%. The
weighted average interest rates for borrowings during the years ended December 31, 2014 and 2013 were 2.5% and
2.4%, respectively. The Company had no capitalized interest in 2014 or 2013. Interest paid during the years ended
December 31, 2014 and 2013 totaled approximately $397,000 and $333,000, respectively.

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

of December 31, 2014. The Credit Facility was amended during the first quarter of 2015 to, among other things: (i)
waive certain existing or potential events of default, (ii) limit total borrowings to $25,000,000, (iii) restrict the
payment of dividends, (iv) increase the applicable margin on borrowings which will result in an initial interest rate
of approximately 6% and increasing by 50 basis points beginning June 2015 and each month thereafter to an
estimated interest rate of 10% in January 2016, (v) revise the maturity date to January 15, 2016, (vi) revise certain
financial covenants to include a minimum cumulative free cash flow covenant, (vii) establish minimum excess
availability of $1,000,000 initially, through May 31, 2015, and then in the amount of $5,000,000 on or before
September 30, 2015, and (viii) require the Company to raise new capital by securing subordinated debt or divesting
certain real property or a combination thereof on or before September 30, 2015 (and, if earlier than
September 30, 2015, to maintain minimum excess availability of $5,000,000 thereafter).

The Company engaged an investment banking firm on March 20, 2015 to provide financial advisory
services in connection with its effort to secure new subordinated debt. The Company also engaged a commercial
real estate firm to provide advisory and brokerage services related to a potential transaction involving certain real
property owned by the Company.

The Credit Facility is secured by substantially all domestic assets of the Company. In addition to the
aforementioned pursuit of capital sources, the Company is also considering opportunities to support its cash flow
from operations in 2015 through sources of cash from either investing or financing activities. The Company is
exploring alternatives to monetize certain assets of the Company for values in excess of the availability being
provided under the Credit facility, thereby generating additional sources of capital to the Company.

Based on the current forecast for 2015, the Company expects to be able to meet the financial covenants of
its amended Credit Facility and have 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 even
lower revenues and other risk factors such as its ability to onboard new business within the Industrial Group,
continued delays in program bookings within our Electronics Group, or its ability to execute its current contingency
plans.

Non-compliance with the covenants would provide the debt holder with the ability to demand immediate
repayment of all outstanding borrowings under the amended Credit Facility. 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.

Based upon the Company’s current level of operations and its 2015 business plan, the Company believes
that cash flow from operations, available cash and available borrowings under its amended Credit Facility will be
adequate to meet its liquidity needs for at least the next twelve months.

(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 carrying amount of debt outstanding at December 31, 2014 under the Credit Facility approximates
fair value because borrowings on the Credit Facility mature January 2016.

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

(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 amortization of actuarial loss .........................................................
Expected return on plan assets .............................................................

13
1,789
531
(2,390)

24
1,652
824
(2,522)

(57)

(22)

Year ended December 31,
2013

2014

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,

2014

2013

Change in benefit obligation:

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

40,526
13
1,789
6,231
(3,121)

45,561
24
1,652
(3,534)
(3,177)

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

45,438

40,526

Change in plan assets:

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

36,566
3,503
1,090
(3,121)

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

38,038

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

(7,400)

Balance sheet assets (liabilities):

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

—
(7,400)

35,067
4,013
663
(3,177)

36,566

(3,960)

660
(4,620)

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

(7,400)

(3,960)

Pension plans with accumulated benefit obligation in excess of plan
assets:

Projected benefit obligation .............................................................. $
Accumulated benefit obligation ........................................................
Fair value of plan assets ....................................................................

45,438
45,428
38,038

26,773
26,760
22,153

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

December 31,

2014

2013

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

3.90%
4.00
6.75

Weighted average asset allocation:

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

32 %
68

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

100 %

4.65 %
4.00
7.50

46 %
54

100 %

The fair values of our pension plan assets as of December 31, 2014, 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 ...................................................................................
Real estate .......................................................................................
Other ...............................................................................................
Fixed income securities ......................................................................

1,270

—

8,105
1,245
504
1,596
292
266
11,710

—
—
—
—
—
—
13,050

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

24,988

13,050

The fair values of our pension plan assets as of December 31, 2013, 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:

1,047

—

9,926
1,552
788
3,152
911
637
8,405

—
—
—
—
—
—
10,148

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

26,418

10,148

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

Investments in our defined benefit plans are stated at fair value. The following valuation methods were

used to value our pension assets:

Equity securities .........................................The fair value of equity securities is determined by either direct or
indirect quoted market prices. When the value of assets held in separate
accounts is not published, the value is based on the underlying
holdings, which are primarily direct quoted market prices on regulated
financial exchanges.

Fixed income securities ..............................The fair value of fixed income securities is determined by either direct
or indirect quoted market prices. When the value of assets held in
separate accounts is not published, the value is based on the underlying
holdings, which are primarily direct quoted market prices on regulated
financial exchanges.

Cash and cash equivalents ..........................The fair value of cash and cash equivalents is set equal to its cost.

The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a different fair value measurement at the
reporting date.

The Company uses December 31 as the measurement date for the Pension Plans. Total estimated
contributions expected to be paid to the plans during 2015 is approximately $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 2014 and 2013 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
target asset allocation of the plan. The target asset allocation of plan assets is equity securities ranging 0-55%, fixed
income securities ranging 35-100% and non-traditional/other of 0-10% of total investments.

Accumulated other comprehensive loss at December 31, 2014 includes $17,814,000 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, 2015 is $717,000. The actual loss reclassified from accumulated other comprehensive
loss for 2014 and 2013 was $531,000 and $824,000, respectively.

At December 31, 2014, 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):

2015 ............................................................................................................................... $
2016 ...............................................................................................................................
2017 ...............................................................................................................................
2018 ...............................................................................................................................
2019 ...............................................................................................................................
2020-2025 .....................................................................................................................

3,185
3,181
3,158
3,122
3,085
14,563

30,294

The Company sponsors a defined contribution plan (the Defined Contribution Plan) for substantially all
domestic 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 up to 3% and provide discretionary contributions. Contributions to the Defined
Contribution Plan by the Company in 2014 and 2013 totaled approximately $1,137,000 and $973,000, 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 670 and 668 at

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

December 31, 2014 and 2013, respectively. The Medical Plans limit the Company’s annual obligations to fund
claims to specified amounts per participant. The Company is insured for amounts in excess of these limits.
Employees are responsible for payment of a portion of the premiums. During 2014 and 2013, the Company charged
approximately $4,967,000 and $3,909,000, 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 totaled approximately $26,000 and $247,000
in 2014 and 2013, respectively. The aggregate benefit plan assets and accumulated benefit obligation of these plans
are not significant.

(15)

Commitments and Contingencies

(cid:3)
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(cid:3)31,(cid:3)2014 are as follows (in thousands):

2015 ............................................................................................................................... $
2016 ...............................................................................................................................
2017 ...............................................................................................................................
2018 ...............................................................................................................................
2019 ...............................................................................................................................
2020 and thereafter ........................................................................................................

2,260
2,041
442
455
360
1,031

6,589

Rent expense for the years ended December(cid:3)31,(cid:3)2014 and 2013 totaled approximately $2,849,000 and

$2,601,000, respectively.

As of December(cid:3)31,(cid:3)2014, the Company had outstanding purchase commitments of approximately

$7,369,000 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 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, although the loss of the Dana business which is the subject of
current litigation could have such an effect (see Note 2 “Loss of a Significant Customer and Management’s
Recovery Plans” to the consolidated financial statements in this Form 10-K).

The Company has various current and previously-owned facilities subject to a variety of environmental
regulations. The Company has received certain indemnifications from either companies previously owning these
facilities or from purchasers of those facilities. As of December 31, 2014 and 2013, no amounts were accrued for
any environmental matters. See “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.

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

(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 2010 Omnibus 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 2010 Omnibus
Plan. The aggregate number of shares available for future grant as of December 31, 2014 and 2013 was 1,052,021
and 1,551,521, 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 five year life along with vesting after three 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.

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 ...........................................................................

2014
4.0
53.3 %
1.73 %
2.67

2013
4.0
81.1 %
0.77 %
1.97

Year ended December 31,

A summary of the restricted stock activity is as follows:

Nonvested shares at January 1, 2014 ..................................................................
Granted ...........................................................................................................
Vested .............................................................................................................
Forfeited ..........................................................................................................

Number of
Shares
978,715
283,000
(274,814)
(98,000)

Weighted
Average
Grant Date
Fair Value
4.00
$
2.80
4.16
3.72

Nonvested shares at December 31, 2014 ............................................................

888,901

3.60

The total fair value of shares vested during 2014 and 2013 was $773,000 and $1,344,000, respectively. In
conjunction with the vesting of restricted shares and payment of taxes thereon, the Company received into treasury
98,251 and 114,552 restricted shares, respectively, at an average price of $2.81 and $4.22 per share, respectively, the
closing market price on the date the restricted stock vested. Such repurchased shares were immediately cancelled.

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

The following table summarizes option activity for the year ended December 31, 2014:

Outstanding at January 1, 2014 ........................
Granted .........................................................
Exercised ......................................................
Forfeited ........................................................
Expired..........................................................

Weighted-
average
Remaining
Term

Aggregate
Intrinsic
Value

Weighted-
average
Exercise Price
Per Share
3.95
2.80
2.56
3.52
6.74

Number of
Shares
1,075,400
294,000
(201,589)
(37,500)
(74,311)

Outstanding at December 31, 2014 ..................

1,056,000

Exercisable at December 31, 2014 ...................

233,000

3.72

4.16

2.85

1.20

15,000

14,800

The weighted average grant date fair value based on the Black-Scholes option pricing model for options
granted in the years ended December 31, 2014 and 2013 was $0.99 and $2.08 per share, respectively. There were
201,589 and 208,000 options exercised in 2014 and 2013, respectively. The total intrinsic value of options exercised
was $417,000 and $488,000 during the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, there was $1,395,000 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 0.9 years. The total fair value of option shares vested was $9,000 and
$67,000 during the years ended December 31, 2014 and 2013, respectively.

(17)

Stockholders’ Equity

As of December 31, 2014 and 2013, 24,850 shares of the Company’s preferred stock were designated as
Series A Preferred Stock in accordance with the terms of our stockholder rights plan, which expired in October
2011. There are no shares of Series A Preferred Stock currently outstanding, and we have no current plans to issue
any such shares. Any future holders of Series A Preferred Stock, as currently designated, would 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. Any such shares of Series A Preferred Stock would not be redeemable. However, the Company would
be entitled to purchase shares of Series A Preferred Stock in the open market or pursuant to an offer to a holder or
holders.

The holders of our common stock were not entitled to any payment as a result of the expiration of the rights

plan and the rights issued thereunder.

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

and foreign currency translation adjustments.

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

Foreign currency translation adjustments ............................................. $
Employee benefit related adjustments – U.S. .......................................
Employee benefit related adjustments – Mexico ..................................

(7,265)
(17,584)
(186)

(4,435)
(12,996)
(303)

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

(25,035)

(17,734)

December 31,

2014

2013

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

(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 income (loss) before taxes are as follows (in thousands):

Domestic ............................................................................................. $ (11,924)
15,309
Foreign ................................................................................................

(19,952)
9,972

3,385

(9,980)

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

thousands):

Year ended December 31,

2014

2013

Year ended December 31,

2014

2013

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

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

—
102
3,417
3,519

—
—
1,050
1,050

4,569

—
116
1,077
1,193

(2,061)
(376)
1,151
(1,286)

(93)

Income tax (benefit) expense 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 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. other comprehensive income, 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), other comprehensive income 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, 2013 and other comprehensive income from employee benefit and foreign currency translation
adjustments, the Company allocated income tax expense against the components of other comprehensive income in
2013 using a 38.9% effective tax rate. Income tax benefit related to continuing operations for the year ended

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

December 31, 2013 includes a benefit of $2,437,000 due to the required intraperiod tax allocation. Conversely, other
comprehensive income for the year ended December 31, 2013 includes income tax expense of $2,437,000.

The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State
income taxes paid in the U.S. during 2014 and 2013 totaled $33,000 and $120,000, respectively. Foreign income
taxes paid during 2014 and 2013 totaled $1,063,000 and $1,523,000, respectively. There were no foreign refunds
received in 2014 and 2013. There were no federal taxes paid in 2014 and 2013, and there were no federal refunds
received in 2014 and 2013. At December 31, 2014, the Company had $112,448,000 of federal net operating loss
carryforwards available to offset future federal taxable income, which will expire in various amounts from 2024 to
2034.

At December 31, 2014, the Company had $49,508,000 of state net operating loss carryforwards available to
offset future state taxable income, the majority of which relates to Florida. These carryforwards expire in various
amounts from 2018 to 2034.

The following is a reconciliation of income tax (benefit) expense applicable to continuing operations to that
computed by applying the federal statutory rate to (loss) income from continuing operations before income taxes (in
thousands):

Year ended December 31,

2014

2013

Federal tax expense at the statutory rate ............................................... $
Current year permanent differences .....................................................
Goodwill impairment ...........................................................................
State income taxes, net of federal tax impact .......................................
Foreign repatriation, net of foreign tax credits .....................................
Mexican minimum taxes ......................................................................
Effect of tax rates of foreign subsidiaries .............................................
Currency translation effect on temporary differences ..........................
Valuation allowance .............................................................................
Prior year adjustment............................................................................
Other .....................................................................................................

1,185
61
—
(772)
4,077
—
(733)
(71)
297
531
(6)

(3,517)
50
1,373
(1,118)
2,768
46
(486)
38
729
22
2

4,569

(93)

ASC 740, 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 net cumulative domestic 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. 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 gross deferred tax asset for the Company’s Mexican subsidiaries was $2,556,000 and $3,973,000 as of

December 31, 2014 and 2013, respectively.

Therefore, the net deferred tax asset balances of $2,556,000 and $3,973,000 at December 31, 2014 and
2013, respectively, are attributable to the Mexican subsidiaries. The Company has been profitable in Mexico in the
past, and while we do not expect to be profitable in 2015 due to the loss of the Dana business, we expect to be
profitable in 2016 and thereafter.

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

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

December 31,

2014

2013

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

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

1,665
3,124
46,835
2,573
113
2,304
2,556
185
974
60,329
(51,914)

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

8,415

Deferred tax liabilities:
Foreign subsidiaries – unrepatriated earnings .....................................
Depreciation .......................................................................................

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

(3,773)
(2,086)

(5,859)

1,905
3,176
44,139
3,180
129
873
3,973
185
1,339
58,899
(49,832)

9,067

(2,665)
(2,429)

(5,094)

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

2,556

3,973

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. The total amount of gross unrecognized tax benefits as of
December 31, 2014 and 2013 was $200,000. There were no changes to the unrecognized tax benefit balance during
the years ended December 31, 2014 and 2013.

If the Company’s positions are sustained by the taxing authority in favor of the Company, the entire
balance at December 31, 2014 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, 2014 and 2013,
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 2010 through 2013, for which the statute has yet to expire. In addition, open tax years related to state and
foreign jurisdictions remain subject to examination.

As of December 31, 2014, the Company has no undistributed earnings of foreign subsidiaries that are
classified as permanently reinvested. The Company expects to repatriate available non-U.S. cash holdings during
2015. The Company will utilize its net operating loss carryforward in the U.S. to offset the taxable income generated
in 2014 in the U.S. as a result of the repatriation and has therefore recognized a deferred income tax benefit equal to
the amount of the U.S deferred tax liability and a corresponding reduction in the deferred tax asset valuation
allowance.

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

(19)

Earnings (Loss) Per Common Share

The Company computes earnings per share using the two-class method, which is an earnings allocation
formula that determines earnings per share for common stock and participating securities. Restricted stock granted
by the Company is considered a participating security since it contains a non-forfeitable right to dividends.

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 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 diluted earnings per share for the year ended December 31, 2014 and 2013
because the effect of inclusion would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted loss

per common share is as follows (in thousands):

Year ended December 31,

2014

2013

Loss attributable to stockholders:
Net loss as reported ............................................................................................. $
Less dividends declared attributable to restricted award holders ....................
Net loss allocable to common stockholders ........................................................ $

(1,184)
(53)
(1,237)

Loss per common share attributable to stockholders:

Basic ................................................................................................................ $

(0.06)

Diluted ............................................................................................................ $

(0.06)

(9,887)
(45)
(9,932)

(0.51)

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

19,586

19,345

—

Weighted average shares outstanding – diluted ..............................................

19,586

19,345

(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 85% and 82% of
total net revenue in 2014 and 2013, respectively. Revenue derived from outsourced services for the Electronics
Group accounted for 6% and 7% of total net revenue in 2014 and 2013, 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):

Net revenue from unaffiliated customers:
Industrial Group ................................................................................ $ 322,262
32,514
Electronics Group .............................................................................

$ 276,136
34,578

$ 354,776

$ 310,714

Year ended December 31,

2014

2013

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

Year ended December 31,

2014

2013

Gross profit (loss):

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

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

42,021
(3,191)

31,638
(1,585)

38,830

30,053

Operating income (loss):

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

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

25,160
(13,479)
(8,961)

20,021
(21,851)
(8,558)

Income (loss) before income taxes:

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

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

26,454
(13,476)
(9,593)

20,985
(21,858)
(9,107)

2,720

(10,388)

3,385

(9,980)

Depreciation and amortization:

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

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

9,374
945
90

11,261
999
141

10,409

12,401

Capital expenditures:

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

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

3,725
811
723

5,259

4,547
444
62

5,053

December 31,

2014

2013

Total assets:

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

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

95,105
26,874
7,699

$ 100,593
29,689
16,001

$ 129,681

$ 146,283

Total liabilities:

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

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

55,505
8,697
18,601

54,232
9,216
26,583

82,793

90,031

The Company’s export sales from the U.S. totaled $58,498,000 and $45,163,000 in 2014 and 2013,
respectively. Approximately $111,177,000 and $95,392,000 of net revenue in 2014 and 2013, respectively, and
$13,033,000 and $16,656,000 of long lived assets at December(cid:3)31,(cid:3)2014 and 2013, respectively, and net assets of
$20,388,000 and $20,779,000 at December(cid:3)31,(cid:3)2014 and 2013 relate to the Company’s international operations.

(21)

Subsequent Events

The Credit Facility was amended during the first quarter of 2015 to, among other things, (i) waive certain
existing or potential events of default, (ii) limit total borrowings to $25,000,000, (iii) restrict the payment of
dividends, (iv) increase the applicable margin on borrowings which will result in an initial interest rate of
approximately 6% and increasing by 50 basis points beginning June 2015 and each month thereafter to an estimated

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

interest rate of 10% in January 2016, (v) revise the maturity date to January 15, 2016, (vi) revise certain financial
covenants to include a minimum cumulative free cash flow covenant, (vii) establish minimum excess availability of
$1,000,000 initially, through May 31, 2015, and then in the amount of $5,000,000 on or before September 30, 2015,
and (viii) require the Company to raise new capital by securing subordinated debt or divesting certain real property
or a combination thereof on or before September 30, 2015 (and, if earlier than September 30, 2015, to maintain
minimum excess availability of $5,000,000 thereafter).

In connection with the Amendment, the Company has received the proceeds of subordinated indebtedness
from Gill Family Capital Management in an amount of $4,000,000. Gill Family Capital Management is an entity
controlled by our president and chief executive officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. Gill
Family Capital Management, Inc., Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders in the
Company. The promissory note bears interest at a rate of 8.00% per year and matures on April 12, 2016. All
principal and interest on the promissory note will be due and payable on the maturity date. The Board of Directors
(“Board”) appointed the Audit and Finance Committee of the Board (“Committee”) as an independent committee of
the Board to review the fairness of and negotiate the terms of the foregoing transactions including the promissory
note with Gill Family Capital Management. The Committee reviewed, negotiated and approved the promissory note
as fair and in the Company’s best interests on March 10, 2015 and the Board subsequently approved the transaction
upon the Committee’s recommendation. Gill Family Capital Management, Jeffrey T. Gill and R. Scott Gill are
significant, long term beneficial stockholders in the Company and have expressed a continuing interest in
opportunities that are fair and reasonable to the Company and to the Gill family.

On March 26, 2015, the Company amended the vesting dates of certain outstanding restricted stock awards,
including awards held by our named executive officers; their original vesting dates of March 31, 2015 and
April 1, 2015, have been revised to October 1, 2015.

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 Annual Report
on 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, 2014, 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 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 Conduct, and will make any amendments and waivers thereto,
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 “2014 Director Compensation,” “Governance of the Company,” “Summary Compensation Table,”
and “Outstanding Equity Awards at Fiscal Year-End 2014,” 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 and Management,” 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, 2014 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)

1,056,000(1) $

—
1,056,000 $

3.72

—
3.72

1,052,021(2)

—
1,052,021

(1) Consists of (a) 18,000 outstanding options under the 2004 Equity Plan, (c) and 1,038,000 outstanding options

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 Accounting 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 Annual Report on Form 10-K:

1. Financial Statements

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

2. Exhibits

Exhibit
Number

3.1

3.2

4.1

10.1

10.1.1

10.1.2

10.2

10.2.1

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)).

Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s Form 8-K filed October 31, 2011 (Commission File No. 000-24020)).

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)).

Revolving Credit and Security Agreement between PNC Bank, National Association, Sypris Solutions,
Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris
Technologies Marion, LLC, Sypris Technologies Kenton, Inc. and Sypris Technologies Mexican
Holdings, LLC dated as of May 12, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s
Form 10-Q filed on August 9, 2011 (Commission File No. 000-24020)).

Joinder and Amendment No. 1 to Loan Documents between PNC Bank, National Association, Sypris
Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris
Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican
Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris
Technologies International, Inc. dated as of February 10, 2015.

Amendment No. 2 to Loan Documents between PNC Bank, National Association, Sypris Solutions,
Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris
Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican
Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris
Technologies International, Inc. dated as of March 12, 2015.

Promissory Note between Gill Family Capital Management, Inc., Sypris Solutions, Inc., Sypris
Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion,
LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris
Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies
International, Inc. dated as of March 12, 2015.

Security Agreement between Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics,
LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc.,
Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris
Technologies Southern, Inc. and Sypris Technologies International, Inc. and Gill Family Capital
Management, Inc., dated as of March 12, 2015.

Exhibit
Number

10.3

10.3.1

10.3.2

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13

Description

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 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)).

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 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)).

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)).

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 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)).

Executive Equity Repurchase Agreement dated December 20, 2011 (incorporated by reference to
Exhibit 10.19 to the Company’s Form 10-K filed on March 13, 2012 (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 2015 dated as of March 5, 2015.

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)).

Exhibit
Number

10.14

10.15

16.1

Description

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)).

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)).

Letter from Ernst & Young LLP addressed to the Securities and Exchange Commission, dated
June 12, 2014 (incorporated by reference to Exhibit 16.1 to the Company’s Form 8-K filed on
June 12, 2014 (Commission File No. 000-24020)).

Subsidiaries of the Company

23.1

Consent of Crowe Horwath LLP

23.2

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.

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* 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 31, 2015.

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 31, 2015:

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

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

/s/ Anthony C. Allen
(Anthony C. Allen)

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

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

/s/ Gary L. Convis
(Gary L. Convis)

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

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

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

/s/ Robert F. Lentz
(Robert F. Lentz)

/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

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 FREE CASH FLOW
(in thousands)

Year Ended December 31,

2014

2013

(Unaudited)

Consolidated Cash Flow Statement:
Cash flows from operating activities:

Net cash provided by (used in) operating activities .................................................... $

3,045

(293)

Cash flows from investing activities:

(5,259)
30

(5,053)
2,265

Net cash used in investing activities ..........................................................................

(5,229)

(2,788)

Cash flows from financing activities:

Net change in debt under Credit Facility .......................................................................
Common stock repurchases ..........................................................................................
Indirect repurchase of shares for minimum statutory withholdings ...............................
Cash dividends paid ......................................................................................................
Proceeds from issuance of common stock ....................................................................

(7,000)
(426)
(429)
(1,635)
3

5,000
(36)
(657)
(1,216)
—

Net cash (used in) provided by financing activities ....................................................

(9,487)

3,091

Net (decrease) increase in cash and cash equivalents .....................................................

(11,671)

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

18,674

18,664

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

7,003

$ 18,674

Free Cash Flow – Industrial Group:
Cash flows from operating activities:

Industrial Group ............................................................................................................. $ 22,748
(10,815)
Electronics Group ..........................................................................................................
(8,888)
General, corporate and other.........................................................................................

$ 20,567
(14,060)
(6,800)

Net cash provided by (used in) operating activities ....................................................

3,045

(293)

Capital expenditures:

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

(3,726)
(811)
(722)

(4,547)
(444)
(62)

Capital expenditures ..................................................................................................

(5,259)

(5,053)

Net cash provided by operating activities – Industrial Group ............................................
Capital expenditures – Industrial Group ............................................................................

22,748
(3,726)

20,567
(4,547)

Free cash flow – Industrial Group .................................................................................. $ 19,022

$ 16,020

RECONCILIATION OF EBITDA
(in thousands)

Year Ended December 31,

2014

2013

(Unaudited)

Net loss ............................................................................................................................. $
Income tax (benefit) expense ............................................................................................
Interest expense, net .........................................................................................................

(1,184)
4,569
617

EBIT ...........................................................................................................................

4,002

(9,887)
(93)
522

(9,458)

Depreciation and amortization...........................................................................................

10,409

12,401

EBITDA ...................................................................................................................... $ 14,411

2,943

Net income (loss):

Industrial Group ............................................................................................................. $ 21,998
(13,486)
Electronics Group ..........................................................................................................
(9,696)
General, corporate and other.........................................................................................

$ 18,774
(21,875)
(6,786)

(1,184)

(9,887)

Income tax expense (benefit):

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

4,456
11
102

2,211
17
(2,321)

4,569

(93)

Interest expense, net:

(19)
(2)
638

(47)
—
569

617

522

Depreciation and amortization:

9,373
945
91

$ 11,261
999
141

$ 10,409

$ 12,401

EBITDA:

Industrial Group ............................................................................................................. $ 35,808
(12,532)
Electronics Group ..........................................................................................................
(8,865)
General, corporate and other.........................................................................................

$ 32,199
(20,859)
(8,397)

$ 14,411

2,943

Net revenue:

Industrial Group ............................................................................................................. $ 322,262
32,514
Electronics Group ..........................................................................................................
—
General, corporate and other.........................................................................................

$ 276,136
34,578
—

$ 354,776

$ 310,714

EBITDA as a percentage of revenue – Industrial Group:

Net revenue – Industrial Group ..................................................................................... $ 322,262
35,808
EBITDA – Industrial Group ............................................................................................

$ 276,136
32,199

EBITDA as a percentage of revenue ......................................................................

11.1%

11.7%

RECONCILIATION OF INDUSTRIAL GROUP’S RETURN ON NET ASSETS (RONA)
(in thousands)

Year Ended December 31,

2014

2013

(Unaudited)

Net income (loss):

$ 18,774
(21,875)
(6,786)

(1,184)

(9,887)

Total current assets:

Industrial Group ............................................................................................................. $ 59,664
22,959
Electronics Group ..........................................................................................................
6,743
General, corporate and other.........................................................................................

$ 55,809
25,627
15,596

$ 89,366

$ 97,032

Property, plant and equipment, net:

Industrial Group ............................................................................................................. $ 33,118
3,724
Electronics Group ..........................................................................................................
812
General, corporate and other.........................................................................................

$ 40,642
3,858
183

$ 37,654

$ 44,683

Total current liabilities:

Industrial Group ............................................................................................................. $ 48,014
8,186
Electronics Group ..........................................................................................................
18,602
General, corporate and other.........................................................................................

$ 49,529
8,378
2,583

$ 74,802

$ 60,490

Total net assets – Industrial Group:

Total current assets – Industrial Group ......................................................................... $ 59,664
33,118
Property, plant and equipment, net – Industrial Group ..................................................
(48,014)
Total current liabilities – Industrial Group ......................................................................

$ 55,809
40,642
(49,529)

$ 44,768

$ 46,922

RONA – Industrial Group:

Net income – Industrial Group ....................................................................................... $ 21,998
44,768
Total net assets – Industrial Group ................................................................................

$ 18,774
46,922

RONA .....................................................................................................................

49.1%

40.0%

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ROBERT E. GILL (4)
Chairman of the Board

JEFFREY T. GILL (4)
President & CEO

R. SCOTT GILL
Private Investor

JOHN F. BRINKLEY (3 , 1)
Retired General Manager
North American Automotive
Operations Export Sales
Ford Motor Company

GARY L. CONVIS (2)
Senior Advisor
Bloom Energy Corporation,
a provider of solid oxide fuel
cell technology

WILLIAM G. FERKO (1, 3)
Private Investor & Consultant

WILLIAM L. HEALEY (1 , 2)
Private Investor & Consultant

ROBERT F. LENTZ
President
Cyber Security Strategies, LLC,
a global cyber security consulting firm

SIDNEY R. PETERSEN (2)
Retired Chairman & CEO
Getty Oil, Inc.

ROBERT SROKA (2 , 3)
Partner
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) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Committee Chairman

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ANTHONY C. ALLEN
Vice President & CFO

JOHN R. MCGEENEY
Vice President, General Counsel
and Secretary

RICHARD L. DAVIS
Senior Vice President

PAUL G. LAROCHELLE
Vice President, Sypris Solutions,
and President, Sypris Technologies

JOHN J. WALSH
Vice President, Sypris Solutions,
and President, Sypris Electronics

Corporate Headquarters
Sypris Solutions, Inc.
101 Bullitt Lane
Suite 450
Louisville, KY 40222
Phone: (502) 329-2000
Fax: (502) 329-2036

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The Annual Meeting of Stockholders will be
held on Tuesday, May 5, 2015, at 10:00 a.m.
at 101 Bullitt Lane, Lower Level Seminar
Room, Louisville, Kentucky.

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The common stock of Sypris trades on the
NASDAQ Global Market under the symbol SYPR.

The Sypris Form 10-K for fiscal 2014 and other
reports filed with the Securities and Exchange
Commission are available electronically at
www.sypris.com/proxymaterials.

Inquiries and requests regarding this annual report
and other stockholder questions should be directed to:

Sypris Solutions, Inc.
Attention: Lynn Hampton
101 Bullitt Lane
Suite 450
Louisville, KY 40222
Email: ir@sypris.com

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Computershare
P.O. Box 43078
Providence, RI 02940
Phone: (800) 622-6757

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Crowe Horwath LLP
9600 Brownsboro Road
Suite 400
Louisville, KY 40241
Phone: (502) 326-3996
Fax: (502) 420-4400

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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

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