Dear Fellow Stockholders:

This past year turned out to be one of the most important, exciting and challenging periods in the 20-year history of Sypris. While we were successful in continuing to execute our long-term strategy, we were challenged by a difficult third quarter. Despite this temporary setback, 2003 marked one of the most transformational periods in the Company’s history, one that will have a significant impact on the future of Sypris for some time to come.

2003 was a year that was remarkable for the amount and range of the investments that your company made in its future. We invested $46 million during the year in new state-of-the-art manufacturing technologies, processes, capabilities and services. We also invested to advance the introduction of new, leading-edge products successfully to market, while continuing to devote resources to support the development of our single most important asset – our people.

The results were as you might expect. Orders from customers increased 21% during the year to a record $322 million. Firm, shippable backlog increased 29% during the year, reaching a record $199 million at year end. And perhaps most importantly, the award of new, long-term contracts, the life blood of the Company’s future, soared 111% to a record $639 million as a result of new contracts with Dana, Nokia, Motorola, Siemens and a variety of government agencies tasked with maintaining the security of our nation.

We are pleased to highlight some of our people and the investments that we made during 2003 in this year’s annual report. Please join us in thanking these individuals, as well as their 1,700 fellow employees, who have been instrumental in building the strength and organizational vitality of Sypris. As a result of their hard work and dedication, your company is not only in a position of strong financial and operational health, but is poised as never before to expand and grow profitably in the future.

FINANCIAL RESULTS
Revenue increased slightly during 2003, climbing to $277 million from $273 million for the prior year, thereby marking the fourth consecutive year of top line growth for the Company. The increase was supported by a 10% increase in revenue from the Industrial Group, which benefited from increased shipments to Dana and Visteon despite the difficult market for commercial and light-truck vehicles during the year.

Operating income decreased 21% to $15 million during the year from $19 million for 2002, primarily as a result of the shortfall we experienced during the third quarter of 2003. During this period, the Company struggled through effects of the electrical blackout that resulted in plant closures, production delays and overtime charges we incurred to meet our customers’ schedules. The period was also notable for reduced deliveries to two customers as they rebalanced inventories as well as the delay of shipments to another customer as it completed the redesign of key circuit card assemblies for a new missile guidance system.

Earnings per share declined 33% to $0.56 from $0.84 in 2002, reflecting the effects of the third quarter on the Company’s profitability, as well as a 25% increase in our marginal tax rate and a 7% increase in the number of diluted shares outstanding.

Cash flow from operations increased 100% to $27 million during 2003 following a 61% increase during 2002. This record level of cash flow enabled Sypris to increase capital expenditures 14% to $23 million and invest an additional $23 million to support the capacity requirements and growth opportunities tied to new contracts while incurring only $19 million of debt to do so.

Net book value continued to increase, rising 6% to $145 million, while the value of the Company’s total assets increased 18% to $263 million from $224 million for the prior year. And finally, the market capitalization of Sypris increased 78% to $239 million from $134 million for the prior year, reflecting a positive response by our investors to the announcement of new contract awards and their expected impact on our future financial results.

INVESTMENTS
During 2003, we committed a record level of capital, investing $46 million, or 16% of revenue, for the future of your company.

To give you a sense of potential scale and impact of these investments, we dedicated over $8 million to a new machining operation in our plant in Marion, Ohio. This cell can handle a wide variety of part numbers, requires only 10 minutes to change over from the production of one part number to another, and is operated by just four people per shift. The operation is already running 24/7 and is expected to make a material contribution to the Company’s productivity and profitability during 2004. In fact, the early results have been so positive that we have already placed an order for a second cell, which we hope to have up and running in time to meet the growing needs of our customers in early 2005.

We invested $22 million for the purchase of an award-winning manufacturing operation located in Morganton, North Carolina from Dana at year-end. This plant, which features over 100 pieces of CNC controlled machining equipment, boasts a very talented and dedicated workforce, and is expected to serve as a key manufacturing base from which we plan to serve a variety of customers in the commercial and light-truck markets in the future. In fact, with the addition of people like Robert McCracken, a long-time CNC machinist in Morganton who is featured on our cover this year and elsewhere in this annual report, we believe that we have made an investment in the future that will benefit the Company for years to come.
We invested in the purchase and installation of new automated inventory towers in our plant in Tampa, Florida. These towers, which can hold over 13,000 part numbers, resulted in a vast increase in inventory accuracy and reduced the amount of square footage required to house these parts to 5,000 square feet from 35,000 square feet prior to the purchase of the equipment. The project, which was the focus of one of our Six Sigma teams, is an excellent example of the dedication to continuous improvement that exists throughout your company.

We also invested in a range of products to serve the needs of certain government agencies that are involved with ensuring our nation’s security. Of particular note is our new, patent-pending Silver Phoenix technology, which incorporates real-time storage area network architecture. When embedded in systems used by customers in national security and weapons testing applications, it enables users to simultaneously gather, process and disseminate diverse types of information from a variety of sources with unprecedented speed and accuracy. We plan to build upon this architecture in the future and believe the number of potential applications to be highly scalable.

CONTRACTS
During 2003, we secured a record level of new contract awards bringing the total estimated value of these awards to $639 million for the year.

The Dana contract is particularly noteworthy. Under this supply agreement, which began in January of 2004, Sypris is providing machining operations for a variety of drive train components that are produced for use in medium and heavy-duty trucks, including those manufactured by Freightliner, Navistar and Paccar. The contract also calls for Sypris to produce certain drive train components for use in light trucks manufactured by Ford and General Motors. The agreement runs through 2011 and has a projected value of $440 million over the term of the contract based upon current market conditions.

THE FUTURE
The prospect for additional growth in the future remains bright, with two contracts currently under letter of intent with Dana and ArvinMeritor. We expect to complete these proposed transactions during 2004, subject to the completion of our due diligence and the satisfaction of certain conditions to closing.

The proposed transaction with Dana involves the purchase of a major portion of Dana’s manufacturing campus in Toluca, Mexico and certain production equipment located at other Dana plants in the United States. In return, we plan to enter into an eight-year supply agreement to provide Dana with a variety of forged and machined drive train components for use in medium and heavy-duty trucks. When completed and at full production, the projected value of the contract is expected to approximate $500 million over the term of the agreement.

The proposed transaction with ArvinMeritor involves the purchase of its plant in Kenton, Ohio that specializes in the manufacture of trailer axle beams. In return, we plan to enter into a multi-year supply agreement to provide ArvinMeritor with trailer axle beams and a variety of drive train components for use in medium and heavy-duty trucks. The proposed transaction also includes the five-year extension of an existing supply agreement with ArvinMeritor. When completed and at full production, the projected value of the contracts is expected to approximate $500 million over the term of the agreements.

Should we prove to be successful in closing these two proposed transactions, we will significantly increase the breadth and depth of our relationship with both customers, as well as add vital new production capabilities to our rapidly growing manufacturing base.

CLOSING
In November of 2003, Sypris celebrated its 20th anniversary as a company. While we are proud of our longevity, staying power alone is not enough. We want to move forward. We want to generate the kind of value that will delight our stockholders, motivate our employees and consistently outperform that of our competitors. That is our goal and we are determined to reach it. With your continued support, we are confident we will.

In closing, we wish to call your attention to the outstanding performance of our employees in overcoming the many challenges of 2003 and in making the most of the opportunities that arose during the past twelve months that were both trying and stimulating. Their performance and dedication enabled us to continue operating profitably, to expand our operations efficiently and effectively, and to successfully position our company for a future that can only be described as exciting. Please join us in thanking them for doing an outstanding job.