LaDuane Clifton – CAO Greg Anderson – President & CEO

Sam Miller – Private Investor Hendi Susanto – Gabelli & Co.

Good morning, everyone, and welcome to the LGL Group Q2 2013 earnings report. (Operator Instructions). This call also has a visual PowerPoint component, in addition to the conference call. To view the PowerPoint, please click on the Join the Meeting link you received in your invitation and included in the press release announcing today’s call. (Operator Instructions). I will be standing by, if you should need assistance. It is now my pleasure to turn the conference over to the company’s Chief Financial Officer, Mr. LaDuane Clifton. You may begin, Sir.

Good morning and thank you for joining us today. Greg Anderson is with me as well, and will be our presenter. We prepared a slide presentation for your reference that may viewed as part of today's web conference and the presentation materials are also available at our website, lglgroup.com. Please refer to these and use them as you get through the call. Our call will be recorded and available for playback later today on our website. Other information, such as financial information and recent press releases are posted on our website as well. And please note that our comments are covered by the Safe Harbor Statement. (Operator Instructions). At this time, it's my pleasure to introduce Greg Anderson.

Thank you, LaDuane, and good morning. Welcome to our second quarter earnings call. I'll start with a – just a short snapshot of corporate overview. We've been around for a long time. The Company was formed in 1917. Today, we are traded on the NYSE market. Our trailing 12 revenue is $29 million. About half of our revenue gets booked outside the United States. Yesterday's closing stock price was just a little over $0.6. We've got a market cap of just under $16 million, cash and cash equivalents of $9 million and we're a small player in a very large market. From a highlight perspective, LGL currently has one subsidiary, goes to market under the brand name of MtronPTI. Primarily, specialty component supplier for electronic communications and we serve large B2B clients. We provide solutions both to primarily the Internet Communication Technology market, as well as into the Aerospace and Defense market. So we have a nice balance demand. About two-thirds of our revenue today is booked into Aerospace and Defense clients. About one-third is into what we call, ICT, or Internet Communications. From a technology perspective, our value propositions, we are very much crystal-based in, at least, probably, half of our revenue. We tend to participate in really the precision on what we call the low noise environment. Things that really require a great deal of precision and performance. And we're not just a timing company. We have nice balance of filtering as well. And that that becomes very important to our clients, especially in radio applications. The platform itself is a global footprint in a number of US sites, some international sales, certainly some international supply. And know, we have an India manufacturing facility and really, that provides us a cost advantage, even for some of these high-performance…

Certainly. (Operator Instructions). And we will first go to the site of Sam Miller, who's a Private Investor. Your line is now open. Sam Miller – Private Investor: Hi. I was wondering if you could state through the idea of the dividend when it come to the warrants and about how you came up with the pricing of those warrants.

Okay. We'll let LaDuane handle that question.

Good morning, Sam. Thanks for joining us. Yes. So, the warrant dividend – we listed a number of ways – (inaudible) for ways to bring value to our shareholders. And the warrant dividend has nicely to the sense that it allowed us to provide – it's a means of returning a portion of the Company's future value to stockholders, while preserving the Company's balance sheet. We are active in our stock repurchase program, as we disclosed in our press release and in our 10-Q. And so, this was just another way to continue doing that. We need to preserve the cash. Obviously, this business cycle will continue to look for ways to deploy that. And so, the warrant dividend kind of made a lot of sense. With regard to the pricing, the stock pricing, or whatever, related in the warrant dividend, I'd say the Company – it analyses a variety of factors in determining the terms of the warrants and trying – we're really trying to maximize value to stockholders but balance that against some terms that could make sense in the long term. So, we think we accomplish that but; obviously, we had to apply a lot of judgment in trying to really strike the right balance. Sam Miller – Private Investor: Okay. Thank you.

And our next question comes from (David Minghoff with DCM Management). Your line is now open.

Good morning, gentlemen. The Company – I also have a question on the warrants. The Company issued five warrants but you need 25 warrants to buy share stocks at [750] set the five to one ratio. Why didn't the Company just issue one warrant and require the five warrants to buy a share of stock?

Well, but still the five to one ratio – it seems the math would have been easier would it not have is just one to five?

I understand that. That's – I mean we model that option. We thought the way we did the terms would provide more liquidity or better liquidity for the separate trading of the warrant.

Okay. On August 6, the day before the X dividend day. It think the stock closed at ($6.40). And on August 7, the X dividend date – the stock was indicating ($3.90) and the warrants were indicating $0.50 or thereabouts. So, in other words, ($2.50) had come off the price of the stocks, so I guess either they were valuing the warrants at $0.50 for five of them $0.10 for 25. I'm not sure which. How did – who infuses that value of ($2.50) on the warrants? They never traded at ($3.90). The stock is trading about the sixth like you indicated. But the warrant is trading at $0.10, not $0.50. So how is that initial ($3.50 – $2.50) off the price of the next dividend amount come about?

Well, I'm sure you realized those sort of pricing decisions particularly around the first day of trading really are outside the Company's control; we're not part of that process. I'd say between in the last day of markets, looking at the trading – how the stock trading would (do go) between the record date and coming up to the first day of trading, I know they do an analysis of the (do go) to see how things were trading during that time. And then, of course, the market may grow – roll, as related to whatever activity you're seeing as well. And so, those events you described, we were looking at them anxiously as well; wondering ourselves. And all I can tell you is I think now that they're trading actively in the market, the market decides the pricing of the – those first few estimates that came out of those decision makers. Maybe I had the same question as you did, I wasn't sure. But, yes, those things are outside of us. Although, we were speaking to them and understand after the fact it's all at the same time you did, right?

All right. So, this was – the intention of this, of course, was to be an enhancer for shareholders. I know it's early but at this time, the amount that the stock are selling less than it was plus the dividend is about a wash really, right, because the warrant is what would then come off of the stock price, so it's a pure X dividend, so there's been no value created just yet admittedly it's early.

Yes. No, I appreciate your comments.

Yes. I think it's a fair statement. That's about as we can – simply as we can say it as well.

And just, finally, I think you talked mainly about the reasons that there is a party that's interested in part of Mtron. I seem to recall – in a prior release, I can't find it just now – but there was another party interested in the entire company. Is that true? Are there several interested parties? Or just the warrant – how many are we talking about?

I think they are at different levels of interest being expressed. I would say more than one and less than ten, and pieces are all certainly (inaudible) consideration but those kinds of interests.

All right. Thank you very much for your answers.

And we will now have the side of Hendi Susanto with Gabelli & Co. Your line is now open.

Good morning. Hendi Susanto – Gabelli & Co.: LaDuane, first question. I would like to inquire more insight into gross margin. The magnitude of the decline in gross margin in the quarter was deeper than my expectation. Can you describe how much impact came from product mix and whether there are system variables that we need to be aware of?

I would say – Hendi, this is Greg speaking. I would say that the contribution between mix, as well revenue declines probably split fairly evenly, okay? Hendi Susanto – Gabelli & Co.: Okay. And then let's say when you talk about mix like which mix has that total work gross margin?

Today, I can tell you that – and it's historically not always been that the case. But today, in our current operating, there's just model – there are lines within our commercial products or networking group that run at less margin in today's environment for all the kind of reasons that I spoke to in the presentation. Hendi Susanto – Gabelli & Co.: So, let's say it is commercial, I know, and looking at, I believe, it is in ICT business then, which is well,

Yes. Hendi Susanto – Gabelli & Co. : Like a third of your revenue...

Yes. Hendi Susanto – Gabelli & Co.: So, it was like big enough to impact the gross margin?

Yes. Hendi Susanto – Gabelli & Co.: Okay. Just like to confirm that. And then second question is among the options of the property review process. What did you mean by segmenting some or all and from PTI's operations?

Okay. Fair question. Segmenting – well, we obviously have business – half of our sales are foreign, so there is some regional – I'll call it – options, if that's the right word. Considerations is probably a better one. There's certainly market considerations; how we participate in those markets, and there's considerations that we could segment along those lines. There's also various kinds of businesses. Largely, some of our businesses are what I would say more like customer-service and distribution base, when we have contract factories that are doing work for us. And then, of course, we have some parts of our business that are almost what I would call more manufacturing base. And then, we have some that are extremely custom and almost very specialized. And so maybe the right word is there could be a consideration on the kind of business model as well. So, I would – to recap, I would say – I would view it as regional, market and possibly business type, if you will, while inside of there. Hendi Susanto – Gabelli & Co.: Okay. And then, may I know how long the strategy cross sets, especially the review of the third party (inaudible) portion of that PTI?

I'm sorry. I didn't hear that, Hendi. Could you repeat? Hendi Susanto – Gabelli & Co.: How long does budget strategy review process may take for let's say like for the considerations and also in viewing the third party influence in part of the Company?

Yes. So, you're questioning what the length of timeframe that we'll be in the strategic review process? Hendi Susanto – Gabelli & Co.: Yes.

Well, that's, again, a good question. I'd say at this point it's undefined. I can just tell you that it's active. You can't do anything quickly within a public company. And so, I would just say it's active. Obviously, we just had a Board meeting in different kinds of options and proposals – at least some of those were discussed and under consideration, so decisions are not just made yet. I would say that we understand the urgency in the operating business. It's likely not going to recover quickly in this kind of market. The Board of Directors understands that. We understand the cash burn situation. And there are pieces of the business that are performing well, others are not. And all that is certainly – creates a sense of urgency. I'm not going to give you a horizon of the say, create a sense of urgency. Management and Board understands that. Hendi Susanto – Gabelli & Co.: Yes. And (inaudible) and also end at leave you – is it reasonable to assume that it's just (inaudible)?

Completed by when, Hendi? Hendi Susanto – Gabelli & Co.: By within a year?

Sorry. Within a year? That was reasonable and estimate, Hendi, I'd say. Hendi Susanto – Gabelli & Co.: Yes. But – and then, Greg, could you elaborate on sales opportunities with PTI and what timeline or horizon with in India?

For India investments or growth? Hendi Susanto – Gabelli & Co.: Okay.

Okay. Well, it's active. And in – so, in particular we've constantly made investments there to really manufacture a number of our products lines. As I mentioned in the presentation, a number of those end up being the high performance products as well. But probably of note – and I've spoken to it in previous calls is being eligible for what we – what is called the offset dollars, and we are actively working with two clients and trying to bring that to reality and that may end up providing them benefits and a way for us to grow. It's probably less about manufacturing infrastructure, Hendi; more about, if you want to say, giving the right approvals within the Company – within our clients, as well as giving position in – within the, I'll call it the right – I mean these words are less – just certifications within the Indian government to become eligible. And we believe that that has a potential of stirring business our way. So at this point, it's not like the factory expansion so much per se as it is getting position for that eligibility. Hendi Susanto – Gabelli & Co.: And, Greg, would you talk about product groups within LGL? I think what I would like to understand better is that you have this number of product groups within LGL. And in my officer party of interest, I think one may think that under some potentials, you may be able to settle like system products both for system segment but at the same time one may think that it's a way – one may – one would like to know if it's like legacy business, gross business, product selling development or et cetera because (inaudible) a strong product group then there's some indications on how to use road maps as to some legacy business than to some notification that it may be of some smaller value?

Okay. All right. It's a first statement. So from a product grouping perspective, I'll start with filtering. We have a number of filtering offerings. And primarily, they are an Aero Defense applications either in radios, avionic communications, and they tend to be, I'll just say, use in applications that are close to the antenna. Not always but they're certainly part of what's called the RF signal path. And it's also an area where we've done a fair amount of R&D investment in the past and certainly most last 18 months, it's been our heaviest area for R&D investment. That particular kind of business – could it stand alone and be segmented? Yes. I mean it tucked inside the infrastructure. It's certainly part of the Aerospace and Defense marketplace. We are not really a commercial products filtering company, okay? Hendi Susanto - Gabelli & Co.: Okay.

From a timing device perspective, there's really two parts to it. There is really network timing; the things that going backhaul, switches, routers, all those kinds of devices. There is timing that goes into base stations, as we – as those piece of equipment convert signals – well, packets of information around. That business itself is – there's probably four or five kinds of products that make up network timing. And I would say that those could be grouped together. And then, there's timing that goes into Aero Defense applications, and some of that actually is – it also goes into the radio frequency signal path. And some of that actually goes into digital controls used in a lot of avionic applications. And could that be segmented? The answer is yes. I think it probably most cleanly segments between the very – the two markets. Either, network timing or Aerospace and Defense. And the reality – and the reason for that, Hendi, is clients – they buy that whole suite of products from us on Aero Defense. So first instance, (Rockwell) would be quite interested in having a front-end filter, as well as timing devices that could be used in the RF signal path, as well as timing devices that could be used in various kinds of avionics control applications. So, I think it probably – it would probably best fit, less on a product then maybe on a market but it's – but there's probably potential either way. Hendi Susanto - Gabelli & Co.: And then, can you tell us the likes of the party you go whether they are like a legacy product or whether they are, let's say, let's call it like productive product groups?

Meaning growth product groups? Or...

Yes. I would say that they tend to be legacy more mature. I think that's where – did I answer the question? I'm not sure. Hendi Susanto - Gabelli & Co.: And then last question is for my (inaudible). Despite of the past markets that you're facing, where are we, in terms of the Companies of (inaudible) for the year?

You know we don't tend to give a lot of guidance. But forward look, I'd say the backlog – so some growth there and we're glad to see that. But I would simply say sort of second half if going to continue to sort of a tough go. That's probably all I can say on that. We don't tend to get too much forward guidance. Hendi Susanto - Gabelli & Co.: And then probably if I may add one more. What is the estimated CapEx for this year?

We have a target CapEx rate we've shared publicly of around 1.5% of revenue that can fluctuate, depending on what opportunities we have in front of us. I will say that if you look at where we come out on Q2, CapEx was down rather than the Q1. That's a combination of things. Primarily, we're trying to work to get certain projects into production. But we're also trying to be prudent and make sure that we're investing in places that gives the best potential for growth in terms of product investment or CapEx to support product investments. So, yes. That's probably I'd say we are. Hendi Susanto - Gabelli & Co.: Okay. Thank you. And good luck for the second half.

Thank you.

Thank you.

(Operator Instructions). We'll pause for just a moment to allow additional questions to queue. (Operator Instructions). At this time, there seems to be no additional questions. I'd like to turn the program back over to our presenters.

Listeners, thank you for joining our call this morning. I would just finalize that a couple of comments. In the core operating business, it was nice to see the backlog pick up. We have some bright spots in the Aero Defense and the first half has shown some nice growth, and our largest clients – the top spot for us has been in our networking business. We understand we're not – Management understands, the Board of Director understands we're not delivering the kind of performance that our investors would expect. Frankly speaking, that's why the review process is underway. We're not really able to comment on that very broadly, as I've stated, but it is an active process with the Board of Directors and Management. So, once again, thank you for listening in this morning. And as decisions are made, we'll obviously bring those forward to you. Thank you.

This ends the LGL Group's Q2 2013 Earnings Report Call. If you have any further questions, please send an email to greg.anderson at – g.anderson@lglgroup.com or to laduaneclifton at – l.clifton@lglgroup.com. That is g.anderson@lglgroup.com or lclifton@glggroup.com. Thank you and have a wonderful day.