Please stand by. Good day, everyone, and welcome to the Sypris Solutions Incorporated Earnings Conference Call. As a reminder, today's presentation is being recorded. At this time, for opening remarks, I would like to turn the call over to the President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead, sir.

Thank you, Doris, and good morning, everyone. Brian Lutes, Tony Allen and I would like to welcome you to this call, the purpose of which is to review the trends reflected in the company's financial results for the third quarter of 2012. For those of you who have access to our PowerPoint presentation this morning, please advance to Slide 2 now. We always begin these calls with a note that some of what we might discuss here today may include projections and other forward-looking statements. No assurance can be given that these projections and statements will be achieved, and actual results could differ materially from those projected as a result of several factors. These factors are included in the company's filings with the Securities and Exchange Commission. And in compliance with Regulation G, you can access our website at sypris.com to review the definitions of any non-GAAP financial measures that may be discussed during this call. With these qualifications in mind, we'd now like to proceed with the business discussion. Please advance to Slide 3. I will lead you through the first half of our presentation this morning, starting with an overview of the highlights for the quarter, to be followed by a brief discussion of each of our 2 business segments. Brian will then provide you with a more detailed review of our financial results for the quarter. Now let's begin with an overview on Slide 4. Without question, the third quarter turned out to be a real challenge as the headwinds of uncertainty from the looming fiscal cliff, events in Europe and the continuing resolution impacted production levels in the commercial vehicle market and delayed funding for purchases in the Aerospace & Defense sector. The company reported sales of $78.8 million compared to $91.2 million for the prior…

Great. Thanks, Jeff. Good morning, everyone. I'd like to go through the highlights of our third quarter and year-to-date results with you briefly and, that this time, ask you to advance to Slide 10. You'll see, starting from the top there, our A&D segment revenue for the quarter was down about $4.9 million from the prior year period, primarily due to the completion of EDMS, as well as manufacturing and engineering programs. Additionally, as you heard, Jeff mention the quarter was impacted by the budgetary and funding challenges we've been discussing with you for quite some time. However, despite the lower revenue, we did expand gross margin by 260 basis points versus the prior year quarter, again reflecting the strength of execution as we move to a more favorable product mix and a testimony to the team's relentless focus on building a culture of Lean. With respect to our Industrial Group, we did experience decelerating commercial vehicle demand during the quarter. This resulted in about a $7.5 million revenue decrease from the prior year quarter. And once again, as you heard Jeff mention, the team did a great job managing the downside conversion on lower volume resulting in gross margins that expanded by 60 basis points. Finally, on the consolidated view, despite the revenue overall at $12.4 million, we did realize overall margin expansion of 60 basis points. Obviously, the challenges during the quarter were a result of lower volumes, especially within our Industrial Group. Everything -- if you look at this, everything being equal within the Industrial Group, assuming Q3 revenue to be equal to Q2 revenue when viewed on a sequential basis, we estimate the volume decline impact on earnings per share to be approximately $0.11. Again, really concluding here, both segments did a very good job managing…

[Operator Instructions] And our first question comes from Jim Ricchiuti from Needham & Company.

First of all, are the test and measurement arbitration issues completely behind the company at this point?

Yes, they are completely resolved.

Okay. And it looks like your legal expense in the June quarter was about $0.5 million or so. Was it all associated with this? And what were -- Brian, I don't know if you can give us a number for Q3.

The Q2 expense that you referred to is accurate. I think for Q3, it's about $6 million.

$600,000.

$600,000 in Q3.

Okay, so that largely goes away Q4?

That is correct.

Okay. So we should assume, I guess, your SG&A, expense some decline in that line item?

That's -- yes.

Okay, great. And if we look at the current slow growth environment, is it fair to assume that your -- the revenues, the quarterly revenues from your industrial segment can remain around these levels, or do you still see some potential downside as some of your customers adjust their production?

Jim, this is Jeff. I think we'll see probably some additional downdraft in Q4. Not of a material nature, but we've got the holidays and all sorts of things going there, so there's some also natural cycle down that takes place then. And then we're anticipating that Q4 into Q1 will be somewhat flat, and then we'll see where it goes from there.

Okay. And I guess the impressive -- really, the impressive part is the way you've been able to maintain some pretty attractive margins in the business just given the falloff. Apart from the operational improvements that you've made, were there any unusual issues, with respect to mix that contributed to the margins in the quarter in the industrial business?

No. No.

No.

And actually same is true, same question really for the Electronics business. Again, you had a pretty significant sequential decline in revenues and yet you were able to maintain pretty healthy margins. What's the outlook in terms -- from a margin standpoint over the next 1 to 2 quarters? Anything unusual that we should be thinking about?

I think that -- we expect margins to remain at or above where they are now. And so at the moment, we don't see a reason to believe that there'd be any diminishment of margins.

Okay, okay. And, Jeff, I don't know if this is a question you can answer or not, but I'm just wondering again just given the uncertain government spending environment, how might we think about your backlog as you enter 2013 versus 2012? Is this an issue where you're hoping to see some orders come in once the spending environment becomes a little -- there's more clarification on that? What kind of backlog would you anticipate entering the year with versus 2012?

Let me answer this way Jim. I think that what we're going to see, or what we expect to see at this point anyway, is to continue to trend about where we are at the moment going forward. And clearly, we'll all benefit once the spending priorities are addressed, and we have a new administration and Congress gets through the fiscal cliff. But at the moment, we see things being as pretty lumpy, and we certainly don't see growth opportunities at the moment.

Got it. And will fiber be meaningful for you guys in 2013 at this point? Or is it still something where it's really in the investment mode and you expect to see the benefits of that looking further out?

We're going to have to see. It depends. We're shipping our first -- targeted to ship our first cyber range this quarter. And we have a number of opportunities that we're working on in that area. And if that converts, then it could be. With regard to the other initiatives we're working on in cyber, they're a little bit longer term and less likely to impact 2013.

Okay. And final question, I'll just jump back. Brian, the partnership with Toyota, is there any upfront expenses associated with that and in terms of what we should think about that? And a question would be also when would you anticipate some of the benefits flowing in from that?

Well, those are both very good questions. We don't expect the cost of working with Toyota to have a negative impact on our margins. We expect that the cost and the benefits will time themselves out pretty closely with one another. But this is a very exciting opportunity for us to really take our organization to the next level with the intent, not only of certainly driving additional cost out and becoming more competitive and increasing our margins, but also the more important longer-term feature is embedding this type of thinking in our culture. And so we're very excited about that and look forward to participating with Toyota during 2013.

Jim, one clarification for you because I think this is important for the -- all of the other analysts joining us today. As we think about the arbitration and the settlement that's behind us on the comment referencing the expenses incurred in Q3, just as a reminder, those do flow through discontinued operations.

[Operator Instructions] And we'll go next to Tim Fronda with Sidoti & Company.

And as far as protecting margins, was it more about maintaining pricing discipline or -- and product mix or were you able to lower certain costs? Was it more on that side of it?

I think, Tim, largely, it was a quarter marked by execution. We had a very balanced revenue profile in our Electronics business. There was nothing that stood out in terms of driving the margin one way. It was really a quarter again marked by execution in both the segments.

And with the slowdown in orders in the commercial vehicle side, if the slowdown were to last a little longer than you expected, what are your plans to lessen the effects of that?

Well, I think we continue to rebalance and work closely with our key customers especially in the Industrial segment. I think we have a good 6-week view out. As Jeff mentioned to the earlier question, I think we will continue to see challenges in Q1, but it's really all about rebalancing to meet the demand criteria.

Tim, we have an excellent team that runs this side of the business for us. And just as a they did a great job of preparing for the upturn here over the past 18 months, they also responded very quickly maintaining direct labor, managing inventory, doing those types of things. And if the market continues to stay down or soften further beyond our expectations, we'll just -- we'll remain very aggressive in managing our direct costs.

Great. And final question. As far as strategic opportunities, are you more looking on the side of complementary products or maybe in another geographic area and growth market? What's the main focus there?

Well, we've been looking at several things quite frankly. One is we've been looking at expanding into some developing countries, primarily in South America and, to a lesser extent, India. And our objective there is to expand our footprint, not only with our existing customers, but add new customers and have the balance, if you will, of a different economic cycle. Here in North America, we've been looking at the opportunity to expand the number of touch points that we have with our customers by adding additional services and capabilities that we don't currently provide.

[Operator Instructions] And, Mr. Gill, at this time, there are no further questions. Sir, I'll turn the call back to you.

All right. Thank you, Doris. Brian, Tony and I would like to thank you for joining us on this morning, especially given it's historic day. And I'm sure a number of you have been out voting. We welcome your continued interest and, of course, your questions about our business. Thank you and have a great day.

And, ladies and gentlemen, that does conclude today's presentation.