Jeffrey Gill - President and Chief Executive Officer Tony Allen - Chief Financial Officer.

Jim Ricchiuti - Needham & Company Joel Cahill - The Jameson Companies.

Good day and welcome to the Sypris Solutions, Inc. Conference Call. Today’s call is being recorded. At this time, for opening remarks, I would like to turn the call over to President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead..

Thank you, Kayla and good morning everyone. Tony Allen and I would like to welcome you to this call, purpose of which is to review the company’s financial results for the fourth quarter and full year 2016. 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 maybe discussed during this call.

With these qualifications in mind, we would now like to proceed with the business discussion. Please advance to Slide 3. I will lead you to the first half of our presentation this morning, starting with an overview of the highlights for the year, to be followed by an update on the status of our transition plan implementation.

Tony will then provide you with a more detailed review of our financial results for the quarter and full year 2016 as well as to walk you through the significant savings we expect to realize in 2017 and 2018 when compared to the year just completed. Now, let’s begin with the overview on Slide 4.

The year 2016 was without question a period of significant accomplishment for the company.

We reported earnings of $0.30 per diluted share for the year, which reflected the gains on sale associated with our various divestitures and underperforming assets as well as the host of high cost expenses that we incurred for financings, severance, relocations, outside services, operational disruptions and interest among others.

The amount of money raised through the sale of the underperforming assets approximated $54 million, certain of the proceeds of which were then used to repay all of the company’s high cost commercial debt, resulting in $5.5 million of savings on interest expense and other debt-related costs in 2016, in addition to investing in working capital and funding the company’s transition plans.

When completed later this year, we will have reduced total manufacturing space in use by approximately 1 million square feet over the past 24 months. And we will have reduced expenses by an expected $26 million per year by 2018 when compared to 2016’s actual results.

Perhaps even more importantly, all activities required to achieve the $18 million of estimated savings in 2017 and the $8 million of estimated savings in 2018 are expected to be substantially completed by mid-2017. No further actions or forecast would be required thereafter in order to achieve these important expense reduction targets.

When completed later this year, we will have eliminated redundant overhead and capital requirements. We will have increased capacity utilization and divested idle and underutilized non-core assets. We will have lowered our variable costs, improved our margins and reduced our breakeven point.

In short, we will now have a cost competitive platform that is well positioned for profitable growth. The early returns are positive. Customer orders and backlog are up substantially when compared to the prior year end.

We were recently recognized by a major customer for innovation and operational excellence, both of which indicate that we are on the right path. We have more work yet to do, but the goal line is increasingly near. Now, let’s turn to Slide 5 and I will bring you up-to-date on the status of our transition activities.

As a point of reference, we established a clear set of objectives for ourselves when we first embarked upon the plan. We wanted to significantly improve our cost competitiveness on a sustained basis, which meant that we needed to address both capacity utilization and fixed and variable costs.

It also meant that we needed to make a decision with regard to the direction and concentration of our business. We wanted to establish and maintain a highly liquid balance sheet so that we could fund the completion of our transition out of internally generated funds.

We wanted to diversify the company’s book of business both in terms of customers and markets served. This would help to reduce the impacts of cyclicality and the risk associated with the termination of a program and/or loss of a customer in the future.

And finally, we wanted to build shareholder value through a focus on innovation, growth and a culture based upon continuous improvement. Progress has been impressive, but is not yet complete. Turning to Slide 6.

During 2016, we generated $12 million of proceeds through the sale and leaseback of our campus in Toluca, Mexico, which was more than 50% vacant. We divested our CSS business for $42 million, which to own some very interesting groundbreaking technology, but we clearly do not have the resources to realize its potential in a timely manner.

We used the proceeds from these transactions to eliminate 100% of our high cost commercial debt, which has resulted in the $5.5 million savings on interest expense and other debt-related costs in 2016.

We downsized the operations of Sypris Electronics, less the CSS portion of the business, into a modern 50,000 square foot facility, thereby reducing the overall footprint by 250,000 square feet and saving $1.7 million in annual operating costs.

We reduced salaried headcount by $2.7 million and initiated the transfer of certain forging and machining operations from the Broadway Plant to other Sypris locations. And as I mentioned a moment ago, we were successful in securing new orders to boost backlog for 2017 and 2018 shipments. Yet, we have more to go.

Turning to Slide 7, we need to make certain that we received customer approval for the production launch on each of the programs that have been transferred to Toluca in a timely fashion.

We must complete the implementation of our new ERP platform, which will ensure that each of our operations will be on the same system for the first time in the history of our company. We must manage the transition of production from our Broadway Plant in a smooth and effective manner.

We must continue the orderly liquidation of idle and underutilized non-core assets look to eliminate the financial drag and to supplement the liquidity of our balance sheet to support potential investments. We must also continue to operate effectively.

We have several large orders and backlog that must be shipped on time and under budget so that we can continue to please our customers.

With the exception of the timely shipments just mentioned, we expect all of these activities to be substantially concluded by mid-2017, with resulting savings of $18.2 million in 2017 and an additional $8.1 million in 2018 reflecting the full year impact of the 2017 changes.

Turning now to Slide 8, I mentioned earlier that our orders and backlog at year end had increased substantially on a year-over-year basis. The success has been well distributed across our business, which again leads us to believe that we are on the right track.

For Sypris Electronics, we were awarded a development contract to manufacture and test electronic hardware for a new radar system, a contract for the production of circuit card assemblies for a major missile program and orders for the production and assembly of medical devices.

For Sypris Technologies, we were awarded new business for the production of transmission shafts for a large European heavy truck OEM, axle shafts for U.S. automobile production and gear sets for an ATV program. We also received a significant order for closures and related components for a large oilfield project in Eastern Europe.

We were recently recognized by Sisamex for innovation for the design and manufacture of the patented lightweight Sypris Ultra Axle Shaft, for project excellence, for execution in the transfer production programs from Broadway to Toluca and for operational excellence as measured by quality, delivery and cost.

Advancing to Slide 9, I would like to conclude this portion of our presentation this morning with the following observations. At Sypris Technologies, we will now have a globally competitive platform from which to serve our customers.

We have lowered our variable costs, eliminated redundant fixed overhead and capital requirements and increased capital utilization. We have retained important human talent and we have assigned these individuals to new locations to accelerate product development, improve production processes and drive continuous improvement activities.

Moving to Slide 10, at Sypris Electronics, we have now a singular strategic vision. We manufacture complex, high cost of failure electronic hardware where certifications, registrations and traceability standards are important elements of our customers needs.

In this instance, we have also greatly reduced fixed overhead and SG&A, thereby substantially improving our rates and competitiveness. And on a consolidated basis, we will have a cost competitive platform that’s positioned for profitable growth.

Our customer mix has been diversified with no single customer representing more than 12% of revenue, where our markets are balanced between heavy truck at 32% of sales, oil and gas at 29% and aerospace and defense at 23%.

Our balance sheet is solid and our margins are expected to expand materially in both 2017 and 2018 as a result of all of the activities we have discussed here in this morning. I am sure that there will be some surprises down the road, but suffice it to say, we have made some very significant progress.

Turning now to Slide 11, Tony Allen will lead you through the balance of our presentation this morning.

Tony?.

Thanks Jeff. Good morning everyone. I would like to discuss with you some of the highlights of our fourth quarter and full year 2016 financial results. And then I will spend most of my time providing additional color on our forward outlook. Please advance to Slide 12.

Q4 consolidated revenue totaled $20 million with Sypris Technologies and Sypris Electronics contributing 80% and 20% respectively. Q4 was the first full quarterly period that excludes the CSS business sold in August 2016.

Sypris Electronics’ revenue was impacted during the quarter by program delays arising from – primarily from component issues and the efforts around completing the relocation of our facility which wrapped up in December.

Gross profit and EBITDA during the quarter benefited from improved results from Sypris Technologies, which recorded its best quarterly performance of the year in Q4, but the inverse was true for Sypris Electronics, which was pressured by lower volumes, cost incurred during the quarter for the facility relocation, the write-off of certain assets associated with the prior facility and certain inventory on completed programs and higher SG&A spend due to severance costs and professional fees.

The previously announced plan to transition operations from our Broadway Plant gave rise to the recognition of approximately $600,000 of severance and other costs associated with this action during the fourth quarter.

Full year consolidated revenues totaled nearly $92 million with Sypris Technologies and Sypris Electronics contributing 69% and 31% respectively. As expected, revenue declined in both segments in 2016 from 2015 contributing to a 37% decline from the prior year.

During 2016, Sypris Technologies experienced lower demand in the commercial vehicle and oil and gas markets and lower revenue from the reduction of unit sales prices for certain components based on our contractual rebuild terms for steel prices.

We also sold our trailer component manufacturing assets at the beginning of the third quarter of 2015 and Sypris Electronics sold the CSS business in the middle of the third quarter of 2016, both of which lowered our revenue base. Gross profit for the full year 2016 improved from 2015.

However, this performance is still well below targeted levels in both segments, which we are addressing with the cost reduction initiatives we will be discussing in more detail. EBITDA and EPS for the year of $0.30 per share both included the gain recognized in Q3 for the sale of the CSS business.

Let me now shift our focus to the strategic actions our management team has underway to improve our financial performance in 2017 as I would like to spend the balance of my time going through the actions and expected results. Please advance to Slide 13.

Our goal in the next 2 years is to generate cost reductions of over $26 million as compared to 2016. We will walk you through the primary components of this and provide status on where we currently stand. We expect to realize over $18 million of reductions in 2017 and an additional $8 million in 2018.

As we consider where we are today with respect to this goal, we are pleased to report that the actions to drive nearly $15 million of our 2017 goal have been completed, which is over 80% of the total.

During the fourth quarter of 2016, we completed the move of Sypris Electronics, which represents a reduction in our facility size of approximately 250,000 square feet and will drive almost $2 million per year in savings beginning in January 2017.

We have recently modified our plan for the transition of production from our Broadway Plant and now expect to continue to operate in this facility through 2018 at reduced levels from current production.

We negotiated terms with the three unions representing the hourly workforce at the Broadway Plant to facilitate a smooth transition in the first half of 2017 and to provide placement services for those employees impacted by this action as we complete the process.

We have notified our customer base and started the process to launch and improve parts for production at our Toluca facility. We removed certain assets that have been underutilized in our Toluca facility for the past 2 years to make room for equipment transferring from the Broadway Plant.

We also started the equipment moves to Toluca in December for certain machining assets and this process will continue through the balance of 2017.

In December, we sold a press that was previously used for some high volume automotive components that had been idle for several years, generating cash proceeds and a gain on the disposal of nearly $1 million.

We are in the process of marketing certain assets in our Broadway and Toluca plants that are no longer considered strategic to our future growth and production objectives. This process has already resulted in a transaction we expect to close this Friday for $2.5 million on the sale of single asset.

Together with the remaining assets, we will be identifying to divest, we expect the aggregate proceeds generated from asset sales will exceed the severance, relocation and other transition related costs to be incurred during the first half of 2017.

We expect long-term benefits from a significant change in customer concentration and markets served with our top five customers forecast to represent less than 50% of revenue in 2017. Our top three markets are also more evenly balanced between heavy truck, oil and gas and aerospace and defense.

Our gross margins are expected to expand into double digits in the second half of the year, following the completion of our cost performance initiatives and improved revenue mix. Please advance to Slide 14 and we will continue discussion – the discussion of our cost reduction goals.

On this slide we breakout the impacts of our actions are expected to have on our P&L line items for 2017 and 2018 as compared to 2016 as the base year. The table shows an allocation of the planned reductions of $26.3 million with $18.2 million occurring in 2017 and $8.1 million in 2018.

The actions already taken in 2016 and those that remain in 2017 will significantly lower the cost structure and reduce the breakeven point in both of our segments.

We are moving costs from system to achieve a lower fixed overhead structure will improve our competitiveness to win new business and increase the profitability on our current programs and new business awards for later in 2017, 2018 and beyond.

We estimate a reduction in SG&A spend of over $7 million in 2017 and nearly $2 million in 2018, that will drive SG&A down from 24% of revenue in 2016 to approximately 17% in 2017. We also expect our depreciation expense to decline as we reduced our asset base following the transition of production from our Broadway Plant.

Again, I would like to report that the actions taken to complete over 80% of the $18 million goal shown in the 2017 column are complete.

This includes the discrete costs and expenses recognized in 2016 that we don’t expect to experience in 2017 or 2018 and the direct savings from actions reducing our cost structure, including the Tampa facility relocation and reducing our SG&A spend at both segments in the corporate level, but most notably at Sypris Electronics to align with its new business model.

Please advance to Slide 15 and we will begin to walk through these line items starting with cost of sales. The majority of our facility costs are allocated to cost of sales, including the rent and occupancy costs for the manufacturing operations of Sypris Electronics.

We signed a new lease in 2016 in Tampa at a facility just around the corner from our prior location.

Over the second half of 2016, we completed to finish out of the new facility with equipment transferring during the third and fourth quarters, production ramping up during the fourth quarter, customer visits to review and approve production and shipments beginning in the fourth quarter, and concluding with the move of all of our administrative personnel in December.

We expect our annual rent and operating costs at this new 50,000 square foot facility will be $1.7 million less than those incurred in 2016 at our former 300,000 square foot facility. Our entire workforce has been energized by their new working environment.

And given the proximity of the new facility to the old facility, we have not and do not expect to lose any employees due to the move. The savings on this relocation will begin to flow through our results in the first quarter of 2017.

Other year-over-year reductions we expect in 2017 at Sypris Electronics include the amortization expense related to assets divested with the CSS business. The expense was recognized in cost of sales prior to the divestiture in August and we do not plan to incur costs for similar type programs in 2017 or thereafter.

We also recognized the charge during the fourth quarter of 2016 for an inventory reserve on certain programs that are now complete and for which the recoverability of our cost in those programs was determined not to be probable in the fourth quarter.

Changes to the cost structure for Sypris Technologies that are going to become effective following the transition of the Broadway Plant’s operation includes significantly lower employment costs in both our hourly and salaried workforce.

On the hourly side, our total workforce will be reduced to align with the aggregate production and volumes in Toluca, which will include the base level of ongoing contracts being manufactured there today and the volume being transferred from the Broadway Plant in 2017.

Therefore, we will see an increase in headcount in Toluca, which will be more than offset by a reduction in the Broadway Plant following the transition late in the second quarter. In addition to the reduced headcount, we also expect to generate savings from the lower employment costs of our Toluca operation.

The fully loaded hourly wage rate difference approximates $29 per hour on average, which will translate to significantly lower conversion costs for all transferred production.

We will also have a reduction in our salaried workforce from the elimination of positions we are carrying today to support manufacturing facilities that comprised 450,000 square feet in Louisville and 215,000 square feet in Toluca.

After the transaction – excuse me, after the transition is complete in the second quarter, we estimate a reduction of 35 salaried headcount, which will further contribute to our cost reduction goals.

Since these transition and related headcount actions will be completed late in the second quarter of 2017, the cost savings generated by these actions will be realized beginning in the second half of 2017 with the full year impact flowing through in 2018.

We are projecting gross margins in the first half of 2017 will be in the 5% to 7% range and then following the completion of the Broadway transition we see gross margins in the second half of 2017 increasing to the 15% to 17% range. Please advance to Slide 16 and we will discuss the changes in selling, general and administrative expense.

SG&A expense in 2017 is expected to decrease by $7.2 million as compared to 2016 and an additional $1.8 million in 2018.

Cost recognized in 2016 that would not be repeated in 2017 include charges related to the relocation of the Sypris Electronics facility in Tampa; the consulting, legal and professional fees incurred in 2016 associated with our senior secured debt that was repaid in August 2016; and retention incentive – and incentive costs including those associated with the CSS sale.

The CSS sale also enabled us to realign our cost structure to support our retained EMS business of Sypris Electronics, resulting in a significant SG&A spend reduction in both absolute dollars and as a percent of our revenue.

On a consolidated basis, our SG&A expense was 24% of revenue in 2016 and we see that decreasing to approximately 17% to 19% in the first half of 2017 and 16% to 18% in the second half of 2017. Please advance to Slide 17.

Our research and development spend in recent years has been primarily associated with the operations divested in the CSS sale of Sypris Electronics. Therefore, we expect R&D in future periods to be significantly lower.

At Sypris Technologies, we will continue to use our internal engineering resources in Louisville and Toluca to build on the momentum we gained from the successful development of the Sypris ultra-axle shaft.

This product was recently recognized as an innovation award winner by one of our customers and we are excited about the opportunity to leverage the success and the growth opportunities for our business.

We also have process and product development underway – efforts underway for other commercial vehicle components and oil and gas products that our team is pursuing. Please advance to Slide 18 and we will discuss certain cost we incurred in connection with these actions.

During 2016, we recognized a total of $1.2 million for severance, relocation and other costs within Sypris Technologies, with approximately $500,000 in the first half of the year primarily associated with workforce reductions in Toluca and the balance recognized in the fourth quarter for the initial accrual of severance expense for the hourly and salaried workforce that will be impacted by the Broadway Plant transition and the write-off of certain components related to equipment that will not be utilized in future periods.

Additional severance costs will be accrued in the first and second quarters of 2017 for the workforce reductions and we have also started the relocation of equipment from Louisville to Toluca from which the cost will be recognized as incurred throughout 2017 and into 2018.

In total, we estimate these costs will increase $1.1 million in 2017 from 2016 attributable to severance and equipment relocation costs. We expect to complete the equipment transfers in 2018 and therefore the costs to be recognized next year are estimated to be approximately $800,000 less in 2017.

Estimated proceeds to be generated from the sale of assets during 2017 are expected to exceed the transition costs we will recognize during the first half of 2017. As previously noted, we will close later this week on the sale of an asset for $2.5 million and the marketing process for other assets is underway.

Another future benefit from our actions will come from the real – from the reduction of capital spend required to support production in both Toluca and Louisville. We will continue to have sufficient manufacturing capacity for our current outlook and our footprint will allow us to expand as needed to support our future growth plans.

However, we will be able to eliminate those areas in which we don’t think capital spending has been required due to being fully operational in two facilities that total over 600,000 square feet. Please advance to Slide 19 and we will review the impact of our lower debt structure will have on interest expense.

The transaction to divest the CSS business provided us with the ability to repay all of our commercial secured debt in 2016. The elimination of this high cost debt began to favorably impact profitability in the third quarter of 2016 and will continue in 2017.

We also recognized $1.5 million charge in 2016 associated with the extinguishment of the debt. In total, the reduction in interest expense combined with the elimination of the loss on the extinguishment of the debt is expected to generate a $5.5 million cost reduction in 2017 compared to 2016.

Another benefit from the retirement of these obligations came through the reallocation of time spent by our executive, finance and administrative teams to support the requirements under the prior loan agreements. We have since been able to productively redeploy these resources to and value-add opportunities to improve our business.

We expect our quarter end cash balance to be relatively stable in 2017 and we have previously discussed the opportunity to fund our transition costs with proceeds to be realized from the sale of certain underutilized non-core assets.

We also believe we have the potential to generate funds to strategically reinvest in our business in 2017 and 2018 in support of our growth initiatives. Please advance to Slide 20 and we will wrap up with some key takeaways from our call today.

We reported earnings of $0.30 per diluted share for the year which includes the upside from gains on asset sales but also the burden of many discrete expenses that are not expected to be repeated in 2017.

The gross cash proceeds from the asset sales during 2016 approximated $54 million with a portion of the proceeds used to repay all of the company’s high-cost commercial debt in addition to investing in working capital and funding the company’s transition plan.

The implementation of strategic actions to reduce our cost structure to align with the revenue profile in both of our segments began in 2016 and we are beginning to recognize the benefit of some of these actions early in 2017.

Execution is the key theme for our business in 2017, as we strive to complete the remaining initiatives to achieve our cost reduction goals and deliver quality products on time to our customers. This is the pivotal year for each segment of our business to advance the return to profitable operations.

Our goal is to achieve $26 million in cost reductions during 2017 and 2018 and we have taken the necessary actions to achieve nearly $15 million of our goal for 2017 and we are confident we can deliver the rest of the target.

We expect the remaining actions will be substantially complete by the end of the second quarter of 2017 and begin to contribute to improved gross margins during the second half of the year. We expect to take out over $7 million in SG&A expense in 2017 as compared to 2016 and to increase the savings to a total of $9 million by 2018.

We have the opportunity to fund the investment required to complete the severance and equipment locations with the proceeds from the sale of underutilized non-core assets and are well on our way to achieving this objective.

And finally, we believe we will now have a competitive – a cost competitive platform in both segments of our business, that is well positioned for profitable growth. This concludes our call today. And at this time, I would like to turn it back to Kayla to answer any questions you might have for us at this time..

Thank you. [Operator Instructions] We will take our first from Jim Ricchiuti with Needham & Company..

Thanks. Good morning.

Wanted to just ask about the revenue levels you were exiting Q4 at in both technologies and the electronics businesses, you saw a nice step-up in the Sypris Technologies business, is that something normally you will see some sequentially lower revenues in Q1, how should we think about where you are starting the year off in this part of the business?.

Jim, I think you will see a step-down in Q1 in revenue in the technologies business from Q4 levels. It should not fall significantly below kind of where we were trending in the middle of the year in ‘16, but it will decline from Q4..

Got it.

And the increase you saw sequentially in that part of the business in Q4, was there anything unusual that drove that improvement or is that just – was that somewhat anticipated?.

It wasn’t anything unusual. It was a mix of oil and gas and truck components. But no single big item hit us in Q4..

Okay.

And on the electronics side, some way we are at the bottom here, is that a fair characterization and how do you see that beginning to move up just given the order activity backlog you alluded to?.

Yes. It will move up. We do expect it to move up in Q1, but really more significantly in Q2. Some of the programs, the component issue that I referred to earlier is getting resolved as move through Q1. But the ramp in revenue that we expect on the electronics business really begins more significantly in the second quarter..

Okay.

And I realized the mix of revenues is a key determining factor in margins, but you are looking at a pretty significant increase and anticipating a significant improvement in gross margins in the second half of the year, some of that is clearly under your control, I assume a lot of that got quite a bit with all the cost initiatives you are taking, but as we think about the improved revenue mix that you are anticipating is what I am trying to get an idea is what kind of quarterly revenue level you need to be at to get to breakeven?.

As we look forward Jim, I think what you will see and you are right there is a lot of the margin enhancement that is in our control and a lot of that is baked in because of the changes that we have made to our cost structure thus far.

We do still have actions to complete on the technologies business, but over the next two months to three months we expect those to wrap up. So it will start to drive margin improvements late Q2, but certainly more significantly in Q3. In terms of breakeven, I think as you see, it’s really not growth in revenue that’s going to drive it at this point.

The mix that we have in the business today that we referred to between oil and gas, truck components, aerospace and defense, even within the truck components the mix of customers that we have, it – with what we have today from a revenue base, we have the opportunity to reach those margins and to return to breakeven.

It’s execution on the cost side that’s primarily going to drive that in the second half of the year..

Okay, that’s helpful.

Tony and just with respect to some of the equipment transfers to Toluca, how might we – how should we think about the risk associated potential for disruption, as you move that – as you ship more production there?.

It’s – you have to plan for that and expect it and you will have some. But we have one of the things certainly in our favors. We have an outstanding team in Toluca. And they have – they are very experienced in dealing with asset transfers, launching new productions, launching new programs.

And we have the benefit of the legal team that has been through this before with Marion, with Kenton, with Morganton. So yes, there is risk, but we don’t anticipate any major disruptions at all to production. We don’t expect any disruptions to our customers in terms of deliveries.

We are doing everything that we need to do from a bank build standpoint to support that and provide some insurance, if you will. But it’s – thus far everything has proceeded on plan and we expect that to continue..

Okay.

Two final questions, I have been hearing some big things in terms of DoD orders, what are your defense customers telling you in terms of the expectations, you had some, I think decent bookings that you alluded to again, but just more broadly in terms of expectations in light of the political developments in Washington?.

Jim, this is Jeff. Good morning. The outlook seems to be reasonably positive. And we are not getting our hopes up and thinking that this is going to be some boon. But clearly we have some programs now that have longer legs that are multi-year that give us the ability to get into more of a rhythm on these things and that’s been a real plus..

Okay.

A lot of noise in Washington about potential for border tax, how are you guys thinking about that relative to the transfer and increased production that you are anticipating in Toluca?.

Well, there has been a lot of conversation about that. And our observation is that the automobile, light truck, even increasingly the heavy truck business is global.

And so whether it’s importation from Mexico or India or China or Eastern Europe or South America, if taxes start to be imposed, I think eventually that gets passed through to consumer, I am guessing.

But I can’t imagine that what it’s going to do is cause companies to relocate huge amounts of productive capacity back from these lower costs geographic regions to the U.S., because the capacity does not exist in the U.S. so..

Okay. Thanks a lot guys. Good luck..

Yes. Thanks Jim..

And we have no further questions in queue at this time..

Okay. Well, thank you, Kayla..

I apologize, gentlemen. We do have one from Joel Cahill, The Jameson Companies..

Hi guys.

Thanks for the call and the information this morning [indiscernible] the cost reductions and all of the heavy lifting you guys have done, that’s excellent, on that, it looks like the estimates are around $5 million kind of the total severance costs and transportation of assets, do you see much risk around that, it looks like it’s just come a little bit from when you probably amended 8-K, I guess in February, so first part is that.

And then the next part is given what Tony what you said on those there is an asset sale going to happen in this week hopefully to be closing on Friday, you continue to say that there is a – it’s likely that the asset sales are going to be larger than the cost of this transition, is that potentially considerably larger.

My next question after this will be on what the assets looks like?.

Yes. In terms of the estimate of what we expect to incur for severance and relo, I think the numbers that we have out there are the best estimates that we have at this time. We don’t see any significant variance to that.

We will certainly update those on a quarterly basis as we move forward, but we think that’s a pretty good number for what we will incur. And is it going to be materially different, will the proceeds be materially different, we will see. There is opportunity there. But it’s a selective process with the assets and what we will be divesting.

We want to be smart about it and take our time as we look at our capacity and our growth plans and identify those that are truly strategic and those there aren’t. So there is opportunity, but I can’t really quantify it..

Sure.

And I am assuming that there are brokers who marketed this stuff in the space, is that who is handling these sales generally or is it much more relational with former or past or current customers?.

It’s a lot of relation. We certainly work with those brokers, as they contacted us following the 8-K announcements. It doesn’t take long for those calls to start coming in. But the majority of what we have been doing is relational and using some internal resources to handle that..

Okay.

I think Jeff you mentioned that there could be some – that you are still having to get approvals from customers who are getting production out of Kentucky to have those actually out of the Toluca facility, what kind of risk is there around that, say, one of your customer is saying, no we are not able to actually receive production out of Mexico, is that realistic?.

No, Joe, I think the risk I was talking about was really getting the production launch approval and so each of our customers is already – are supporting us in the relocation.

And so now it’s a matter of factoring the production part process off in Toluca, submitting samples to the customers so that they can verify that they meet the quality requirements and then turn to for full production..

And the Toluca facility, have you ever had any those kinds of any of those concerns, of quality of production relative to Kentucky, I mean I know you guys seems to really like your team down there?.

Yes. No, we haven’t. In fact, our Toluca facility is, quite frankly, widely viewed as being probably the top performer out of the plants that we have had. And it has a long history, quite frankly, Joel of launching program successfully going all the way back to 2004..

Well, that’s certainly encouraging. I appreciate the outlook guys, again you have done a lot of heavy lifting and starting to really show. So I don’t have any further questions here..

Great. Thank you, Joel..

Thank you, guys..

And no further questions in queue at this time..

Thank you, Kayla. And thank everyone. Tony and I would like to thank you for joining this on the call. We welcome your continued interest and of course, your questions about our business. Hope you have a great day. Thank you..

That concludes today’s conference. We thank you for your participation. You may now disconnect..