Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the conference over to Peter Henrici. Please go ahead, sir.

Thank you, Jennifer. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2013 Conference Call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual, we'll start today's call with the CFO, who will review our third quarter financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance, as well as segment results in more detail. Finally, we'll reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the SEC. In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. We expect to file our Form 10-Q for the third quarter this evening. On the Investor Relations section of our website, you can find the presentation of the Q3 2013 financial information, containing some of the operational metrics Dr. Paul will be discussing. Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone. I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for quarter 3 of $603 million, just below the low end of the guidance, and 0.9% above quarter 2. Gross margin remained at a similar level compared to Q2 due to the lack of anticipated volume increase. GAAP EPS for the quarter was $0.22. The third quarter includes an adjustment of $2.9 million related to a tax law change in Israel, impacting our deferred tax assets. Excluding the effect of this item, adjusted EPS was $0.20 for the quarter. During the third quarter, we were able to capitalize on favorable credit market conditions to increase the amount available to us under our credit facility to $640 million. We received commitments in excess of our targeted amount. The amended credit facility extends the terms of our available credit to August 2018, secures lower interest rates than we were currently paying for the next 5 years, and provides us with additional financial flexibility to pursue our growth plan. During the third quarter, a holder of our exchangeable unsecured notes exercised the option to exchange $56.4 million principal amount of the notes for 3.7 million shares of our common stock. The exchange increases the number of our common shares outstanding, but has no effect on the calculation of the weighted average shares outstanding used for computing diluted earnings per share, because our earnings per share computation assumes that the exchangeable unsecured notes would be converted. The transaction reduces our outstanding debt and results in an improvement of our debt-to-equity ratio to 0.20 from previously 0.24. Yesterday, we announced various cost reduction initiatives. The programs are expected to lower…

Thank you, Lori. And good morning, everybody. Our business in the third quarter was impacted by a sudden and unexpected reduction of orders, predominately from distribution. Vishay's sales volume, to a degree, suffered from this development. We achieved in the quarter a gross margin of 24% of sales, operating margin of 9% of sales and adjusted earnings per share of $0.20. We continue to be on track in terms of free cash generation, we generated $42 million in the quarter and $92 million year-to-date. And, as Lori said, we are in process to establish a comprehensive cost reduction effort, consisting of several programs in order to support profitability. But let me emphasize, this is without jeopardizing Vishay's plans for internal growth. Let me talk about the economic environment. After a strong recovery in the first half of 2013 from a very weak end of 2012, orders from distribution worldwide rather rapidly fell off after July. The Asian distributors seem to be increasingly skeptical concerning a traditionally better second half of the year and decided to adapt their inventory levels. In particular, there is concern about the outlook for notebooks. Also, western distributors slowed down orders but to a lesser extent. Europe in the third quarter has shown its normal seasonality, with Southern Europe still very weak in general, however, automotive keeping up strongly. The industrial segment in the Americas remained stable. The automotive demand healthy, but military starts to suffer. Distributor turns due to increased inventories were 3.6 worldwide, after 3.9 in the second quarter, 2.3 in the Americas versus 2.6, 5.2 in Asia versus 5.3, 3.6 in Europe versus 4.1 in the second quarter. POS remained flat versus prior quarter. The book-to-bill ratio of distributors to their customers was close to 1, after 1.06 in prior quarter. For the…

Thank you, Dr. Paul. We will now open the call to questions. Jennifer, please take the first question.

[Operator Instructions] The first question is from Shawn Harrison.

Just getting to the volume dynamic. If I do my math correctly, distribution was down $15 million or $16 million sequentially, which is essentially I guess, the miss relative to midpoint of guidance.

Exactly.

And just your view that distribution got a little too far ahead of itself probably with the second quarter ordering pattern and this quarter represented a normalization.

No, in retrospective, obviously, yes. But after the first month of the third quarter looked differently, we really believed that it would continue like that and had all reasons to do so. But obviously, it is what I said, there was suddenly more skepticism around for the remainder of the year, not untypical has been the same, but stronger last year. And distribution decided to adapt the inventories as it looks.

Is where essentially through the month of October, have you seen any changes in booking patterns that would lead you to believe, you're going to be toward the lower-end of guidance, as we get towards the December quarter, is that pretty much status quo with the seasonality?

I think status quo is the right description.

Okay, and then one final question on just how the cost savings roll on, if we could look at year-by-year, particularly the early retirement, those $10 million of savings, when will you see that full annualized benefit and then maybe if we could talk about the manufacturing side, when will you see that other $26 million begin to roll on?

The first part will be expect -- it's a voluntary program, but it's would be -- it's very likely that this will be fully implemented, for the most part, by the mid of next year. Within this first half, I don't want to comment. It also depends how long the stocks with our people will take place. But I think it's a fair guess that the full implementation, except a few exceptions, will be behind us by mid of next year. Concerning manufacturing, as we all know, manufacturing moves take a little longer. And I think it's fair to say, we have seen, I think indicated 3 projects really. The first smaller projects you will see the impact already next year in the course of next year. And the big project, as we talked about the major manufacturing project, I do not believe that anything can be seen before the year of 2016, but then it will be fully implemented beginning of 2016.

The next question is from Jim Suva.

Dr. Paul, for the Q3 results, is it fair to say the gross margin softness or disappointing it was pretty much of 100% attributed to lower sales? Or were there other factors within that?

No, it's exactly as you say. It was really the volume. That's it.

Great. And then going forward, it sounds like you're entering this new restructuring. Can you help us know when we should start to see gross margin improvement again? I know we've got some seasonality factors here in Q4 and Q1, to just be conscious of it, how we should think about when we layer on timing of restructuring to start to help gross margins once again, would that kind of be more mid-year next year?

First of all, it will also be in SG&A. So our voluntary retirement program will also, which is the first phase of the restructuring, will impact the SG&A costs. I think more than 50% will be SG&A, approximately 50%. And the remainder will be fixed personnel in manufacturing phase, 50-50 approximately, and we will see a full implementation of this first segment of the first $10 million savings, 50-50 as I said in by mid of next year, this is my best estimate. There can be some exceptions, which take a little longer, but across our model, it should be done by mid of next year. The other programs are really focused on manufacturing and therefore on gross margin. And as I said before, these 3 projects, 2 of them will be implemented in the course of next year, successively supporting, I would say, after mid-year, our results, whereas the larger projects relating to MOSFETs will take somewhat longer, we will see the impact towards the beginning of 2016, but then to the full extent.

Great, and then a follow-up question for Lori. Long-term tax rate for long-term planning, is 34% kind of a good rate or are there some things in that we should kind of build our expectations for a long-term tax rate for Vishay?

Okay. So typically, we do not guide for a longer-term tax rate. So from 2013 though, I can say that our tax rate suffered somewhat the mix of the profitability in our different taxing jurisdictions. And particularly, remember in the past, we discussed that the MOSFETs have a relatively low tax rate. And so of course, if they would improve that our tax rate would also reduce to somewhat more normalized levels. We also had some impact from the commodity capacitors that Dr. Paul spoke of earlier, that also had in comparison to Vishay tax rate is somewhat lower tax rate.

I guess, if I take your comment and add them all together, 34% would be too high, as of the mixed shift that would possibly impacting down the road, is that correct?

Yes, that's correct.

Your next question is from Ruplu Bhattacharya.

I just wanted to start by asking you on the MOSFETs segment. Dr. Paul, last quarter, you had a transition out to an external foundry, I just wanted to ask, is that transition complete? Or is that still hurting your margins?

It's really complete, it's complete. And we were really, we were really suffering, for the most part, particularly of just lower volume, lower than anticipated volumes, which I try to explain this quarter.

Okay. And when I look at the $23 million in savings, which is specifically targeted for the MOSFETs segment, is that all going to go into the gross margin for MOSFETs and will some of that roll into the next couple of quarters?

No, as I've said, first of all, it's a yes. Most of the savings will be related to variable costs and manufacturing fixed costs. Therefore, they will enter into the gross margin line. But this is a manufacturing related program, which takes some time. It did requires, kind of investment, the qualification, et cetera. And we will not see this part of the improvement earlier than in the first quarter 2016. I cannot exclude that we will see some before, but only smaller.

Okay. That's helpful. And then the last one for me, do you know what the current book-to-bill is as of today?

Book-to-bill, approximately at the moment, is around 1.

The next question is from Matt Sheerin. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: So Dr. Paul, your guidance for the December quarter at midpoint is down roughly 2%, which is seasonal. You just told us the book-to-bill was 1, but it sounded like at the end of the quarter it was weaker particular in Asia and the Semiconductor business, so is that a conservative guide or how did you come up with that guidance, because it sounds like it could be a little bit weaker than that?

You refer to our guidance of 3 months ago, I suspect Matt, right? Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: No, your guidance for the September, for the December quarter at the midpoint of that guidance seems down 2%, right?

Matt, it's not a conservative guidance. It's a reasonable guidance, which we can see based on the present business as we see especially also, including Asia. I think it's realistic. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And it sounds like if you look at the passive businesses, it typically sort of flattish in the September quarter and that's how it played out, but the Semiconductor business, which are typically up, were flat, so that's where you missed on the revenue. And I know there's a lot of concentration on consumer computing and notebook. Could you give us some more specifics in terms of percentage growth or decline that you saw on those businesses? And what are you actually seeing in terms of demand from customers in those markets?

I think what we have seen really is that the POS, especially the POS, was not really affected. So as a matter of fact, I do believe what we have seen in the third quarter and also were taken by surprise, to the degree as I admitted before, was the decision of distribution, not to follow the traditional trend, expecting especially for consumer computer a better second half than the first half. This has not happened. And this is really the center of our negative surprise, which we had concerning to orders and consequently, the sales. I think things have settled, so we are not seeing really, we have not seen the downturn in end customer demand. What we have seen is the decision by distribution, a more negative view of distribution on their sales going forward, I think. And in the meantime, having book-to-bill ratios of 1 approximately, it indicates that this erosion of inventories does not continue. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And your lead times across your product segments are what? Are they sort of normal, below normal?

I would call them normal. But, Matt, of course, we're adapting manufacturing capacities to the need. So that's of course we could produce more than we produce at the moment by nature, but we have adapted, of course, manufacturing. That means our lead times are not super short. I would call them normal, and it's very different for different lines. But I would not say that any of these lines at the moment stick out that they're super long. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then your operating margin, flattish sequentially. But obviously, you saw good improvement year-over-year. I know you've talked about getting to sort of a mid-teen operating margin target for the company. Obviously, a lot lower than that right now on the volumes, what has to happen for you to get to those numbers, either on the top line or mix of business?

The answer is clear. There's only one word. It's volume, very simple, volume. Nothing else is to happen, volume. You know, we have seen quarters with sales beyond the $700 million. And it's an easy exercise. If you took our results and put sales up to a level which we actually had in the year 2010 and partially '11 of 700x, then you automatically come to such profits. And we would not add any fixed costs for that. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And just lastly, I mean, your balance sheet obviously, is in very good shape. Could you talk about, you did 1 acquisition this year. Could you talk about the M&A pipeline, what you're seeing, what areas you're focusing on?

As I said, we are interested to acquire companies, and there are some possibilities. According to our strategy, to look for midsize and smaller companies to things in certain divisions, which we just did with our French division. Two, that we are looking after a few opportunities, but it's too early to say final things about them.

Your next question from Chris Danely. Shaon Baqui - JP Morgan Chase & Co, Research Division: This is Shaon Baqui calling for Chris. I just want to ask real quick on the other end markets, which were the strongest and which ones were the weakest, I know you singled out competing consumer, I just wanted to understand, which was your kind of seasonal and below seasonal, and how you expect that to trend in Q4?

What is really astonishing is the ongoing strength of automotive around the world. And normally in Europe, you see some seasonality between the first and the second half is typical for Europe. But in automotive, the seasonality has gone away. So it's completely full automotive in Europe, but also in the rest of the world is strong, so I would like to highlight this in a positive way. Shaon Baqui - JP Morgan Chase & Co, Research Division: Okay, very helpful. And I guess just a more broader question for you, Dr. Paul, can you walk us through kind of your thoughts on the general state of the industry? Do you see the second half conditions right now as kind of a temporary pull back or a speed bump or are we in a prolonged downturn, you think and maybe contrast this year's business condition versus last year and the year before, where things started kind of falling apart in the second half?

Well, as I tried to say, I do not see a real downturn worldwide. In fact, the economy is not doing badly. I think we, Vishay and others in our industry, we are really exposed our ups and downs partially, triggered by inventory decisions in the pipeline, I tried to say that. Whereas the sales to end customers, do not really change that much. So it's very much triggered by inventory creation or depletion. For instance, at distribution, this is the biggest part of it. And if you compare the situation with prior year, I don't know, perhaps my comments then, but I more or less said the same thing. It was also distribution and the decisions of distribution, which gave us some kind of headache in the fourth quarter. All in all, you see this year appears better than prior year, I think we can say that.

[Operator Instructions] Your next question is from Steve Smigie.

This is actually Elizabeth Howell calling on behalf of Steve. Regarding your recent acquisition, I think your revenues from MCB came in a little bit better than expected. Can you just talk a little bit about how that acquisition is playing out?

Well, it's a little early actually. So we are completely in line with our plan. That it's true what you say the acquisition is somewhat more sales, but I would have to cake relate to which extent a stronger Euro plays a role in it. So the stronger Euro helps of course, because we are invoicing predominately in Europe for this -- it's very much European sales. On the other hand, I think we have brought on board a quite interesting enterprise. It complements, on the one hand what we have in Sfernice means it strengthens the position in existing products. And on the other hand, brings in certain products, which Sfernice didn't have before. So altogether, we are more than pleased to have it. It took us also some time to get it, I must admit that. And on the other hand, we are of course, now very early in the process of integration. We took the decision as not to be too quick in integrating it. We want to defend the business first, so I think this is target #1. But then of course, as we said, we are going to exploit some synergies, which are obvious.

Great. And then if you could give us a bit of color on your product segment expectations for 4Q? Or maybe which area you think will be your biggest growth driver maybe in the longer-term 2014, '15?

Okay. Well, as matter of fact, Vishay is active in most of the market segments and most of the geographies. What is an ongoing positive impression, I said it before, is Automotive, Vishay is strong in Automotive and we expect also continued growth there. Our big project is, on the other hand, to get more into the industrial market in the Far East, namely in China. But this one is easier to say, but to do as a matter of fact, it takes some time, you have to put more people, of course, we had people on the ground already before, but we are intensifying our efforts there. And we have more people on board, substantially more people, but now as always, it takes some time to get them running so to speak and get successes. We see something, but of course it's early in the game in this case also, but if you ask me about, where I see our largest chances going forward, that's exactly it. It's industrial in the Far East. Vishay is historically strong in industrial in Europe and the U.S., but not strong never it was strong, never very strong in China. So I think we can apply the virtues that we have in this industry also for this market in China, which obviously, grows faster than America and Europe especially.

Just last one, in terms of margins for 4Q, would it be fair to assume, your guidance means we should be looking at something around 23.5% for gross margin, or similar levels you've achieved on $590 million in revenue in the past?

As a matter of fact, it's relatively easy cake relation as a matter of fact, our fixed costs are approximately fixed, and our variable margin, contributive margin is around 45%. So I think it's easy to calculate as a matter of fact.

[Operator Instructions] We have a follow-up question from Shawn Harrison.

And my follow-up is little bit related that last one, I'll just ask you directly on the math. What's like your EBIT margin should be down 100 basis points sequentially using via numbers you just provided. Is that a correct assumption?

So in principle, as I can only repeat what I said. Take the delta in sales multiply it by 0.45, make an assumption on the fixed costs, which I think is not hugely varying and then you have it. Very simple, there are no other changes.

At this time, there are no further questions. I will turn the conference back to Mr. Henrici for closing remarks.

Thank you very much for your interest in Vishay Intertechnology. This terminates our third quarter conference call.

Thank you, ladies and gentlemen. This does conclude today's call. You may now disconnect your line.