Ladies and gentlemen, thank you for standing by and welcome to the Q4 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there would be a question-and-answer session. [Operator Instructions] I would now hand today's call over to Mr. Peter Henrici. Please go ahead, sir.

Thank you, Tamika. Good morning, and welcome to Vishay Intertechnology's fourth quarter and year 2015 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 will start today's call with the CFO, who will review our third quarter and yearly 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 will 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 Securities and Exchange Commission. 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. On the Investor Relations section of our website, you can find a presentation of the fourth quarter 2015 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 Q4 of $556 million. GAAP EPS for the quarter was a loss of $0.93. Adjusted EPS was $0.14 for the quarter. The fourth quarter includes unusual tax charges netting to 152 million and restructuring charges of $10 million. In December, we amended our credit facility extending our existing commitment of $640 million through 2020. The new agreement has less restrictive covenants, specifically related to share repurchases and dividends. As long as the pro forma leverage ratio is less than 2.25, the new agreement provides unlimited capacity to pay dividends and make stock repurchases. As we discussed many times over the years, despite our $1 billion-plus of cash in short-term investments, it is quite difficult to efficiently access that cash, because it is held by our non-U.S. subsidiaries and will be subject to tax upon repatriation. As part of the evaluation, which led to the amended and extended credit facility, we evaluated our anticipated domestic cash needs over the next several years and our most efficient use of liquidity. We have determined that the most efficient use of liquidity is a combination of our revolver and cash repatriation. Consequently, we have recorded a tax expense of $164 million in order to repatriate $300 million to the U.S. This is the book tax amount. The actual cash taxes paid will be significantly less when considering available net operating losses and other tax attributes. We anticipate the effective tax cost of the repatriation will be approximately 15%, which could vary significantly depending on the timing of the repatriations over the next several years. Revenues in the quarter…

Thank you, Lori, and good morning everybody. The year 2015 for Vishay, like for the entire electronic components industry has been disappointing. An ongoing weakness in several key markets and the growing skepticism concerning China, burdened the economy environment substantially. As a consequence, Vishay in 2015 remains behind its plans towards profitability and also behind the prior year. We achieved the gross margin in the year of 24% of sales and adjusted operating margin of 8% of sales, adjusted earnings per share of $0.72 and GAAP earnings per share of a loss minus $0.73. We generated free cash of $100 million in the year, lower than in prior year's but still quite respectable as we think. The fourth quarter did not represent surprises, gross margin came in at 23% of sales, adjusted operating margin were at 7% of sales, adjusted earnings per share at $0.14 and GAAP earnings per share at a loss of $0.93. Let me talk about the economic environment as we see it. There was an unexpected deterioration of the economic environment after the first quarter of 2015. Since then, there was no real recovery as we see it. Inventories at distributors in the fourth quarter continued to climb slightly by 2%, distributors in the fourth quarter had a relatively weak POS, which was down by 6% versus prior quarter, a bigger drop than in prior year. We have seen low inventory turns at distribution in the quarter, 3.1 turns worldwide versus 3.3 turns in the third quarter, 2.0 turns in the Americas versus 2.2 turns in the third quarter, 4.4 turns in Asia on the same level as in Q3, 3.2 turns in Europe versus 3.5 turns in Q3. The book-to-bill ratio of distributors in the fourth quarter was principally encouraging. Though it was at 1.02.…

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

Your first question comes from the line of Ruplu Battacharya of Bank of America.

Just, Dr. Paul to start off with maybe if you can comment a little bit more…

Hi, Ruplu.

…on inventory in the channel, I think you said inventories and distribution went up 2%. Overall, how do you see inventory in the channel? Do you think that we are at the point where distribution can start re-stoking inventory or are the end markets still weak and just if you can give your viewpoint on inventory?

Well, this increase of inventory in the fourth quarter was a surprise to us to a degree. It is not the end of the world, but we had predicted and expected the decline of the inventories in the fourth quarter, came differently, but we are not talking about the dangerous situation of the pipeline, which the whole thing may delay a real upswing a little, but all together, I think this reduction which we expect will take place in the first quarter now.

Okay. That is helpful. Then you talked about price declines. They seem to be a little bit on the higher side this quarter, and especially in the opto segment, you also talked about some manufacturing inefficiencies. Can you just talk about what you are seeing in terms of price declines for 1Q and just elaborate a little bit on what you saw in the opto segment?

Most of the product lines we have seen in the fourth quarter, accelerated priced decline vis-à-vis prior year, have different reasons. I mean, in the past since it is just very often customer mix, so as soon as you sell more to Asia, you will take incremental business at lower variable margins, but at somewhat lower variable margins as it is incremental, it is good to do, but as a matter of fact, shows then effectively as the price decline. I would not take this seriously. It is different in the case of our actives. In our actives, we see indeed on the market more competitive situation than say a year ago. This is clear because the economy at the moment is absolutely not mute. It is in fact the economy is not strong at the moment. Of course by nature of things, this accelerated price decline will go to the other side and we have less price decline in times of our economic recovery, but this is not really targeted at or restricted to one product line. We have seen it in diodes, we have seen it in the MOSFETs arena. On MOSFETs, we have now Capella, and they have more price decline, per se, than the traditional opto division head. In opto, where basically they had to tune down the volume, and if you tune down volumes in manufacturing, it can happen that for a relatively short time, there are some inefficiencies, because you want to tune down the volume somewhat faster than you can adapt to people and there was some ambition here, maybe too much ambition to bring down the inventory quickly and this caused some really temporary inefficiencies.

Okay. That is helpful. Thanks for the color and that makes sense. Maybe the last one from me, I mean, you have announced the repatriation of the cash. Maybe if you can just talk about your sense for the cadence of that, how fast you think you are going to do that and just overall - I mean, I was unclear on this, was it more efficient for you to repatriate the cash versus taking on more debt or did you have to do that at this point based on accounting reasons and maybe just talk about your priorities for cash.

It was indeed the best possibility, but I think I would hand over to my CFO.

Good morning, Ruplu.

Hey, Lori.

In fact, as Dr. Paul said, it was our most efficient option in time and we plan to repatriate over several years, because that is sort of method to drive the cash tax for the repatriation down, it is just spread it over several years.

Right. Okay. I mean, are we looking at like two or three years for all of it to come in and for you to be able to maintain that 15% cash tax rate?

We plan a little bit more than two to three years. I would say, three to five approximately.

Three to five, okay. That is helpful. The last thing was your priorities for cash? I think, on the press release you have talked about dividends and share buybacks and acquisitions, but do you have any preference for one or the other?

Ruplu, this is an opportunistic to choice that we have to make. We have done basically all of it. We have paid dividends, we are paying dividends, continue to do so. We have bought back stock and we have acquired in the U.S., so indeed we have basically done everything of it and it is hard to predict what we want to do. It is an opportunistic thing and this decision is the decision of the Board, which will be taken.

Okay. Thank you so much. I appreciate you taking my questions.

Thank you.

Your next question is from the line of Harlan Sur with JPMorgan.

Good morning. Thank you for taking my question. In answer to the previous question, it seems like you are still anticipating continued inventory drawdown in the channel, maybe just being offset by some return to consumption in certain segments, so the net impact is flattish growth here in the March quarter. Dr. Paul, could you just help us understand what end markets or geographies are still burning inventories and what segments are driving some of the growth kind of offset that decline here in March?

As a matter of fact, I would have said - the easy answer is always, it is Asia. To a degree it is also Asia. On the other hand, looking into January, orders are not bad at all and they come also from distribution Asia, so I should be careful with my statement. I think, we will see some reduction of inventories in the U.S. This is our observation that distributors in the U.S. may come to the conclusion that it is also opportunistically better for them to reduce the inventory levels to a degree. This is what I would say.

Okay. Then nice job on controlling the SG&A spend in the December quarter. It looks like you guys are going to keep SG&A a relatively flattish off of the Q4 run rate for all of 2016. How is the team going to be offsetting the normal inflationary increases this year?

Well, we too have some restructuring programs on the way, and the impact of these restructuring programs as we said before, really able to offset the impact of the wage increases. This is why we project this to [ph]

The diode in the MOSFET space, there are some ongoing M&A activity, primarily on the part of China to acquire competencies and diodes and low and high voltage of MOSFETs. How do you think longer-term about the economics in your discrete business if China becomes a bigger player in the segment of the market?

Well, everybody has to run, so to speak, so cannot fall behind and we are also manufacturing in China, so there is no god-given [ph] cost advantage of Chinese companies, so I think we had to compete in the past. We will have to compete in the future.

All right, thank you.

I am confident in that.

Thank you, Dr. Paul.

I am confident as well.

Your next question is from the line of Jim Suva with Citi.

Thank you. Congratulations to you and your team. The additional rounds of restructuring that you announced are discussed today, have those been in the works for a while or is something like the macro economy or end markets or local production costs cause those additional rounds to be announced?

The two major programs that are still ongoing is the MOSFET restructuring program, which was announced some time ago, more than a year ago far more than a year ago and really had to defend our profitability in this most endangered line, the most competitive line MOSFETs. This is on the way and will come to fruit in the second quarter. The other one that means the general fixed cost reduction program was influenced, of course, by less than satisfactory development of the economy, but we implemented and I believe we will not suffer from that. We are very shy to let technical people go, so to speak, so we concentrate on non-technical people, and also this one, I am absolutely certain that this would become a success as we announced. It will take some time. It is a combination of SG&A really, and of manufacturing. SG&A will be finalized this year and for the manufacturing moves, which are announced for the major part. It will take a longer, because moving manufacturing is somewhat time-consuming effort, but you right. the second step has been determined by the economy to a major degree. No question.

Okay. Then on a follow-up regarding inventory, you gave comments about inventory. Could you clarify was the inventory situation more in the channel or more the companywide and pushback from the channel or what inventory have to be adjusted and when should we have those adjusted?

Sorry. I did not get through. We are talking to completely different things. Number one, internally speaking within Vishay, we had to build inventory in the context of the move of manufacturing from a plant A to plant B. Our main customer requires safety stocks and this was due for an internal increase of $20 million in the year 2015. The other part was relating to the channel. In this case, we saw in the fourth quarter that distribution inventories worldwide went up by 2% immediately in the opposite direction of what we expected. We expected a certain decline and it happened to be a certain increase, so two different things.

Right, but my question is, when will they be resolved. What should we think about that in working through that?

The internal part of it is just as it is a safety stock. It is not the ambition to sell it overnight. We could not, but I would say half of the $20 million will be sold in 2016, and then it will take another one year, one-and-a-half years to sell it completely. The customer is committed to take this inventory. That is number one. Number two concerning the inventory reduction at distribution is not in our hands. It can only be an expectation. I believe a part of it will obviously now really happen in the first quarter and as I see it maybe it is even enough, maybe the first quarter reduction is enough, but I cannot really know that.

Okay. Then finally, can you help us on gross margins? How we should think about gross margins for kind of Q1 and all the quarters of the year? Is it pretty steady, are there some flows up and down with production and rightsizing and moving things around and with your restructuring? Thank you.

Jim, basically, we have guided for the first quarter to a range between 22% to 24%, depending on sales and it is always very much depending on sales, our contributive margin is relatively high and the impact of volume is very high on the gross margin percent. Of course, we too have improvement programs on the way. On the other hand, there is of course also price decline, so I would expect no dramatic changes from gross margin levels through the year.

Thank you, and congratulations to your team.

Also, let me add to that. On the MOSFETs, I think, there will be some improvement. We planned for that, but overall the picture should be stable. Thank you.

Thank you and congratulations to your team.

Thank you.

Your next question is from the line of Steve Smigie with Raymond James.

Great. Thanks a lot, guys. Is it possible to talk a little bit more about auto? It seems like most of semi guys have been putting up pretty good numbers, but there has been some worry about there that might slow. Your tone seemed to indicate that maybe you were seeing some weakness finally start to come into auto a little bit. I was hoping if I could get some more color there and what is concerning you.

It sounds like a broken record, but I am always every year I am somehow skeptical about the continuation of growth in automotive and for the last five years I was wrong. We obviously expected some decline of growth and it always was the same one record after the other. I believe, maybe that now it is more realistic, there is no indication that things would fall off and there would be shrinkages on, but there are some indications from leading customers in this field that they themselves do not expect the same growth rate anymore, still growth of course, but not the same as they have seen in the last say, five years. This has what drove me to my statement as a matter of fact. Am I certain about it? Of course not, it can definitely be good again, but we are not talking about the decline for sure now. At least nobody expects it.

Okay. On the book-to-bill on the MOSFETs, is the weakness there related mostly to PC or is it sort of broad-based? It is a wild combination. It really comes from Asia for the most part, not from the automotive sector. The automotive sector continues strong, but it is really the combination of computers and telephones, which hits us at the moment and not only us, obviously.

Okay. I am not quite sure I understood your answer to the gross margin question before, so the gross margin is assumed for the rest of the year is roughly the same as the March quarter. Is that what you were saying?

Well, as a matter of fact, in principle you have to take in of course our cost reduction programs. On the other hand, there is price decline. There is more cost reduction in pricing again. There may be somewhat, but it is very much depending on volume, at the same volume we talk. At the same volume, dependency should be to somewhat higher gross margins, but the basic project is taken place in one area and this is MOSFET. In this case, we are going to see better gross margins. Yes.

Okay. Then just on the cash repatriation. I mean, there has been some talk about the U.S. allowing some repatriation maybe it does not have to do [ph] with elections or something, but in the event that were implemented, would you guys be able to go back and sort of reset some of the future repatriation, so you get maybe a better, more favorable tax ruling or implementation. If that what happens six to nine months out or something like that?

At the moment, we have recorded a book tax expense to enable us to make this repatriation. We have not executed it yet, so if anything were to happen in terms of changes in requirements by the federal government would be [ph] the issue and take the most favorable approach.

Okay. Great. My question was just on the Capella. Any color on any potential, I mean, you guys talked about some possible design wins I think coming and I was just curious any more color on how that is going?

Sorry. I did not catch the question quite. I am sorry. Could you say it again?

For the optical sensors, I think there have been some indications I think the power side about potentially some opportunities coming down the road that you saw…

I just did not understand it. Yes, of course. First of all, we combined I think with good reasons. We combined at the moment in my comments that two businesses - the tradition sensor business and Capella's business is one subdivision, because Capella works of course for - this was the intention from day one, for our existing business, which is one industrial and in automotive. You see, and I look carefully before I wrote it down and said it. Really on an apples-to-apples basis, we have year-over-year increase of 13%. We would not have had this 13% if there had not been Capella and this is really a pro forma. It is apples-with-apples comparison, so it takes out the effect of the acquisition. As a matter of fact, we believe that going forward, I mean, it is that Capella was a very expensive acquisition, but going forward it is really an enrichment for Vishay and it will help us to produce sensors. I mean, if you are in discrete components, you are not really spoiled by two great growth rates on the market. The sensors are totally different. They really grow and I think we can participate in that through Capella, many projects on the way.

Okay. Great. Thanks very much.

Your next question is from the line of Shawn Harrison with Longbow.

This is Gausia Chowdhury calling on behalf of Shawn. If I could revisit the cash return question, so understanding that you will be opportunistic, would you of course be doing it in large chunks in terms of a buyback, would that be done in large chunks or constant amount over a year? Then also for the dividend, you have a dividend growth goal in mind?

Okay. For the cash repatriation we announced that we would spread it over several years, because that is the way we are optimizing the cash tax expense, so we do not plan to do it in large chunks or in one-time go. Does that answer your question?

Yes. Okay. Same with dividend growth, do you have a goal in mind or just…

You know, we pay a dividend and potentially and changes will have to be decided by the Board, and for sure in our next Board meeting, we will talk the same subject again, but there is no firm plan in that sense obviously, which I can share with you.

Okay. Then regarding the book-to-bill, just wondering here through January has it stayed at the same level or has improved and by region if there has been improvement. That is all.

January has started encouragingly, but it is just January so to speak. It is a month, so it was substantially above one we were satisfied, but again I do not over interpret it. It is just a good start into a year. That is it.

Sounds good. Thank you.

Your next question is from the line of Matt Sheerin with Stifel, Nicolaus.

Matt?

You gave a lot of color on demand and your margins, but I just wanted to revisit that a little bit. On your revenue, you have been basically bouncing around the bottom here for, the March will be three quarters in a row about the same level, so fairly depressed. Are you expecting growth at all this year, because you are going to be starting off down 5% or so year-over-year with some FX obviously impacting that, but are you getting a sense if distribution comes back that you should start to see growth resume and that you can grow the business this year?

Matt, as you know I am in this business for a long time, it is not a revolutionary business in the sense that you can expect two-digit growth so easily, but as a matter of fact we did, we went into the year and I have no reason to change my mind that this year will be better than prior year, but it is a prediction based on my experience of my feeling on talks I have. Miracles will not happen, but I do believe that sales this year on the same exchange rate basis of course will be better than the year before, but again who am I?

Sure. On the on the margin, I mean, I think even that MOSFET program, you are going to be looking at about $5 million savings run rate a quarter right, kicking in, in the June quarter, so that is like 500 or 50 basis points or so of gross margin right there, so you would think that that gross margin could expand even with ASP erosion?

That is true. This was our target. You know, we have always said our target is a 20% gross margin and I am absolutely fine with this number still, so this is our…

Okay. Then operating margins, so you should improve with SG&A cuts?

Of course, yes.

Okay. Just further on your M&A strategy and the cash, just update us. I know you have been looking at more niche acquisitions, what were the areas that you are looking at. Then just also from a strategic standpoint, I am sure that the Vishay Board has not overlooked at the massive consolidation going on within the semiconductor sector, a lot of your peers in the semiconductor space, particularly in power semiconductors have been consolidating. What is Vishay's Board's thought about looking at maybe doing a bigger acquisition, or maybe partnering with a larger company in terms of a sale?

Matt, indeed, we have not overlooked that. It was really - quite enormous movements. On the other hand, looking at the financial scope of that, this would have not been for Vishay as a matter of fact too big, plus I think our focus has been and will be more in acquiring specialty businesses and I do not want to highlight too much, but passives normally closer to our thinking than actives as a matter of fact. Again, it is an opportunistic business to announce it even is wrong like that. There can also be actives business, which is interesting for us. Look at Capella. I mean, Capella, for us is a nice addition, but it is for us in reality was a technologically driven acquisition, which would enable the specialty business to grow faster, so this is something which is closer to us than a broad commodity business as a matter of fact.

Okay. Then from the other standpoint in terms of potential bigger buyer coming in and interested in either parts of your business and/or all of your business.

Well, it is always a matter of price of course and a matter of a decision of the Board. I cannot say differently, but we are more towards acquiring than towards selling. I must admit that also.

Okay. Fair enough. Okay. Thanks and best of luck this year.

Thank you, Matt. Bye.

At this time, there are no further questions.

Thank you very much for being on the call and thank you for your interest in Vishay Intertechnology. I wish you all a good day.