I am Mitch Walorski, Director of Investor Relations, and I will host the CTS Corporation third quarter 2012 earnings conference call. Thank you for joining us today.

Participating from the company today are Vinod Khilnani, Chairman of the Board and CEO; and Tom Kroll, Vice President and Chief Financial Officer.

Before beginning the business discussion, I would like to remind our listeners that the conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

Additional information regarding these risks and uncertainties was set forth in last evening's press release and more information can be found in the company's SEC filings.

To the extent that today's discussion refers to any non-GAAP measures relative to Regulation G, the required explanations and reconciliation are available on our website in the Investor Relation section.

I will now turn the discussion over to our Chairman and CEO, Vinod Khilnani.

Thanks, Mitch, and good morning, everyone. Last evening, we released our third quarter financial results for 2012.

Overall, sales were below our expectations, primarily due to lower EMS sales driven by weaker economic conditions and our decision to exit some customers in the aftermath of the Thailand flood and Scotland EMS closure.

However, we are pleased to report a 9.4% year-over-year increase in our Components and Sensor segment sales, despite weak business conditions. New product introduction in automotive sensors and electronic components continued to help drive sales higher.

Working capital and free cash flow performance was strong. Our second quarter initiative to lower our cost structure and breakeven revenue point are beginning to pay off, and we plan to take some additional actions to offset the continued weakness in global business conditions.

Smart Actuator launch, our most significant new product introduction is on schedule for later this year. Piezoceramic component for disk drive application, our other significant new product continues to ramp, as much larger percentage of disk drives in the market are being switched to dual stage actuation, or DSA disk drives, which use our piezoceramic elements.

We are in the process of increasing our capacity by approximately 20% to meet the growing demand for our HDD piezo products in 2013.

Sales in the third quarter of 2012, at $137.4 million were 6% lower year-over-year, primarily due to weak EMS sales. EMS sales were 20% lower year-over-year due to weak order rates in defense and aerospace, and telecom markets which were lower by 44% and 26% respectively.

We saw a tendency by our customers to hold back or push-out orders, given the uncertain environment.

Industrial and medical sales continued to recover and were up year-over-year by 19% and 4% respectively. The weakening market conditions were the primary reason for the lower EMS sales in the quarter, coupled with our decision to exit smaller unprofitable EMS accounts.

Our Component and Sensor segment sales in the third quarter were $75.6 million, up 9.4% year-over-year. Within this segment, automotive sensor sales of $43.9 million in the third quarter were up 4.6% year-over-year, despite weakness in Europe and local protest disrupting operations at some of our key Japanese customers in China during September.

Third quarter 2012 global automotive production of light vehicles was up only 2.5% year-over-year, including Europe, which was down 7.7%. On the new business front, in the third quarter CTS was authorized to supply accelerator pedal modules for a major Japanese OEM, for the vehicle sold into local India market from our newly established facility in India, beginning later in 2013.

We also won 3 new sensor programs, including a parking position sensor, a brand new product for CTS. Continuing with our Component and Sensor segment, electronic component sales of $31.6 million in the third quarter of 2012 were up 16.8% year-over-year, driven primarily by increasing new piezoceramic product sales for disk drives and Valpey Fisher products.

Engineered frequency product and product sold through distribution channels were weak due to sluggish telecom infrastructure and defense and aerospace demand. Overall, we have completed or are in the process of implementing several restructuring initiatives yet this year, which are going to position the company for stronger earnings growth in 2013.

In the EMS segment, we have completed the closure of our small and unprofitable EMS operations in Scotland, and have announced the closing of our other small and unprofitable EMS operation in China, which should be completed by yearend. These 2 operations historically had annual sales of approximately $12 million to $15 million each, and performed somewhere between breakeven and an operating loss of 5% of sales.

first, we will complete the closure of our 48,000 square foot Tucson operations by yearend and consolidate its production with our Albuquerque and Mexico operations with no loss of figures; second, we will cease manufacturing at our small Swiss facility and consolidate it with our Hopkinton facility near Boston; three, we are also consolidating our Chicago engineering frequency design center activities with our Hopkinton design center near Boston; four, we are completing a re-layout of our Singapore facility to reduce our occupied space by more than 60% or approximately 100,000 square feet; and lastly, we have now announced to do the same in Tianjin, China, where we plan to reduce our square footage by 50% or approximately another 100,000 square feet.

These initiatives would lower our global headcount by approximately 10% or 400 people. And lower our global square footage by 17% or about 330,000 square feet, thereby increasing our sales per square feet by approximately 20%.

It's important to note that these actions will make our global manufacturing footprint simpler and more cost effective, without reducing our overall capabilities or production capacity.

The freed-up real estate is now being sold or subleased, lowering our operating expenses and asset base going forward. This month we saw one of these initiatives pay up handsomely, when we signed definitive agreement to sell our 159,000 square foot building in Singapore for approximately $20 million, and leaseback only 37% of it or approximately 58,000 square feet for our streamlined operations.

This transaction is expected to close in the next several weeks. And in addition to generating approximately $17.5 million of net cash in the fourth quarter, we'll generate approximately $14.5 million of gain on the sale.

Accounting rules require us to hold approximately half of it on the balance sheet and spread that over 9 years of the lease period. The other half of the gain, which is approximately $7.5 million will be recognized this year and benefit our fourth quarter 2012 earnings.

Looking forward, we are continuing to see a challenging and uncertain economic environment globally. Customers are cautious and have a tendency to hold back the orders until the last minute.

We believe, however, that inventories in the pipeline are fairly low. Our current projections indicate modestly higher sequential and year-over-year fourth quarter, driven by new product sales and benefits of our restructuring activity.

For the full year, we expect sales to be very similar to 2011. However, we expect our Component and Sensor segment sales to grow 10% to 13% year-over-year and EMS sales to be lower by 9% to 12% year-over-year.

Roughly 2/3 of EMS sales decline is macroeconomic driven and the remaining one-third is primarily due to our decision to close 2 small unprofitable EMS operations in Scotland and China, to enhance our profitability going forward.

We expect full year 2012 adjusted earnings per share up between $0.70 and $0.75, and this excludes the fourth quarter pre-tax gain of $7.5 million from the Singapore sale leaseback transaction. Cash flow will be higher than our earlier projections and we will finish the year with a stronger balance sheet.

And now, I will turn the meeting over to Tom Kroll, our Chief Financial Officer, who will provide further details regarding our financial results.

Thank you, Vinod, and welcome, everyone. Our consolidated third quarter 2012, sales of $137.4 million, a 6% decrease from prior year, with Component and Sensors increasing 9.4% and EMS decreasing 19.7%.

Our diluted EPS were $0.17 same as prior year. Our adjusted EPS, which excludes restructuring and other charges were $0.20, up from $0.17 in the prior year.

Our adjusted gross margin, which excludes restructuring charges and the expenses related to 2011 Thailand flood at our EMS facility was 20.6% compared to 19.4% last year. This improvement was primarily due to a more favorable business segment sales mix as our Component and Sensor sales were 55% of total revenue in the third quarter compared to 47% last year, partially offset by higher non-cash pension expense and the impact of foreign currency.

As expected, we received approximately $4 million of insurance recoveries. All Thailand flood-related production transfers within the company are now complete.

Selling, general and administrative expenses were $19.4 million or 14.1% of sales versus $18.3 million or 12.6% of sales last year. The increase from last year was primarily due to higher royalty expense and higher non-cash pension.

Our research and development expense of $4.4 million compared to $5.2 million last year. This decrease was primarily due to receiving certain customer reimbursements in the third quarter 2012.

Third quarter net interest currency and other income totaled $0.6 million compared to $0.3 million of expense last year, primarily due to higher foreign currency gains in 2012. Year-to-date our currency gain is essentially 0.

Our third quarter effective tax rate was 20.1% compared to the prior year of 21.8%. The difference in the tax rate was primarily due to the changes and the mix of earnings by jurisdiction.

During the fourth quarter of this year, we expect some of our expired tax benefits to be reinstated, such as the U.S. R&D tax credit and a requalification of one of our China facilities as the high-tech enterprise.

Now, let's look at the balance sheet. From a working capital perspective, our accounts receivable of 52 days and accounts payable of 64 days were both the same as last year.

Our inventory balance of $75 million decreased $60 million from last year, resulting in an improved turns of 5.6 compared to 5.4 last year. Our controllable working capital, which is defined as these 3 accounts, receivables, payable and inventory, was 17.6% of annualized sales, the same as last year.

Our third quarter 2012 cash flow from operations was a strong $13 million compared to $4.5 million last year. Capital expenditures were $2.9 million in the third quarter 2012 versus $3.7 million a year ago.

We expect our capital expenditures to remain in the range of $16 million to $18 million as previously projected.

Our third quarter 2012 free cash flow defined as cash flow from operations less net capital expenditures, improved to $10.1 million compared to $0.9 million a year ago. Year-to-date our free cash flow is $14.6 million compared to $3.3 million last year.

Based on a strong third quarter, we now expect our full year free cash flow to be in the $22 million to $26 million range, up from our previous guidance of $19 million to $24 million range.

Please note that our free cash flow guidance excludes the estimated $17.5 million of cash, which we expect to receive from the Singapore sale leaseback transaction in the fourth quarter.

Our net debt defined as total debt plus cash and cash equivalents, decreased $8.1 million during the quarter, resulting in a debt-to-capital ratio of 25.8% compared to 26.8% in the prior quarter, and up from the prior year ratio of 23.6%. We expect the debt-to-capital ratio would further improve in the fourth quarter.

During the third quarter of 2012, the CTS Board of Directors authorized a 1 million share buyback program. Under this new program we repurchased approximately 91,000 shares of CTS stock in open market transactions during the quarter, leaving about 909,000 shares remaining.

Before I conclude and open this call up for questions, I want to step back and comment on our expected financials on a full year basis, as individual quarter maybe difficult to understand on the surface, due to timing, especially the Thailand flood matters.

On a full year basis, our flood related business interruption insurance reimbursement will essentially offset the associated losses and expenses related to this natural disaster. While the timing of the reimbursement have lagged the incurrence of the associated expenses by about one quarter, on a full year basis, they should be similar.

The $5 million restructuring action announced during the second quarter is proceeding as planned and will be completed during the fourth quarter. As Vinod mentioned, the fourth quarter will include some additional actions centered around the closure of our EMS operation in Tianjin, China.

This action will also include the partial impairment of a couple of operating leases, as we have been able to free-up some extra square footage requirements and initiate actions to sublease the extra space.

When comparing full year 2012 to 2011, I want to highlight a couple of non-operating items. First, our full year pension expense, which is substantially non-cash, is estimated to be $3.4 million or $0.06 per share higher in 2012.

Secondly, the foreign currency exchange impacts, primarily the weakening euro will have a full year negative impact on 2012 gross margin of approximately $2 million or $0.04 per share relative to 2011.

These 2 items, totaling approximately $0.10 per share have been more than offset by operational improvements and a positive sale segment mix change during 2012, allowing us to improve upon the 2011 adjusted EPS of $0.67, despite essentially flat sales.

This concludes the financial overview. I will now open the call for questions.

Thank you for joining us today.

I guess I want to start with the guidance, the implied guidance suggest a step-up in both the component sensors and EMS side of the business on a sequential basis. Starting with the Component and Sensor side, the sequential revenue improving, how you expect to achieve that, given what you've decided is difficult macro conditions?

John, I think on the Component and Sensor side we are expecting some further improvement in the HDD sales, the piezoceramic sales to HDD, because that continues to ramp a little bit more. We are now tracking at $4.5 million to $5 million in sales per quarter range and we think that the demand will further improve on that, and we are in the process of increasing our capacity in China on that.

So that's a positive. We should get some sales, although it should be a fairly small number, we should get some sales as we launch the smart actuator for the diesel engine market.

We should see that as a positive. So there are couple of primarily new products related things, which we think should benefit in the fourth quarter.

And we also generally see some additional shutdowns in the automotive industry in the third quarter, which we think should not take place in the fourth quarter. So those things give us some comfort that we should see some sequential improvement in Q4 or Q3.

And in the EMS business, your guidance still suggest a sequential rebound, down 9% year-over-year, so sequentially better than what you posted in Q3. Given that the aerospace numbers have essentially been generally weak from what I'm hearing, where would that uptick come from?

Again, you are exactly right. I think the industry environment are clearly affecting us, like everybody else.

So industry environment is fairly weak. We believe that we have couple of small new businesses starting in the fourth quarter, which we have won recently and which should generate some sales in those areas.

So we are projecting a sequential increase next year, which is more customer and project specific, not industry specific. You're right, industry environment is not expected to improve in Q4 compared to Q3.

Sticking to the guidance again, Vinod, the implied 4Q EPS number is about $0.25 to $0.30. Again, on a sequential basis, it's a sizable uptick.

Firstly I want to know, you mentioned that you're not including the one-time sale leaseback gain. But I want to know if there's any of the one-time items that we should be cognizant of that that are in the quarter or lower tax rate or anything surrounding the EPS numbers that we should cull out and be aware of it headed to quarter?

I think the sequentially insurance proceeds will not benefit Q4 compared to Q3. We think those will be not unusual.

I'm looking at Tom Kroll the tax rate adjustment in fourth quarter will benefit you as a one-time?

There will be a slight benefit there as the Singapore building is sold in the fourth quarter on a full year effective tax rate. But other than that, John, I can't think of anything unusual in Q4 versus Q3.

And no insurance recoveries are embedded in that?

Well not, Just similar to Q3.

Tom, and that similar size?

John, we're in the process of accumulating all the data and negotiating with the insurance company, finalizing the claim. But in a similar range I would say as Q3, maybe a little less.

And just to stick with that, Tom, you said the adjusted gross margin was 20.6%?

Yes.

So there is something else you're pulling out of that. I was guessing about $1 million or so adjusting, could you just walk me through how you're getting that number?

There is 2 pieces. One is restructuring-related charges.

And then the other piece are, the Q3 expenses related to the Thailand flood.

And what are those numbers?

Those 2 come to a little over $1 million.

Couple of things here, I know the last question here, just asked about the tax rate. But Tom, if you could give us any guidance as to what the tax rate or some range of where it should be?

I mean, obviously, as I look at the first 3 quarters of the year, it's jumped around substantially. So are we looking at a 20% tax rate or 25% or 27%, can you give us any help there at all?

Gary, the last time we talked about tax rates, we were in the 24%, 25% range. And that does assume that the Congress passes some of the R&D tax credits and that we get our other expected tax break in China.

The only thing that has recently changed is if we include the Singapore sale leaseback transaction that will be at a much lower tax rate than our current effective rate. So if you net everything together on a full year basis, we'll probably be a little over 20%, somewhere in that range.

Somewhere around 21%, 22% maybe, just for modeling purposes?

Yes, that's fine.

And then, again, you cited these restructuring charges of $245,000, and if I back that out, that adds about $0.01, and then you've got a $0.03 differential here between your GAAP earnings and your adjusted earnings. So from the last question, is there about $1 million of restructuring charges that are not in the restructuring charge line item?

It's about $600,000, Gary. That's up in gross margin.

And that's detailed in our press release, where we actually reconcile that.

I don't know, I went through the press release. Where is it exactly?

I mean, you've got $0.02 of restructuring and related charges.

And that's what that $600,000 is.

Well, that's what I'm getting at. You segmented some of the restructuring charges, but you haven't segmented all.

I mean that's why I was having a problem reconciling that.

Gary, there's 2 pieces of the restructuring. One is on a specific line item in the P&L.

And there's another piece of restructuring that cannot be called restructuring per se, and there are related restructuring charges and they are included in cost of sales.

Okay, that clears that up. And then, to remind us, how much are going into the European market?

How much of our total revenue?

Yes.

It's roughly 15%.

Is there anything direct sales in China as well?

Yes, we do have direct sales in China. They run maybe $40 million a year, $10 million a quarter in that range.

So I would assume like a lot of companies, the European market is just extremely challenging and as the Chinese market getting more so, as their growth slips pose.

Gary, European market is clearly very challenging. China market is soft.

The PMI numbers are still below 50, which does not indicate any growth. However, relatively speaking, we believe the Chinese market will begin to move and we are expecting some continued growth in China market.

The only unusual item in China which we are watching very closely is all the disruptions which are taking place, a protest against the Japanese OEMs. And since we do sell to Japanese OEMs automotive products in China, we're seeing some disruptions in their manufacturing in September, October, and hoping that they will begin to subside by the end of the year.

And then just very simply, as I read through press release and look the numbers. It would appear to me that your Components and Sensor segments performed at or better than your expectations, and it was really all EMS that affected the quarter?

That's a pretty fair statement.

Vinod, you mentioned that in EMS business you exited unprofitable accounts. Could you share how much exposure of unprofitable accounts you still have in EMS?

I think, Hendi, this pretty much is the bulk of the operations there. We were not profitable and we were trying to see if there is a way to make them more profitable.

But the more we analyzed it, we realized that Scotland necessarily is a not a location, where we need to have a presence from an EMS point of view. And in Asia we have a very strong presence in Thailand, and concluded that we don't need another additional capacity in China.

And as you know that our goal is to take our EMS business towards a 3% to 5% or 3% to 4% operating margins, including corporate charges kind of a picture, and excluding corporate charges, our target is to take that number closer to 6%. We concluded that the way to do it is in addition to growing our medical and defense pieces of the business.

We realized that we also should exit from these 2 small unprofitable locations, because that would make the overall footprint and structure of EMS business healthier.

And then do you anticipate any loss of customer or business as a result of that?

Well, other than what we decided that which customers we will not want to transfer to other locations. They're very small operations, both of them.

A bulk of the customers we exited. Few strategic customers we were able to transfer to our other locations.

And if post the facility consolidation and complete exit of unprofitable facility, how much closer will CTS be to that 3% to 5% near-term target?

That's a tough question to answer, Hendi. A lot of it depends on the overall environment and how the volumes come back.

But I believe that, this positions our existing EMS capacity and simplifies the structure that as the volumes come back to more normal levels, we should be fairly close to our targets.

Vinod, your earlier comment seems to suggest that expectation and sales projection of piezoceramic for hard disk drive are still on track with your prior expectation?

Absolutely, actually, better than our prior expectation.

And then at the same time, we are hearing like various outlook and views on PZ and in hard disk drive. How should we reconcile those?

There are 2 different aspects. One is the overall disk drive market, and you may read that overall disk drive market maybe softer or growth may be different.

What we are seeing is that our product did not go into the traditional disk drive market. So we never have sold in the past any product into disk drive.

Our product is going and to the way I understand it, the next generation of disk drive technology, which is called dual stage actuations. And the market is getting switched gradually from the traditional disk drives to the DSA version of the disk drive.

So as they switch to that, it's creating a growth opportunity for us. So it's possible that even if the overall disk drive market is stable, because you have a higher and higher percent of disk drives utilizing dual stage actuation, you will see CTS products sales to grow.

And then, can you clarify where that dual stage actuation go to in terms of let's say, like enterprise, the hard disk drive, the hybrid for desktop or is it just like a pure desktop and notebook computers?

My understanding, Hendi, is that it starts with the higher-end disk drives, but it will spread to a broader families of disk drives, which will be higher-end and the lower-end.

Vinod, about the smart actuator, do you still maintain the same sales projection expectation and the timing?

I think the projections and timing are the same as before. The only thing which is a little bit open is that, how the learning curve and margin ramps will take place.

But overall, the program is on track and we will start shipping the product as we expected, when we talked about it last time.

Guys, you mentioned in your press release the China-Japan dispute and actually also mentioned in your commentary. Are you able to quantify the impact of that in the previous quarter or is it a current quarter item that you're concerned about?

Just talk a little bit about that?

John, the issue started around middle of September, and so the impact on third quarter is rather limited. In the fourth quarter, again, to some extent we are projecting when it will get resolved.

But some of the numbers we saw had impact on us from sales point of view was around $2 million to $3 million.

You expect that to be in the fourth quarter?

That being the fourth quarter impact. And again the numbers vary anywhere from a low of $2 million to a high of $3.5 million, and that depends on, does it linger on, does it get resolved.

Actually there was an article in today's Wall Street about how the employees and the surrounding areas where those operations are getting adversely affected. So I'm sure there is a pressure on the Beijing administration to resolve it, because it's not really helping anybody.

Since you brought up that piece, I saw that in the journal also. Shipments from Japan to China are actually down year-over-year in the third quarter, which I would assume this impact from the Thailand floods on that.

Am I right in thinking that's down on a down number?

My interpretation was that those are down simply because people are not buying as many Japanese vehicles in China because of the issue. I didn't connect that with the flood-related issues.

I was wondering if it's down on a down number, making it to twice worse, if you will. But I wasn't sure.

I just don't remember the timing. Second thing, I actually want to talk a little bit about the EMS side of the business, and actually the Thai flooding.

I wanted to kind of get a good sense here of the insurance recoveries, and this is my guess, it was about $0.10 impact on 3Q results. Now, we are fully operational, okay?

The recoveries were around $4 million or $0.08 a piece there, but they were offset obviously with the expenses and loss.

So the facility is now completely up and running in Q4, okay? So there will be no kind of offsets here in Q4, but are you still going to have that $0.08 benefit in the recoveries in the quarter?

That's correct.

Just wanted to make sure I'm getting this right?

Yes.

So you're going to have a double benefit in Q4, you're going to be up and running plus with getting recoveries?

John, you're directionally correct, conceptually correct, however, although this facility will be up and running. There is some impact from lost sales.

So there will be some small offset to that, but you're right directionally that in fourth quarter we should generally have the upside and limited or very little downside.

And Vinod, correct me if I'm wrong, I think some of those lost sales that you talked in prior quarters, you decided to exit those businesses now, kind of use the Thailand flooding is an opportunity to cull out the least profitable guys, so some of it is voluntary, right?

That is generally correct.

Now to take it a step further, in Q1, we should be thinking about now that this can run in standalone at lower revenue run rate and we should probably be thinking about having a step down in the EPS numbers, just because you're not going to have any recoveries in Q1?

That's not clear to us, John, because that one piece may be true. But you remember in the first quarter, if you're comparing sequentially?

Yes.

Okay, if you're comparing sequentially then to that extent that we will have a net-net benefit in Q4 this year, and not Q1 next year. You will be correct.

We'll remind you that if you compare the year-over-year comparison that will not be the case, because if you remember in Q1 of this year, we had limited recoveries and lot more expenses. So if you do the same comparison year-over-year, Q1 should look better.

I'm just trying to look at this EMS side...

Sequentially, you are correct.

Now, the question I guess following that is the smart actuator rollout, okay. You said that you expect some of it to start shipping later this year.

How much do you expect to ship in Q1, and what's the progression of the rollout on the smart actuators program in 2013, that would be helpful?

There will be some ramp. So you know that we have talked about the first full year is approximately $20 million.

So we know that we have projected that first year will be $20 million. And we are not certain, because we're still talking to the customer and the customer keeps, obviously, modifying the schedule.

We believe at this point that that $20 million will not be equally distributed in the fourth quarter. There will be some slight ramp from Q1 to Q4.

Will one quarter be higher than the other?

Q2 will be slightly higher than Q1 and Q3 should be slightly higher than Q2 and Q4 should be even higher a little bit. So this is just slight curve.

John, the other thing I will tell you which is also something we're learning, because it's a brand new product for a brand new industry and application, that for the first several months which we are guessing should be 3, 4 months, we have to run this product, what the heavy-duty OEMs call in a safe mode. Safe mode means, we are required to put some extra tests, extra people, extra inspections and things like that.

Now, we will see clearly impact on the gross margins on this product in the first quarter and then when we exit the sales production mode in the second quarter we'll see. So you may like to model the gross margins with a curve also.

Will the gross margins be lower than your normal component gross margins?

Yes, in the first quarter.

And when you exit the year, will it be above or below the normal component?

We should assume that the contribution from this should be similar to Component and Sensor margins. That's our assumption.

Vinod, you mentioned about the new parking sensor program, how many comps do you have in parking sensor and in what automotive category? Furthermore, I think it will be helpful, if you can give more insight into what the margin look like, the dollar content, and how your product development plan?

So on parking sensor, Hendi, I believe this is our first ever parking sensor, okay. And the margin should be fairly similar to our component sensor margins.

But the reason we highlighted it, because we have a program to diversify the company and add new sensors to our portfolio. So we do highlight wins, which show brand new products.

So it's a relatively small program. Similar margin as our component sensor, maybe a touch higher, but the significance is that we are introducing a brand new family of sensors.

Could you indicate in what automotive category you're competing, is it only in light passenger vehicle?

I believe it's a light vehicle. Yes.

Do you have any update on other new product development activities?

Other new products, again Hendi, the emphasis continues to broaden our penetration in things like turbochargers sensors, actuators and as we launch this major smart actuator, clearly, will be taking this product to other OEMs. As you know, this current program is so large that we chose not to engage with other OEMs, because this was essentially our penetration into a new market.

And now that we will be done launching that program probably sometime by the middle of next year, we will be taking the product to other OEMs. But we continue to develop the family of turbocharger sensors, transmission sensors, variable valve sensors.

So essentially it's diversifying away from our traditional Accelerator Pedal Module families.

Last question Vinod, if you look at Valpey-Fisher's acquisition in terms of performance, is it above, about or below your prior expectation?

Valpey-Fisher acquisition actually is performing slightly better than our expectations. We're very pleased with that integration.

And continue to look at other opportunities like that. The other thing which Valpey did is if you noticed in my script is we are consolidating our Chicago engineering center with Valpey in Hopkinton, Boston.

So it's giving us that synergistic benefit. And you may have also noticed that I said that we had a very, very small Swiss manufacturing operation from a small prior acquisition.

We will also be moving that with the Valpey manufacturing facility in Hopkinton. So clearly Valpey is becoming the core around which we are developing our engineer frequency platform and are able to get additional synergistic savings simply because we're very pleased with the Valpey growth and profitability.

Just one question regarding the restructuring, it looks as if most that you mentioned Scotland and China are EMS related. What about the other 4 pieces?

I guess that you mentioned the design center things and the like I assume, those are more to the component side, but talk through what of those restructure is related to components versus the EMS?

I think the restructurings which is related to components is we have done some component restructuring in Singapore which has allowed us to make that operation more profitable and fit into a smaller footprint, which then allowed us to do the sale leaseback and only utilize 37% of the building, and so create this gain on the sale and $17.5 million cash flow. The new one which we are announcing to do something very similar in tangent which again will create an opportunity to either create a gain or probably more higher probability, that we would like to sub lease those 100,000 square feet which we will free up in China by the end of this year or early next year, that's component.

And as you mentioned Chicago design center, consolidating that with Valpey's operations in Boston is component, and closing the small manufacturing operation in Switzerland is a component. So those 4 are components and Scotland and China EMS is EMS.

Well, just to look at those, it looks like they are driven to some extent by the concern that we're seeing a slow period time here. Were they not evident last year?

Just wanted to get a sense of, every time we see some slowness when we find some more things to close down or consolidate, or is there a much more left there that might offer opportunities, no matter what the sales growth is?

Greg, you're right. The EMS is probably more driven by economic conditions and our desire to take EMS more quickly towards their targeted profitability.

And as you know, we have said in the past is that we will err on the side of making EMS more profitable than use EMS to grow the company. The growth is going to come from Component and Sensors and new products.

But the component side of the restructuring was more driven as a synergistic aftermath of our Valpey acquisition. And that is actually gave us an opportunity to combine the engineering center with them.

We couldn't have done it earlier because that acquisition took place in February timeframe this year.

Is that a case for Singapore and China as well?

Singapore is probably something in between. We are also connecting Singapore with our Valpey-Fisher acquisition because we make engineered frequency product in Singapore, and we do make engineer frequency product primarily in Valpey.

So that was again probably triggered by a new couple of people on the management side on the Valpey which allowed us to create more productivity opportunities in Singapore, but that was probably pushed harder because of economic environment. I must admit.

Just a few quick questions, one I guess on Electronic Components. I know in the prior quarter as you provided some color on this distributor inventory.

What are you seeing from their point of sale, because I think a couple of quarters ago, it seemed like things are kind of bottoming out?

You are right. I think the distribution side is continuing to stay soft, and we're not seeing or at least we did not see any clear signs in the third quarter of improving.

And if you frankly look at press releases from large distribution companies like Avnet and those kinds of people, they are clearly indicating that the environment will stay fairly soft. Now we do think that the inventory levels are fairly low.

So any bounce back in the demand should ripple through to us pretty quickly, but having said that we're not, at least at this point seeing any strengthening in the order board of our distributors.

And with all the restructuring you guys are doing, what's going to be the net plant count or manufacturing count?

Well, we have said Alek that the net impact of these restructurings will be roughly 10% on our global manpower. So we'll end the year just over 4,000 or 4,100.

But if you are thinking about the plant count, I think couple of locations where we're closing EMS, those are shared facilities, so that won't have any impact. But our manufacturing in Switzerland is a net reduction.

Our Tucson plant will be a net reduction. So I guess, Mitch can send you the count, but we will be less 2 physical locations.

And then lastly, I'm wondering if you could provide any color concerning the CEO search?

You know that we did an 8-K in the February, March timeframe. And the Board wanted a very smooth and very orderly transition, and therefore we flagged it almost 2 years in advance.

And the roadmap at that point was that we should have ideally that the new CEO in place to work hand and gloves with me by January 1, or February 1 timeframe, so that we have a time for at least 11 month or 12 months of orderly transition. And we're still on track with that original timeline.

Just going back to Greg's question about the restructuring charges, the first one you announced earlier this year, it was $6 million in annual savings. I might have missed it.

Did you say how much you expect in annual savings from the current restructuring charge?

John, we didn't specifically call that out. But it will have a payback in 2- to 3-year timeframe.

So the first one we've said on a $5 million charge would have a $6 million savings, so this one will have a payback more like 3 years, so roughly $1 million per year.

That reason of payback is longer here, John is that accounting requires that if you free up certain space and that the market is lower, you essentially take the delta of the lease life and in some of the smaller pieces that the life is more like 5, 6 years remaining. So that kind of adds some components with a longer payback.

So as Tom said, the second one probably will have a payback of 3 years. The first one, the bigger one the payback is one year.

So and thinking about 2013, how should we thinking about the current years restructurings have about $7 million of net lower expenses.

Gross savings should be in that range somehow, somewhere.

And how is that distributed from cost of goods sold and SG&A?

John, probably heavier skew to cost of goods sold. I don't have the exact numbers, but I would think they are like 2/3 and cost of goods sold and the reminder SG&A.

I would like to remind our listeners that a replay of this conference call will be available from 1:30 p.m. Eastern Daylight Time today to 11:59 p.m.

on Wednesday, October 31, 2012. The telephone number for the replay is (800) 475-6701 or (320) 365-3844, if calling from outside the U.S.

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