安富利 (AVT) 2006 Q1 法說會逐字稿

Please stand by. Our presentation will now begin. I would like to turn the floor over to Vince Keenan, Avnet's Vice President and Direct of Investor Relations.

Good afternoon and welcome to Avnet's first quarter fiscal 2006 corporate update. I am Vince Keenan, Vice President of Investor Relations for Avnet.

If you are listening by telephone today and have not accessed the slides that accompany this presentation, please go to our website, www.ir.avnet.com and click on the icon announcing today's event. After registering, please click on the slides only for telephone participants option that appears on your screen.

In addition to disclosing financial results that were determined in accordance with generally accounting principles, or GAAP, the Company also discloses non-GAAP result of operations the excludes certain items. Reconciliations of the Company's analysis of results to GAAP can be found on the form 8K filed with the SEC today, in several of the slides in this presentation, and on Avnet's investigator relations website.

Before we get started with the presentation from Avnet management, I would like to review Avnet's Safe Harbor statement. This presentation contains certain forward-looking statements which are statements addressing future financial and operating results of Avnet. These statements are based on management's current expectations. Listed on this slide are several factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these and other factors are set forth in Avnet's filings with the Securities & Exchange Commission.

In just a few moments, Roy Vallee, Avnet's Chairman and CEO, will provide Avnet's first quarter Fiscal Year 2006 highlights. Following Roy, Ray Sadowski, Chief Financial Officer of Avnet, will review the Company's financial performance during the quarter. At the conclusion of Ray's remarks, Roy will wrap up with additional comments, after which a Q&A will be conducted.

Also here today to take any questions you may have related to Avnet's business operations are our two operating group presidents, Rick Hamada, President of Technology Solutions, and Harley Feldberg, President of Electronics Marketing.

With that, let me introduce Mr. Roy Vallee to discuss Avnet's first quarter Fiscal Year 2006 business results.

Thank you, Vince, and hello, everyone. Thank you all for taking the time to be with us and for your interest in Avnet.

Before we get into the numbers I'd like to remind everyone that the first quarter of Fiscal Year 2006 includes the results of Memec in our Electronics Marketing group. Since the transaction was accounted for under purchase accounting, the prior periods have not been restated to include Memec's results. We've also excluded restructuring and integration costs resulting primarily from the Memec acquisition, and stock based compensation expense from the accompanying slides, in order to facilitate comparison with prior periods.

So turning to the financial highlights for EM: the most significant highlight of the first quarter of Fiscal Year 2006 is not yet fully reflected in the numbers. In particular, I'm talking about the speed and efficiency on the Memec integration. In the first quarter the Americas team essentially completed the integration of the Memec organization, including IT systems, personnel, logistics, and real estate.

In EMEA, we have completed the physical integration of distribution centers and selected our sales, marketing, and leadership teams. During the second quarter we will complete the IT integrations in EMEA.

In Asia we have announced our sales, marketing, and leadership teams, and in the second quarter we will complete the IT integration and consolidation of logistics facilities. And importantly, the integration teams have identified additional synergies in both the Americas and EMEA. As a result, we now expect an additional $30 million of annualized operating expense synergies to be realized by the end of the June quarter. This brings the total expected annualized operating expense synergies to $150 million, which should facilitate future earnings growth and accelerate the achievement of our long-term financial goals.

Remember, these synergy cost savings are in addition to more than $10 million of annualized interest expense savings resulting from the retirement of most of Memec's outstanding debt at the closing of the transaction.

Another highlight of the quarter was the resumption of growth in the Asia region. EM-Asia's revenue grew 7% over the year-ago quarter and was flat sequentially on an pro forma basis including Memec's revenue in the prior periods. Although seasonal strength in digital consumer products was somewhat tempered by weaker than expected demand in telecoms, we were able to improve both gross profit and operating income margin in Asia over the June quarter. We are pleased with this progress towards our long-term business model in this important region.

Bookings over the last few months have been encouraging, and we are confident the integration of Memec will meaningfully strengthen EM-Asia's competitive position going forward.

In addition to the cost efficiencies associated with the Memec integration, we are realizing efficiencies in working capital management. In the September quarter, EM achieved another record in inventory turns of 5.4, the third conservative quarter of improvement. Most of this improvement was realized in the Americas region, where we have already consolidated IT systems that manage the order cycle and inventory flow. We believe there are additional opportunities to realize working capital velocity improvements as we integrate IT systems in EMEA and in Asia.

Looking at market conditions, although we have experienced some softening of demand in Europe, bookings in both Asia and the Americas appear to be improving. We closed the September quarter with an positive book-to-bill ratio in all three regions and are comfortable with current inventory levels through the channel.

Finally, in the September quarter EM experienced a greater than expected sequential decline in gross profit margin due to regional mix, business mix, and competitive pressures. The integration of Memec, which had a different geographic mix than EM, combined with differences in sequential growth by region to change EM's regional revenue mix from the June to the September quarter.

Asia increased from 22% of total EM revenue in the June quarter to 26% in the September quarter, while the EMEA region declined from 37% in the June quarter to 32%. As we have explained before, the Asia region has a different business model, characterized by lower gross margins and lower expenses, but with higher asset velocity. Since the EMEA gross profit margins are roughly twice that of Asia, the change in regional revenue mix magnified the sequential decline in gross margin percent.

Concurrent with the regional mix there was an business mix impact to gross profit margin, including a channel model change at Xilinx. With the increasing complexity of high-end FPGAs, Xilinx has decided to increase their direct design efforts at certain strategic accounts. As Xilinx has transitioned more accounts to this model, we have experienced a corresponding decrease in the percent of higher gross margin design win business with Xilinx, and now those revenues are at lower fulfillment level gross margins.

As we've stated before, we are adjusting technical resources during this transition period and do not expect this change to have any significant impact on operating income margin going forward .

Additionally, in the quarter we experienced higher sales to large customers that have lower gross profit margin, driven somewhat by seasonality.

And we continue to experience competitive pressure on gross profit margins globally. This combination of regional mix, business mix and competitive pressure caused gross margin to decline more than we anticipated.

At Technology Solutions, we experienced our fourth conservative quarter of double digit year-over-year revenue growth. The September quarter year-over-year growth of 11.7% was driven by our enterprise value-added distribution business, which grew over 20% as compared with the year-ago quarter. Our focus on solution selling has been a key factor in our success, as evidenced by the increasing percent of software and services in our revenue mix. Over the past 12 months our software and services revenue has grown at twice the rate of hardware, and Technology Solutions overall continues to grow faster than the markets they serve.

In addition to impressive top line growth, TS also delivered their 9th conservative quarter of year-over-year improvement in operating income margin. Operating income dollars grew 19% over the year-ago quarter and operating income margin creased 17 basis points to 2.8%. This represents T.S.'s best performance for a September quarter since fiscal '01.

The T.S. business continues to exceed our return on capital goals and create economic profits. In the September quarter T.S.'s operating income drop-through rate was 53% year-over-year, which is consistent with our long-term financial model as we continue to grow T.S. operating income faster than revenue.

Finally, in the September quarter, T.S. added Oracle business applications, targeted at medium sized customers, to its portfolio of solutions. This is another example of how we are investing to grow the business. Working with Oracle we will create a new business unit that will authorize a network of solution providers to market, sell, implement, and support Oracle E-Business Suite Special Edition and J.D. Edwards' applications. Through our bar partners, we will provide the S.M.B. market with business solutions that streamline key business processes at an attractive price point. As more and more software applications vendors target the S.M.B. market , we believe they will continue to turn to Avnet to efficiently and effectively reach this attractive market segment.

As you can see on this next slide, we've added Memec revenue to the E.M. quarterly revenue history, to give you an idea of what our Electronic Components revenue would have been if Memec had been a part of Avnet for all periods presented. E.M. revenue of 2.11 billion for the first quarter of fiscal '06 was up 30% sequentially and 35% as compared with sales of 1.56 billion in last year's first quarter, excluding Memec sales in the prior periods.

If you add MEMEC revenue to the prior periods, as we have portrayed on this slide, E.M. revenue was down 4.8% sequentially and 1.8% as compared with the year-ago quarter. Excluding the translation impact of foreign currency exchange rates, E.M. revenue would have been down 3.7% sequentially and 1.7% on a year-over-year basis, including Memec sales in the prior period.

As you may recall, we had more than $40 million of Memec revenue pulled forward from the September quarter into the June quarter. If this 40 million had been recorded after the acquisition closed in first fiscal quarter 2006, then revenue would have been roughly flat on a year-over-year basis and down 1.2% sequentially, in line or slightly better than normal seasonality.

On an regional basis, Asia had the strongest revenue performance. Including Memec sales in last year's September quarter, E.M. revenue in Asia was up 7% year-over-year while the Americas was down 2.1% and EMEA was down 7.3%. Demand in Europe was somewhat weaker than normal seasonality, which had a corresponding effect on gross profit and operating income margins this quarter.

Including Memec revenue in the June 2005 quarter on an pro forma basis, E.M. revenue was down 5.1% sequentially in the Americas while EMEA's revenue was down 7.8% in delivered dollars and 4.9% in constant dollars.

In Asia, where seasonal strength in digital consumer products was somewhat offset by weaker than expected demand in telecoms, revenue was flat as compared with the June quarter, adjusted to include Memec's Asia sales.

Sluggish economic growth in Europe appears to be having an impact on the components market and should continue to impact our EMEA revenue in the seasonally weak December quarter.

Moving to Technology Solutions, sales for the first quarter of fiscal 2006 were 1.16 billion, a increase of 11.7% as compared with the first quarter of fiscal '05, representing the fourth conservative quarter of double-digit year-over-year revenue growth and a record sales level for a September quarter at T.S. At an regional level, year-over-year sales grew 23.3% in Asia, 14.1% in the Americas, and 3.6% in EMEA. Much of the growth was driven by T.S.'s enterprise computing business, where strength in software, services, and storage solutions drove year-over-year growth of over 20%.

On an sequential basis, T.S. revenue declined 4% in delivered dollars and 3.3% in constant dollars. The Americas region, coming off an unusually strong June quarter, saw sales decline 7.5% sequentially. In Asia, sequential growth of 13.7% was driven by a seasonal increase in microprocessor sales. T.S. EMEA grew revenue sequentially by 3.2% in delivered dollars and 6.1% in constant dollars, also on the strength of microprocessor sales.

We are comfortable with order trends in the current month and expect Technology Solutions to experience its typically strong seasonal December quarter.

Now I'd like to turn the commentary over to Ray Sadowski, Avnet's Chief Financial Officer.

Thank you, Roy. Hello, everyone.

Let's begin with an overview of our operating results for the first quarter of fiscal 2006. This first slide shows a year-over-year comparison with the dollar and percent changed in the highlighted columns on the right. Please note that the prior year results shown here do not include the results of Memec, which was acquired at the beginning of the Fiscal Year. Also note that we have included a reconciliation to GAAP net income at the bottom of the slide to account for the restructuring and other charges incurred in the current quarter.

In the September quarter, sales of 3.27 billion were 25.7% higher than the year-ago quarter due to the addition of Memec's results in the current quarter. Gross profit of 423.2 million was up 73.6 million as compared with the first quarter of fiscal 2005. Gross profit as a percentage of sales was 12.9%, down 50 basis points from the year-ago quarter, due to the mix of business and competitive environment in the components markets that Roy referenced earlier.

Expenses of 335 million were up 58.5 million, or 21.2%, due to the incursion of Memec's expenses in the current quarter. The September expenses include a total of roughly 16 million of synergies, primarily in the Americas region, somewhat better than we had originally estimated. The 335 million of expenses in the first quarter of fiscal '06 exclude the restructuring and integration costs and compensation costs resulting from new accounting rules surrounding stock based compensation programs.

Operating income of 88.2 million, excluding certain charges, was up 20.7% as compared with the first quarter of fiscal 2005, while operating income margin dropped 11 basis points to 2.7%. Below the operating income line there is a $1.3 million increase in interest expense to 22.2 million, due primarily to rising short-term interest rates and a 1.2 million increase in other income, due primarily to higher interest income as short-term interest rates rose over that prior period.

The interest expense shown here excludes a duplicate of interest expense totaling $1.5 million, resulting from new bond issuances over a 4 week period during a tender offer for certain of the Company's older bond maturities. And Other income excludes interest income earned, totaling less than $500,000 on the proceeds from the new bond issuance over that same 4-week period.

Taxes on pre-tax results, excluding the previously discussed items, increased $6.4 million, due to a combination of higher income and a higher effective tax rate. The tax rate increased from 31% in the first quarter of fiscal '05 to 33% in the September quarter, due to the geographic mix of profits after the incorporation of Memec's profits into Avnet's consolidated tax calculations.

Net income excluding certain charges increased 8.6 million or 23.7% to 44.9 million, while Earnings Per Share, excluding charges, was $0.31 in the September quarter as compared with $0.30 per share in the year ago quarter.

The current quarter per share calculation was impacted by a 21% increase in shares outstanding, due primarily to the issuance of 24 million shares related to the acquisition of Memec.

On a GAAP basis, our results for the first quarter of fiscal 2006 included 30.3 million pre-tax and 20 million even after tax of charges relating to restructuring integration costs, debt extinguishment costs, duplicate of debt interest and incremental stock compensation expense. Taking these into account, our GAAP net income was 24.9 million or $0.17 per share.

This next slide highlights the sequential change in our results for the first quarter of fiscal 2006. Again, the prior year results do not include the results of Memec. Revenue of 3.27 billion was up sequentially by 15.7%, due primarily to the inclusion of Memec's results in the current quarter .

Gross profit increased 52.3 million or 14.1% sequentially, and gross profit margin declined 18 basis points to 12.9%. The decline in gross profit margin was due to the mix of business and competitive environment in the components markets previously discussed and an product mix shift to lower margin software and microprocessor revenues at Technology Solutions.

Operating expenses of 335 million, excluding certain charges, represent a 17.5% increase over the June quarter as a result of incorporating Memec in the September quarter. Operating income increased 2.9% to 88.2 million while operating income as a percent of sales declined 33 basis points to 2.7%.

Just as in the year-over-year comparison, the effective tax rate increase from 27% to 33% as a result of the geographic mix of profits after consolidating Memec's results.

All in all, this resulted in net income of 44.9 million or $0.31 per share, excluding the previously discussed charges as compared with net income of 47.3 million or $0.39 per share in the June quarter.

On a GAAP basis, including the charges previously discussed, net income was 24.9 million or $0.17 per share as compared with net income of 47.3 million or $0.39 per share in the June 2005 quarter.

This next slide looks at some of the profitability metrics that we use to monitor our business. As you can see in the graph on the left, our expense to sales ratio, excluding certain charges, increased sequentially by 16 basis points to 10.3%. The increase was driven by the change in business mix at the E.M. group, which has higher gross profit and higher expense to revenue ratio, grew to 65% of enterprise revenue versus 57% in the June quarter.

On an year-over-year basis, our expense to sales ratio declined 39 basis points with both operating groups contributing to this improvement. We expect this ratio to improve going forward as we realize increasing synergy benefits from the integration of Memec.

As the graph on the right shows, this quarter our ratio of expense to gross profit dollars increased 226 basis points sequentially versus the June quarter and 5 basis points on an year-over-year basis. The sequential increase is due primarily to sequential gross margin decline at both operating groups as discussed earlier. This is another metric where we expect future synergy benefits will drive meaningful improvement.

This next slide portrays operating income margin performance and working capital velocity, two core metrics of our value based management initiative. As you can see on the left, operating income margin of 2.7%, excluding certain charges, declined 33 basis points when compared with the fourth quarter of fiscal 2005 and was down 11 basis points on a year-over-year basis.

At E.M. operating income margin of 3.31% declined 72 basis points versus a prior sequential quarter and 45 basis points as compared with the year-ago quarter. The overall operating income margin decline is due primarily to lower gross profit margins in the E.M. EMEA region. As Roy mentioned earlier, the regional revenue mix at E.M., combined with a somewhat worse than normal summer slow-down in Europe, had a negative impact on E.M.'s profitability.

E.M. Americas' operating income margin improved both sequentially and year-over-year, due to greater than expected operating expense synergies realized during the quarter.

Overall, we are confident that as the integration continues internationally, E.M. will be positioned to grow earnings substantially faster than revenues.

Technology Solutions' quarterly operating income margin of 2.81% was 17 basis points higher than the year-ago quarter and reached its highest for a September quarter since fiscal 2001. On an sequential basis, operating income margins at T.S. declined 30 basis points, primarily as a result of the expected decline in revenue and the product mix shift to lower margin, software and microprocessors.

The chart on the right depicts working capital velocity, another key performance metric in our return equation. Consolidated working capital velocity of 6.1 was up strongly from 5.2 in the year ago quarter, but down from the record 6.4 in the June quarter. The sequential decline was due to the change in business mix as the more working capital intensive E.M. business grew from 57% of the total in the June quarter to 65% in the September quarter with the integration of Memec. On a year over year basis, working capital velocity at E.M. improved 24% and its cash cycle declined by almost 23 days. As you may call, last September was the beginning of the mid cycle inventory correction, when our days of inventory rose materially.

On a sequential basis, E.M. improved working capital velocity by 5%, due to record inventory turns of 5.4 in the September quarter. With record inventory turns in the current quarter, E.M.'s year-over-year decline in days of inventory was a major contributor to the improvement in its working capital velocity.

G.S. had a slight decline of 4% in working capital velocity as it was impacted by the seasonal revenue decline. However, September's working capital velocity was 30% better than the year-ago quarter and represents the 16th straight quarter in which T.S. has improved year-over-year performance in this important metric.

As you can see on this graph, our return on working capital was down sequentially to 16.5%. This was due to lower returns at E.M., as its improved working capital velocity did not offset the decline in operating income margins, and to business mix as the lower working capital, higher return technologies solutions business dropped to 35% of total revenue versus 43% in the June quarter. On an year-over-year basis, return on working capital improved 201 basis points, with both E.M. and T.S. showing improvement.

As mentioned earlier, T.S. improved both working capital velocity and operating income margin year-over-year, while E.M. improved working capital velocity significantly as compared with last year's first quarter. We expect return on working capital to improve from current levels as operating income margins strengthen and we continue to focus on working capital velocity.

During the first quarter, free cash flow was a use of $442 million. Included in that use of cash during the quarter were the following items: first, we used 297 million related to the acquisition of Memec. That amount is net of 52 million of cash on the books of Memec at the time of the acquisition and includes the payoff of 268 million of Memec's debt outstanding at closing.

Second, we elected to make a $59 million accelerated contribution to our pension plan. We do not expect to make additional pension contributions for roughly another year and a half.

Third, we used 17 million of cash in connection with refinancing activities, primarily the premium paid and the transaction fees incurred in connection with the repurchase of 254 million principal amount of 8% notes due November 15th of 2006.

Finally, we used approximately 20 million of cash this quarter for the cash portion of restructuring charges, integration costs, and charges recorded through purchase accounting resulting from the Memec acquisition.

Our improved financial performance over the last several quarters, including significant cash flow generation, has allowed us to significantly improved our capital structure. During the quarter we completed a number of refinancing activities that increased our total liquidity, extended the terms of that liquidity, and lowered our overall borrowing cost. Improving our financial metrics in this area gives us the strategic flexibility to fund future growth.

In the September quarter we completed an offering of 250 million principal amount 6% notes due 2015 and repurchased 254 million principal amount notes due November 15, 2006. We also amended and restated our existing unsecured revolving credit facility, to both increase the size of the facility from 350 million to 500 million, and to extend its term. The amended and restated credit facility now expires in October, 2010. In addition, we increased our Accounts Receivable securitization program to 450 million from 350 million.

As a result of these activities and cash used during the quarter, we ended the quarter with 205 million of cash and cash equivalents and net debt of just over $1 billion. Our debt to capital ratio at the end of the September quarter was 33.2%. We anticipate no material change in our cash position in the December quarter.

What we've done on this slide is provide an updated detail on our synergy progress, including the additional 30 million of operating expense synergies previously discussed and how that will impact our income statement for fiscal 2006. I do want to caution that although we are 100% confident in the revised total of 150 million of operating expense synergies, the exact timing of those synergies is a bit more difficult to determine. As we progress with the integration in both Asia and EMEA, there are many variables that could impact when the synergies are realized.

Not shown on this slide is the 10 million of annualized interest expense savings that we began to realize immediately upon the close of the acquisition, with the payoff of nearly all of Memec's outstanding debt.

To start, let's take a look at where the synergies will come from. Roughly 70% of the synergies are people related and will be realized throughout the Fiscal Year as we reduce census. Another 10% is tied to the elimination of redundant sales offices and distribution centers and incorporates both leased and owned facilities. Another 10% is primarily driven by the elimination of depreciation on IT related assets and termination of IT related maintenance and other contracts that will no longer be used in the combined business. And the final 10% represents miscellaneous expenses related to general and administrative costs that will be eliminated.

As you can see on the percent complete line, the quick start in the Americas region propelled us to achieve 50% of our synergy goal at the end of September 2005 quarter. With both EMEA and Asia ramping up implementation of their integration plans, we expect to complete another 20% of the integration in each of the next two quarters, which will get us to approximately 90% complete by the end of the March 2006 quarter. The remaining 10% of the integration will take place in the fourth fiscal quarter and we will be 100% complete at the end of the Fiscal Year.

The next line on the slide provides the estimated cumulative quarterly synergies we estimate have been or will be achieved by the end of each quarter based upon the integration schedule and measures our progress toward our goal of 37.5 million in quarterly operating expense savings by the end of fiscal 2006.

The third line on the slide portrays the specific amount of incremental synergies we expect to achieve each quarter. Although these two lines quantify our progress, the reported operating expense savings impacting each quarter's P&L will be lower due to the fact that restructuring actions will take place throughout the quarter and we won't realize 100% of those savings until the next quarter.

The next line portrays this effect by detailing operating expense synergies achieved in the September quarter and an estimate of the reported operating expense savings impacting future quarters.

The final line provides a cumulative tally of the annualized synergies achieved on a year to date basis. As you can see, we estimate that we have realized $16 million of operating expense synergies in the first quarter of the Fiscal Year and currently expect to realize approximately 104 million of cumulative operating expense savings in our fiscal 2006 P&L.

While the quick start in the Americas helped us achieve an extra 10 million on synergies in the first quarter, when compared with our initial estimates provided in August I would point out that the synergies continue to be back-end loaded, with over 65 million or 63% of the annual impact occurring in the second half of the Fiscal Year. Beginning in fiscal 2007, we will have completed the integration of Memec and will be realizing operating expense savings at an annual rate of $150 million or $37.5 million per quarter.

Now let me turn it back over to Roy, who will provide our outlook and guidance for the December quarter. Roy?

Thanks, Ray.

So looking forward to Avnet's second quarter of fiscal '06, we expect revenues for Electronics Marketing to be in the range of 2.05 billion to 2.1 billion and we anticipate sales for Technology Solutions to be in the range of 1.425 billion to 1.525 billion. Therefore, Avnet's consolidated sales should be in the range of 3.475 billion to 3.625 billion for the second quarter of '06. We expect earnings to be in the range of 40 to $0.44 per share, excluding the impact of expensing stock based compensation amounting to approximately $0.02 a share.

This guidance also does not include additional restructuring and integration charges associated with the Memec integration, which we expect to be in the range of 18 to $28 million pre-tax or 9 to $0.13 cents per share. Nor does this include the amortization of intangibles associated with the acquisition of Memec, which amount has not yet been fully determined.

So with that, let's open up the lines for Q and A. Megan?

Thank you, sir. [OPERATOR INSTRUCTIONS] Your first question will be coming from Bernie Mahon of Morgan Stanley.

Good afternoon. Just one clarification on the restructuring benefits. On the last conference call I believe you'd said you expected 6 million in incremental savings in the September quarter, but it looks like it came in at 16 million. Is that correct?

That is correct. Impact in the September quarter we initially anticipated to be 6 million. And due to the excellent work done by the Americas team in completing the integration and identifying additional opportunities, the benefit has actually turned out to be roughly $16 million.

Just wanted to make sure I had that straight.

And then with the Memec acquisition, how much inventory did you acquire there?

Bernie, why don't we circle back?

We'll circle back on that one.

Okay? But we'll get that number for you.

Okay. That's great. And then --

Hang on an second, Bernie.

We have it. We acquired roughly 273 million of Memec inventory on an global basis.

273, you said?

Yes.

Okay. And then in terms of how to think about gross margins going forward, it sounds like you had some gross margin pressure this past quarter from Europe but that environment doesn't really seem to be improving, plus you have kind of a negative mix shift in the December quarter. Should we expect gross margins to go down 20 or 30 basis points sequentially or how do we think about that?

Yes. Bernie, this is Roy. Our expectations of the December quarter are that gross margins for our two operating groups will not change significantly from the September quarter. However, you're on point in that the rapid growth at T.S. for the December quarter should drive enterprise level gross margins down for the quarter and then they should rebound back in the March quarter.

Okay. Thanks a lot.

You bet.

Our next question is coming from Carter Shoop of Deutsche Bank.

A question on the components guidance. If we add back the $40 million to Memec in the September quarter, it looks like you guys are guiding for the mid-point, at least, of guidance here, is for about a 3.5% decline in the Components business on an sequential basis. Can you talk a little bit about where we're seeing the weakness there?

Well, Carter -- this is Roy. I'll make a comment and flip it over to Harley. If I look back over the last three years, we've experienced sequential declines of between 3 and 6%. And so we actually think that this year we're going to do slightly better than that typical pattern, including the add-back of the $40 million in the first quarter. So we think we're going to be roughly 1% better than our normal seasonal pattern, including an add-back of 40 million in the first quarter.

And Carter, this is Harley. The flavor I would add to that is that the decline part of that performance is primarily EMEA.

Okay. Great. That helps.

And then also could we talk a little bit about margin expectations in the September quarter? So we had a little bit of a benefit or better than expected synergies from Memec, and at the same time Europe was a little bit weaker than expected. But overall margin performance was -- excluding those two, were considerably worse than expected. I was hoping you could break down how much of that was competitive pressures versus pressure from suppliers versus maybe margins in Asia not quite being up to snuff? Is there a way to break out kind of the margin performance versus expectations for you guys?

Yes. Carter, it's difficult for us to quantify each of those independently and give you a analytic answer. Let me do this, though. If you look at what's happening, issues like the Xilinx model change. Well, given that that model change is complete, then our margin in Xilinx stabilizes. So that's sort of a Q1 phenomenon that doesn't necessarily repeat in Q2.

The issue regarding Europe: So we have a known seasonal weakness somewhat exacerbated by maybe an little more strength or weakness than usual in the region. That flips in the March and June quarters. We get a stronger Europe and that should have a positive impact on gross margin.

Now, the things that are more permanent in nature, you know, the ongoing shift of revenue to Asia or low-cost country manufacturing out of the west, that's a more permanent trend that we have to deal with. And the competitive pressure is really more an issue of industry, supply, demand, and when does that perhaps flip over and create a little more pricing power on the sales side. And that's difficult to predict.

If we look at the December quarter, all in all, we think our margins are going to be relatively stable. Some of the reasons being behind us and just enough positives to offset the negatives that might occur in December.

With that all said, wasn't the margin implications at Xilinx, wasn't that known? And then, aren't we getting into an more favorable pricing environment in regards to lead time stretching out? And inventory being run at relatively lean levels?

Yes. The Xilinx model change was known. What was not known was what the revenue was going to do with Xilinx on an sequential basis. We actually had thought there was going to be a flat to low single-digit growth in revenue. It turned out to be negative growth. So that did have a impact on overall margin.

And I actually -- on your second point, I hope you're right. The issue is that the volume in the December quarter typically comes out of the high volume manufacturing parts of the business, Asia's the region that we expect to grow sequentially. We think America's going to do better than seasonal, but that still could be flat to down a little bit and we expect EMEA to contract and that's our highest gross margin region.

Okay. Thanks a lot.

You bet.

Our next question is coming from Matt Sheerin of Thomas Weisel Partners.

Thanks. Roy, back to the issue of Europe, where it sounds like business is weaker than normal. Do you think it's all sort of related to the economies there or are you starting to continuing to see manufacturing migrate to Asia? And if it is sort of the first part, then are you looking at making additional cuts just to kind of right size the business to the environment there?

So Matt -- again, Harley, you may want to add something here. But I think your first two points are both correct. We all know that the G.D.P. growth rates for most of the Euro zone are running well below pretty much the rest of the world. And that's having a impact on demand. And it could also be, Matt, that this is a lagging effect of a strong Euro and the impact on European exports which the economy there has been pretty dependent upon.

In addition to that, the movement to low-cost country manufacturing was much more advanced, I would say, in America versus Europe. And now the large multinationals and some of the larger medium sized customers are now beginning to look at outsourcing into Europe. So that's my response on sort of the environment.

As far as Avnet's position, our position is that we have a business model that we are driving towards. We expect to achieve that model on a region by region basis. And we will continue to monitor revenue and gross margin to determine what expenses and what asset velocities are needed in order for us to achieve our business model. So we'll just continue to monitor the situation as we work our way through the integration and we expect to get there, in Europe, in America, as well as the other regions.

Okay. And then you also talked in your opening statement about some weakness in the telecom area. Could you be more specific? Is that on the infrastructure side?

Harley?

Yes, Matt, it would be. Primarily out of Asia as well.

Similar to things you may have heard out of Xilinx.

Okay. Thanks a lot.

You're welcome.

Our next question is coming from Michael Walker of Credit Suisse First Boston Corp.

Thanks. A question on inventories. I'm wondering if it's possible to quantify the increase in inventories that was tied to Memec, i.e., how much inventories did Memec bring on?

And then my follow-on to that is based on the cash flow statement. It looked like your core organic Avnet related inventories were up, perhaps in the high single digits, sequentially. Could you confirm that and help us understand what's going on there? Is that seasonally related or is there a slight buildup of inventory happening in the channel?

Hi, Mike. It's Ray. Sorry.

Inventory on Memec was about $273 million at the time of the acquisition. And if you look at the cash flow statement you'll see that increase in inventory by cash perspective is slightly less than $90 million, which is primarily in the European region and to some extent in Asia. In Asia, with revenues growing pretty significantly and expectations that strength will continue there, there's obviously been a little bit of buildup in inventory associated with that.

In Europe, a situation a little different. There, as we've talked about, the business a little bit softer than we expected. And with a softness -- a little bit of softness in the business, it takes a little bit longer to get the inventory out of the business. So that was where the other area of growth was.

But overall, as we pointed out earlier, inventory turns at E.M. globally did hit a new record.

Yes, Ray -- Hi, Mike. This is Harley. I would only want to add to Ray's comments that some of that increase was premeditated in advance of the system integrations we will be doing in both Asia and EMEA this quarter. So as you heard Roy talk earlier, the Americas integration from a system perspective is done and our inventory is well in line with our long-term goals.

In the other two regions we've had a degree of flexibility leading up to the integration, both of which will occur this quarter. And that is really from a customer service, customer support standpoint.

Okay. Thanks. And I just have a second question. Arrow this morning said that they were seeing lead times maybe start to stretch out a little bit. Wondering if you're seeing the same thing and if so, which product is it concentrated in?

Yes, Michael. This is Harley again. We have seen some lead time expansion in the quarter. I would not characterize it as alarming in any way. We've seen some movement in standard products. Analog has moved out a bit. We had some isolated flash issues and the fairly predictable memory expansion, primarily season related. But again, I would reiterate, I don't see anything that causes us alarm, but we did indeed look at that and consider that from a pipeline perspective moving into the Q2.

Michael, this is Roy. Almost systematically, when product lead times do extend, even if you think in terms of a one-week extension in product lead times on an global basis, not material, as Harley says, not alarming. But systematically that causes us to maintain more inventory for our own usage as well as for our supply chain management engagements. So that also would be an factor in the quarter.

To the extent that lead time stabilized this quarter, the probability is that our working capital will be pretty close to flat on a sequential basis. If you see lead times continue to extend, then there could be an inventory build again this quarter as well.

Thanks a lot.

You're welcome.

Our next question is coming from Steven Fox of Merrill Lynch.

Hi. Good afternoon.

Hi, Steve.

Roy, could you talk a little bit about Xilinx further, in terms of how they changed their model up. Is there any way to quantify what the operating income dollar impact was and whether it's commensurate with the decline in sales? And then secondarily, is that operating income dollar now stabilized at around these current levels?

Yes. So I think, Steve, if you think forward -- so I think as you know, Xilinx is making a decision or has made a decision to serve more accounts direct from a design win point of view while still having distribution and Avnet in specific distribute the products. So no change in our revenues, but we now are moving to fulfillment margin versus design win margin and that has a negative impact on gross profit.

So as that model has been implemented, we have been redeploying our technical resources. So as you might imagine, there's a little bit of a lag here as we redeploy those resources during the quarter and we get to the correct business model to support Xilinx. We measure our business with them as well as with all of our major suppliers on an pro forma P&L to ensure that we've got the right amount of resources dedicated to the product line.

So my point to you is that I can't quantify the impact on operating margin but I can tell you that in the current quarter, worst case, the next quarter, there should be a de minimis impact or a nonmaterial effect on our operating income.

And then secondarily, we've heard now from Arrow and Avnet both talking about a little bit increased pressures in the channel but lead times also slightly expanding. Can you sort of put all that together for us and explain why we're seeing more competition?

Yes, I don't know, Harley, if you want to comment on that, but my -- the thought that's in my head is the darkest hour is just before dawn. That people have been stretched for an long period of time. There is pressure for growth. There is still adequate supply. There is a little bit better demand. And there is slightly lengthening lead times. But we're just at that crossover point where it's not strong enough for people to be willing to lose business and therefore pricing pressure is still very aggressive. Harley ?

I think I would only add, Roy, that part of the pricing pressure, although clearly not quantifiable, is the predictable reaction and behavior of many of our competitors in light of the integration. While we are integrating our competitors are not standing still. So there are significant pressures out there to retain customers and business on our behalf and to bring those customers, and in some cases suppliers, to another competitor. So that is the reality of the short-term situation that we're dealing with relative to the integration.

One of the things that we're very pleased with is that we have generally had very good results relative to key supplier retention and key customer retention. So we do think we will work through that over the short term. But there clearly is a competitive environment going on, relative to that new status quo in the industry.

And Steve -- it's Roy again. I just want to make sure we're clear. We were not pleased with our gross margin for the quarter. It eroded significantly more than we thought it was going to. But as we do the forensics on it, our belief is that competitive pressure is a factor but in no way is it the overriding factor. These regional mix issues and business mix issues, including the Xilinx model change, impacted us heavily this quarter, more than we anticipated. However, competitive pressure will remain for the next few quarters. We just think it's going to moderate substantially. We think our gross margin pressure will moderate substantially.

If I could, before we move off the Xilinx issue -- this is Harley again. I'd like too add a little color that might anticipate a future question on this. I want to be clear that the Xilinx model change we're talking about is not one that should be viewed as an extraordinary event or an ongoing event. In reality, although we obviously won't discuss the customer segmentation strategies of any of our suppliers, in reality the amount of accounts that they have chosen to service on an direct basis is really not inconsistent with what the bulk of our suppliers do as well. The change is that prior to this period many of those were handled by ourself and in many cases by Memec. But this is not an ongoing quarterly event.

Thank you.

You're welcome.

Our next question is coming from Scott Craig of Banc of America.

Thanks, good afternoon. Hey, Harley, I want to go back to the Xilinx here for an second. Given that there was an impact on the operating profit this quarter and we've been saying all along that there probably wouldn't be, did Xilinx move quicker than you expected? In other words, were you looking for the transition to happen over a number of quarters where you would be able to get the expenses more in line on a timely basis?

And they, Roy, when you talk about the gross margins on an quarter-to-quarter basis, including Memec, can you maybe break out what was the biggest impact and try and help us out with an little flavor there? Thanks.

Okay, Scott. This is Harley. Relative to the Xilinx, I think I would offer two comments. One, I would reiterate what Roy said earlier relative to a lag. That really is going to always happen in this type of process. Just remember, these customers still remain active Avnet customers. So there's a hand-off period whereby our previous technical resources will work with the Xilinx direct resources to hand off and handle the accounts. So it is not a rapid cut off, per say. There will always be a bit of a lag which I would say, 90 days days is probably pretty typical.

The other point you made is, I think you made a connection that there was a operating income reduction as a result of this. I don't believe we made that comment. I actually don't believe that's accurate. We have been moving to make the adjustments when required, obviously keeping customer satisfaction in mind. But I do not believe it's quantifiable that there would be a significant operating income alteration in our Xilinx relationship.

I would also encourage you to recall that Memec was clearly a dominant number one player for Xilinx prior to the integration. So some of this is addressing the Memec issues and the Memec support by customer that heretofore were really not part of our purview prior to July 5th.

Yes. So, I guess -- let me comment. Two things. One, on the Xilinx situation, I agree that, as Harley said, the op income was not down significantly. But I think it has to be down some in the quarter. Difficult for us to quantify. And Scott, one of the things you need to realize also is that even if we identified that there is a redundant F.A.E. in a given geography for Xilinx, that doesn't necessarily mean that we want to remove that F.A.E. We may want to transition that other individual to other accounts or potentially even other product lines. And that's why there's a bit of a delay. We knew the accounts that Xilinx was targeting, but we still had to manage the transition of those resources. That's where I think the gap in the operating income would come.

On the gross margin point, look, it really is difficult to quantify exactly how much comes from each cause. You have to make assumptions in order to do that. But if you asked me to give it my best effort I would say that the shift in regional mix, the substantially lower revenues from Europe coupled with higher revenues from Asia, I think that's probably the single biggest contributor to gross margin pressure in the quarter.

Thanks.

Our next question is coming from Thomas Dinges of J.P. Morgan.

Good afternoon, guys. Just an couple of quick ones for you here. If we exclude the impact from the weakness that you guys saw in Telecom that also was cited on the Xilinx call, did Asia experience relatively normal seasonality in the E.M. business there? Then I have a quick follow up.

Harley?

I think the answer is yes. I think it was a pretty predictable quarter, excluding that segment of customers.

Okay. And then secondly, an quick one for Ray, just a point of clarification, you'd said you didn't expect much of an material change in the cash for the December quarter. So am I to read that, that when you look at GAAP net income and then payments you'll have to make for restructuring, the net of that versus perhaps a little bit of build in working capital is kind of close to a pretty de minimis, kind of almost like a zero on the all-in free cash flow line there ?

I think essentially that's correct. It is difficult, as you'd imagine, with the amount of transactions that are taking place, especially during this quarter with Technology Solutions, which has, obviously, their strongest quarter or the Fiscal Year and a lot of activity occurring in December and then the latter part of December . So it's very difficult to predict exactly what cash is going to end up with at the end of the quarter. So I think all of the the things you have pointed out are essentially correct. But keep in mind, because of that amount of business that's done in the last weeks, we could easily see some positive cash. I don't think we'll see any negative cash net overall, but we could see a little bit of positive cash. But again, floating right around plus or minus, it's hard to predict, I'll say 25, 50 million bucks, in that range, so nothing huge as compared with, obviously, what we just experienced in the September quarter.

Okay. Thank you.

Our next question is coming from Brian Alexander of Raymond James.

Thanks. Just -- still struggling with the operating income in the E.M. segment. Last quarter you did about 65 million pre-Memec, and I think Memec did about 14 or 15 million a quarter, if I recall correctly. So if I just hold operating income flat sequentially you would have done about 80 million with Memec, plus 16 million of synergies would get you to 96. And it didn't sound like the Xilinx had a material impact on operating income. So you did 70 million in operating income. So if I do the math it seems like gross margins would have had to fall by more than 100 basis points sequentially. And I'm just trying to get a sense for whether that was the order of magnitude of the pricing pressure we saw in the quarter.

Hey, Brian, it's Roy.

Hi, Roy.

So, gross margin did fall but nowhere near 100 basis points. But in your model, are you factoring in a sequential decline of $105 million? So, if you put Memec and Avnet together, in the Components segment, the sequential decline in revenue was about $105 million, okay?

Yes.

So you couple that with a decline in gross profit margin and you get a substantial decline in G.P. dollars.

Now, I want to point out and remind everyone, if you think back about that $40 million that we talked about last quarter? That equates to a $80 million or greater swing from the June quarter to the September quarter. So we're looking at this saying, you know, had the 40 million shift in September instead of June, our swing on a sequential basis would be around 1%, which is kind of in line with seasonality, maybe even a little bit better. Okay?

Sure.

But it's the combination of the revenue decline sequential coupled with a margin erosion that is driving what you are seeing.

Okay. Just an couple of follow-ups. That was helpful.

I guess on the gross margin guidance for the next quarter, it sound like you're expecting stability from here. But clearly you've identified a lot of competitive pressures, et cetera. I'm just wondering what gives you the confidence that gross margins will stabilize at these levels? Are you seeing that trend through the month of October, for example?

Yes. Of course, we do have most of October behind us at this point. So, yes, we are factoring all of our October actuals into those numbers. Brian, part of what's happening is we expect Europe to fall a little bit more. However, we're expecting better than seasonal performance out of America. And it turns out that our margins in Asia are actually the most stable of our three regions. So we're not forecasting a decline in margin in Asia.

There are some other minor factors that come into play for us that impact margins slightly positively in the December quarter. Some year-end factory rebates, that sort of thing. So rolling it all together we think we're going to be essentially flat .

Okay. And then just a follow-up, again, on the Xilinx. Not to beat a dead horse. But where are you in the reallocation of resources. What inning are we in, in terms of reallocating engineering talent, et cetera? And are you anticipating other suppliers to move toward this model or is this essentially, I guess, Xilinx playing catchup with other suppliers?

Brian, that was the point I was trying to make before -- this is Harley -- that it really is the latter. And the amount of accounts they're covering direct is in that same neighborhood as most of our suppliers. So we don't see it as a industry trend.

Relative to your first question, I'm confident that all of the reallocation of resources specific to that particular trend will be completed in the December quarter.

Great. Thanks.

You're welcome.

Our next question is coming from Amit Daryanani of RBS Capital Markets.

Thanks a lot. Just looking at your revenues from Europe, in the last conference call you had sounded fairly positive that the [inaudible] stronger than normal seasonality in the first 5 weeks of this quarter. It looks like Europe was down about 8% sequentially. I'm just trying to understand, did the orders really fall all that dramatically in the second half of the quarter? And are you seeing this continue on in October, so far at least?

Amit, what we talked about on the last call was that we had strong bookings in the month of July. We were surprised by that. And yet you saw what the revenue did. And yet we had positive book to bill. So we did actually finish the quarter with positive book to bill, which causes us to believe that Europe in no way is falling off a cliff. However, the revenues were down a little bit more than we would think of as normal seasonality. So we would think in terms of maybe, oh, 2 to 4% in constant dollars. Revenue declined more like 5% in constant dollars. And then when you throw in currency, we had an 8% decline in delivered dollars.

All right. And then did you see some Memec customers other than the Xilinx issue you have just spoken about, that are trying to seek more diversification in their distribution channel, and that might explain why your EM revenue, that you came in at the low end of the guidance for the quarter?

Well, Harley and I and the regional presidents have spent a ton of time talking about this. So there's a lot of moving parts with both suppliers and customers. But our sense overall is that in the first quarter it would appear that we held the combined revenue stream. So I'll take you back to the comment that we made a quarter ago and the comment that I just made to Brian Alexander. And that is if you look at the numbers in delivered dollars, delivered dollars, we were down 105 million sequential at Electronics Marketing. And we believe that over 80 million of that was related to just this phenomenon of the shipping in the June quarter that should have come into the September quarter. So I would say over the next quarter or two, we're all going to have a much better picture on how Avnet's component revenues are fairing relative to the market. But we're pretty comfortable in the first quarter that there was no material or noticeable attrition in our sales.

Amit, this is Harley. Let me add a little color to what Roy said, if I might. One of the reasons that we think it is resulting the way he described is that as we got into the point after acquisition of looking at customer base and comparing customer base, what we found is that the variance between Avnet, E.M., and Memec was much more significant at the line card, at the supplier level, than it was at the customer level. So in many cases we had significant commonality in customers inside of a region, but what we were bringing by way of the acquisition were new product lines. So although we had the Xilinx product line in common and a few others, there were many product lines that Memec had that we did not. That's why we spent so much time on the last call talking about our efforts towards the retention of those niche technology product lines that Memec had, because they were not E.M. product lines. But the customer base was fairly consistent.

And so, Amit, I don't want to overplay this -- it's Roy again -- because future quarters are going to determine the real answer here. But I just want to remind you that we did have a positive book to bill on these revenues in all three regions for Electronics Marketing.

All right. And then just finally, could you maybe provide some details on your expectations from cash flow and also your working capital metrics as you integrate Memec into fiscal '06?

Yes. We believe that -- two major responses to that question. One, of course, is that retained earnings are going to rise as we realize the benefits of the synergies. And number two, we think that we can, not materially but gradually and consistently, improve working capital velocity. So as a result of that we do anticipate improved cash flows as we exit the year.

Thanks a lot, guys.

You're welcome. I think -- we've got two more questions queued. I think we're going to try to take those and then end the call.

Our next question is coming from Peter Plough of Banc of America.

Yes. Thank you very much. Quick question just to follow up from the previous caller in terms of cash flow guidance. I was wondering, is it possible that you could give us some target that you're looking for for the December quarter as well as the full year? Let's say in terms of cash flow from operations, not necessarily your free cash flow as you define it. And if it's going to be similar to what we've seen, let's say in the last year, or slightly lower due to Memec and where you'd like to be comfortable in terms of targeting that going forward.

Ray? There's a lot of moving parts in the cash flow number, right? It's tough.

Peter, you know -- this is Roy. We are driving our organization to higher levels of return on capital, and in the process of doing that we expect higher operating margins and higher working capital velocity, both of which speak to increased levels of cash flow. And we have in fact delivered those increased levels of cash flow consistently now over the last couple of years.

The reason it's so difficult to project is that depending upon rate of growth in the industry, and as a sub-set of that, product lead times in the component sector, depending on those two things that has a dramatic impact on our cash usage. So therefore it's difficult for us to actually peg a cash flow projection.

The real reason behind the, why I asked the question, is because if you look at yourself compared to, from a credit point of view, away from -- or comparing yourself to, let's say Arrow, from a credit metrics point of view, the only difference you could really see is clearly, their much higher gross and operating margins. And obviously in the past 9 months, stronger cash flow. And one of the reasons why both Moody's and Fitch have you on upwards ratings momentum is on the objective that you will use free cash flow going forward to continue to improve your debt protection measures, as well as the commitment that you laid out over the last several quarters in terms of improving that operating margin going forward.

So I was looking really for some type of guidance in terms of what we could realistically think of a timing and that could, obviously, lead to upwards ratings pressure in maybe a 6 months time frame. Thanks for the comment.

Okay, Peter -- it's Ray Sadowski. Part of -- kind of -- multiple questions in there. One is what's that target cash flow number. And that's the difficulty. Will we be generating positive cash flow as we continue? December, as we mentioned earlier, is going to be a difficult quarter to predict just because of the level of activity that takes place during the end of the quarter. But do we expect to generate cash on an ongoing basis? The answer to that question is absolutely yes, all right? So based upon the increase in profitability, based upon a number of things, obviously including the Memec acquisition, all of our credit statistics will improve steadily from where they are today. They've obviously improved pretty significantly over the last couple of years, but we have a little bit of ways to go yet, so our expectation is that all credit metrics will improve pretty steadily and pretty significantly over the next 3, 4, 5 quarters or so, so that from a credit rating perspective, we would expect that hopefully our ratings will be moved up.

But predicting exactly how much of free cash is going to be there is more difficult because that relates, as Roy mentioned, you know, what's going to be the growth in business? If business grows greater than we anticipate and we believe we have to make investments in inventory, then obviously that's what we're going to do. So predicting exactly what that number is going to be is difficult. But we do believe we will generate positive free cash flow. It's just an question of what the degree is and all the credit metrics will improve as well.

Thank you.

Our final question is coming from Jake Kennemy of Morgan Stanley.

Hi. Thanks for taking the question.

If we're to look at the cash flow from ops for the quarter, negative 150 or so, how much of that is because you acquired Memec? What I'm trying to get at is kind of what the base free cash flow of the company would have been, X Memec. And then just a follow-on to that, what is your comfort level in terms of the cash balance today? What's kind of the minimum cash balance you like to have from the Company?

In you look at the free cash flow as we tried to outline, we obviously used 400 plus million of cash. When you start backing out a number of the unusual items, one, the acquisition of Memec, two, some of the special charges including the costs associated with refinancing, the fact that we accelerated a pension payment and we made a payment of 58 million, you exclude all of that, you get to a free cash flow use o, let's say roughly 40, $50 million. And we would expect on a ongoing basis, as we've just been talking about, that that number as we go into the December quarter is more likely to be closer to zero and then as we go out to the balance of the year we would expect to be generating a free cash flow on a ongoing basis.

From a cash position, I guess the way we look at it more is from an liquidity position. How much liquidity would we like to have, because how much cash has got to be a function of what business conditions are. If business conditions are strengthening, let's say greater than we anticipate, again, we'll be using money to fund inventory growth, to fuel the growth in the business. If business growth is more steady state, we would continue to grow cash and continue to look at ways of utilizing that cash efficiently, including, as an example, paying off the balance of our notes that are due in November of '06.

So, it's a hard question to answer in terms of what specific cash number do we pay. It's certainly a positive number. I would say roughly on a ongoing basis we like to have what we call short-term liquidity in the 500 million to $1 billion range. Now, how much of that is cash versus short-term facilities, again, will be a function of where we are in the overall business environment.

So, Jake -- this is Roy and we'll close out. Float, we would think of as probably at least 100 million, maybe up to 200 million around the world. Some number like that. And then just to reiterate what Ray just said, as long as we have $950 million of accessible short-term facilities at our disposal, we don't feel compelled to maintain a large cash balance above and beyond what's needed just to run the operations.

Okay? Vince?

Okay. As we conclude today's quarterly analysts' call we'll quickly scroll through the slides mentioned at the beginning of our webcast that contains the non-GAAP to GAAP reconciliations results presented during our presentation, along with a further description of certain charges that are excluded from our non-GAAP results. This entire slide presentation, including the GAAP financial reconciliations, can be accessed in downloadable pdf format at our website.

We would like to thank you for your participation in our quarterly update today. If you have any questions or feedback regarding the material presented today, please contact the Avnet investor relations department by phone or e-mail. Thank you.

Thanks, everybody.

Thank you, ladies and gentlemen, for participating in today's teleconference. You may disconnect your lines at this time, and have a wonderful day.