Avnet, Inc. F1Q08 (Qtr End 9/29/07) Earnings Call Transcript

| About: Avnet Inc (AVT)
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Avnet, Inc. (NYSE:AVT) F1Q08 Earnings call October 25, 2007 2:00 PM ET

Executives

Vincent Keenan - VP and Director of IR

Roy Vallee - Chairman and CEO

Raymond Sadowski - Sr. VP, CFO and Assistant Secretary

Harley Feldberg - Corporate VP and President of Avnet Electronics Marketing/Global

John Paget - President of Avnet Technology Solutions, Global

Analysts

Jim Suva - Citigroup Investment Research

Matt Sheerin - Thomas Weisel Partners

Brian Alexander - Raymond James

Thomas Dinges - J.P. Morgan

Steve Fox - Merrill Lynch

Harry Blount - Lehman Brothers

Carter Shoop - Deutsche Bank

Operator

I would like to turn the floor over to Vince Keenan, Avnet's Vice President and Director of Investor Relations.

Vincent Keenan - Vice President and Director of Investor Relations

Good afternoon, and welcome to Avnet's first quarter fiscal 2008 corporate update. If you are listening by telephone today and if not accessed the slides that accompanies this presentation, please go to our website, www.ir.avnet.com, and click on the icon announcing today's event.

In addition to disclosing financial results that are determined in accordance with Generally Accepted Accounting Principles, or GAAP, the company also discloses non-GAAP results of operations that exclude certain items. Reconciliation of the Company's analysis of results to GAAP can be found on the Form 8-K filed with the SEC today, in several of the slides in this presentation and on Avnet's Investor Relations website.

As mentioned on our last call, in connection with the acquisition of Access Distribution and reflecting recent industry trends, the Company started recording sales and supplier service contracts on a net revenue basis rather than on a gross basis effective in the third quarter of fiscal 2007. With the change... while the change reduced technology solution sales and cost of sales in the second half of fiscal '07 and the first quarter of fiscal 2008, it has no impact on operating income, net income, cash flow, or the balance sheet, thereby positively impacting margins.

As we provide the highlights for our first quarter fiscal 2008. Please note that we have excluded debt extinguishment cost from the prior period in the accompanying slides in order to facilitate comparison with current periods. Additionally, in discussing pro forma sales, prior periods are adjusted to include acquisitions as well as reflect the revenue change from gross to net for the sales/supplier service contracts.

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 for Avnet. 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 is 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 2008 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 and provide second quarter fiscal 2008 guidance after which a Q&A will follow.

Also here today to take any questions you may have related to Avnet's business operations is Rick Hamada, Avnet's Chief Operating Officer; Harley Feldberg, President of Electronics Marketing; and John Paget, President for Technology Solutions.

With that, let me introduce Mr. Roy Vallee to discuss Avnet's first quarter fiscal 2008 business highlights.

Roy Vallee - Chairman and Chief Executive Officer

Thank you, Vince, and hello, everyone. Thank you all for taking the time to be with us and for your interest in Avnet. The September quarter was another example of how our broad revenue base and focus on return on capital continue to contribute to the positive momentum in our financial performance. Even though we experienced some weakness in the America's, better than expected growth in Asia, and our VBM culture allowed us to meet our targets for revenue and operating income.

On top of that, we realized another $0.02 per share as a result of a lower tax rate, and higher other income than expected. Starting with the enterprise highlights for the first quarter of fiscal 2008, let's begin with the bottom line where net income of $105.5 million grew 31% year-over-year, excluding debt extinguishment cost that negatively impacted the prior year's first quarter or 2.5 times faster than revenue. Earnings per diluted share reached a first quarter record of $0.69, up 25% over the prior year, again excluding the debt extinguishment cost in the prior year quarter. GAAP earnings per share increased $0.25 or 57% as compared with the first quarter of fiscal 2007. This performance was driven by a combination of strong execution of our value based management initiatives by our global team bolstered by value creating acquisitions.

Our VBM initiatives continued to have a positive impact on our key financial metrics, despite modest organic growth. With an acquisition strategy that creates shareholder value, we were able to augment our organic growth activities and deliver another quarter where EPS grew significant faster than revenue year-over-year. With our co-operations continuously improving, and more acquisition revenue to be added in the current quarter, we are optimistic that we can continue to grow faster than our end markets and consistently grow profits faster than revenue.

While it is relatively easy to find acquisitions that are EPS accretive, we look to ROCE, or ROCE, and shareholders value creations as the real measure of our M&A success. In the current quarter, ROCE improved to 68 basis points over the first quarter of fiscal 2007 and at 11.5% our trailing 12 month ROCE was up for the eighth consecutive quarter sequentially. This is further evidenced that our disciplined approach to acquisitions is generating incremental shareholder value.

Finally, our acquisition strategy enhances organic growth by entering Avnet into new higher growth market segments, broadening our portfolio of products, and expanding into new geographies. In the first quarter of fiscal 2008, we saw those benefits as we were able to deliver 12.3% year-over-year top line growth globally, even though our served markets grew in the low single digits. We are expanding our already broad revenue base to include more end market segments and geographies. We continue to reduce our exposure to any one market segment and increase our ability to grow faster and more consistently than the markets we serve.

In the first quarter of fiscal 2008, Electronics Marketing continued to deliver solid results in an environment characterized by modest growth globally and slightly improving conditions in the electronics supply chain. On the top line, EM's highly diversified revenue base generated sales slightly above our expectations as better than expected growth in Asia and a weaker U.S. dollar offset negative growth in the America's. While sales in the lower margin Asian region increased to 30% of total EM, as compared with 28% in the year ago quarter, EM's gross margins improved 20 basis points year-over-year with contributions from all three regions and its operating income margin improved year-over-year for the eighth consecutive quarter.

Another EM highlight in the September 2007 quarter was asset velocity. With the mix shift to Asia, which has a higher working capital velocity business model and year-over-year improvement in both the America's and EMEA, EM set a record for working capital velocity up nearly five times. As a result of this performance, our cash cycle declined 6.9% as compared with the year-ago quarter or close to six days. The EM inventory grew sequentially by 7% in constant dollars which was a bit more than we expected. However inventory turns held flat sequentially and were up year-over-year. The combination of continued improvement in operating income and record asset velocity led to 239 basis point improvement and return on working capital year-over-year.

We believe that these results validate how our broad revenue base and value based management culture work together to deliver consistent financial improvements and are challenging organic growth environment.

Finally, the list of Electronics Marketing highlights for this quarter would not be complete without mentioning the excellent performance of our Asia team. Our disciplined approach to profitable growth with a higher asset velocity business model in Asia, translated a 9.5% year-over-year top-line growth in to a 48 basis point improvement in operating income margin and 673 basis point improvement in return on working capital.

On the balance sheet, EM Asia significantly improved inventory returns and working capital velocity, which together with the significantly improvement and operating income margin drove its ROWC to just shy of our long-term target for that region. Record quarterly sales and profits in Asia were a factor in EM's year-over-year improvement and operating profit globally. EM is on track to meet or exceed our ROCE goals in all three regions in the near-term future.

In the September 2007 quarter, EM revenue reflected the seasonally slower summer as both the EM and the America's were down sequentially, but the Asia region experienced strong sequential growth, driven primarily by digital consumer end markets. Year-over-year, revenue grew 2.3% globally and was essentially flat after adjusting for the impact of the change in foreign currency exchange rates. The America's region which was a bit weaker than expected declined 4.2% sequentially and was down 4.8% when compared with the first quarter of fiscal 2007.

Despite market weakness, this region continues to deliver ROWC above our target level, by actively managing its P&L and balance sheet. In Asia, where demand was better than expected, revenue grew 10% sequentially and 9.5% year-over-year, with high growth rates in the sales of interconnect passive and electromechanical components and flash memory. In the EMEA region, reported revenue was marginally down sequentially, and up 4.6% year-over-year in delivered dollars but down 2.7% in constant dollars. Excluding the impact of foreign currency translation and acquisitions, the EMEA region declined 2.8% sequentially and 3.4% year-over-year.

Last quarter we stated we were encouraged by the activity at our large EMS customers where sequential growth appeared to indicate that the extra inventory of these customers which significantly impacted our organic top line growth in fiscal 2007, maybe improving. In the current quarter, EM sales to our large EMS customers were down slightly, driven by our decision to exit a particular revenue stream, related to a single large end customer with insufficient profitability. Excluding that one engagement, our sales to large EMS customers were roughly flat and we expect similar results in the December quarter. Our global book-to-bill ratio finished just slightly below one-to-one for the September quarter, with regional variations that are consistent with prior years, reflective of relatively stable and manageable product lead times.

Turning to the highlight at Technology Solutions, we have to start at the top line, where growth from acquisitions drove revenue up 32.5% as compared with the first quarter of fiscal 2007. While I have already talked about some of the benefits of broadening our revenue base through acquisitions, another significant benefit is the impact that additional scale can have on our financial performance. At TS, the 32.5% year-over-year revenue growth in the September of 2007 quarter, resulted in 40.2% growth in gross profit and 50.1% growth on operating income. While this multiplier affect can vary, based on the amount of revenue and cost synergies for each acquisition, it remains our strategy to consistently grow profits faster than revenue.

As a proved point, this is the seventeenth consecutive quarter that Tech Solutions has increased both operating income dollars and operating income margin year-over-year. While the Access and Azure acquisitions are positively impacting TS America and Asia to-date, we have more exciting acquisitions that will significantly enhance our competitive position in EMEA. In October, we completed the acquisition of the enterprise infrastructure division of Magirus, the acquired business, which has annual revenues of approximately $500 million is a value added distributor of IBM and HP enterprise computing products in seven European countries and Dubai. The addition of 140 skilled employees and 1300 value added reseller customers, present substantial opportunities for cross selling and materially expands Technology Solutions role in the European IT distribution channel. With this acquisition, we have become the largest value added distributor of enterprise computing products in EMEA, with industry leading system integration, marketing, financial, and technical value added services.

While the Magirus acquisition solidifies our leadership position in enterprise IT products, our recently announced acquisition of the IT Solutions Division of Acal plc will significantly expand our product line by adding complementary products in high growth segments, including Storage Area Networking or SAN, wired and wireless networking and security, and document management. Acal IT Solutions markets a portfolio of products from leading suppliers including Brocade, Cisco, Emulex, Juniper, and Qlogic. Its head way of technology group which specializes in the design and installation of document imaging solutions will provide TS EMEA access to an exciting new market segment. In addition, Acal IT Solutions brings a suite of professional services that will enhance our ability to deliver services and solutions that meet the increasingly complex requirements of the combined customer base. We expect this transaction to be completed later this quarter and to be accretive to calendar 2008 EPS by $0.03 to $0.04 per share. With these acquisitions, Technology Solutions is projected to produce roughly $2.5 billion of revenue in the region, during calendar 2008.

In addition TS EMEA down possesses unique scale and scope advantages that should further enhance Avnet's value proposition and accelerate organic growth. In the September quarter, Technology Solutions sales of 1.61 billion were up 32.5% year-over-year on a reported basis, and up 2.6% on a pro-forma basis adjusted for acquisitions and the impact of the change in the method of recording sales of supplier service contracts. Revenue was a bit below expectations, as a result of slower growth in the America's region. The regions pro forma sales declined 5.1% year-over-year as demand for some proprietary servers and microprocessors were weaker than expected, even though we experienced strong double digit growth in industry standard servers, storage, services, and software.

In contrast 31.6% pro forma growth in Asia was driven by our Enterprise IT Products business, which was up over 45% as compared with the year ago quarter. The Azure acquisition, which closed in the June 2007 quarter, is becoming a promising platform for growth in the region, as we are adding new suppliers, which expand our capabilities. In the EMEA region, pro-forma revenue grew 20.1% year-over-year in reported dollars, and 11% in constant dollars. While our enterprise IT products business led the region with growth of 24%, we also achieved double digit growth in our units with cell displays and PC components.

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

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

Thank you, Roy and hello everyone. Let's begin with a review of our operating results for the first quarter fiscal 2008 as compared with the prior year quarter. Please note that we have included a reconciliation to GAAP net income at the bottom of the slide to account for the debt extinguishment cost in the first quarter of fiscal 2007. As previously mentioned, beginning in the March quarter of fiscal 2007, our method of recording revenue related to the sales of supplier service contracts has been adjusted to record those contracts on a net basis rather than on a gross basis.

On this slide, Q1 of fiscal 2008 reflects that new method while the first quarter of fiscal 2007 remains as reported. In the September of 2007 quarter, sales of $4.1 billion were up 12.3% in reported dollars and 9.8% in constant dollars, as compared with the year ago quarter. Organic revenue growth adjusted for the change in our method of recording revenue related to the sales of supplier service contracts and the impact of acquisitions was up 2.3% over the year ago quarter and was essentially flat when adjusted to exclude the impact of changes in foreign currency exchange rates. Clearly our M&A activity is allowing us to continue to deliver double digit top line growth in a slower industry growth environment.

Gross profit of $526.5 million was up $58.1 million or 12.4% as compared with the first quarter of fiscal 2007, due primarily to the impact of acquisitions and the year-over-year weakening of the U.S. dollar against the euro. While year-over-year gross profit margin was up 20 basis points at EM, and 53 basis points at TS, the Avnet's gross profit margin was essentially flat due to a regional shift to Asia in EM that Roy mentioned earlier, the business mix shift at Technology Solutions as it grew to be a larger percentage of consolidated revenue, and the impact of the change in the method of recording sales of supplier service contracts. Remember, Technology Solutions has lower margins than Electronics Marketing, but it also has significantly higher working capital velocity and the returns on capital.

Propelled by the acquisition of Access, TS revenue grew to 39% of consolidated results, up from 33% in the year ago quarter. Operating expenses of $361.3 million were up $37.9 million were up $37.9 million were up 11.7% year-over-year primarily due to the addition of the Access Distribution at the beginning of calendar year 2007, and increasing the stock based compensation and the year-over-year weakening of the U.S. dollar against the euro. From a productivity perspective, gross profit and operating income currently were up 3.6% and 5% respectively as compared with last year's first quarter. As we continue to grow through acquisitions, productivity metrics such as these provide another measure of how effective we are at integrating the businesses and realizing our synergy targets.

Operating income of 165.2 million increased 20.2 million or 14% as compared with the prior year quarter. Operating income margin improved six basis points year-over-year to 4% as the negative impacts of the business mix shift to TS and the regional shift to Asia at EM were offset by the positive impact of the change to net revenue accounting for sales of service contracts at TS.

Below the operating income line, year-over-year interest expense declined $3.7 million or 16.7% due to lower debt and a lower effective interest rate as a result of our cash flow generation and refinancing activities. Other income increased $3.7 million over the year ago quarter due to higher interest income, foreign currency gains this year as compared with a loss last year, and higher income from our equity interest in a non-consolidated business.

Taxes increased $2.8 million due primarily to significantly higher pre-tax income offset somewhat by lower effective tax rate. Effective tax rate in the September 2007 quarter was in the low-end of the 31% to 34% guidance range that we previously provided, due primarily to relatively higher than expected profits internationally, where tax rates are generally lower than in the U.S. which is our weakest region. As all our profits come from Asia and EMEA we will see tax rate come down from the historical levels.

As a result, we now estimate that our effective tax rate will be between 31% and 33% for fiscal year 2008. Net income excluding cost related to the early retirement of debt in the prior year quarter increased $24.8 million or up 30.8% to $105.5 million driving diluted earnings per share up 25.5% to $0.69 per share for the September 2007 quarter as compared with $0.55 per share in the year-ago quarter. GAAP net income increased $41.4 million or $0.25 per diluted share as compared with net income and earnings per share of $64.1 million and $0.44 in the prior year quarter.

This next slide looks at the key productivity metric of expense dollars to gross profit dollars over the last four years. The bars represent the individual quarters while the trend line depicts the performance over a trialing 12 months period at the end of each quarter. On a trailing 12 months basis, our ratio of expense to gross profit dollars declined 373 basis points to 72.2% at the end of last year's September quarter to 66.5% in the current quarter.

At the operating group level, Electronics Marketing improved it's year-over-year rolling fourth quarter expense to GP dollar ratio by 262 basis points while Technology Solutions improved its ratio by 403 basis points. In the September 2007 quarter, the ratio of operating expense to gross profit dollars decreased 42 basis points year-over-year but due primarily to seasonality was up on a sequential basis from a 64.5% in the June quarter to 68.6% in the current quarter.

While the seasonally slower September quarter usually results in a sequential increase in this metric as you can see in the bars on the graph, the sequential increase in the current September quarter is more pronounced than in pervious years. This is due primarily to the impact of the Access acquisition where the June quarter is positively impacted by its largest supplier, Sun Microsystems fiscal year end. We continue to increase our focus in resources and operational excellence... initiatives, and expect to maintain our trend of year-over-year improvement in this important metric although the rate of this improvement could slow as we get closer to our long term financial model.

Similar to the last slide, we are providing both quarterly and a trailing 12 month trend line which portrays operating income margin over the last four years. The trailing 12 month operating income margin improved from 3.85% in the first quarter of fiscal 2007 to 4.38% in the current quarter, benefited by approximately 16 basis points due to the change in the net revenue treatment on sales of suppliers' service contracts. As we look at the September 2007 quarter on a standalone basis, operating income margin of 4% improved 6 basis points year-over-year.

As I mentioned earlier the year-over-year change was driven by the negative impacts of a business mix shift to more TS sales and the regional mix shift to more Asia sales at EM, offset by the positive impact of the change to net revenue accounting for the sales of suppliers' service contracts at TS.

At EM operating income margin of 5.2% improved 7 basis points and a TS operating income margin of 3.64% improved 42 basis points as compared with the year ago quarter aided by the change in accounting for the sales of supplier service contracts. On this graph, we have shown our return of capital employed which is a key metric on our value based management philosophy that we introduced more that 6 years ago.

In the September 2007 quarter the return on capital employed improved 68 basis points to 10.6% as compared with 10% in the first quarter of fiscal 2007. Even though business and geographic mix changes have impacted many P&L and balance sheet metrics, return on capital has continued to improve year-over-year because we managed each business unit through our stated return on capital targets or higher.

On a trailing 12 month basis, return on capital employed continued the multi-year trend of year-over-year improvement and it increased 164 basis points to 11.5% in the September quarter. This represents the eighth consecutive quarter that our rolling four quarter return on capital employed has made steady progress towards achieving our stated target of 12.5% to 13%. I would add that over the past four quarters, we have delivered this steady improvement even though organic growth slowed and we have continued investing in value creating M&A. While broad revenue base has helped to offset some of the market weakness, our focus on profitable growth, operational excellence, and working capital velocity has had meaningful impact on this important metric.

Going forward, the combination of value creating acquisitions and a disciplined focus on returns should continue to broaden our revenue base and contribute to our scale and scope advantages further enhancing our organic results. As depicted on this next slide, pro forma free cash flow, that is free cash flow generation before taking into account the cash used for acquisitions was 749 million for the trailing 12 months. In the September 2007 quarter, we consumed 34 million of free cash flow before cash used for acquisitions due to an increase in working capital and more specifically a decrease in accounts payable driven primarily by timing.

At 6.3 times our working capital velocity continues to remain strong and our net days declined over 2 days as compared with the first quarter of fiscal 2007. We expect a return to positive cash flow before cash used for acquisitions in the December quarter. With this significant cash flow generation we have been able to pursue our acquisition strategy while continuing to improve our credit statistics. On a trailing 12 month basis, at the end of the September 2007 quarter, debt to EBITDA was 1.6 and EBITDA coverage was 10.7.

During the September 2007 quarter, we negotiated a new 5 year credit facility with a group of banks that include 18 lenders. The new facility not only offers better terms and conditions than the facility it supersedes, but also extends those terms for an additional two years. There were significant demand for participation in the facility and a strong sponsorship demonstrates the confidence by the financial community in Avnet's strategy and its solid financial condition.

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

Roy Vallee - Chairman and Chief Executive Officer

Thank you Ray. Looking forward to Avnet's second quarter of fiscal year 2008, we expect normal seasonality at both operating groups. With sales in EM to be in the range of $2.4 billion to $2.5 billion, and sales for TS could be between $2.05 billion and $2.15 billion. Therefore, Avnet's consolidated sales should be in the range of $4.45 billion to $4.65 billion for the second quarter of fiscal 2008.

Management expects second quarter of fiscal '08 earnings to be in the range of $0.83 to $0.87 per share, up 24% to 30% as compared with last year's second quarter. The above EPS guidance does not include the amortization of intangibles or integration charges related to the acquisitions that have closed or will close here in the December quarter. So with that, let's open up the lines for Q&A. Darcy?

Question And Answer

Operator

[Operator Instructions]. Our first question will be coming from Jim Suva of Citigroup.

Jim Suva - Citigroup Investment Research

Great. Thank you very much. Can you guys talk a little bit about the competitive environment, increased competitions in such as one of your largest competitors, the other day announced that there has been increased competition, increased pricing, and can you talk about that landscape that you're seeing?

Roy Vallee - Chairman and Chief Executive Officer

Yes. Hi Jim, it's Roy. I think that was related predominantly to the components business. Right?

Jim Suva - Citigroup Investment Research

Yes.

Roy Vallee - Chairman and Chief Executive Officer

Okay. So Harley, why don't you take that one?

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Sure, Roy. Thanks. Hi, Jim. Yes, I'm not sure I could categorize the quarter as reflecting increased competitive pressures. Obviously we're in a very competitive environment and have been for some time but nothing we saw really jumped out at us and said we are in any heightened increased competitive environment. As a matter of fact we were encouraged by the fact that we were able to raise our gross margins year-on-year in actually every major region.

Jim Suva - Citigroup Investment Research

Okay and then as a quick follow up. When we look at SG&A, how should we kind of be looking at that, it went up a little bit this quarter, was that due to kind of year end some adjustments to salaries, annual type increases and what should we look for December going forward?

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Jim, first of all, yes, we do in fact handle our merit pay, annual increases here in the first quarter of the fiscal year. That's part of the equation. I think M&A is another part of the equation. I think what you should look for going forward is continued improvements in the expenses as a percent of overall gross margin and as Ray pointed out in his comments, where that metric improved year-on-year, it did move in the wrong direction sequentially which is actually typical for us from a seasonal point of view. The expectations would be that we would move back in the right direction again here in the December quarter and on through the next couple of quarters.

Jim Suva - Citigroup Investment Research

Okay. Thank you.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

You're welcome.

Operator

Our next question will come from Matt Sheerin from Thomas Weisel Partners.

Matt Sheerin - Thomas Weisel Partners

Yes, thanks. Just want to get back to your comment about the competitive environment and components. You talked about EMS are being a little bit weaker and U.S. being a little bit weaker. Vallee and Harley could you just give us your views about where do you think we are in the cycle and sort of looking out a couple of quarters as much as you can because I know visibility is limited, but where do you think we are headed in terms of this semiconductor cycle.

Roy Vallee - Chairman and Chief Executive Officer

So Matt, this is Roy. I will take the macro and see if Harley would like to add anything here. From our perspective the last semiconductor, I will say so called downturn concluded in the March quarter where we had year-on-year growth rates for the quarter of about 1 euro. We have been improving since then and we are forecasting in the December result to improve again but the interesting thing Matt is that... depending how you think about it... that's two or three quarters into the global cycle improvement and we are talking about our mid-single digit growth year-on-year.

So I think that either this cycle is going to be longer than the last couple, meaning it will stretch out well into calendar 2008, or the growth rates overall are just lower than what pretty much all of us in the industry are expecting. So this is a... we are in a gradually recovering environment, buts it's the slowest rate of improvement that I have seen in the industry up cycle.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Matt, if I could just in addition to what Roy said, your comments specifically on EMS. One of the things that I have been observing with EMS is that's it's actually becoming less valuable for me to look at our global EMS business in the aggregate, because there are clearly are some better doing, far better than others. When you net all that together as Roy said in his opening remarks, minus a customer we chose to exit, our business is pretty flat there. It's really pretty flat. With that said, some are doing quite well, others are doing less well. And we think that's probably going to continue in a pretty steady state in the foreseeable future.

Matt Sheerin - Thomas Weisel Partners

Okay. Are there other big customers where you may not get certain returns or margin metrics that you also may walk away from some business?

Roy Vallee - Chairman and Chief Executive Officer

Hey Matt. This is Roy again. Across both of our groups, this is something that we've been doing. I guess in a manner of speaking, you could say that it's connected to our overall value based management initiatives, in the sense that we really look not only at the profitability of the customer, but all the way down to return on capital by customer including return on capital by vendor. So I think that the answer to your question is this is something that we have been doing for an extended period of time. There was one particular account that just came to a head this last quarter. There is not a lot of additional accounts to deal with. We are well down that road.

Matt Sheerin - Thomas Weisel Partners

Okay. And then my last question. This has to do with inventory. You talked about inventories being up may be a little bit more then you liked. Just talk about your strategy here on inventory. I know you have talked in the past about may be opportunistically building. Sounds like you think we are at bottom of the cycle. And so whether we... what should we be looking for going forward here?

Roy Vallee - Chairman and Chief Executive Officer

So again I think that... let me qualify the question by saying that typically when we talk about inventory, its components related.

Matt Sheerin - Thomas Weisel Partners

Yes.

Roy Vallee - Chairman and Chief Executive Officer

Yes, so its EM related. So Harley why don't you take that one. Where do you se your inventory going here in the next quarter or two.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Well Matt, indeed you are correct. We are very... we are always interested in making opportunistic buys that we think can improve either our profitability, or our market share. So we will continue to do that. As we said in the opening remarks, the inventory was... well came in a bit higher than we would have liked. So we will adjust that in the December quarter. But I do want to reiterate, we want to continue to use inventory as a strategy to grow our business.

Roy Vallee - Chairman and Chief Executive Officer

And Matt, I would ask you to continue to look at, in fact all of you, please look at velocity as opposed to inventory dollars, because obviously as the business grows in places like Asia, it will need more inventory to fuel that growth. But our consistent focus is on improving the velocity or the productivity of that inventory investment.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Which indeed Roy, it was the case in every region year-on-year.

Roy Vallee - Chairman and Chief Executive Officer

Right.

Matt Sheerin - Thomas Weisel Partners

Okay, thanks a lot.

Roy Vallee - Chairman and Chief Executive Officer

You are welcome.

Operator

Thank you. Our next question will come from Brian Alexander of Raymond James.

Brian Alexander - Raymond James

: Good afternoon. Just to follow-up on the margin question from earlier. Your operating margins Roy in the EM business were down, I think about 60-basis points sequentially, your overall gross margins on a consolidated basis were down I think 15 sequentially, on higher EM mix, so favorable mix shift, gross margins down. So if I look within EM, my guess is that your operating margins were down sequentially in probably all of your geographies. I guess I'm trying to tie those two together, you already answered the question about competitive pressures not intensifying during the quarter, so I'm just wondering why the 60 basis points sequential decline in EM operating margins, what caused that, was it gross margin related and if not what was it?

Roy Vallee - Chairman and Chief Executive Officer

Brian if you recall, for... just look back at your notes, we had a particularly profitable quarter in the June quarter in Europe, and in fact it has actually becomes somewhat of a seasonal pattern for us, but last June was particularly strong and so we have commented on that last quarter. If you look at EM's gross margin globally, it was down sequential, however, it was essentially flat in both America and in Asia, where as it was down in Europe, which was fully expected. So what we saw was very much what we thought was going to happen, may be the one exception is that our revenue in the America's region was lighter than we thought and our revenue in the Asia region was greater than we thought, so there was a little more distortion to the margins driven by next than what we had anticipated.

Brian Alexander - Raymond James

Okay, so you're not seeing anything, obviously you mentioned from a competitive stand point, you are not seeing anything from a supplier or a customer stand point that is causing any variance from your expectations in terms of overall gross and operating margin within the components business?

Roy Vallee - Chairman and Chief Executive Officer

Not at all.

Brian Alexander - Raymond James

No.

Roy Vallee - Chairman and Chief Executive Officer

No.

Brian Alexander - Raymond James

And then just as a follow up question, on the revenue guidance for the December quarter in TS, if I just try to look at apples-to-apples excluding some of the acquisitions that are coming into the fold here. It looks like you are guiding up maybe 20% sequentially for revenue for TS which I think historically you have done closer to 30, so I am not sure if you have seen a change in the demand environment or if you are just being conservative or if my numbers are wrong?

Roy Vallee - Chairman and Chief Executive Officer

As usual your numbers are not wrong. And there is a few maybe anomalies relative to our past seasonality and I will let John speak to that.

John Paget - President of Avnet Technology Solutions, Global

Hey Brian, how are you doing?

Brian Alexander - Raymond James

Hey John.

John Paget - President of Avnet Technology Solutions, Global

Let's talk about a few things that might be just a little bit different than you are used to seeing in the fourth quarter for TS, and I think there are about four of them that we hadn't talked about. First and foremost, this is not Sun's year end, and so we have the Sun phenomenon with the year end being in June, so you will see a little bit different cycle there. Secondly, we have Magirus in our... on our revenue guidance at about a $150 million, but more importantly we have a little bit of a timing situation, so normally you would expect to see us do roughly in the past about $200 million on the last day of December. We don't know exactly how much that is about our last day of the year, actually comes one day sooner than the last day for most of our vendors, or majority of our vendors. So we have a roughly some... a little bit of flow that is going to flow into our third quarter versus in our second quarter. And also I will like you to remember that this is first time you will see December where we have gross to net phenomenon going on as well. So the way I calculate it, it's roughly about 30% sequential increase and roughly 34% year-over-year growth.

Brian Alexander - Raymond James

Okay, thank you very much.

Roy Vallee - Chairman and Chief Executive Officer

You got it.

Operator

Our next question will come from Thomas Dinges with J.P. Morgan.

Thomas Dinges - J.P. Morgan

Hi, John just to follow-up on that last question, but in a kind of more high level picture and Roy you are probably going to comment on this as well. You guys are obviously in the emphasis on a small mid tier enterprise and touching a lot of different verticals, I was hoping you could just comment right now about kind of the way that the overall customer base is feeling going into the fourth quarter, because obviously we have heard at least so far on a vendor call or two, about some hesitation at the end of September and maybe a little bit of trepidation as you move into December. I know, based on where your guidance says, what you guys are thinking numbers wise, I am just wondering more qualitatively kind of what the customer base is feeling like right now and then I have a quick follow-up.

Roy Vallee - Chairman and Chief Executive Officer

Okay, Tom why don't we let John take the lead on that one and I may provide some color, we will see.

John Paget - President of Avnet Technology Solutions, Global

Sure Tom, I have spent a good part of the last 30 days out in the field, left all over the world but interfacing with the buyers and really trying to understand where they are from that perspective and what I am getting back from our customer community, is in fact they are seeing their quote in activity on an increase in this month. A little bit of rollover from September, but generally speaking, it looks like we are going to have a very basic seasonality cycle for this quarter. We would not anticipate having a great deal of difficulty here.

Roy Vallee - Chairman and Chief Executive Officer

So, Tom its Roy. We have been probing our customers regarding the credit crunch and the impact on financial institution end customers and the feedback we are getting is that that is not a factor for them and the pipelines are actually quite active and as John said, this feels like we are going into a very normal seasonal December quarter.

Thomas Dinges - J.P. Morgan

Okay and then a quick one for Ray on the payables that you mentioned that was just purely timing and obviously with the inventory being up. I may answer my own question here but, is it fair to say that may be you guys have pre-positioned some inventory in sort of the July, August period which obviously creates the invoice and then as it didn't shift, has your payment come due and you are not translating that off the inventory line.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

I mean there may be some of that. But I think if you look at the magnitude of the difference. On the inventory from a cash perspective, I know the number right on top of my head was about $40 million for the quarter and yet you are looking at payables of couple of $100 million. So, there is no doubt, somehow what you mentioned Tom but its more just timing of winning voices come due this quarter versus last quarter and so the way we like to look at it, is more on a rolling four quarter basis. That's the reason we highlight rolling four quarters only because if you look at the level of our overall working capital I think, I may have mentioned on prior calls. One days worth of business is $175 million. So it's a whole host of items in this particular quarter driven mainly by payables and just when periods cut off this quarter versus the prior quarter.

Thomas Dinges - J.P. Morgan

Okay.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

And over the long-term it will smooth itself out and that's why again we try to emphasis more cash flow generation on a rolling four quarter basis.

Thomas Dinges - J.P. Morgan

Okay. That helps, thank you.

Roy Vallee - Chairman and Chief Executive Officer

Hey Tom, its Roy. Our expectations for the current quarter are no material changes in working capital overall. It's likely that EM will come down a bit. TS will move up a bit. In aggregate we don't think there will be substantial change in working capital and so we should resume positive cash flow generation here in the December quarter.

Thomas Dinges - J.P. Morgan

Okay, thanks.

Roy Vallee - Chairman and Chief Executive Officer

Sure.

Operator

Our next question will come from Steven Fox with Merrill Lynch.

Steve Fox - Merrill Lynch

Hi, good afternoon.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

Hi, Steve.

Steve Fox - Merrill Lynch

Hi, question on Asia first of all, it looks like its coming up towards the same scale as Europe. You have highlighted the growth in the past being driven by the consumer mainly but if also and you talked about it eventually looking like your typical distribution make up, where do you think it is, what's going to be driving it over next year, will you be able to see more industrial customers coming to have mix or is it still going to be basically driven by consumer end markets?

Roy Vallee - Chairman and Chief Executive Officer

Well let's see. Steve, I want to say that today our business in Asia is a little more than half indigenous customers and a little less than half multinational EMS companies. Okay?

Steve Fox - Merrill Lynch

Okay.

Roy Vallee - Chairman and Chief Executive Officer

The indigenous customers for the most part, are in the digital consumer business. Now as the markets grow, there will be more indigenous infrastructure kinds of customers, most notably for example in telecom and we are starting to see that sort of industrial CapEx kind of manufacturing emerge in Asia but it is still a relatively small part of our total. In addition to that, you got this international EMS business which is predominantly end equipment that becomes corporate CapEx, heavy comps and high-end IT related. So now as you try to project... you really have to project a couple of things. One is what happens to consumer spending versus corporate spending out over the next year or two. And I am in the camp that says corporate spending should start to accelerate relative to consumer spending, but that's that. It's very difficult to say. So I think if you put it all together, you look at our Asia business I think our mix in Asia is likely to look a lot like it looks today over the next one to two years. I don't think that the change in the nature of the indigenous account base will take place very rapidly.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

Roy, if I could add one additional point to that. Hi Steven.

Steve Fox - Merrill Lynch

Hi.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

I think one other thing that is going to be interesting to watch is we are seeing the expansion today of the second and third tier EMS community in Asia and that set I would look at differently when I would look at the global EMS. So as we mentioned earlier global EMS for us is flattish I would say, pretty stable. That other tier that I mentioned is growing significantly. The growth is difficult to bucket because it is indeed EMS but it is coming from a different tier of customer, some of which are indigenous to Asia and Japan others which are indigenous to the West. What is important I think in our future analysis to consider is the evolution of that third customer bucket as well.

Steve Fox - Merrill Lynch

Yes. That's very helpful.

Roy Vallee - Chairman and Chief Executive Officer

And Steve's its right. Let me answer it one more way. Thinking about it from a business model perspective, so first of all because of the indigenous growth in the local GDP's there and because of the concept of global manufacturing, I think it is quite predictable that the growth rate in Asia for components will continue to exceed the global growth rates. So they will be the faster growing regions. As we look at our business model, our expectations are that gross margins are going to be relatively stable. As we mentioned on the call they were up slightly year-on-year and essentially flat sequentially. We think that the gross margins will be relatively stable and then similar to the balance of our model, expenses becomes scalable as we grow our business in that region. We're now on our way to $3 billion of top line and if that number continues to grow, expenses as a percent of sales or GP should fall and margins should expand. And that coupled with maybe a little bit more improvement and asset velocity and we're at our targeted return on capital.

Steve Fox - Merrill Lynch

That's helpful. It sounds like an important trend to watch the next year or two.

Roy Vallee - Chairman and Chief Executive Officer

Yes.

Steve Fox - Merrill Lynch

And then just lastly, real quick question for Ray on the SG&A. I might have missed this but relative to the dollars of SG&A, you just had it in Q1, what are you targeting for Q2 roughly?

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

I'm sorry, say that question again.

Steve Fox - Merrill Lynch

The dollars of SG&A spend; it was like $361 million in Q1, how is that going to look in Q2 more specifically? What kind of spend in dollars?

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

It will trend up a little bit. I would say right now, under 10 million bucks, just due to the significant growth in business that you'll see sequentially.

Steve Fox - Merrill Lynch

Great. Thank you.

Roy Vallee - Chairman and Chief Executive Officer

And Steve, just a little bit of color. Some of those corporate expenses including stock based compensation will be down sequential and then of course we'll have higher revenues and therefore some costs associated with that and then M&A.

Steve Fox - Merrill Lynch

Excellent. Thanks.

Roy Vallee - Chairman and Chief Executive Officer

You're welcome.

Operator

Thank you, our next question will come from Harry Blount of Lehman Brothers.

Harry Blount - Lehman Brothers

Hi guys. Just coming back to the visibility and this is probably more on the component side. You guys have touched on it on a couple of different ways but I want to press on it one more time given some of the guidance we have seen from some of the individual players. I think you said in the prepared remarks that the book-to-bill ratio was a little bit less than one on a global basis, and if you look at that plus some of your other indicators like the lead times and cancellation rates, where are you guys getting the visibility and comfort that this will be a normal seasonality, that you won't see a slow down?

Roy Vallee - Chairman and Chief Executive Officer

I'll give you one data point that may or may not answer your question and that is, this is hard from a components perspective. Everyone of our regions finished the September quarter with a better book-to-bill from a positive book-to-bill than at September quarter a year ago, and so that's one of the elements that we look at when we think about our forecast going into December.

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

And Harry, the cancellation rates at least here in America actually went down for some reason in the quarter. They've been very-very stable, so I think that's a not a story. Product lead times are pretty stable which is why the book-to-bill is hanging out right around one in a very-very tight range. And of course we looked at bottoms up and tops down forecast. So if the question is, are we 100% confident in the forecast, I'd say no, visibility is still pretty limited but we think that we should be somewhere between flat and down 3% or 4% sequential.

Harry Blount - Lehman Brothers

Okay, then also, related to your comments about APEC almost in the ROCE target, historically you guys have started freeing up additional dollars for investment when regions hit the ROCE targets. Can you may be comment a little bit on that as to when those dollars might be freed up and how you expect to deploy them?

Roy Vallee - Chairman and Chief Executive Officer

Yeah, it turns out Harry that and I think we've commented on this before, I'm not sure if it's done on a conference call or not, but we have in Asia, we have been allowing our 50% drop through approach even though they have not been at the return hurdle rate because of the high rate of growth there and concern over missing from a positional point of view in the marketplace. So we don't see much change in the way we are managing the operating leverage in our components business in Asia despite the fact that it's now approaching our ROCE target.

Harry Blount - Lehman Brothers

Okay, last question was, we heard from your competitor that they did not see the normal pickup in the month of September from Europe on the component side of equation, I was wondering if you had the same experience over in that area, so I am looking for more linearity within the past quarter?

Roy Vallee - Chairman and Chief Executive Officer

When we look at the quarter in total and September as part of the quarter, our performance in Europe was really pretty consistent with what we had projected and pretty consistent with normal seasonality and we see pretty much the same going into the current quarter.

Harry Blount - Lehman Brothers

Okay, thanks.

Roy Vallee - Chairman and Chief Executive Officer

You're welcome.

Operator

Our next question will come from Jeff Blackhorn [ph] with Banc of America Securities.

Unidentified Analyst

Hi good afternoon.

Roy Vallee - Chairman and Chief Executive Officer

Hi Jeff.

Unidentified Analyst

Hi guys. I am wondering if, can you talk about in your release you mentioned organic revenue growth of 2.3%, year-on-year and to get a better feel of how the acquisitions have performed for Avnet, is there anyway you could give us an organic growth rate for operating income. I know Ray mentioned it was 14% year-on-year including the on an overall basis, but what would that be if you backed out the acquisitions?

Roy Vallee - Chairman and Chief Executive Officer

Hey Jeff I don't, I think if we could calculate it we would be happy to share it. But what happens is as you know we are integrating all of these acquisitions and ability to track what's happening with the expenses and the operating income on a current year basis and to separate the acquisition impact from our organic activity, I think is close to impossible.

Unidentified Analyst

Right, fair enough. Maybe another way to look at it, do you think based on... I am sure you have some way to separate at least the top line, if you look at the top line has the performance of the acquisitions been in line with your expectations or has it been a little bit below?

Roy Vallee - Chairman and Chief Executive Officer

I think we are pretty happy overall. I would share with you on the last 12 months, the biggest acquisition has been the Access deal and I would say we have been... we are slightly under our expectations from a revenue point of view but we are slightly over our expectations from profitability point-of-view. And then in aggregate, I would say we're very pleased with our contributions from the M&A activity. No negative surprises.

Unidentified Analyst

Okay, and to follow-up on that point, well actually just getting back to what John was talking about earlier on the seasonality, so for sure... well, you are confident that you are going to see some positive seasonality in the fourth quarter, but what happens given the Magirus addition, what happens in the March quarter, what kind of sequential decline might be modeled, is it kind of equivalent to 20% to 30% that maybe we have seen historically or has that changed?

Roy Vallee - Chairman and Chief Executive Officer

It... there might and I want to underline that word, might be an anomaly this year Jeff. So I would say start with normal, but one of the points that John made is that December 31, this year falls on a Monday. Our business the way our calendar operates we close on Saturday. So to the extent that there is revenue generated on Monday that will be part of our Q3 as opposed to part of our Q2 and we have taken that in to consideration in the forecast that we have provided.

Unidentified Analyst

Okay.

Roy Vallee - Chairman and Chief Executive Officer

Other than that, I start with normal seasonality and then depending on how much business gets done on that Monday that could actually have a beneficial impact to Q3 of this fiscal year.

Unidentified Analyst

Okay. Thanks and one last question. On the acquisition front, given that this has been critical period of overall growth and your organic growth is more or less flattish both September and as well for December quarter, how is the pipeline looking for you? Is it more competitive, what's the pricing like?

Roy Vallee - Chairman and Chief Executive Officer

Our pipeline continues to be active. We still have... its not much changed from last quarter. We have opportunities in both operating groups. We have opportunities in all three regions. They are more, as you might imagine... there is more opportunities to do smaller transactions. There are much fewer opportunities to do larger transactions. So overall, I continue to be optimistic that we will continue to be able to conduct and announce and integrate acquisitions over the course of the fiscal year.

Unidentified Analyst

Okay. Good luck guys. Thanks.

Roy Vallee - Chairman and Chief Executive Officer

Thank you.

Operator

And the next question will come from Carter Shoop with Deutsche Bank.

Carter Shoop - Deutsche Bank

Hi guys. A couple of questions, I will start of with Harley when we talk about the overall environment for EM, can you maybe categorize a couple of sub segments within that market, were there are any particular markets or sub markets that are performing better or worse than expectations that really jumped out of there?

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Sorry, you're referring to end-markets or regions?

Carter Shoop - Deutsche Bank

More on the end markets side so kind of product categories where capacitors, or connectors, or Analog Semis, particularly better or worse than expected. Some commentary about that will be helpful.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Sure. Overall a pretty predictable quarter, from a semiconductor perceptive nothing jumps out at me that was dramatic. We saw some enhanced flash opportunities in Asia as you would guess with the holiday build up. But that was pretty predictable. Analog continued to be quite strong force in the quarter. The one area that really spiked for us and was a very positive experience is we did see double digit growth and IP&E. And that was a very pleasant surprise and no doubt that contributed to our gross margin performance.

Carter Shoop - Deutsche Bank

Is that a sequential or year-over-year comment.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Both.

Carter Shoop - Deutsche Bank

Okay.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Excuse me, double digit year-on-year, high single digit sequentially.

Carter Shoop - Deutsche Bank

Great, one more for you, Harley here, in regards to the inventory is there a way to break out what the inventory build was for EM versus TS on a sequential basis.

Harley Feldberg - Corporate Vice President and President of Avnet Electronics Marketing/Global

Yes, for EM the inventory build was approximately $90 million.

Carter Shoop - Deutsche Bank

Great, thank you. For John, can we talk a little bit about how the two tier distribution model might have a little bit different end-market exposure relative to your customer base. So, when we think about the slow down we have seen on Wall Street and how that impacted some companies like IBM or Sun, can you talk about how maybe you guys are little bit less exposed to that if you guys are.

John Paget - President of Avnet Technology Solutions, Global

I think because we have a broad portfolio we're significant in Sun, HP, IBM, storage [ph] and so forth. I think there is certainly an opportunity for us to feel less spiky if you would depending upon how the vendors participate, and certainly because there is different year ends for each one of those manufacturers as well. I think we are... in fact spikiness is certainly mitigated for the most part.

Carter Shoop - Deutsche Bank

And I guess when we think about the end markets that you guys are servicing, I think a lot of people talk about the financial markets being roughly a fifth to a quarter of the actual demand for your customers. Now would you guys have a little bit less exposure to the financial services based on your model how you are servicing more the middle tier and lower tier customers in regards to the size?

John Paget - President of Avnet Technology Solutions, Global

I think that's absolutely correct. We certainly see a less of an impact there. Much of the financial community that we are talking about is served on a direct basis versus a distribution basis as well.

Carter Shoop - Deutsche Bank

That's helpful. Ray you might have mentioned this already. Why other income was up so much and what the outlook is for the next quarter?

Raymond Sadowski - Senior Vice President, Chief Financial Officer and Assistant Secretary

Yes, other income I guess was up year-over-year. Three primary reasons, one interest income so keep in mind we have been generating a significant amount of cash and so interest income has moved up, and will continue to move up, as we continue to generate cash other than to the extent we may use some for M&A activity. We also had a relatively nominal currency gain this quarter that goes below the line, but that compares to a more significant loss a year ago. And then we have an investment. You may recall, we sold the business, so I guess about a year-and a half ago, and we maintained an equity interest in that business. And so part of the income from that investment is in there as well. And I would say as we go forward into Q2, we would expect that number to be roughly the same as what it was in Q1, I don't see anything dramatically different at this point in time. Currency is always something that is difficult to forecast and based upon the size or activities, it is moving up or down, its expected to some extent but overall the number should be relatively flat on a sequential basis.

Carter Shoop - Deutsche Bank

Okay, great. Last question, in regards to the acquisition pipeline and your outlook for making acquisitions over the next two years I think we have historically talked a little bit about consolidating the European IT hardware markets and selectively trying to find interesting opportunities in the Asian IT hardware market. Is that the top two priorities for you or are we are starting to open up, speaking a little bit and look for other opportunities outside of those two markets?

Roy Vallee - Chairman and Chief Executive Officer

Well Carter. This is Roy. Those two... both remain high priorities for us. I also believe that when you start thinking about the next two years there will be some opportunities to consolidate the EM market in Asia and then in addition remember we have this toe hold in Japan and its our expectation that we will be able to conduct some additional transactions there. And then as I mentioned earlier, smaller deals like the two IP&E transactions we have announced in Europe, we will continue to do that as well and in TS we've got opportunities, EM what I would describe as high growth emerging market segment that we are also looking at. Those tend to be smaller as well. So, there is actually, by group, by region an acquisition profile that we looked for.

Carter Shoop - Deutsche Bank

Great. Thank you.

Roy Vallee - Chairman and Chief Executive Officer

You are welcome.

Roy Vallee - Chairman and Chief Executive Officer

Ladies and gentlemen, I know we are running late but we have one more question, we are going to try to squeeze in.

Operator

Last question will be coming from... a follow up by Matt Sheerin.

Matt Sheerin - Thomas Weisel Partners

Actually the question was asked and answered regarding the other income. Thanks a lot.

Roy Vallee - Chairman and Chief Executive Officer

Okay, we got it Matt.

Vincent Keenan - Vice President and Director of Investor Relations

As we conclude today's quarterly analyst call, we will now scroll through the slide mentioned at the beginning of our webcast that contains the non-GAAP to GAAP reconciliation of 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 materials presented, please contact the Avnet Investor Relations Department by phone or email. Thank you.

Roy Vallee - Chairman and Chief Executive Officer

Thanks, everybody.

Operator

Ladies and gentlemen thank you very much for your participation in today's audio conference. That will conclude it for the day. You may disconnect your lines and have a good day. Thank you.

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