Arrow Electronics, Inc. (ARW) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Arrow Electronics, Inc. Third Quarter Earnings Conference Call. My name is Tahesha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Greer Aviv. Please proceed.

Thank you, Tahesha. Good afternoon, everyone, and welcome to the Arrow Electronics Third Quarter Conference Call. I'm Greer Aviv, Senior Manager of Arrow's Investor Relations program, and I will be serving as a moderator on today's call. If you would like to access today's call via webcast, please visit our Investor Relations website at www.arrow.com/investor and click on the webcast icon. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations and Chief Financial Officer; Andy Bryant, President, Global ECS; and Peter Kong, President, Global Components. By now, you should have all received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our website, along with the third quarter CFO commentary that should be used as a complement to the earnings press release. You can access a copy of our earnings reconciliation for the third quarter in our press release or on the Investor Relations section of our website. Before we get started, I would like to review Arrow’s Safe Harbor statement. Some of the comments we made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. As a reminder to members of the press, you are in a listen-only mode on this call, but please feel free to contact us after today's call with any questions you may have. At this time, I would like to introduce our Chairman, President and CEO, Mike Long.

Thanks, Greer, and thanks to all of you for taking the time with us today, especially in light of the hurricane where many of you, I know, are there and from what we know from our own employees, at least right now, we know the majority of them are safe, but there has been extensive damage, so our hearts are with them and our hearts are with you. The third quarter, again, demonstrated our strong execution in what continues to be a well-publicized challenging global microeconomic environment. This morning, we reported revenue of $5 billion and EPS of $1.02, both in line with our expectations. Our cash flow generation was a strong $176 million. Trailing 12-month cash flow from operations was 125% of net income. Really, nearly double our long-term targets. Return on invested capital remains an important metric for us, and we again generated returns in excess of our weighted cost of capital. In Global Components, we had sales of $3.4 billion, and they were in line with our expectations. In Asia, sales growth was good, driven by the core business and an actual rebound of our Ultra Source business which saw positive year-over-year growth for the first time since 2010. Sales in our core European businesses were in line with seasonality despite ongoing market softness across the region. And sales in the Americas were below expectations due to a somewhat weaker overall market, as well as customer cautiousness. The Global Components book to bill ended the quarter just below parity, though substantially better than the third quarter of 2011. We remain focused on the strategic priorities which we shared with you on Investor Day, and we're particularly focused on increasing our technical resources around the globe. We engage our customers through best-in-class technical expertise and engineering support for new product introduction and demand creation, and that's what really helps us guide innovation forward. In the electronics asset disposition space, we continued to see strong organic growth with sales increasing 15% year-over-year on a pro forma basis, and we continue to invest in exciting opportunities to expand our national footprint and enhance our industry-leading capabilities in this dynamic segment of the market. During the quarter, we acquired Redemtech and Global Link technology, and both offer a wide array of EAD services, including data removal, data security, refurbishment and marketing of electronic assets, while ensuring compliance with local and national data security and environmental regulations. Our expanded scale and scope position us to move to more effectively deliver a broader range of services across more kinds of electronic products and markets, and recover more value through remarketing of products and parts rather than smaller competitors. With our expanding capabilities, we're better able to partner on bigger, even more complex engagements with larger corporations and enterprises, and deliver more value back to the customers. In our global Enterprise Computing Solutions segments, sales of $1.6 billion increased 3% year-over-year and were in line with our expectations. This represents the 11th consecutive quarter of year-over-year organic growth for Global ECS. On a global basis, solid year-over-year growth in storage, software was offset by a continued weakness in the server market. In the third quarter, we saw good performance in the Americas, with sales in our core value added distribution business in line with expectations in a seasonally slow quarter. We executed well and continue to focus on our strategic priorities, including delivering values through solution selling and diversifying the portfolio as we build out our service capabilities focused on the data center. In Europe, the team delivered solid results in line with normal seasonality even as market conditions weakened somewhat in the region. Our major expansion strategy remains a key driver of our success in the region, and we saw a nice sales increase of approximately $20 million related to the expansion of supplier lines in new geographies. In summary, I'm proud of our strong execution in the third quarter in the face of the economic gridlock. I applaud our employees around the globe for staying focused on our long-term priorities in this challenging environment. Paul will now provide you with an update on our financial performance for the third quarter.

Thanks, Mike. Third quarter sales of $5 billion were, as Mike said, in line with our expectations and were down 4% year-over-year. During the quarter, we prospectively revised our presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees as compared to presenting gross sales in prior periods. We have not changed the revenue presentation, sales would have decreased by only 1%. The change has no impact on our gross profit dollars or earnings, and there is no impact on our consolidated balance sheet or statement of cash flows. Pro forma for acquisitions, excluding the impact of both foreign exchange and the aforementioned change in revenue presentation, sales were flat year-over-year. In Global Components, sales declined 8% year-over-year as growth in Asia was offset by continued macro related weakness in the European region, while sales in the Americas were relatively in line with the prior year. Pro forma for acquisitions, excluding the impact of both foreign exchange and the aforementioned change in revenue presentation, sales in Global Components were flat year-over-year. Sales in Global ECS increased 3% year-over-year with solid performance in both regions. Pro forma for acquisitions and excluding the impact of foreign exchange, sales increased 2% year-over-year in Global ECS. Our consolidated gross profit margin was 13.4%, a decrease of 40 basis points year-over-year due to ongoing pricing pressure and a change in mix of products. As discussed previously, the change in revenue presentation had no impact on gross profit dollars, but positively impacted the gross profit margin percentage by 50 basis points for the third quarter. Pro forma for acquisitions, excluding the impact of both foreign exchange and the aforementioned change in revenue presentation, gross profit margin decreased by approximately 110 basis points year-over-year due to ongoing competitive pricing pressure in both of the company's business segments, as well as a change in the mix of products. Operating expenses are down 2% year-over-year on an absolute dollar basis, and increased 30 basis points as a percentage of sales. Pro forma for acquisitions, excluding the impact of both foreign exchange and the aforementioned change in revenue presentation, operating expenses declined 3% year-over-year and were down 30 basis points as a percentage of sales. To assist you with your analysis, acquisitions added approximately $20 million to operating expenses this quarter. Operating income was $178.4 million, and operating income as a percentage of sales was down 60 basis points year-over-year. Pro forma for acquisitions and the aforementioned change in revenue presentation, operating income as a percentage of sales decreased 80 basis points year-over-year. Pro forma for acquisitions, Global ECS operating income as a percentage of sales increased 20 basis points year-over-year due to improvements in both regions. In Global Components, pro forma for acquisitions and the aforementioned change in revenue presentation, operating margin declined 110 basis points year-over-year, primarily due to weakness in the more profitable regions of the Americas and EMEA. Our effective tax rate for the quarter was 28.3%. But for modeling purposes, you should assume that the tax rate for the next few quarters will be between 28% and 29%. Net income was $112.2 million, with earnings per share at $1.04 and $1.02 on a basic and diluted basis, respectively. Over the last 12 months, we generated more than $630 million in cash from operations, significantly exceeding our goal of converting 70% of GAAP net income to cash, and this is a terrific accomplishment for our team. We continued to take advantage of what we consider to be an attractive valuation and repurchased an additional $76 million of our stock in the third quarter, bringing the total amount returned to shareholders to nearly $780 million over the last 5 years. As we exited the quarter, we had $124 million remaining for future buybacks on our current authorization. Return of working capital was 23.4%, and return on invested capital of 9.4% remains in excess of our weighted average cost to capital. This is a high-level summary of our financial results for the third quarter, and for more detail regarding the business unit results, please refer to the CFO commentary published this morning. Now, looking ahead to the fourth quarter, we believe that total sales will be between $5.1 billion and $5.5 billion, with Global Components sales between $3 billion and $3.2 billion, and global Enterprise Computing Solutions sales between $2.1 billion and $2.3 billion. As a result of this outlook, we expect earnings per share on a diluted basis, excluding any charges, to be in the range of $1.01 to $1.13 per share. Our guidance assumes that the average diluted shares outstanding will be $107.3 million and the average Euro to U.S. dollar exchange rate for the fourth quarter to be 1.29 to 1. As we look ahead to the fourth quarter, we believe the macro-environment will continue to be an overhang and we expect the markets we serve to remain weak. We expect to see a year-end budget flush in our global ECS business, although in line with the low-end of historical seasonality. In Global Components, we're expecting the line of normal seasonality in our legacy European business, with the Americas and the Asia legacy businesses expected to be slightly below normal seasonality.

Thank you, Paul. Please open up the call for questions at this time.

[Operator Instructions] Your first question comes from the line of Jim Suva from Citigroup.

The question I have is maybe if you could and just kind of help me bridge the differences of your sales and EPS? And I'm kind of looking back, say, to prior December quarters because I know there is seasonality in your different businesses. Basically, when you look at kind of your sales guidance of $5.1 billion to $5.5 billion, and when we compare that to past year or the past 2 years where sales were within that range or even lower, we get a much higher EPS number. So can you just help us bridge that?

Jim, it's Paul Reilly. I would say, the biggest driving factor that we have seen and we think will continue is this competitive pricing pressure at the GP level. So year-over-year, we're expecting GP to be down by somewhere to 50 to 70 basis points overall. And that's something that, from a consolidated basis, that really takes a lot of the leverage that we normally see in our business away. We look at this as a temporary short-term thing for us. We don't see any significant downward motion in the markets we serve. But we are more competitive today. And I don't think that's any different from what you're seeing with the other companies in our space or companies that are our customer base.

And then as a follow-up to that, GP pressure, is that on both segments or is it more components versus ECS or vice versa?

Yes. Jim, we're seeing it more pronounced on the Global Components business, but we're seeing it also in the margin in the ECS business. So it's kind of -- when I look at it, it's pretty encouraging that our ECS business has performed so well in this weak economic backdrop. I think, really, the solution selling there is really driving great success. We're having a similar type of success in the Global Components business, but it's a little bit more noticeable there around the pricing pressure.

Jim, this is Mike. Mix of our sales has also had an impact for the quarter, too. The ECS business is doing better -- having a little better penetration in Asia than we had seen, and a little bit of weakness in North America has had an impact on that margin, too. And actually, if you did some comparables to the last downturn, I think the markets held up pretty well for our margins at this point. So we're encouraged by that.

The next question comes from the line of Shawn Harrison from Longbow.

Just wanted, I guess, to get a little bit more granularity in terms of trends here in October in the Global Components business, have you seen the book to bill normalize? And, I guess, maybe given the commentary on Europe seeing closer to normal seasonality, do you think we're going to be seeing a bottoming out of the market here sometime soon?

I don't know that I could tell you that it actually bottomed. What I can tell you is we did see a slight negative book to bill for the last quarter. And in October, we actually saw a positive book to bill. So when you take those, there is some relative mixed signals that October has started off fairly nice for us in the new quarter. And I think it's going to come down to the vacation days and the holidays, how everything continues to pull through. But we're not seeing what I would call, an overall disaster in the business at this point. And things still seem to be relatively steady.

Okay. And I guess as a follow-up, given that commentary, but at the same time seeing that incremental pricing pressure, you've taken, I think, out $50 million of cost out of the business year-to-date. Do you see any need to do any incremental kind of restructuring activity as we head into the end of the calendar year?

I'll let Paul talk about it just a little bit for you. But if you recall in the third quarter, we had reduced our operating expenses by $10 million year-over-year, and we're looking to maximize that in a fruitful way that we -- I think, I used the term last time, we're not trying to whipsaw the business. But we are on track for realizing the $30 million in cost reduction initiatives that we announced at the end of 2011. So what I would tell you is, I don't think there's any need right now to announce a new round, but continue to execute on the round we announced at the end of last year. Paul, you want to add to that?

Great. Yes, Shawn, our performance is pretty strong right now and probably best-in-class in our industry. And we don't see at the same time, a major step-down in the world's economies. So from our viewpoint, we think we can afford to continue to invest selectively in our business to have the right resources that Mike referred to in his prepared comments around technical resources, an area we continue to invest in, so that we can be the best performer possible when the inevitable economic recovery occurs. So, very similar to what we did back in the recession where we were focused on ensuring that we could maximize performance coming out of a weak economic time period. And today we think we can afford to do it the way we're doing it. Should the back drop change, then we'll reconsider our position. We feel good where we are today.

Your next question comes from the line of Craig Hettenbach from Goldman Sachs.

Andy, can you just comment on the ECS business for Q4? The comment at low end of seasonality, just any color you can provide by kind of product segment and geography would be helpful.

Sure, Craig. As Paul mentioned, we do expect a budget flush at the low end of seasonality. As noted in our performance, you can see that the server market still is pretty challenged. But as far as color on the fourth quarter, we look at our pipelines, both geographies have good solid pipelines, and the server business usually comes back a little stronger in the fourth quarter. So I don't want to predict the mix. You can see the mix that we've been producing. We've diversified our portfolio very well, and I think our team deserves a lot of credit for executing these kind of numbers when the server market is soft. So right now, October's in the books, we're off to a pretty good start. So, yes, that would be the color I can give you on the fourth quarter.

And as it relates to the line card, some of the contribution you've seen in Europe, can you tell us kind of how much legs that has in terms of further expansion or opportunities there?

Sure. I think it has certainly more legs. We are only in the middle innings of our matrix expansion in Europe, as noted $20 million more this quarter. And so this is great organic growth for us, 11 straight quarters of organic growth. And that's key to why, again, I think our team is performing well and we're getting the leverage in the business because organic growth, as you know, is the most profitable growth. So still more to go.

Craig, this is Mike. I think, to add a little color to it, we've seen some increasing and some substantial increasing this year in our security software, that's up about 11%. And the virtualization market that everybody thought was dramatically slowing, that was up 15% for Andy and his team. Networking was up 20%. So all in all, they found a way to offset the server decline and really help customers with a full solution, and I think that's going to bode well. And we are still bullish on Andy's business, given the geographic expansion and the matrix management that he brought up before.

Great. If I can just ask one of Paul, just as I look at your inventory given to the clients in, I think, components. Do you expect to tweak that down a bit going into Q4? Or how are you approaching inventory?

Right. As we look for the rest of this quarter, I think you're exactly describing it right. It would be tweaking downward on the margin. The issue will be, how we really read the tea leaves as we get to December for Q1, right? Because we have to have -- we need to have it profiled appropriately. But I do think that absent any major change in the markets, we'll probably see a little tweaking. Interestingly, when we look at the Global Components inventory turns in the third quarter of this year, we saw a very nice increase of about 10% in turns. So Peter Kong and his team have done a very nice job in focusing on turns and managing a working capital solidly for us.

Your next question comes from the line of Steven Fox from Cross Research.

Two questions from me. First of all, in talking about the year-end budget flush, in your prepared remarks, it also sounds like you're doing some things better than your competition. So I was wondering how much in terms of your revenue guidance for the computer business is a reflection of your own performance versus the markets, if you could just dissect that a little bit? And then secondly, Paul, could you just explain a little bit and specifically, what the change is related to on the top line, recording some sales as agency sales? I'm not totally clear on that.

Well, I'll start with the first one, this is Mike, and then we'll go to Andy. The things that we talked about before specifically around Europe and the expansion program we've had in there, that portion has served us well. And in North America, we have seen the team really do a good job of combining products into a solution for the customer, and I believe that, that helps us be competitive in the overall market in a better way than just selling the components separately. And I think, Andy and his team have done a really credible job as I listed some of the growth rates. And if you take a look at just things like security, where it was up -- substantially, in North America, it was up around 24%, and networking in the 39% range. So the team has done a good job of expanding the product lines that we could sell, thereby, increasing the percentage growth that we've seen even in a down market. And Andy, would you like to add to that?

I think that's pretty well spells it, Mike. Again, our goal is to always outgrow the market. And so you know, in the fourth quarter, we hope to once again outgrow the market. It's slow to no growth in many segments, and as Mike pointed out, we are getting the benefit of growth in some key segments that we've invested in so.

And then just on the agency sales question?

Sure, Steve. So the world of revenue recognition is something that the SEC is putting a tremendous focus on. And from our past history that we want to ensure that we are well within the balance of the guidance around accounting and controls, et cetera. So we're constantly, every quarter, looking at engagements that we have with customers to ensure that whatever the latest thought work is coming out of the SEC, is something we conform to. So as we look at that particular contract or contracts, it really to -- I'm going to call myself an accounting layman now, was a jump ball. But there are areas where the SEC puts out publications, whether its speeches or interpretations where they continually refine their view on what qualifies as revenue, and therefore, gross revenue, or what should be accounted for as an agency basis. So in the end, there was a slight bias towards [indiscernible] agency. What it basically means is before this quarter, with these particular contracts, we recognized every dollar as revenue. What it means, post this change, we recognize only the gross profit as revenue. Obviously, distorts trends on the balance sheet, right, because we'll still have all the receivables, we just wouldn't have all the sales anymore. So that will make like -- it will look like DSOs are growing, it will look like our inventory turns performance has slowed down also, and it will, obviously also on the P&L, increase GP percent, increase operating expense percent, and potentially, have a bit of an impact on operating income.

Your next question comes from the line of Brian Alexander from Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Paul, just a follow-up on that. I'm curious is there a change in the economic relationship with some of your suppliers or customers where maybe you're taking on less inventory risk in exchange for a lower gross margin? And is that something we might see grow in the future, or is this really the same relationships, same contracts with just a different accounting treatment?

Brian, I'll take a shot at that. There is no change in relationships with customers or suppliers. And the economics are still the same on this. Interestingly, when we go into some types of engagements, we do look at returns, right, and absolute earnings. And I would use as an example, the well-publicized discussions we've had now for several years on our specialty business in Asia where it has an exceedingly low or exceptionally low operating income percent, but an extraordinarily high returns. And that's the reason why we're in that business. So the economics don't change on this particular engagement. This is more opportunistic for us, quite honestly, than it is a change in the core business. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And then just a follow-up and maybe go back to the pricing comments. If you looked at that 150 basis point pro forma decline in the components business, how much of that would you say is pricing versus mix? And then is that playing out more in certain regions or customer segments, or would you say it's pretty broad based? And do you think you'd get some recovery here like you did a couple of years ago or are you basically assuming this is kind of a new baseline? Because I noticed your operating margin outlook for the components business seems like it's going to be down 50 or 60 basis points in December versus September.

Right. So over 2/3 of the decline year-over-year would be mix-driven. So, really, it's a -- it's on the edges when we talk about pricing pressure. I do not believe that this is a permanent change we did in the past, in a more dramatic, weaker economic environment, core back GPP. So I don't see this as a change. We’re at kind of an interesting point with the macro, right? You look at all the published reports from like companies, or you look at the published reports from suppliers or customers, or you look at even noncustomers, there isn't a call for a big step-down. It's sort of a combination of maybe an economic malaise or economic gridlock. So -- and we've made a decision, really, to say we're going to continue to invest in the business, selectively. We're not going -- we're controlling it well. And we'll take a chance in that in the short term. Should we see some type of change, then we'll react accordingly and we reacted very quickly, very strongly in the last downturn. But we don't see anything at this point in time.

Brian, this is Mike. If you recall at Investor Day, we talked about design activity for the components group and how that activity helps or improves our margin. And as we had mentioned earlier in the call today, we're continuing to add resources to our technical engineering department to get more design registrations and support what we're having. The interesting note which gives us comfort that it is coming back is design registrations are actually up 11% year-over-year, right now to date. And we have not seen, what I would say is a huge drop-off over the course of quarter-to-quarter. In fact, I would call it more seasonal going into the fourth quarter. But the design activity out there with our customer base is still strong. And as you know, sales in those products are at a much higher GP than sales of the commodities. And that actually helps our mix in the future and that's why we're making the investments there.

Your next question comes from the line of Amitabh Passi from UBS.

I had a question and a follow up. First one, potentially again for Andy. And Andy, I apologize for this but your outlook for a normal budget flush, again, it sounds relatively better than what we've heard through other companies in the supply chain. So just curious, how much visibility you might have into the fourth quarter, particularly given the back-end loaded nature of the quarter that's giving you some comfort that you could be somewhere in that normal mix -- normal seasonality for the fourth calendar quarter?

Sure. So we have seasonality, in North America, plus 28 to plus 34, but our European business has even higher -- a higher kind of a hockey stick growth in the fourth quarter. Sometimes, as much as 50% to 60% increase in sales. And so we based where we're at today, low-end of seasonality globally, based on our pipeline and based on the fact that October is in the books. We're reasonably comfortable with the number we're putting out there. Again, I think a lot of our success is coming with new business, organic growth, new lines. We're able to outgrow the market every time we add a new supplier, that's plus dollars to our ECS business, increases our percentage of the total available market. And so again, I think our team deserves a lot of credit performing well and I believe our fourth quarter will come in right about where we've said.

And then maybe just as a follow-up for you Paul. Cash flow from ops, you said, was about twice better than your 70% target. Are you still comfortable with the 70%? You think we could -- do you expect cash flow to trend better? And then any update on your share buyback?

Let me take the second question first. As we mentioned, during the quarter, we had done $76 million worth of repurchasing of our stock. And then we did an additional $24 million since the end of the quarter, so in the month of October. So today, we have a remaining $100 million for share buybacks on our current authorization. And that would bring, I guess then -- we're actually at, we have returned $800 million to date over the last 5 years to shareholders with another $100 million to go. So that would take care of that. Now look, I think we're managing cash well. We've got a long history of it. I think we'll be -- do well again in the fourth quarter. And as I mentioned earlier, Peter Kong and his team are doing a great job in managing inventory turns. And that's something we are focused on, not only the marketplace but actually doing better in each of our metrics, year in and year out, whether it's on the balance sheet or the P&L. So I still think we have good legs to go and we'll keep pushing on it.

Paul, just on the buybacks, can we assume the board will continue to be supportive of ongoing buybacks? Can we expect additional authorizations?

That -- it's premature for me to forecast what the board will decide or not decide to do. I think we've had a couple of conversations between us and yourself that we have a regular dialogue with our board on capital structure, and that's something that they're able to give us some good advice and counsel on and we get to have a good dialogue around it. And we'll continue to have that. Our next board meeting is in December. We'll see how we make out the next couple of months on the buyback we have, and we'll just see how we go from there.

Your next question comes from the line of Brendan Furlong from Miller Tabak. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: More or less, just a follow-up question. Looking at kind of bigger picture into 2013, kind of a medium-term outlook. For planning purposes, in terms of OpEx and your gross margin outlook and pricing pressures that you talked about, are you viewing the market as a slow growth market or a no growth market over the next, call it, 4, 5 quarters?

Yes. Well, we don't put out guidance for the -- anything beyond a quarter. So I'll try to address that without going beyond what we normally do, which is to assume that we don't think there's a step-down coming in the world's economies. Each region has its own factors driving that. And for sure we are managing our teams for our expectations that there will be growth as you move forward from a planning point of view. So we're in the middle of our planning process, and when we finish that over the next 6 weeks, we'll have a better feel for it. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: Okay, great. And then just one simple follow-up. The -- I don't know if you addressed this earlier on, the Asia component business looking into Q4, do you still expect that to remain strong in the fourth quarter on a relative basis?

Well, we do see that the markets there, as you know, are competitive and generally, really, fragmented. Although our broad line card has certainly helped us as we go forward. And we think we're going to continue to outgrow that market and we do worry less, if you were to ask the question that way, about Asia-Pac, than we would, for example, Europe. And I think for us, looking out in the new year, Europe is the largest wildcard we would have and we would expect there to have China come back from -- to some relative growth, just largely speaking, if you have an outlook.

Your next question comes from the line of Param Singh from Stifel, Nicolaus. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered, but just wanted to get some color on your end markets within components. I know you've mentioned in your written commentary that automotive and lighting was strong but if you could highlight what was weak, what end market was weak? And also if you could give some book to bill color by geography, that would be great.

Well, the -- if we take the Americas first, we are expecting to be slightly below what we would expect a normal seasonality. Medical devices, really, for the first time this year, we've seen some decline in that industry. The alternative energy has also seen a decline, and at one point, that was expected to be a pretty good-size growth business for us. And then we've seen a slight decline in aerospace and defense. That's where we have our aircraft business also. We've seen upticks in lighting. And in Asia specifically, we've seen mobile and transportation be the real positives. Now if you go to Europe, it's kind of an interesting question because the aerospace and military business and maritime business in Europe, for us is up 6%. And as you can see all around the globe, there is a few mixed messages around end markets. And I believe that that's just where they came from and where they're going to. But right now, we're not seeing any one vertical across the board running away with anything, or any big vertical across the board that has a huge decline. Did that help you? Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: Yes, great. And the book to bill by geography?

Do you have that, Paul?

I do. So in the third quarter, North America was the strongest. It improved by about 7% over last year, it was above 1. The Europe core business was in the middle of the 3 regions and that also improved year-over-year by about 5%. And then Asia was the third of the 3, there too, they actually saw an improvement of about 20% year-over-year. So North America was above, the other 2 were below 1. All showed significant improvement year-over-year and we feel we got a good platform going forward. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: But all 3 are positive in October?

October, it's tough to make a decision off of 1 month, so I'll just caution you on that. But North America, yes. Europe core, right on it. And Asia core, right below it. I would also tell you, all 3 are better than last year in a meaningful way in the month of October.

Your next question comes from the line of Ananda Baruah from Brean Capital. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: I was wondering if you could just give some detail around what you're seeing in ECS, around competitive pricing and to what degree the competitive pricing comments are relevant there? And if you could, I don't know, delineate between pricing pressures that's taking place in the channel versus from vendors?

Sure, this is Andy. As Paul mentioned, we're seeing some pressure not as pronounced as the components side. But I think you have to look at our mix. We're doing a lot more services today with our solution selling model. Our software business is very strong. And of course, the hardware business is probably the weakest part of the segments today. So we're handling the margin very well, I think, as reflected in our overall performance. And going forward, the suppliers are hungry for growth, and they incent us to keep the growth coming. So it's a tough environment, but we're managing it well. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Got it, that's helpful. And Andy, just -- can you give us some -- it sounds like October is off to pretty solid start kind of across-the-board both businesses. How did September finish up in ECS for you? With, I guess, was it softer than typical September Q end.

September finished pretty good. It was the government yearend, a lot of the federal business helped drive the close. We did see some things pushed into October, and a lot of those are happening. So I would call September back-end loaded, for sure, but it came in to our expectations. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Got it. And I guess, with regards to the comments, sort of both on the pricing and the end of September quarter, anything noticeably different, I guess between North America and Europe?

On the computer side? Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: I guess, like on the -- yes, with regards to pricing and with regards to quarter end and quarter start.

Really no significant difference.

Your next question comes from the line of Sherri Scribner from Deutsche Bank.

I think I heard you say that the components business by different geography expected EMEA to see normal seasonality with the U.S. and Asia below. I'm just curious on the EMEA commentary, why you would expect to see normal seasonality? Is that segment not so weak for you, or is that primarily based on having a bit of a softer third quarter? Just wanted to get a sense of that.

The European market for us, it's an interesting anomaly, but it's really been our vertical market growth. It really tends to, right now, outperform the broader market, and it's really around automotive and lighting. And automotive, for us has been up about 13% year-over-year and lighting has been in the 3% to 4% range. But those are the continued drivers that we think will keep us right at seasonality in the fourth quarter.

Okay. And then auto business, I would assume it's not domestic auto. Is that exported and hasn't that been -- I mean, it sounds like from some auto companies, that may be slowing, just curious.

It's European autos. It's not American automobiles, we were talking just specifically about Europe and so that's our automotive business in Europe.

Okay. But some of those cars are being exported out to Asia?

Oh yes, sure. Yes, of course.

Okay. And you're not seeing a slowdown in that business?

No. We're still seeing the business hold tight for us.

Okay, great. And then I just wanted to see if there was an update on your views about a dividend. You guys are generating a lot of cash and doing a good job there.

I'm going to leave Paul with that one.

Yes, we continue to take a look at that and we continue to think about or evaluate what's the best way of returning excess capital to shareholders. Remember, our strategy is to first fund organic growth with the capital we generate, then to be acquisitive, to accelerate our growth, and finally, to return to shareholders. And we think $900 million, assuming we complete the remaining tranche on our buyback, over 5 years is very impressive numbers to have returned to shareholders. But we do have, as part of our capital structure strategy, always a discussion with our board about what is the most effective way of doing that, that being returning capital to shareholders and we'll continue to look at it.

Your next question comes from the line of Lou Miscioscia from CLSA. Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division: It looked like quarter to quarter that interest and other finance expenses shifted around a bit. Just I guess, what was the difference between June and September? And maybe if you can give us some thoughts as to where do you think it's going to go, I guess, over the next few quarters going forward?

Yes, Lou, it's Paul. So I can answer that for you. In the third quarter of every year, we get a dividend from some kind of stock we own by an Asian competitor. And every year, in the third quarter, we put it in there. And I've been assured, because I reviewed the 10-Q, that we clearly disclosed that in the footnotes way in the back. So I apologize that it's way in the back, but that happens every quarter. That was about $3 million and I would expect interest expense to go back up off of the Q3 level by $3 million. Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division: Okay. And then maybe just comment on how you expect SG&A to trend over the next couple of quarters, either from percent of revenue or from that absolute standpoint?

Well, there's seasonality that kind of impacts that comparison, but I would tell you that, we would expect to see operating expense dollars as a percentage of both sales and GP dollars to trend down in the fourth quarter. And then we'll see what happens in the first quarter once we get our plans submitted from the field units. Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division: Okay. But it's usually up about, what? $15 million, I guess, quarter-to-quarter into December?

It will be up a little bit more than that because of the fact that you're right, we have the summer holiday period which creates people being on vacation so that’s not charge to the P&L. We have less of that in this quarter. We do have some variable expenses that we have to pay off. So it might be a little bit more than that, but not much more than that. Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division: Okay, great. And after such a -- my final question, after such a great year of cash generation, going back to the Analyst Day, you all have been positive on cash generation, cash flow from operation generation going back to 2001. Do you think as you look out to the next calendar year, you'd be able to continue to do that given -- we're not expecting obviously much growth, but if there is a big growth, sometimes you burn a little bit more?

We would fully expect to generate cash from operations next year. I think we've talked about in the past that the breakpoint is probably in that 12% revenue growth. So that's -- if we see the market grow 12% next year, it would definitely impact cash flow. It will have a substantial impact on our earnings and returns.

Ladies and gentlemen, that concludes this Q&A session. I would now like to turn the conference back over to Ms. Greer Aviv for any closing remarks.

Thank you. If you have any questions about the information presented today, please feel free to contact Paul and myself. Thank you and have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.