Good day, and welcome to the Arrow Electronics Conference Call to discuss their first quarter earnings. [Operator Instructions] And now, at this time, I would like to turn the call over to Greer Aviv for opening remarks and introductions. Please go ahead, ma'am.

Good afternoon, everyone, and welcome to the Arrow Electronics first quarter conference call. I'm Greer Aviv, Manager of Arrow's Investor Relations program, and I will be serving as the 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 and Chief Financial Officer; Andy Bryant, President, Global ECS; and Peter Kong, President, Global Components. By now, you should all received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our website. Before we get started, I would like to review Arrow's Safe Harbor statements. 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 several 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.

Thank you, Greer, and thanks to all of you for taking the time to join us today. The positive momentum we experienced exiting the fourth quarter of 2009 has continued into 2010. We had a very strong first quarter, exceeding our expectations in both sales and earnings per share. We received a record level of sales for any first quarter in our history, and operating income and return on invested capital almost doubled year-over-year. Return on invested capital reached 12.1%. The results of this quarter demonstrate the significant operating leverage we have in our business as operating income growth substantially outpaced the sales, growth on both year-over-year and on a sequential basis. Most importantly, we focused on accelerating our sales excellence strategy and advanced our industry-leading position, both of which are supported by a very strong financial base. During the quarter, we continued to take advantage of the opportunities in all of the markets we serve around the world. In our Components business, we performed extremely well this quarter amidst recovering global economic conditions. As you will hear in more detail later in the call, all of our Components regions attributed to the outstanding first quarter results, and we continue to see an upward trend in gross margin. Our Enterprise Computing Solutions business had a good quarter, with sales in line with the upper end of normal seasonality. While revenues met our expectations, changes in product mix had a negative impact on our profitability in the quarter. Our strong cash position and solid balance sheet has enabled us to invest in initiatives to grow the business, including our vertical markets, geographic expansion and our Global ERP implementation. We are excited about the recently announced acquisitions of Converge and Verical. These two businesses will strengthen our value-added service offerings and serve…

Thanks, Mike. As reflected in our earnings release, there are a number of items that impact the comparability of our results with those in the trailing quarter and the first quarter of last year. I will review our results, excluding these items, to give you a better sense of our operating performance. As always, the operating information we provide to you should be used as a complement to our GAAP results. For a complete reconciliation between our GAAP and non-GAAP results, please refer to our earnings release for the earnings reconciliation slide at the end of the webcast presentation. First quarter sales of $4.2 billion were ahead of our expectations and represent an increase of 24% year-over-year, an increase of 1% on a sequential basis. This marks the second consecutive quarter of year-over-year sales growth, and operating income almost doubled on a year-over-year basis. Global Components sales of $3.1 billion increased 33% year-over-year and 21% sequentially or an increase of 30% year-over-year and 22% sequentially, excluding the impact of foreign exchange. As Mike mentioned earlier, gross margins increased 20 basis points year-over-year and increased 70 basis points from the fourth quarter level. As always, we are focused on operational efficiency, and we achieved a near-record-low level of operating expenses to sale. Our operating profit grew 3x and 2x faster than sales on a year-over-year and sequential basis, respectively, again, demonstrating exceptional expense control and operating leverage in the business. And our operating margin increased 170 basis points year-over-year. That's more than a 50% increase and 90 basis points sequentially, representing the highest level we have seen in the last six quarters. Disciplined-working capital management resulted in a 350 basis point year-over-year decrease in working capital to sales, while return-to-working capital almost doubled and is now at its highest level since…

Thanks, Paul. In summary, we performed extremely well this quarter and exceeded our and the consensus expectations. Our Components business experienced an excellent quarter, with each of our region achieving significant year-over-year increases in sales, profitability and returns. While we're not satisfied with our levels of profitability in the ECS business, we believe we have the right strategies in place, and we have the right team in place to move forward with these strategies. Our sales excellence strategy, improved efficiencies from our disciplined approach to expense reductions and our focus on efficient working capital management all have served to strengthen our already strong financial position and will allow us to accelerate our strategic priorities as we move through 2010. We will manage the business for continuous improvement and, at the same time, maintain flexibility to take advantage of opportunities for market share growth and opportunities for M&A. We will continue to pursue ongoing initiative, investing in the future of our company for growth and differentiation, while, at the same time, we continue to take steps to be more efficient, so we can provide premium returns for our investors. We look forward to updating you further on our strategy at our upcoming Investor Day in New York City on May 26. For a guidance, looking ahead to the second quarter, we believe that total sales will be between $4.3 billion and $4.6 billion, with Global Components sales between $3.2 billion and $3.3 billion and Global Enterprise Computing Solutions sales between $1.1 billion and $1.3 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 $0.78 to $0.86 per share. Greer?

Thank you, Mike. Please open up the call to questions at this time.

[Operator Instructions] And we'll go to our first question from Brian Alexander with Raymond James. Brian Alexander - Raymond James & Associates: Just on the Computing business, how much of the weak business you say was temporary, just related to maybe some supplier product trepidations versus maybe more permanent changes at some of your suppliers are making or more permanent weakness in the midrange category? I know you're not looking for it to grow in the June quarter. So when do you think will be back to growth? And kind of what are the margin implications for the Computing business given your commentary?

As you said, our first quarter results were impacted primarily by proprietary servers, those being down around 12% year-over-year. Of that amount, we believe that a good portion was we have one supplier initiating a new server for the quarter, we expect that to rebound quickly in the second quarter. And as you know, we have one supplier who is changing their profile and changing their business model. We're working pretty close with them right now to see what the impact is going to be to us and how much of that decline will continue to take place. Overall, we expect our growth to resume back to more normal levels in the third quarter. Brian Alexander - Raymond James & Associates: And related to that, you would expect operating margins in the Computing business to get back to more traditional level?

Yes, we fully expect the business to go back to the traditional levels of profitability that it had before the changes.

And we'll move next to Craig Hettenbach with Goldman Sachs.

Mike, on the M&A front, you've announced a number of small and accretive tuck-in deals. You had Avnet announcing a larger deal. Can you just talk about the M&A environment out there and the size and scope of deals potentially?

As you know, we don't comment on any deals coming up, other than to say there is a fair amount of activity out there today. The types of deals we're looking at are deals that will continue to add to our portfolio with new products, new services and also continue with the geographic expansion that we've been working on already on the computer product side.

And we'll move next to Steven Fox with CLSA.

First of all, can you talk about your guidance and how much of the recent acquisitions is included in it and any specifics you can provide around that? And then secondly, Mike, maybe if you could talk a little bit more about your inventory position. In aggregate, it looks very healthy, but I was curious about the it business in particular and how you felt about your inventories exiting the quarter?

Sure. Our guidance, going forward, does not include anything from the two recent acquisitions that we put into place. As far as the inventory goes, we were up roughly $100 million in inventory. The primary areas that we're trying to increase our inventories today are in the logic area, the programmable logic area, the memory area and our electromechanical products. Those seems to be the areas right now where we're experiencing the extended lead times, and that's the general population of technologies that are keeping us from meeting all the customer demand that's out there.

And our next question comes from William Stein with Credit Suisse. William Stein - Crédit Suisse First Boston, Inc.: Mike, could you ballpark how much revenue you might have left on the table in the quarter owing to shortages?

Well, I'll tell you, I don't think it's really possible to quantify how much of the sales that could have been left on the table as a result of not having inventory. The demand we're seeing right now, largely, we are meeting with the exception of the four technologies that I brought out. And could it have been $100 million more for the quarter? I'm sure it easily could've been that if we would have the product. I don't see the output increasing for us to beat demand all the way through the second quarter, and I think that holds well for the balance of the year for us. William Stein - Crédit Suisse First Boston, Inc.: You said book to bill above 1.1, but noted we're not seeing increased cancellations. Despite that, are you fearful about double ordering? And perhaps, more to the point, can you give us an idea how much of sales in the quarter went to, let's say, the marginal buyer, the marginal customer that you see more when they have spot shortages or customers that you just see when things get somewhat overheated?

Yes. Here's what I can tell you, as far as our customer base goes, I can't tell you between whether it was a marginal buyer or a contract buyer was with us. But we did see an uptick as you would expect out of the MS group, which is a good signal thing that manufacturing is starting up. We also found, for the first time in many quarters, our standard OEM manufacturers are increasing there prominence inside of the company, too, and becoming a higher percentage of the top 10 in each region. So we're seeing healthy manufacturing across the board, not only with the EMS customers, but also with our OEM customers.

Matt Sheerin with Thomas Weisel has our next question.

Are you starting to see ASP increases from the suppliers on the Components side be it semiconductors and the PEMCO type of products? And I would imagine you're just able to pass that along so that should help you on the revenue side over the next quarter or so as those prices kick in?

I'd tell you, Matt, we haven't seen price increases for a very long time so they are welcome. As you have noted, we are passing that along, and we've also been able to increase our margin at the same time. So price increases don't necessarily hurt us because in some cases, as the new contracts come out, we've been able to increase the margin as you saw from fourth quarter of this year to the first quarter and year-over-year growth in that portion of our business.

And then you and Paul talked about gross margin in components up again, and it sounded like it's going to continue to climb as long as you've got volume growth. And given the guidance for computing being a bit below seasonal, should we then assume that the overall gross margin for the full company should be flat to up for the [indiscernible] quarter?

Yes, that would be my assumption. As proprietary servers would increase over time, we would get another bump from that. What's interesting on the enterprise computing side, Matt, is that virtualization for us is still growing at 37%, 38%. Storage is still up in the high 30s. So we've had a good increase everywhere right now, but what we could use is the proprietary servers coming back at a faster rate.

I know you had some one-time expense things going up because of increased salary, et cetera. Is that pretty much done, Paul, or would you expect another step up in the June quarter?

Matt, I think as we discussed in the last call, you all for modeling purposes, you should assume that Q1 is a benchmark number to build off of as we go forward. So the one thing I would point out is we have not yet given raises to employee base. So what we do is get back the temporary servings. So if you use Q1 is a new benchmark for us in expenses and then build your models going forward assuming variable costs come on top of that, that would be fine.

When was the last time you gave raises? And is that something you're considering this year?

We didn't give any race last year because we also had takeaways so it's been over two years in general that we haven't had raises.

Is that something you're considering this year?

We're watching the market very closely to understand where it's going, where the business is going and we'll make the decision as appropriate.

And our next question will come from Jim Suva with Citi.

First of all is on the lead time [ph] situation, can you talk about the lead-time situation, and most importantly, how that impacts your value add and your margin? Meaning, with stretching lead times, is it fair to assume you got a 10 basis point improvement on margin or how should we think about that? And more important, looking ahead, at some point, lead time should approach a more normalized level, what should we expect for margins? The second question is on the M&A front, can you talk a little bit about -- you talked about your debt-to-cap being -- are your leverage being quite comfortable. Can you talk to us about to what level do you expect or do you anticipate that comfort to remain? How high up would you be willing to leverage your balance sheet with accretive M&A?

Okay, Jim, I'll take the first one on your margin question, and then let Paul take your second question. As far as margins, we expect our margins to strengthen throughout the year, all year long. Of course, when you start to look at programmable, that's an area where we do have a significant value add that goes with those products. So as we get more of that product, we naturally get more value add with that. That also helps our margins. The electromechanical space also has higher margins for us, so we would expect the sales increase there to also bring the higher margins. The inventory, as you know, is an issue these days in these four areas. We believe we have sufficient pipeline in place, and as long as the lead times hold here, we're looking forward to getting to more of a natural state in the third and the fourth quarters with product. Paul?

Jim, on the capitalization side, it's pretty interesting. We just we had a good meeting with all the rating agencies and very full discussion around our commitment to remaining investment-grated rated over the long term. You heard that quote that our net debt to EBITDA ratio was below one. They generally look at it more on a gross basis, but they've said that their targets are in that 2x range. Better give you an idea on the amount of capitalization or leverage we can add to the balance sheet, before we have any stress around it. So we have plenty of room to participate at a very healthy pace in M&A as we go forward. But as you know, we've been very disciplined around our criteria for M&A, value-added area connection to customers and our financial returns, obviously, which mean it'd have to be immediately accretive to earnings per share. Year one must earn more than lag [ph] by year three, 12.5% return on invested capital and that's what we've been delivering so far.

[Operator Instructions] We'll now move next to Sherri Scribner with Deutsche Bank.

Paul, I just had a question on your expectation for cash flow and CapEx going forward. Your cash flow negative this quarter looks like a lot of that was a decrease in accounts payable. Would you expect to be cash flow positive this year with what I assume will be investments in the business? And also do have any updates to CapEx spending for the year?

Sure, Sherri. We were negative cash flow in Q1. We would expect to be negative cash flow Q2, though at a much lower level. That's our target, we'll deliver on that. And we believe that we'll be cash flow positive at a modest level for the full year. From a CapEx point of view, the biggest drivers remain our ERP rollout, so that we'll continue with. That has peaks and valleys throughout the year so as an example, I would expect that from a capitalization rate point of view, we'll see CapEx pick up a little bit in Q2, but Q3 when we turn on the system in northern Europe, that'll be less capitalization, more expense. And then as we start to build out the next implementation in Q4, we'll see some more capitals. Right now, our CapEx in Q1 was about $100 million. We've talked about right around range that we'd shoot for this year to $110 million. We'll probably stay in that range depending at this point in time.

On the ERP rollout, so you've a portion of Europe this year and I remember last time we talked, it wasn't clear if you're going to do the second portion of Europe on 4Q. Can you give us an update on that and also when do you expect to start seeing some of those savings coming through the income statement?

A couple pieces to that question, first is that in North America, the ECS business has completed the rollout of the Ascend project, they our key [ph] project and is delivering what we thought it would deliver. I'm very happy with how that's going at this point in time. Northern Europe will be in Q3 and then we'll take a step back and think about whether it's another part of Europe, maybe we'll go back to the Asia PAC region. Because as you know, our first site was in ANZ, but there's still plenty other regions in that part of the world. So we'll have a better feel as we move throughout the second quarter at that point in time.

And when do you expect to see the savings from is from the North American program, I'm sorry, the northern Europe?

Yes, there's usually a six to nine-month lag between when you turn the system on and when you start to get the benefit. So it would be about six to nine months after the implementation in Q3 in northern Europe.

Our next question comes from Amitabh Passi from UBS.

Including the June quarter guidance, it seems you will have had at least four sequential quarters of above normal seasonality in your Components business. So I was just wondering what your expectations are, say, for the back half of the year? And then similarly for GECS, given some of the constraints you see in the proprietary servers side and your expectations for gradual recovery, do you think GECS could do better than normal seasonality in the back half of the year?

So two pieces, the first one around the Components business and the seasonality. Yes, you're right. We have seen a nice seasonality over the last three quarters in the business. And as I said before, given the lead times, and we have not yet seen the increase of manufacturing come on to shorten those lead times. We think that holds well for us going into the second half of the year, although you do know we don't forecast out to you past the quarter, but given what we have right now, we think the second half of the year will continue on during the year. Access has been a product that should be accelerating for us throughout the year. And as servers in general come back on, we fully expect that those product lines will continue. There is also a scheduled refresh, if you will, that HP is doing, and that IBM -- that caused some delays in the system. But overall, we're still expecting the typical six to eight improvement, percent improvement in mid-cap buying on the computer side.

And then, Paul, I just wanted to visit the question that was asked just a little while ago around M&A and your capacity in the balance sheet. I guess I want to try it a different way. Assuming your debt to EBITDA ratio approaches or trends towards it two, this is total debt to EBITDA exiting 2010. I mean, how much would you be willing to push that given the threshold at four? Are you comfortable taking it to 3, 3.5 times or would that be too close for comfort just given where your thresholds are?

That's a very interesting question because we have said over the long term, we're willing to sacrifice the rating in the short term that we can create a significant returns for all stakeholders. So if you do an acquisition and the stress the balance sheet at the snapshot in time, the acquisition's going to drive significant amount of earnings and cash flow. All stakeholders, equity investment, as well as lenders, can benefit from that. So we bid at that level before, and we've made a commitment to drive down the levels post acquisitions and we've done. So if we were faced with that, I think we'd give it some serious consideration.

Anything unusual in the quarter around interest income, it was just lower than, I think, your guidance than what I would've anticipated? And it seems like cash came down and there wasn't any material changes in debt. So just trying to understand the $19 million figure for the quarter.

What we actually did was we had a few of our contracts around our interest hedging's approach where we've gone from fixed to floating rate the deal was [ph] set during the month of December and then also in the first month of January, [indiscernible] with lower interest rates. So that's really the main driver.

And is that a range going forward?

It should stay in that range give or take over the next couple of quarters.

Our next question will come from Shawn Harrison with Longbow Research.

First question just has to with the guidance for the Components issue in Asia in terms of just looking at normal seasonality whereas the other regions are looking above seasonal. Is it just that Asia was substantially above seasonality coming for the March quarter, and that's why you're looking more toward more seasonality in the Components business? Or is there something else going on?

Well, we saw that sales were considerably above normal seasonality, but we had particular strength in both China and Taiwan, as well as the rebound in the EMS customer base throughout the region. There were a number of markets that also increased. Communications increased, consumer increased and so did industrial. And we see that continuing, and that's why we're optimistic for the second quarter.

I guess my question was more focused on the second quarter looking more in line with normal seasonality, whereas the other regions was above normal seasonality. And the focus is that return to normal seasonality, so it's just coming off of such a strong March quarter?

You're coming off of a very strong first quarter for us. It was above seasonality, and it was above seasonality in all of the customer base that I outlined to you before in products. So as I said, we see a continuing and that's why we'd call that normal seasonality.

My follow-up question has to do with continued gross margin expansion in the Components business. Understanding that you have maybe some higher mix of products continuing to ramp as well as North America and Europe coming back. What inning do you think you're in in terms of a recovery through a normalized margin range? Are we in the latter innings or are we only halfway there?

I think we're just getting there. We believe the margins going to increase a throughout the entire year for us.

I guess will you address the normalized margins at the Analyst Day here coming up for both businesses?

Yes, we certainly will. We'll give you a complete rundown financially of both businesses and what we think the seasonality will be on the computer products side after the Sun changes.

And Brendan Furlong with Miller Tabak Broker [Miller Tabak Roberts Securities] has our next question.

On the corporate overhead in the quarter was kind of below as I've seen in several years. Any outlook on that on a go-forward basis?

Yes, what we saw this quarter was really it was driven of volatility in that number over the last two years has been the accounting related to the equity awards because some of our plans have been three years, some of them has been two year, some of them one year. So that's driven quite a bit of volatility, where in 2008 we were estimating higher payouts so there was more expense then. Then we start 2009, the economy dropped dramatically. Our performance dropped dramatically. We were leasing reserves around that. So nothing unusual now. This is probably steady state. The only difference I would say is that going forward, that's also where we put our ERP rollout cost and that obviously drives some of the volatility going forward also. Not to mention [ph] in Q3, we'll be doing northern Europe, so we'll have more expense in that quarter comment, if you will, a couple million dollars more than in Q1 for. But it should be the new benchmark as we go forward.

And then the EMS, can you just remind me what percent of your Components sales comes from the EMS segment? And lastly, on book-to-bill ratio, various people in the supply chain are saying it's approaching 1.2. I'm just curious, you said it's above 1.1. I'm just curious where you see it.

Our EMS segment is now accounting for about 15% of the business. And the second part of your question again?

The book-to-bill ratio of 1.2 in the industry. What are you guys seeing?

We're seeing well above 1.1.

And our next question comes from Ananda Baruah with Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC: I believe the comment around OpEx for the first quarter was this a new baseline from which we can build models. I guess the question is should we expect the balance of ERP benefits and costs to impact that in any way as we move through the year?

Yes, I would to say that's not going to be meaningful swings off of Q1 as we go throughout the year. We will have, as I mentioned, some more expense in the quarter than what we actually do the implementation, a couple million dollars of swings in those quarters, but I would [indiscernible] benchmark, we won't really see the benefits from that until 2011, which is pretty exciting for us because that's we think that's going to be tremendous opportunity for us to improve our financial performance. But nothing dramatic swinging off Q1 2010. Ananda Baruah - Brean Murray, Carret & Co., LLC: And if 2010 kind of follows through, I guess, post revenue wise sort of along the comments that you made around seasonality for the rest of the year and then cost wise and margin wise, when will you guys begin to make comments about what the benefit from the ERP system might be? Would it be in the Analyst Day or would it be as we get towards the end of the year? Could we expect them also beginning of the March quarter?

Yes, I think we'll give you an update at the Investor Day around ERP rollout, where we stand, what we think the benefits will be longer term, and then the timing that it may happen depending on the rollouts. So yes, we'll sure update you at Investor Day.

[Operator Instructions] We'll now take a follow-up question from Brian Alexander with Raymond James. Brian Alexander - Raymond James & Associates: I wanted to follow up on the margin comment, Mike. You said that you expect component margins to rise for the balance of the year and I just wanted to better understand what you meant by that. Were you referring to gross margins or operating margins? And were you taking into account geographic mix and normal seasonality, which I think both would put downward pressure on operating margin from the back half of the calendar year? So I'm wondering if you're saying cyclicality is going to outweigh seasonality such that operating margins are going to rise sequentially for the balance of the year. If you could clarify that.

Yes, Brian. We believe the gross margin line on the product will increase and all the regions through the balance of the year. I wasn't necessarily commenting on the operating income portion of that. Brian Alexander - Raymond James & Associates: And then, Paul, I know a lot of questions about M&A on the call. Maybe just talk about your M&A strategy and how that's possibly changed, at least philosophically, it maybe different than some of your competitors such that you may not be looking to do unusually large deals like you've done in the past.

Brian, I'll take that first. I don't think that there is any change in our strategy around taking large deals. For Arrow, we're looking to expand our capabilities, which we think will help our core business grow faster. We are looking and have demonstrated that where we don't have a capability, we will acquire it. We are going to continue to do acquisitions by geography to round out where we had existing products and where we'd like to expand with those products. But in general, yes, you're right we would like to do more value work for our customer base, and we believe they're open to it right now.

And it appears there are no further questions at this time. I would now like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you. Before ending today's call for those participating on today's webcast, we will quickly disclose [ph] slide reference in our webcast that contain a reconciliation between GAAP and adjusted results. This reconciliation is also included in our earnings release and both the release and this presentation will be available on our website. I would like to thank all of you for taking the time to participate in our call today. If you have any questions about the information presented today, please feel free to contact Paul, Mike Taunton or myself. Thank you, and have a nice day.

And once again, that does conclude today's conference call. We want to thank you for your participation.