(Operator Instructions) I would now like to turn the call over to Mr. Richard Cleys.

Thank you for joining us for the ScanSource conference call to discuss financial for the quarter ended September 30, 2008. My name is Rich Cleys and with me is Mike Baur, CEO of ScanSource and Scott Benbenick, President of Worldwide Operations. We will review with you the quarters' operating results and then take your questions. This conference call contains certain comments which are forward-looking statements that involved risks and uncertainties. These statements are subject to the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from intimated results. For information concerning factors that could such a difference, see the company's annual report on Form 10-K for the year ended June 30, 2008 filed with the securities and exchange commission. I will start our discussion by providing overall sales and operating results. The company posted sales of $539.8 million for the quarter ended September 30, 2008, a decrease of 3% over sales of $553.7 for the same quarter last year. Measuring sales based upon our product group shows year over year growth over 3% and AIDC and point of sale which was offset by an 11% year over year decrease in communications products for the quarter ended September 30. As expected, revenues in our catalyst telecom sales unit were adversely impacted by program changes implemented by our key vendor of this division. Mike will discuss this further in his remarks later on this call. Overall, we have a 63/37 mix of AIDC POS versus communications products for the current quarter. Gross margin was 10.3% for the September 2008 quarter compared to 10.5% for the same period last year. The decrease in gross margin percentage from the prior period comparable quarter is largely attributed to less favorable…

The September quarter was expected to be challenging for the company as we discussed on our year end conference call in August. We had very good financial results last year in the September quarter so we had a tough comparison. Based on this backdrop we were pleased with our performance and remain optimistic for our long term business prospects. Certainly the economic and financial upheavals in recent weeks have affected our business and our near term outlook. The global economic slowdown has been felt first by our European business and will affect our America's business we think in the upcoming quarters. The financial problems that are affecting the credit markets are having an impact on some of our resellers, however, historically we have seen our financially healthy resellers continue to prosper and grow during periods of uncertainty. We will continue to invest in our business where we see growth opportunities. This translates to investing in certain markets, vendors and customers. First, I'll comment on each of our reporting segments. North American distribution includes sales into the United States and Canada and posted sales of $445.0 million, a decrease of 4% for the September quarter on a year over year basis. Our North American discussion will start with Catalyst Telecom. As we discussed on our August conference call, our Avaya enterprise business is still struggling due to the difficulties associated with the launch of communications manager 5.0. We anticipated continued confusion in the market surrounding the terms and conditions required when resellers purchased communications manager 5.0. Adjustments to this program are planned to roll out to the channels in early November. As a result, we are still cautious in our forecast for catalyst in the December quarter in addition to our concerns around the economy. Despite the Avaya challenges, Catalyst has…

(Operator Instructions) Your first call comes from Reik Reed – Robert Baird. Reik Reed – Robert Baird: Can you expand a little bit on Europe? How much of this is economically related? I'm not sure any of us have heard a conference call yet where the U.K. isn't viewed as being incrementally negative. On the compensation issue, what's happened there? It seems like the vendors have been addressing that and tried to push through better compensation plans. Obviously that's not the case. Maybe you could talk about what the key issues are and how quickly that can get addressed with the new plan.

In general, we've always had discussions with manufacturers about compensation plans and the plans that were put in place when we first entered Europe have been pretty effective and have not been a problem for us. We've always had problems in general with manufacturers compensations where they disincentives to push business to the channel. In this particular case, we had a couple of manufacturers that changed their comp plans this year, and frankly we weren't away they changed them. As business got tighter toward the end of this year, we found that manufacturers are trying harder to make sure that they improved their gross margins, and many of the comp plans are based on gross margin rather than net margin so there's been some incentives that were not designed to be used to move business back to manufacturers direct. I think when everything's going well, a little difference in gross margin doesn't affect a sales teams' behavior. When things are tight and people aren't making quota, even an extra point or two is going to make a difference to them. Reik Reed – Robert Baird: Is the issue that they didn't understand this, and how do you re-educate that?

They understood it. The manufacturers were trying to align their compensation so they actually were trying to pay their people less this year than they did last year and the way a sales person can make the same amount of money, paying it through the channel was to sell more. Reik Reed – Robert Baird: I've always been under the impression that particularly in Europe that the manufacturers were trying to put more business through the two tier structure and I'm just wondering are they cognizant of the changes that they made in that regard and how have you tried to educate them?

It wasn't the plan that they would move business. So the plan was designed for businesses to say through distribution, I think it was last year and push even more in the future. It was a surprise to the executives when they heard that their teams were taking business direct. Reik Reed – Robert Baird: It sounds like from top down they're pretty willing to change these.

Absolutely. The other answer about the business slowing down, we definitely saw it in the U.K., but as I said on the call, we actually had good business in the Germanic area. We started our business in the U.K. We acquired a second company in the U.K. We have the largest part of our business is the U.K. It's less than 50%, but it's the largest part of our business. Reik Reed – Robert Baird: In the current environment, you talked about North America potentially getting weaker as well so it doesn't sound like you've seen that, but are you starting to see those signs and are there certain end markets that are more pronounced than others in that regard?

I think in general what we're concerned about in North America is number one we're probably more concerned about this Avaya issue with Catalyst. That's the biggest part of our concern for the numbers right now. That outweighs what we expect to happen to our North America POS and Barcoding unit here in the December quarter. We certainly saw some surprising good business from POS but we don't expect that to continue and we did see in the POS and Barcoding business, we saw some of our customers experience delays in orders during the last two weeks of the quarter. So we're just assuming that that was tied to what's going on right now in the market place and we're not sure if that was more of a recession driven or economy driven versus the current credit market. We also know that back in 2000, 2001 when we had troubles in the overall economy, our best customers continued to find ways to grow their business and we think the same thing will happen again. Because we have such a large group of customers, we're very diversified and spread out, we have confidence that we'll have a lot of customers that will take advantage of this slow down and find ways to take market share. Reik Reed – Robert Baird: You have been recruiting a number of incremental resellers in the past couple of years. Does a weak environment change that in any way, the potential to accelerate that?

I think what we're finding to that point is that the smaller resellers use more of our value added services and actually generate a strong operating profit for us. So we would like to continue to recruit and develop those type customers. Reik Reed – Robert Baird: Does the weakening environment change that dynamic?

I don't think so. I think what's happening is, the largest customers tend to have problems first because they're selling to larger end users. I believe the S&B customers we have in the past and the ones we recruited more of are more stable and more run rate business opportunities for us going forward, even in a weaker economy.

Your next question comes from Andy Young – Thomas Weisel Partners. Andy Young – Thomas Weisel Partners: Given the huge currency situation in the last few weeks, what's your current function for Europe?

Primarily in Europe we're a Euro based company. What we try to do is balance our exposure on our balance sheet first and we also have a hedging program that we have in place. From a transaction standpoint, we feel that we're fairly well protected. Of course in our forecast, the forecast that we have, as you turn those Euro's into dollars now with the dollar strengthening, those comparatives are tougher because on a translated basis, that same sale is worth less today. Andy Young – Thomas Weisel Partners: When you do the guidance, do you assume cost of currency at the end of the quarter or do you have a different assumption for the Euro for the fourth quarter?

We don't necessarily use the end of the quarter rate, but we do assume a constant currency in the forecast. Andy Young – Thomas Weisel Partners: We have recently seen quite a bit of problems in Mexico, Argentina and Brazil. Do you see any change in the business in the current month and October?

We're not going to give an update for October on the call here, but I think in general we're going to be very concerned about what happens down there as certainly devaluation going on in Mexico, so we're going to be watching that very closely. We all know that when you do business in Latin America, it's almost a cycle that we go through that some countries get into trouble and so we're conditioned to that over the last five years. So we're going to be very cognizant of what happens down there. Andy Young – Thomas Weisel Partners: It seems like your accounts receivable, there's no material deterioration in your accounts receivable. Do you see some of your customers delaying their payments more or is it the same payment pattern?

We haven't necessarily seen a delay in payment overall as evidenced by our DSO. We've been cautious in our overall review of the portfolio as I mentioned in our scripted comments that we increased our bad debt reserve by $1 million, and because of those current credit markets both here and overseas, we're starting to stay very close to our customers. There are going to be some customers that won't do as well because of the banking relationships, and then there will be other customers that are going to be able to take advantage of it because they're very strong. We're optimistic overall, but we're managing the receivables.

Your next question comes from Chris Quilty – Raymond James. Chris Quilty – Raymond James: You've obviously made a smart move taking the available money from the credit line and securing it for your use. When you look at the customer base, your resellers, obviously there's going to be an increased risk of default here. How do you look at that situation versus the potential long term opportunity if you can skate these guys through a difficult time by helping to fund them through it? Does it do any of the terms in terms of the lending terms change for any loans or terms that you may have with them on purchases of products?

The first place we would go is we would look at different programs that we've got. As I've talked about before, we work with leasing companies. We work with asset based lenders. We do take secured positions with customers to be able to grant additional credit, and we're monitoring our third party financing providers closely in this bank market too. We want to make sure that they're able to continue to grant the credit. Our first action for somebody who may be a little bit tighter on credit is to try to work with some of these third party providers. Those who are really strong, because we've got such a strong balance sheet and because we've accessed some of that line just in case, we feel that we certainly have the runway in our own working capital too. Chris Quilty – Raymond James: In terms of when we look at your returns on capital or the lending rate that you may see on your receivables, does any of that change?

The return on capital right now, because I've drawn the $75 million, that's going to be impacted, if you were to model that, I kept the $75 million outstanding for the entire period. That's probably going to cost us about 2.4% on our return on investment capital calculation. Chris Quilty – Raymond James: You're also going to be putting some of that to use, and might we see better gross margin terms or some other economic variable where you see improvement?

Not necessarily in the gross margin in this market. We're not necessarily looking to extend terms to our customers. We're looking to gain more market share. Chris Quilty – Raymond James: When you look at who your competitors are in this market, are they taking similar moves or are they retrenching from the market?

I don't necessarily know. Certainly the privately held companies I have no idea whether they've taken similar moves or not. I know that other large public companies have done similar things. From an overall treasury standpoint, some of the information we've got is that as many as 25% of the company's surveyed have actually drawn on their lines recently in a similar way to what we've done. Chris Quilty – Raymond James: The Catalyst issue with the communications manager, has it surprised you that it's taken this long for the customer base to adjust to the pricing and come back into the fold?

The problem is they still haven't fixed it. Maybe I didn't make that real clear. They announced some changes that were dead on arrival back in the spring time, and made some additional adjustments this past quarter. That didn't work. It was a partial success as I referenced on our August call, they kind of fixed the issues with selling new Avaya systems but not with the upgrades, and upgrades are a big part of the Avaya business both for our customers and Avaya in general. They won't announce the new pricing for upgrades until early November, so we're frustrated by it. That's why we had a tough time with this forecast, was the Catalyst piece is still challenging to us to figure it out. Typically with Avaya and we saw some of this, Avaya is strong in September but it was muted by the fact that it didn't have this program resolved. So the December quarter is typically the weakest as we all know with Catalyst and Avaya and so we're trying to figure out how much of an uplift can we have? We feel less confident that they fixed it now than we did back in August. Chris Quilty – Raymond James: I don't know if you distinguished between the performance of the AIDC and the point of sale business either globally or by market, North America and Europe. Can you give us any color?

I would say that the AIDC business was weaker in Europe than in North America comparatively in both markets. Our POS business in Europe has been doing well from a growth percentage. It's just a much smaller percentage of our business than it is in the U.S. As you recall, we've never really had a strong Pan European POS business in Europe. We've just started making headway in the last two years. Epson signing us, MetroLogic is starting to work with us, again in the U.K. only. We really haven't had a strong POS business in Europe so that business hasn't been negatively impacted. We're still where we are doing some business, gaining some share. Coming back to the U.S., that business really has seen very little activity other than at the S&B level so in the U.S. we have to talk more about the IBM, NCR systems business, and it has been weak for 18 months or so. We just had a good September. There were some deals that we just kind of said would never close, finally closed. So that was good news. In general I would say the AIDC business in the U.S and the AIDC business in Europe were both about the same. They were okay. The one upside that we're starting to see is the shift from [Internac] and they haven't made it a requirement for their direct customers to choose distributors but they're giving a lot of incentives for them to do it and they're going to push them even harder come January. Chris Quilty – Raymond James: On the security piece of the business, were there any major vendor pick ups or other business changes that I may have missed and what's the next step in the business? Is it really focused more on bringing in new hardware vendors, more product vendors, or more important on the recruiting side of bringing in more resellers and integrators.

No new vendors. We still have a short list of some people we'd like to have so we are still talking to a few, but it's a short list. I think from a customer perspective, one of the things we wanted to do is move beyond the typical security distributor base of low voltage, electrical kind of guys and move more into the systems integrator space. If you look at our business over the years, we typically have done very well with the larger companies who value our services and are willing to outsource more of their business than some of the smaller customers. The area that we have not really exploited yet in security area is the idea of going after the larger systems integrators. That's really the next piece we're focused on right now. Chris Quilty – Raymond James: As we went through this credit debacle over the last three, four weeks here, can you tell us what you saw in the customer buying pattern? Did things just totally freeze up as reflected in your guidance or did you continue to see a nominal level of business, and how are things changing now that the credit market seems to be gaining a little more traction?

I don't think we've seen anything freezing up necessarily. There might be some anecdotal customers out there, but in general we haven't seen that. I think it's more when I look at our forecast, the areas that I'm focused on in trying to understand our forecast myself is our Catalyst business, what's the impact of this Avaya issue, Europe which already had some slowing growth for us and now probably has a little more headwind, and especially when we translate the exchange rate, the Euro currency. The last area of concern has really been North America and it's not nearly at the same level as the others.

Your next question comes from Brian Drab – William Blair. Brian Drab – William Blair: At the end of last quarter you talked about gross margin outlook, you actually talked about specific margin 10.3%, that's what you had in this quarter. Is that the visibility that you feel you have going forward or is it going to be a little harder to call?

If you look at our midpoint guidance, I think a similar gross margin maybe a couple basis points higher would be a reasonable expectation. Don't forget when you're looking at the mid point guidance to include an assumption on the interest expense for the $75 million. Brian Drab – William Blair: We're expecting in our industrial group here much more volatility in the markets going forward. Do feel like you still have the same visibility you had a month ago, three months ago, or is it really getting more challenging?

I think overall yes, it's challenging. I tried to preface my normal remarks on expectations with a reminder that we really don't operate with backlog. Those guys do, maybe. Maybe some of those industrial guys do better than we do, but the other way to look at is, our average order size is around $2,000. We've got 20,000 active resellers. So we tend to see that we have our bigger customers and those tend to be in our Catalyst group in general, and our POS group in general. Those guys are generally the ones that get challenged first because they've got the larger end users. Two-thirds to three-fourths of our business is what we would call the run rate business and historically it's been less volatile. Don't know what's going to happen this quarter. We're giving our best shot. There was a lot of discussion here about do we even guidance in this environment, but we felt like we should do the best we could at giving you what we know today. Brian Drab – William Blair: Do you talk about sales growth by region, North America and Europe with a breakdown into volume and growth from acquisitions, growth from currency translation and selling price, or do you not have that type of resolution that you share with the street?

When we give our guidance we do guidance for the total company. In our comments we give you visibility to the historical breakdown of our segments. In the past for instance, our most recent acquisition was MTV Telecom. What we said at the time of the acquisition was that the trailing 12 months was about $18 million of sales and historically, that will be the extent of the kind of guidance we'll give for an individual business unit. Brian Drab – William Blair: Can you talk a little bit more about the different levers that you can pull to control costs and maintain margins given a worst case scenario?

In terms of our sales force, which is clearly the largest group that we have, they're a commission based sales force. So if we're not getting the sales in the margins, they're not getting their commission. So we've got a built in variable on the sales force which is the largest employment group that we've got. We've historically invested in programs. So for instance Mike is talking about our security business as being an opportunity, our communications business on a world wide basis as being an opportunity, so there we'd be looking at perhaps even bringing in people if we see the opportunity is there having marketing programs. Those kinds of decisions can be reversed rather quickly. If you look at our overall constitution of our spending, our company is about 70% if you look at salaries and benefits in terms of our spending, it's about 70% people related. As we see changes over time, those things become variable. We've also got marketing programs that we can look at, and certainly in this environment, we'll watch our overall underwriting. So our ability to grant credit, I talked a little bit about using third parties to help us for some customers that have a little bit less runway on their credit. Those are all things that can be variable for us.

There are no further questions.

Thank you for joining us. Our next conference call to discuss December 31 quarterly earnings is expected to be on January 22.