Vince Keenan - Vice President of Investor Relations William Amelio - Chief Executive Officer Kevin Moriarty - Chief Financial Officer Gerard Fay - President of Electronics Marketing Patrick Zammit - President of Technology Solutions.

Jerry Scribner - Deutsche Bank Matthew Sheerin - Stifel Louis Miscioscia - CLSA Shawn Harrison - Longbow Research Steven Fox - Cross Research Mark Delaney - Goldman Sachs Jim Suva - Citibank.

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

Good morning and welcome to Avnet's First Quarter Fiscal Year 2017 Business and Financial Update. As a result of the pending sale of TS and having met applicable requirements Avnet is reporting the TS business as a discontinued operation.

Additionally, the year-over-year comparisons reflect adjustments to the first quarter of fiscal 2016 for the transfer of the embedded computing solution business from TS to EM.

As we provide the highlights for our first quarter fiscal year 2017, please note that in the accompanying remarks, we have excluded certain items, including intangible asset amortization, restructuring, integration, and other items and certain discrete income tax adjustments from all periods covered in our non-GAAP results.

When we refer to constant currency or the impact of foreign currency, we mean the impact due to the change in foreign currency exchange rates when translating Avnet's non-US-dollar-based financial statements into US dollars. When we refer to organic sales, we have adjusted the prior period to include the impact of acquisitions and other items.

In addition, when addressing return on capital employed, return on working capital, and working capital velocity, the definitions are included in our Form 8-K filed today. Before we get started with the presentation from Avnet management, I would like to review Avnet's Safe Harbor statement.

This call contains certain forward-looking statements which are statements addressing future financial and operating results of Avnet. There are several factors that could cause actual results to differ materially from those described in the forward-looking statements.

More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission. In just a few moments, Bill Amelio, Avnet's CEO, will provide Avnet's first quarter fiscal year 2017 highlights including an update on our strategic transition.

Following Bill, our Chief Financial Officer, Kevin Moriarty, will review some financial highlights and business model updates as well as provide second quarter fiscal 2017 guidance. At the conclusion of Kevin's remarks, a Q&A will follow.

Also here today to take any questions you may have related to Avnet's business operations is Gerry Fay, President of Electronics Marketing; and Patrick Zammit, President of Technology Solutions. With that, let me introduce Mr. Bill Amelio, to discuss Avnet's first quarter fiscal 2017 business highlights..

Thank you, Vince and hello, everyone. Thank you again for taking time with us and for your interest in Avnet. In our first quarter fiscal 2017, we took another major step in strategic transition of Avnet where we announced the sale of technology solutions operating group to Tech Data Corporation.

When we evaluated the sale relative to our internal plan, and other strategic alternatives, we decided this transaction was in the best interest of our employees, our customers, suppliers, and our shareholders. Total consideration of $2.6 billion consistent $2.4 million of cash and approximately 2.8 million shares of Tech Data common stock.

The transaction, which is subject to regulatory approval, is expected to close in the first quarter of calendar or second quarter – first or second quarter of calendar 2017. As a standalone electronic component distributor, Avnet will now have an improved business model with higher margins and returns.

The significant cash consideration we expect to receive a closing will allow us to pay down debt in excess of the amount that we borrowed from Premier Farnell acquisition and leave us with a strong balance sheet and expanded capital allocation alternatives, including the potential for increased share repurchases.

It will also enhance our ability to invest in organic growth and value creating acquisition as we target higher growth market and technology marketplace.

Going forward we will continue to adhere to our capital allocation approach, which focuses on growth while consistently and continually returning cash to shareholders via dividend and disciplined share repurchase program. As a result of the pending sale TS, accounting regulations require us to report a discontinued operations in the current quarter.

And Kevin will cover TS in more detail later on the call. While we will not include TS in our guidance and results going forward, I would like to highlight that we expect to realize a gain on the sale of TS of between $3.75 and $4.75 per share depending on the final tax rate and final counting adjustments.

In summary, the sale of TS allows us to focus on electronic components business, which we just added unique capability with the acquisition of Premier Farnell while providing significant capital to strengthen our balance sheet and fund future growth. Now, let me turn to Premier Farnell.

We accelerated the review process and completed the acquisition on October 17, and at the end of the month expect to use approximately 180 million of offshore cash and $660 million of new debt to finance this transaction.

Integration planning is underway and based on our initial meetings, our team is extremely excited about the opportunity they see to leverage the digital platform and the thousands employees of Premier Farnell.

Combining Avnet Electronics market and Premier Farnell will create a unique distribution model that can serve an expanded customer base with the broadest suite of products and services in the marketplace.

More importantly, we will have more opportunities to accelerate growth in a combined customer base as we can address the entire product lifecycle from idea generation all the way through volume production.

Premier Farnell's customers will be able to leverage our design chain services when they land into complex issues and then utilize our supply chain services when they are ready to ramp up production.

Avnet's customers in all three regions will have access to a digital platform with extensive product specifications and information as well as a wide choice of components to consider in their products.

We will be able to reach engineers earlier in the design cycle which will be critical as more innovators and startups from the majority of the design work online before reaching out to a field application engineer.

Premier Farnell will also provide a positive financial impact as our customer base and small order size results in higher gross margins and operating margins than our core business.

We expect to realize 70 million to 80 million of synergy once the integration is complete with the majority being cost synergies including some at Avnet to reduce our internal investment in web enabling tools. As we cross-sell into the combined customer base and utilize more revenue synergies, the impact of Premier Farnell will increase our return.

We currently expect to realize return of capital of 11% to 11.5% in year three, which is well above are weighted average cost susceptible to 8.5%.

While the acquisition of Premier Farnell creates a compelling for our shareholders we are equally excited about the compelling value proposition that the combination of Avnet and Premier Farnell provides to our customers and our suppliers.

Once the integration is complete, Avnet will possess a unique distribution model with a truly differentiated offering that will put us at the forefront of the digital transformation impacting the entire technology supply chain.

The next slide depicts one of the primary benefits at Premier Farnell's acquisition that is an expanded customer base and reach into the idea generation and design cycle. A triangle in the center of the diagram depicts EM's traditional role in the product lifecycle of our customer.

While we play a significant role in the production phase of technology supply chain depicted on the right. We have limited presence in the early design phase, particularly at the idea stage were critical component choices are made.

In addition, a Premier Farnell will significantly expand our presence to the left of the diagram which is critical to our future success in high-growth markets like the Internet of Things or IOT. It essentially opens up the aperture of our sales funnel to address more opportunities with much lower cost to serve models.

Another benefit of Premier Farnell acquisition is their customer base is made up of 420,000 registered users. These customers will no longer have to explore alternatives when it comes time to move the volume production.

They will be able to take advantage of Avnet's supply chain services to seamlessly move from prototype to production and accelerate their time to market. We also see opportunities to leverage our embedded board solutions as innovators creating IOT devices will require standard designs with hardware and software already integrated in testing.

Avnet will be the only component distributor with true end to end solutions underpinned by global digital platform with unique features and services. Our intent is to build on this position to accelerate growth, increase our margins, increase our returns, and generate increased shareholder value in the future.

Now I would like to turn the commentary over to Kevin to provide more color on our financial performance and a financial impact of these two transactions.

Kevin?.

Thank you, Bill and hello everyone. As Bill mentioned earlier, beginning with current quarter, we will treat Technology Solutions as discontinued operations in our financial statements.

With that said, I will focus my commentary on the EM and TS results in order to be consistent with the guidance we gave in August prior to the switch to discontinued operation. I will be referencing the slides sent out earlier today, so I'm going to start on slide seven.

In the September quarter, Avnet's total revenue declined 13.3% year-over-year to $6 billion. If you exclude the extra week of sales in the prior-year quarter organic revenue declined 6.9% in constant currency.

Adjusted operating income of $193 million declined 19.7% year-over-year with approximately half of the decline due to the extra week in the prior-year quarter while adjusted operating income margin declined 25 basis points to 3.2%.

Adjusted earnings per share of $0.91 was $0.02 above the midpoint of our expectations as better-than-expected operating income at EM and lower corporate and other expense offset the greater than expected decline in operating income as TS.

Adjusted EPS declined $0.21 or 19% from the year ago quarter with over half of the decline due to the positive impact of the extra week in the prior-year quarter. Cash flow from operations was slightly negative this quarter as working capital increased 3% driven by meaningful decline in accounts payable at TS.

I would however point out that our trailing 12 months cash flow from operations reached $34 million to $258 million and cash flow from continuing operations was $111 million in the current quarter. EM's revenue declined 9.3% year-over-year to $4.3 billion and was 3% above the midpoint of our expectation.

Adjusting for the extra week in the year ago quarter, EM revenue declined 3.4% in constant currency, primarily due to our decision to exit the select high volume supply chain engagements in Asia region.

Potential growth of 3.5% was above seasonal EM this quarter although some of the positive variance was due to ERP structure and the quarter was negatively impacted sales in the Americas region. EM's operating income declined 14.3% year-over-year to $186.5 million with over 50% of the declined related to extra week in the year ago quarter.

Operating income margin declined 26 basis points year-over-year to 4.5% and was up more than 50%, 50 basis points sequentially with the ERP disruption in the Americas region being a factor impacting the direction of both of these numbers.

Revenue at TS decline 21.2% from the year ago quarter to $1.9 billion and was below expectation and normal seasonality. After adjusting for the extra week in the year ago quarter the TS revenue declined 13.8% in constant currency driven by decline in legacy data center products.

Operating income at TS declined 38.9% year-over-year to $43 million with approximately one-third of the decline driven by the extra week in the year ago quarter. Operating income margin was down 66 basis points year-over-year to 2.3% as an improvement in Asia was offset by decline in the Americas and EMEA region.

As Bill referenced earlier, we took another major step in the strategic direction of Avnet with the acquisition of Premier Farnell in the announced sales of TS. On the next few sides I discuss the positive impact of both of these transactions on our pro forma financial statements along with expected synergies and expense reduction.

Turning to slide eight. We look at how Avnet's business model would change after the acquisition of Premier Farnell. The first column on the slide represents EMs fiscal 2016 results including the transfer of the embedded computing solutions business from TS at the beginning of fiscal 2017 and 100% of corporate expense.

The second column is Premier Farnell's results for the six months ended July 31, 2016 annualized. The third column represents our expectations of synergies comprised of revenue and cost synergies we expect to realize as a result of the acquisition of Premier Farnell.

The fourth column represents expenses that will transfer with the sale of TS, cost reductions previously anticipated from our Avnet Advantage program and other efficiencies and cost reductions. The fifth column calculates the pro forma income statement using the mid-point of the range for synergies and cost reduction.

As you can see, post the two transactions we are projecting Avnet will have over $18 billion revenue and operating income of approximately $800 million. Representing operating margin of approximately 4.5%.

Two other changes I would highlight in this column is that our interest expense would increase as a result of the debt related to the acquisition of Premier Farnell and our effective tax rate would drop to approximately 25%.

Adjusted net income would be over $500 million and using our current share count, adjusted diluted EPS would be approximately $3.90 per share. In addition, there is a potential accretion of another $0.12 to $0.15 of EPS that we will return to our historical average ratio by paying down $1.5 billion of debt with the cash proceeds from the sale of TS.

While I would caution that these projections are estimates and it could change based on market condition, I believe this presents a positive pro forma financial impact of the two transactions on Avnet's profitability going forward. Most importantly, this base case does not include any future growth from our fiscal 2015 result.

As we fully integrate Premier Farnell and rollout new strategies focused on higher growth markets, there is the potential to improve upon the scenario as we realize the full potential of our new business model. Turning to slide nine.

This provides another view of how the strategic transition of Avnet will positively impact both performer growth and operating income margin. In fiscal 2016, Avnet recorded gross profit margin of 11.6% and adjusted operating income margin of 3.4%. The sale of TS will have a positive impact on both of these numbers.

The acquisition of Premier Farnell, which will increase operating income margin, will have a bigger impact on Avnet's gross profit margin. Given the small order size generates gross margin in excess of 30%, Avnet's gross profit margin would increase between 130 basis points to 140 basis points.

Conversely, the expense synergies and planned cost reduction would boost operating margin between 60 basis points and 80 basis points once they are fully implemented.

Overall, pro forma gross margins would increase between 210 basis points and 230 basis points to approximately 14%, while operating income margin could expand 80 basis points to 120 basis points to approximately 4.5%.

The increase in pro forma operating margin would also have a positive impact on return on capital, which averaged around 12% at EM over the past two years. With this business model incorporating higher margins and returns, we are confident we can leverage future growth and to increase shareholder value. Turning to slide 10.

When the sale of TS closes, we expect to record a pre-tax gain on sale between $775 million and $875 million depending on final balance sheet adjustment. After adjusting for taxes and fees, the midpoint of the net gain will be approximately $500 million.

As you can see on this slide, the positive impact of the proceeds, netted against the assets that will be removed from our balance sheet would increase our pro forma book value from $37 per share to between $40 and $42 per share, an increase of approximately 10% with the TS transaction closes. I am going to turn to slide 11.

Another benefit we would expect to realize is a strengthened balance sheet with a strong cash position. At the close of Premier Farnell acquisition, our total debt increases $900 million to $3.4 billion. While our leverage ratio would be temporarily elevated from now until the sale of TS, we will be conservative with how we manage our balance sheet.

With the completion of the sale of TS, we expect to receive approximately $2 billion of net cash after paying taxes and fees which would result in a cash balance of close to $3 billion.

Given our commitment to maintain our investment grade ratings, our intention is to pay down a significant portion of debt to reduce our leverage ratio as well as to reduce interest expense.

The end result would be a strong balance sheet and liquidity which would leave us with capital allocation alternatives where we could return faster shareholders without impairing our ability to invest in organic or inorganic growth.

We take this front approach to buy back the treatment as form of internal M&A and we will maintain that discipline as we decide the optimal way the deploy the capital from the sale of TS. In summary, turning to slide 12, we have accelerated the strategic transition of Avnet in a very short timeframe.

After the two transactions are completed Avnet will have a differentiated distribution model that spans the entire product lifecycle. The addition of Premier Farnell will position us to lead in digital transformation as customers and suppliers look for innovative partners in the evolving technology supply chain.

Our business model will have higher margins and return that will allow us to leverage growth to increase shareholder value. We will also have a strong balance sheet and liquidity to fund both organic and acquisitions.

As technology reaches deeper into more products and innovation proliferates through the Internet of things, we are very excited about the future as we began to write-down -- write a new chapter in Avnet's long history, serving the technology marketplace.

Turning to our Q2 outlook, beginning with this quarter, our outlook will exclude the TS operation given the announced sell. Our outlook includes the acquisition of Premier Farnell which closed on October 17th.

Therefore, looking forward to Avnet's second quarter of fiscal year 2017 we expect Avnet's sales to be in the range of $4.2 billion to $4.5 million. Based on this revenue forecast we expect adjusted diluted EPS to be in the range of $0.69 to $0.79 per share.

This guidance does not include any additional acquisitions, the amortization of intangibles, any potential restructuring, integration and other expenses and certain income tax adjustments. The guidance assumes 130 million average diluted shares outstanding and an effective tax rate in the range of 23% to 27%.

In addition, the above guidance assumes that average U.S. dollar to euro currency exchange rate of $1.09 to the Euro, consistent with the second quarter of fiscal 2016. With that, let's open up the lines for Q&A.

Operator?.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes Ram Singh [ph] with Merrill Lynch. Please proceed with your question..

Hi. Thank you. So, firstly, on the EM business, what kind of revenue synergies would you expect from the cross-selling opportunities and what are the expansions can you get from there. And then I had a follow-up..

Well, if you look at the total synergies we expect to achieve by the end of the second year between 70 million to 80 million, there is a mix between cost synergies and sales synergies, as we pointed in the script most of its coming from cost synergies at this time.

We are not really breakdown those into separate detail but there is a mix between cost synergies and sales synergies in that number..

Okay. And then obviously first use of cash for you -- is that pay down, but would you expect to use on the remaining cash flow buyback afterwards or are there any or -- what's the debt number would be ideal for you or how much you want to pay down? Any clarity would be great..

Sure. Kevin, I think, let me start with the latter part of question. You know we historically have averaging between 2 to 2.5 times leverage and I think as we move forward that's where we would like to be given to allow us the flexibility that we will be required.

I think the question you are asking in -- it come up a few times and expecting is that post the sale of TS, you know, we are going to have many variables to consider. We don't need to maintain significant excess cash given our counter cyclical balance sheet.

So we are clearly going to be looking at alternatives returning cash to shareholders including a potential share buyback. The actual method of return will include -- will depend on the timing with the stock prices and other factors. And we clearly are going to be updating you. We are actively in conversations with our Board.

But again we will continue to maintain our disciplined share buyback approach as we do view it as an internal form of M&A..

And then one more quickly if I could. You know your TS business, how much was in -- been expected margins were down about 100 bps almost.

Question is -- you know, was that business underperforming and obviously going to be discontinued but is there any chance of get it coming back to you and renegotiating the price on that because operationally it is much weaker than people expecting for three years -- six months ago?.

We have a last deal in place and we have certain [indiscernible] rule we got to deliver and the best is not a probability it's going to happen..

All right. Thanks guys. I really appreciate it..

Our next question comes from Ms. Jerry Scribner with Deutsche Bank. Please proceed with your question..

Hi. Thanks. I appreciate the additional detail on the combined company, post the deals. I guess looking at the pro forma margin profile that you've led out, is that something we should expect two years after the TS deal closes.

When should we think about those targets as being realistic is it fiscal 2018 or is it fiscal 2019 or how should we think about that?.

Jerry, I would expect towards -- what's in fiscal year 2018 will clearly be taking -- progress since we deliver on synergies. But think about it probably in fiscal 2019 -- 18 to 24 months out..

Yes, Jerry, if you think about synergies really nothing in the December quarter, we will start seeing some of them in the March quarter and then as Kevin said getting the full run rate over the 18 months period..

And I have one additional comment on [indiscernible] the investor deck, we don't have any growth assumptions assumed in that performance that you see on the right-hand part of the chart..

Okay. The December-March comments, just to clarify, was fiscal 2018. Right, Gerry..

Yes..

Okay. And then, I guess, a bigger picture question for you, Bill, if you look at the EM business, it's grown in sort of the 4 or 5% revenue range. What do you view as the growth profile of the business going forward with the Premier Farnell business included, what are your market opportunities and how much do you think that business can grow? Thanks..

Well, I am not yet in a position to say what the exact growth parameters will be. Well, clearly, we want to outpace the market growth, because we think not only we're going to an entirely different space, which will allow us to cast a much wider net with a lot more customers.

Just adding Premier Farnell alone gives us 420,000 additional users, and we see that expanding over time. And we have a very effective low-cost to serve model. So we see this as a way for us to really turbo-charge our results. But as I said, right now, I'm not in a position to say what we think that growth rate will look like exactly..

Okay. Thanks..

Our next question comes from Mr. Matt Sheerin with Stifel. Please proceed with your question..

Yeah. Thanks. Just following up on Sherri's question regarding the Premier Farnell, of those 420,000 users, I assume that they represent a smaller number of actual customers.

But have you been able to look to see what the overlap of those customers are and figure out, as those customers convert from prototype to volume, how much you're capturing in the opportunity there?.

We just had the team over there for the last week, and that's exactly on the top of the agenda. And we see really great opportunities. We're not yet in the position to say exactly how many customers will convert.

But the great news is we have a doorway to turn that on instantaneously so that whenever they want to go from pilot to production they're coming to Avnet..

Okay. And two other questions. Just one bigger picture regarding the significant consolidation of the semiconductor industry. We've seen some news about Texas Instruments, which is one of your biggest suppliers, continuing to move more demand creation business on a direct basis. How does that impact you? We saw Qualcomm-NXP today and other mergers.

How is that affecting your business? And then the second question, just regarding your working capital metric going forward, given that EM traditionally has had more inventory in longer cash cycle days and then you work in Premier Farnell, how does that impact are working capital going forward?.

Matt its Gerry. I'll take the first for the question so as you mentioned is it continues to be a floppy environment with our suppliers. We normally don't discuss of our specific program. But as you can imagine with suppliers or demand creation programs with the distributor and negative ways there are other suppliers who take advantage of that.

That's the beauty of being a distributor with a broad line. We are generally grandfather prince for we designs that gives us time to upset most of the margin loss.

But the steady investments we are making in our digital strategy to help customer shorten time of the market, provide embedded solutions to allow customers to differentiate for their software and enabling customers to take advantage of our ability to take from the edge to enterprise.

This is where we think is margin growth from the future will come from. We can provide best-of-breed solutions to customers by giving choices and enabling technologies that yield suppliers to match.

So we think that there is going to be continued change amongst their suppliers and if we continue to add value to both the remaining suppliers and our customers that we feel we can continue to grow both revenues and profits. Kevin you want to say something on working capital..

Yeah. Sure Matt. Historically I think our net base will continue operations which will grow about 70 or 80 days. I think when you do the math we are currently greater than 80 days due to the ERP implementation in the Americas region and the decline in high-volume that have a higher return.

We do expect in the day a decline in fiscal year progress from current level but overall net fees I would think slightly they will be closer to 70 days as we cannot go forward from here including [indiscernible]..

Okay. Thanks a lot..

Our next question comes from Mr. Louis Miscioscia with CLSA. Please proceed with your questions..

Okay. Great, thank you.

Can you go into a little more detail on TS? Obviously you mentioned legacy data center and that is or maybe give a little more of product type of review of the trends given honestly how weak TS was?.

Okay. So Lou, its Patrick. So that we are experienced decline primarily in North America on servers and legacy storage so we continue to do really well on flash storage and now on flash storage is getting closer to 50% of the total storage.

That the legacy storage is continuous to decline also at lower rate, the big impact this quarter came from the server business both preparatory and at least 86 site servers. And we got also some market data and we see that in distribution in North America, the market has been declining on those two technologies.

In EMEA, we also see a decline from the market on servers and storage that so far we've been able to compensate by gaining share..

Okay, great. That's helpful.

Does there seem to be an economic thing or it's just a customers or shifting from buying the newer product?.

So, I mean, if I look at the market data it’s the market declining and so is it because they continue to move to cloud, or is it – for the moment what we are being told by our partners is that you had lot of customers while still questioning, which technology they want to pick up for the future. So, they are delaying purchasing decision.

So, we've seen this quarter how things materialized, but I would say it’s more customer continuing to figure out, okay, which technology is the right one for them going forward, and the cloud for sure is playing a more and more important role in the decision making process..

Okay, great.

On Premier Farnell, the 70 million, 80 million of synergies, is that mostly taking out the extra head count, excuse me, headquarter expense they have, or maybe you could just give a little bit more descriptive of where you're getting actual synergies?.

Sure, Gerry. If you think about it first of all they were public companies, so public company cost on the Premier Farnell outside that will come out, and then on top of that we will look at our back-offices where there is opportunities there.

And as Bill said earlier there is opportunity between investments we were making on the digital side that we won't have to make anymore. So, there are synergies between both Premier Farnell and Avnet to where we get some positive cost synergies that we bake into our assumption..

Okay, great. Last question for me is that with the amount of cash that are coming in, it would be more accretive to try to fund more to stock buyback and realize your debt position is rather high and it hasn't come down.

But any more – just thoughts on maybe the breakdown or the possibility of actually a share buyback in addition, which would probably be more accretive as per our math?.

Yeah. There is no question about it. Look, this is one that we'll be discussing with the board, we got time to do this, because as we discussed, it still won't close until the first quarter at the earliest then second-quarter the latest and we'll give you more detail exactly what we're going to do.

But, clearly if our stock is undervalued we will have buyback share that will be on the agenda to talk about..

Okay. Thanks, guys..

Our next question comes from Mr. Adam Kendall [ph] with Raymond James. Please proceed with your question..

Okay. Thank you. First question for Kevin. It would seem like knitting the $2 billion in TS proceeds versus the pro forma net debt for Premier Farnell is just over $2 billion would give basically minimal net debt when we account for all of these things. And you just laid out over $800 million of pro forma operating income on that Pro Forma slide.

So I'm just trying to understand how you arrived at the $500 million available for capital allocation alternative.

Is it fair to say that there may be some conservatism built-in given the leverage levels that implies on the net debt to EBIDTA basis?.

It does as well as obviously we're going to have continuing cash flow from operations, so correct..

Okay.

Maybe following up to that, Kevin, how can we think about I know earlier was asked about pro forma working capital but pro forma ROIC when we account with sale of TS going forward, is there a metric that you can give us to think about?.

Yes. What I would tell you is, as we work through the next couple of years, I'm expecting us to kind of go north of the 11% return on capital and in mature in the next two years or three years between 11% to 13% as we look at the respective profile of the company..

Okay.

And if I could just get one for Bill real quick? Bill, when you factor in the sale of TS acquisition of Premier Farnell and use of excess cash, you ultimately expect those events to be accretive or dilutive to EPS?.

Our objective is to make accretive..

Fair enough. Thank you..

Our next question comes from Mr. William Stein with SunTrust. Please proceed with your question..

Hi, guys. It's Joe Mills dialing in for Will.

First can you just give us European status update impacted components revenue for Q3, so is that behind you now and are there any effects on towards there?.

Yeah, hi, Joe. So think about in terms of revenue, we actually seen expectations this quarter and revenue expense and profit sales. I want to give a nice American team. As you can see we reduce inventory in Q1 and we reduced again this quarter.

Based on the learning from our assessments in the new system, we're going to make some additional investments to improve our system capabilities further.

We had about 3 million in expense in Q1 related to the ERP project that we're due to the roll off in the December quarter and we'd decided to build systems to our plan for the balance of the fiscal year to support these enhancements..

That's helpful. Thanks.

And then just the follow-up, I guess what's your appetite for M&A post the close of the TSL once you guys are back and you are targeting that leverage range? I know you mentioned buyback as probably potentially some cash but just trying to gauge your current pipeline and ability to gauge in more M&A while you are degrading from Premier Farnell? Thanks..

Well, currently we still will have tire be able to spend on some acquisitions as well.

We had a rich pipeline, that's a robust pipeline that we're looking at but we want to make sure that we make a prudent calls between buying back our stock, taking – advantage of acquisitions that allows and ensuring that's the right price and they meet the right strategic intent that we would look for them to do as well as investing in organic growth as well.

So those are the areas that we will consider as we look forward. So we still have as I said a few quarters before the cash comes in we have to make that call..

Got it. That's helpful, guys. I appreciate it..

Our next question comes from Mr. John Harrison [ph] with Longbow Research. Please proceed with your question..

Hi, guys. Good morning, its Shawn Harrison.

One of the clarifications if I may, what is normalized CapEx as we get into fiscal 2018 with the combined companies?.

Shawn, what we are currently looking at is somewhere on a go forward basis in the neighborhood of $90 million to $110 million. Clearly we just with Premier Farnell we are up. We spend some time. We're studying that, but right now that's the way we are thinking about it is in the 90 million to 110 million for total going forward..

Okay.

Second, the comment on a larger buyback, waiting until you receive the cash, does that mean that the buyback you would typically do every quarter is on hold as well and until you close the TSL?.

Yes, Shawn. We are working through this. We're going to be temporarily, our leverage ratios it will be pretty high.

So as I mentioned on the call we are going to deploy the conservative managing the balance sheet and as we look forward here obviously depending on the cash flow from operations [indiscernible] until the TSL concludes that is the way we will be managing. Thanks..

Okay. And then two last clarifications, if I may.

What would be a synergies run rate you are targeting exiting fiscal 2017 for Premier Farnell? And then if I look at, I guess the normalized interest expense before you begin to pay something down, what would that be for the combined entity and do you have kind of a rate on the debt that you're looking to pay down once you get the TS proceeds maybe what the average cost of the debt is?.

Shawn, its Gerry. Thinking about the synergies from a perspective, probably, I'm trying to – just trying to lay this out for you. Think about a year for now getting about half of the synergy done and then the 18 month timeframe getting to the full run rate percentages were year from now..

And Shawn, I will take the second one.

So if you look at where we concluded interest expense for the current quarter, it was $27 million clearly with pay off with the September note and now adding on Premier Farnell debt in the current quarter, I would range of the neighborhood of $29 million to $39 million for interest expense and thereafter again that is also for Premier Farnell and after a month, and there after I would expect interest expense to be in the neighborhood of $31 million to $32 million and again I'll update you in January.

So that's kind of the way we are thinking about going forward. In terms of the other timing issues in terms of paying down the debt, that's all stuff, we will continue to update you on, but we are currently thinking about the $1.5 billion pay down of debt..

Is there, I guess, I can look at the structure but I mean the average cost of debt that somewhere around 5% to 5.5%?.

Actually, what I'm thinking about from a blended rate standpoint would be somewhere between 3.9% and 4% after the sale of TS..

Okay. Perfect. Thank you..

You're welcome..

Our next question comes from Mr. Steven Fox with Cross Research. Please proceed with your question..

Hi. Good morning.

Can you discuss the current December quarter guidance in little bit more detail specifically, what revenue range are you assuming for Premier Farnell and what kind of organic growth would that imply and where are there margins you think in this current quarter, are there any de-synergies in the first quarter out of the inbox as you integrate?.

I look at when you go from our fiscal Q1 to fiscal Q2 recognize that our seasonally strong and Asia region given just the commercial change that occurs as getting ready for the end of the calendar year and that's pretty normal for us as we go between quarters. So on the margin profile, that's what I would expect.

Gerry will cover on some of these revenue..

Yes. So if you think about it, think about Premier Farnell revenue in $230 million to $260 million range and if you look at their gross margin I know on the last call there was conversation about gross margins and concern around that.

Actually the gross margins, if you look at their last six months results have improved and we expect that improvement to continue, and I think when you look at margins to Kevin's point, this is the quarter of the year where Asia is the biggest piece of that, so that drives kind of Avnet's gross margins down.

We won't see a similar impact with Premier Farnell..

Okay.

So in terms of the number you just gave Gerry in terms of Premier Farnell revenue, that is a full quarter run rate or is that from October 17?.

Yes, from October..

Okay. And you are saying the gross margin for Premier Farnell have improved, but into the December quarter they are not improving as much? I'm trying to get....

No, I think -- I would say and I would think about is maintaining the margin that they have had over the last six months..

Okay.

And then are there the synergies with the first couple of months out of the box that maybe drag on this quarter's against?.

No, I don't think so. If you think about the strategy we laid out, we're pretty much going to keep this two business separate at this time, so there's not a lot of [indiscernible] integration work going on.

There is work to put our systems together to be able to pass information back and forth, but when you think about full scale integrations of – like companies we're not doing that in the case of Premier Farnell. So I think both management teams and pensions will be focused on running their core businesses..

Great.

And then just a longer-term question on Premier Farnell, now that you had a few months to sort of study the business and now it’s part of Avnet, can you talk about what type of range of growth you would project for the business going forward? How it may be different from what the Company has produced over the last 12 months or in the last three years and why that would be?.

Yeah. We won't project growth rate down to the future that's not something we normally do, but I think you can look at some of the fluxes that Premier Farnell has gone through over time.

They are now going to have a very stable management team between us and the – between Premier Farnell and Avnet, so I think settling the team down and getting them focused I think you can look at growth rates that are going to be very similar to the Avnet core business, and I think if you look at what's happening in the maker space there is an opportunity for actually Premier Farnell growth to exceed, the core distribution growth that we see at Avnet..

Great. Thank you a lot..

Our next question comes from Mr. Mark Delaney with Goldman Sachs. Please proceed with your question..

Thanks very much for taking the question.

The first question is on the Premier Farnell synergy that you talked about, you outlined in the slide deck about $100 million of revenue synergies from Premier Farnell, can you talk a little bit more about how you derived those and then given the guidance for 70 to 80 million of synergies with an 18 months to 24 months mostly from cost, can you talk about why the revenue synergies of that roughly 100 million, why that takes longer than the 18 months to 24 months to achieve a majority of it?.

Well, first of all, Mark, its Gerry, if you look at what's the plan is, the revenue synergies really come from taking leads early on in the design process and bringing them over to Avnet for us to be able to capture those customers.

Just think about demand creation at Avnet, it takes somewhere between 12 months and 18 months for new designs to come for light. But if you think about we find the lead to Premier Farnell, today is somebody is starting a design that's even earlier in the process.

So think about times of full scale production on their selling like 18 months to 24 months. So we look at the leads from Premier Farnell that will get us to a customer early and help speed their time to market to really ramp that revenue, it’s going to be a good 18 months before we start to see any impact..

Okay. That's helpful. And the follow-up for the outlook for EM segment revenue in the December quarter, if I subtracting out that 230 to 260 I think you said for the Premier Farnell contribution implies core EM down low single-digits in the December quarter, which I know seasonality has involved, but I think that's the low seasonal.

So maybe you can just help us to understand a little bit better what you're looking for in the EM business sequentially on organic basis for the December quarter?.

Remember we talked about exiting a large portion of our full scale, large-scale fulfillment business, that's going to change our seasonality going forward. So if you think about this business was somewhere between 6% to 8% of our total business, now think about it from a 1% or 2% going forward.

So I think the thing to focus on is if you look at the core EM business year-over-year, we're actually declining less than we did in the quarter last year and I think the thing I would focus on is we're going to see improvement in our profit percentage this quarter.

So I think it speaks to the strength and it speaks to the decision we made to get out of that high-volume fulfillment engagement, we shift our business back to the left and based on our newest windward Broadcom that business is going to start kicking in this quarter.

So I think from a growth perspective, when we go back and revise what our seasonality is going to go forward and that food business I think you will see it is a favorable quarter..

That's helpful.

One last one for me, a strategic question, it actually to someone topic you just brought out, but given all the industry consolidation, do you think there is going to be increase in a number of exclusive agreements that take place between you and semi suppliers? I know you announced the Broadcom exclusive agreement recently, I know I don't talk too much about a specific customer, but if you can just talk about whether or not that a trend you expect going forward and what the financial applications may be? Thank you..

It's hard for me to speculate what our suppliers would be but I do think that no matter what decisions our suppliers make, if you look at our scale and scope, our investment and now our ability to completely focus on the components business, I think if any of those decisions do get made I think we are in a good position to be selected.

So I don't want to speculate what our suppliers might do. It's a very volatile time in the industry, but at the end of the day I kind of like our odds given the fact that we are going to have some powder to be able to invest both organically and exquisitely. And if you look at that, you look at our complete focus on components.

I think that puts us in a good position if suppliers do make those decisions..

Our next question comes from Mr. Jim Suva with Citibank. Please proceed with your question..

Thank you very much. And I have two questions and I will ask them at the same time.

First of all, on the ERP situation, there was a challenge in the past, is that 100% fully been resolved or what is the timeline, and if it has been resolved, could you regain some of the share that you lost, or how should we think about that? And then my second question is, going back earlier there is a question asked about some of the chip companies changing the economics of the channel, I think specifically Texas Instruments was mentioned but without talking about a specific company to remain confidential, it does seem like there are some value added shifts going on.

Could you readdress that and how people understand the reactions [indiscernible] take with that? Thank you..

Again, it's Gerry, I'll take the question. So what is the ERP system, you think about it, our core business is performing as it did before the ERP system implementation. So we feel very good about that.

As I said earlier, some of the learnings we took from our systems work that we have done over the last quarter to get back to where we needed to be, has led us to some areas of potential improvements we can make to those systems. So we are going to invest there.

I would say from -- if you think about share, I won't talk about specific share numbers, but I think if you look at our performance in the Americas, I'm not sure we actually lost any share, what I would call, ongoing share.

We haven't lost any major customers, so I feel pretty good about the job the team has done and I can't say enough about our Americas team. When they worked through problem last quarter, got back to the level of normalcy there.

Now I will shift to talk about the supplier piece, you know, as you see, the amount of acquisitions by our supplier continues to go up. I think when that happens they look at their distribution channel.

And to the earlier point, one of the advantages I think we have as a broad line distributors, the fact that when an acquisition happens, not just those two companies that are getting together that look at their strategies, a lot of our other supplier start to look at their strategies and how potentially they are going to go to market going forward.

So there is always puts and takes and so far we have been able to manage through that successfully. And I would say going forward giving the fact of our scale and skills our ability to invest that we are going to be one of the likely partners going forward and we have those decisions..

Thank you very much for the detail..

Gentlemen, there are no questions at this time. I would like to turn the call back to Vince Keenan for closing comments..

Thank you for participating in our earnings call today. Our earnings press release and related CFO commentary can be accessed and downloadable PDF format at our website at www.ir.Avnet.com under the quarterly results section. Thank you..

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation..