Welcome to the ScanSource quarterly and year-end earnings conference call. All lines have been placed on a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objections, you may disconnect at this time. I would like to turn the call over to Mr. Rich Cleys, CFO. Sir, you may begin.

Thank you, Sharon, and thank you for joining us for the ScanSource conference call to discuss the financial results for the quarter ended June 30, 2010. My name is Rich Cleys, and with me are Scott Benbenek, President of Worldwide Operations; and Mike Baur, CEO of ScanSource. We will review with you the quarter’s operating result and then take your questions. This conference call contains certain comments, which are forward-looking statements that involve risks and uncertainties. These statements are subject to the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. The statements made in this call are made as of today’s date. We may subsequently make these statements available on ScanSource’s Web site or otherwise. ScanSource does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after today’s date. Any number of important factors could cause actual results to differ materially from the anticipated results. For more information concerning factors that could cause such a difference, see the company’s Annual Report on Form 10-K for the year ended 2009 filed with the Securities and Exchange Commission. This afternoon the company released results for fourth quarter and full year period ended June 30, 2010. I will start our discussion by providing overall sales and operating results for the fourth quarter. Later in the call, Mike will comment specifically on the quarterly results and outlook for each of our business units. For the quarter ended June 30, 2010 the company generated worldwide net sales of $582.3 million, which represents a 32% increase in sales over the comparative prior year quarter, and a 17% increase over the quarter ended March 31, 2010. Included in the quarter’s sales results are revenues from ScanSource Communications Germany, formerly known as Algol Europe, which was acquired November 30, 2009. Our net sales for the quarter hit a new record for the company and as well exceeded our expectations as we experienced good demand in all geographies. In fact, even without the revenue of ScanSource Communications Germany, the company still would have achieved record quarterly revenues. On a geographic basis, sales originating from our North American distribution segment increased 28% in comparison with the prior year quarter. Our international segment grew 49% and when measured in local currency grew 62%. Within our product lines, we experienced a 30% increase in worldwide sales in our POS bar coding and security product categories over the prior year quarter. These product categories represent 60% of our total sales for the current quarter with the remaining 40% of our total sales originating from communications products. Our communications businesses experienced an increase of 35% in comparison to the prior year quarter. The company’s consolidated gross margin percentage was 9.8% for the quarter ended June 30, 2010, which was lower than the prior year quarter gross margin of 12.1%. We noted last year that a more normalized margin would have been 10.8%. Sequentially, gross margin decreased from the previously reported 11% primarily due to more big deals in the higher mix of lower margin products lines. Operating expenses in the current quarter increased to $35.8 million compared with $33.5 million in the comparative prior year period. The increase primarily results from the addition of ScanSource Communications Germany, which does not exist in the prior year’s quarter, changes in vendor programs and higher bad debt expense. Operating expense as a percent of net sales decreased to 6.2% in the current quarter compared to 7.6% in the comparative prior year period. Sequentially SG&A was approximately $400,000 higher than the third quarter on much higher revenues. Operating income for the June 2010 quarter increased to $21 million, a 5% increase from operating income in the comparative prior year of $20 million. Expressed as a percentage of sales, operating income was 3.6% in the current quarter compared to 4.5% for the prior year quarter, and sequentially was down from the 3.8% for the third quarter of 2010. Interest expense was $365,000 for the quarter and was flat to the prior year quarter. The effective tax rate for the June 2010 quarter decreased to 33.1% compared with the prior year quarter of 37.4%. This decrease in the effective rate from the prior year reflects a higher mix of taxable income derived in lower tax rate jurisdiction, and reflects the benefit of changes to our international capital structure executed during the fiscal year. Our return on invested capital was 17.8% for the quarter, which compares to 18.9% for the prior year quarter. In summary, the June 2010 quarter had reported EPS of $0.52 versus a reported EPS of $0.47 in the June 2009 quarter. This improvement was due to the increased operating income generated from higher gross profit dollars on higher sales and a more favorable tax rate than in the previous year’s quarter. Turning to the balance sheet, inventory turned 6.4 times during the quarter, which was higher than the 5.7 inventory turns generated in the March 2010 quarter, but lower than the 7.1 turns in the comparative quarter last year. As inventory balances continue to increase during the current quarter, paid for inventory days were a positive 10.1 days compared to a positive 17.7 days for the March 2010 quarter, and a negative 2.7 days for the comparative prior year quarter. The company has continued to maintain increased inventory levels as sales volumes improved and lead times have lengthened. Accordingly inventory on hand at June 30, 2010 was $346.6 million versus $312.5 million for the March 31, 2010 quarter, and $216.8 million as of June 30, 2009. There are $62.1 million in checks written but not cleared in the June 2010 accounts payable balance. At June 2009, this amount was $45.6 million. The number of days in receivables DSO was 55 days at June 30, 2010 down from 59 days in the sequential quarter of 59 days outstanding for the comparative quarter of the prior year. This was due to increased collection at year-end and a favorable mix of customers with shorter terms of sale. As discussed during previous calls, we continue to be cautious about the impact that the economic environment has on our customers, and believe that our underwriting policy is appropriate under the current condition. The company has cash and cash equivalents on hand of $34.6 million on June 30, 2010 compared with $29.7 million at March 31, 2010, and $127.7 million at June 30, 2009. The decrease from the prior year is largely attributed to the significant growth in our inventory and receivable balances over the last several quarters. Total interest bearing debt remained unchanged at $30.4 million for the June 30, 2010 and 2009 quarter end. Mike will now give you an update on our businesses.

Thanks, Rich. The ScanSource team delivered excellent results for our fourth fiscal quarter and our full year ending June 30, 2010. We exceeded our expectations on the top line and could have delivered even more revenue if we had better product availability. As we have discussed for several quarters, product shortages and longer lead times have negatively affected our financial results. ScanSource have increased inventory levels for those product lines that have longer lead times, as we are attempting to buffer our customers from shipment delays. We believe ScanSource has gained market share as we have used inventory availability as competitive advantage. Our record quarterly sales results represent improving customer demand in all sales units, and a large increase in the amount of large deals or projects. As a reminder, large deals generally have lower gross margins and lower SG&A costs associated with them. Now, I will comment on each of our reporting segments. North American distribution includes sales into the United States and Canada and posted sales of $463.2 million, an increase of 28% year-over-year and 23% sequentially over March. Our North American discussion will start with our POS and barcode unit. This sales team delivered excellent result above our plans and achieved the highest quarterly sales since September of 2008. Large deals returned this quarter in our AIDC and our POS business, and lead to higher revenues in spite of continued product shortages and longer lead times. This unit exited June with back orders caused by product shortages that were fulfilled in the month of July. The POS and barcode unit showed sales growth and gained market share across all product categories compared to March 2010 quarter and year-over-year. More customers took advantage of our custom configuration centre value add by outsourcing the staging of POS hardware and software systems to our team in the South Asian distribution centre. This allows resellers to reduce their costs and improve their order to cash cycle for sales to retail and hospitality end users. Any area of investment and opportunity for this unit is the roll-out of ScanSource Social Media tools, which is ScanSource TV, ScanSource Community, and SUMO. These tools will generate more business for ScanSource as customers seek partnerships and business relationships at ISPs, new vendors and other resellers. ScanSource POS and barcode team have continued to make investments in marketing programs to drive demand and build awareness. Now I will update you on our ScanSource Security sales unit. The security team had a record sales quarter led by key vendors Panasonic, Axis, Sony and Cisco for video surveillance products, ID card and access control products from Zebra and HID also did very well this quarter. And the networking category of products was led by Motorola and Ruckus. This unit had an increase in large deals led by a jump in demand from schools during the summer months for various surveillance solutions on campus. We are seeing lead times lengthen for security vendors at this time and have increased our inventory levels to mitigate the chances of losing any significant sales opportunities. The security team continues to invest in new customer recruiting activities, including the popular IP workshops that are being held 6 to 7 times each quarter, and attending the catalyst of ScanSource POS partner conferences. In the June quarter, more customers utilize the custom configuration center to stage and configure cameras and servers for direct shipments to end users. Next I will update you on ScanSource Communications. ScanSource Communications posted record sales results for the quarter with strong growth year-over-year and sequentially from last quarter. The excellent results were led by record sales of (inaudible) video, voice and wireless infrastructure products through a growing customer base of AV integrators, service providers and telephony integrators. Record sales were also delivered by Plantronics headsets and I/O codes [ph] and gateways. ScanSource Communications has increased its marketing programs and sales reach by exhibiting and hosting events at INFOCOM, UC Summit, and most recently a series of road shows targeting new resellers for the ShoreTel UC and IBM UC bundled solutions. Now I will discuss Catalyst Telecom results. Catalyst delivered the highest sales results for the quarter since September 2007, driven by large deals and record results on the data side of the business from Juniper and Aruba, plus this is the first quarter Catalyst saw significant Avaya Nortel data revenues. Avaya enterprise and SME voice products also delivered solid results with sequential growth from March. Catalyst has continued to sign new customers from the Nortel dealer community and began the education and on boarding processes to assess the dealers quick ramp to Avaya’s sales success [ph]. Avaya has delivered the product roadmap and is heavily Avaya focused in ECG and SME. We believe the ramp for Nortel partners to begin selling Avaya products is steep [ph], but made much easier by our team of sales, technical and business development resources. Catalyst hosted their annual partner conference in May with the top Avaya and former Nortel dealers in attendance. This conference allowed Catalyst to introduce new programs and new vendors to our customers, and provide the forum for high-level executive meetings. Our second reporting segment is international distribution. Our international business which includes Europe, Latin America and Mexico posted sales of $119.1 million, an increase of 49% from last year and when measured in local currency actually grew 62% over last year. In Europe, the AIDC POS segment – this unit had another excellent quarter although sales could have been at record levels if certain products had been available. As a result, we delivered orders in July that would have gone in June. We took market share from other distributors across Western Europe and the UK. Significant sales growth was achieved in Germany, France, Italy and Switzerland. All vendors had strong sales results with record quarters, those vendors who had minimal supply chain issues. In Europe, we sold to a record number of customers as we rolled out more aggressive marketing programs an improved our visibility in the marketplace. We had record attendance at our partner tourist events [ph] in Poland, Nordics, Spain and the UK. ScanSource Europe has launched a successful campaign targeting the healthcare industry with the support of our key AIDC vendors. We are also investing in additional in sales and business development to support the growth opportunities in the AIDC POS business. Turning now to our Europe communications business, this team delivered record quarterly sales results during the quarter where we had begun to improve our customer service by holding higher inventory levels than our competition. As we add new customers and they realize the advantages that ScanSource Europe delivers versus the competition, we believe our market share will continue to increase. During the June quarter, we gained market share with Avaya, Juniper and Extreme, and achieved record sales results with each of them. In the UK, the team is on the road with a partner too, recruiting new customers and conducting reseller education. We have recently added Extreme products to our UK product portfolio, and will be launching this line to our customers in the September quarter. In the Germanic [ph] region we organized and invested in Avaya new product venues [ph] and supported our customers’ end user marketing campaigns to help drive demand. ScanSource has been appointed in Avaya ECG learning partner in Germany through our university program offering. This will enhance our value-added offerings and drive new resellers to ScanSource. In Latin America, our sales results were very good, and again would have been much better if certain vendor’s products had been available. Supply chain issues that we have seen in other geographies are impacting Latin America now. In Mexico, our largest sales region, we experienced delays in some projects as end users pushed orders to the September quarter. As in Europe, we believe we have gained market share through more aggressive sales and marketing efforts. During the quarter, we also began selling products to several new vendors, Polycom, Audiocodes and Extreme. I want to thank all of the ScanSource employees, our customers and our vendors for a great year in fiscal 2010. Now we will conclude this part of our call with closing comments. We believe total revenues for the September 2010 quarter could range from $555 million to $575 million, and our earnings per share, EPS, could range from $0.47 to $0.50 per diluted share. At this time, we will be glad to answer your questions.

(Operator instructions) Our first question comes from Reik Reed of Robert W. Baird. Go ahead sir. Your line is open.

Thanks. Hi, Mike and Rich.

Hi, Reik.

Hi, Reik.

Mike, maybe you could comment a little bit on the – further on the product shortages. It just seems like you are citing it really in almost all circumstances, is that getting worse, is it staying stable, and what do you think the next say six months will bring to you?

Well, I think we have been talking about it now for a few quarters, and our efforts to mitigate the impact to our customers and has been pretty good, meaning that our vendors have responded well for those critical customer installations that had to happen last quarter. But I would tell you as I think working very closely with our vendor partners; we have been able to do our best not to lose any business. We have been able to work with our resellers to try to take those deals that can wait a few weeks or a month and put those in a different order cycle. As a result, as I said in my comments, some of the shortages that we had at the end of June, when we got product into July, we were still able to retain some of that business. And that same dynamic happened in the March quarter, and reality is that the lead times have also increased across the board. So, the shortages are one thing that I think the manufacturers are starting to get a good handle on. And we’re seeing improvement. We are not sure how this is going to shake out in total over the next quarter, but we’re still a little nervous about our ability to satisfy all the demand that is going to come our way this quarter. So it does make us nervous when we are not in control of our inventory stocking levels as we normally would be, but clearly every vendor we are talking to is aware and is working closely with us to mitigate any loss of orders.

Okay. And then maybe you could talk a little bit about the big deals, it sounds like they really came back in almost all your areas, are there any specific vertical markets where they really started to occur and can you may be talk a little bit about why it is occurring, what the source of that is?

It was a little bit of a surprise to us in some areas. I would say in the communications arena, that part of the business, the data side of that business came back very strong, and I think as I said we had some record levels of performance. We have been working closely with Avaya in their new Nortel data products. We really only started selling them seriously in this quarter. So that was all pretty new business for us, which was great. And then, as I said, we had great Juniper and Aruba results as well. So, some of that was because there were some big deals in that data world, and I’m not sure exactly why those came up. I have heard other vendors and other companies talk about data being one area that IT investments were being made, but I can’t be sure of that because for ScanSource we also saw in our barcode and POS business resurgence in some retail point of sale deals. That probably is the most pleasing one to see and also the one that we have been waiting a long time to see is some large point of sale deals like we had a few years ago. So I would say that one was the most surprising because we have been hearing there are those deals out there, but the end-users weren’t willing to pull the trigger on anything of any size. So it is really a data and a POS story from the large deals from a majority standpoint.

Okay. And then just quickly back to the data side of things, it seems like Cisco has suggested that they are starting to see a little bit of softness of the July timeframe, is that something you are seeing today or it is just a model that you have kind of letting you get through that.

Well, I think what we are seeing in our business and for sure through June, is that we are taking some market share. So from our perspective we’re out executing from our competitors. So we are taking some share. And I think as we look at the forecast for this quarter, and we think about July our forecast reflects the fact that we know through yesterday’s shipments, but we’re not sure what is going to happen the rest of this quarter, and a lot of that hinges on a couple of things. Historically, as we all know, Avaya has had a strong September quarter, their fiscal year-end, and so that always brings a lot of opportunity for us in this quarter. You know, secondly, these probably left Avaya, but these other vendors that have had product shortages, the question of what will they deliver to us by the end of the month, end of the quarter, I should say. So I’m more focused on that than I am on what are the large enterprise end users doing. I don’t believe that has as big an impact on our business right now.

Okay, great. Thank you, Mike.

Yes.

Our next question comes from Andrew Abrams from Avian Securities. Go ahead sir. Your line is open.

Just a quick question, you said something on Mexico [ph], and did you say push outs or?

I did. This is Mike. Yes, I said we had some specific projects that our resellers told us their end users pushed those orders out from the June quarter to September, yes.

Okay, June to September, okay. But they weren’t cancellations, they were just push outs?

That is correct.

Okay. And on the Nortel business, are you beginning to feel like you are getting to a level that is going to be normal or are you still in the – you’ve got another two quarters or so to go before it builds up to where you think this will normalize out?

Well, with the Nortel business for us, ScanSource and so to our Catalyst unit, our challenge has been that for us it is new products, and we got to get our traditional Avaya base of customers to get trained and educated and to help them be successful. We are also out, as everyone knows, recruiting existing Nortel resellers who are selling Nortel data today to purchase through Catalyst. So we’re doing – we are having to train our existing base of guys, and we are trying to bring over some new customers, and we had our Avaya Catalyst in May as I was indicating, and we had a substantial number of new customers show up. I think it was over 100 at this conference, and many of them are former Nortel customers that were not buying from Catalyst. So we feel like we have started the process, but we’re nowhere near where we need to be or expect to be from a run rate?

Gotcha and just one last on the POS business. I know this has been a long time in coming for everybody. Does this feel to you like we are starting to see some kind of extended recovery? Or is there a lot of pent-up demand here that is just taking product and that there is no feel for things going forward after that?

Well, I think that your comments are the same comments we are having in our discussions when we have to figure out what in the heck we’re going to forecast, we listen to our teams. They do a review of our top customers and get their sense for the current project that they are quoting. Then we talk to our vendors and say, what are you guys hearing in the field. We try to compare notes between our vendor field guys that are working the larger opportunities, our resellers, and then we take a look at it and quote – internally sign up for a number. I would say now, it is hard now than it has ever been, probably harder with the shortages as well, because shortages also exist in the POS business by the way. So, once we’re getting some of these orders we can’t even be sure we are going to ship them in the quarter we get the final purchase order. So that is what makes this more difficult than I have in a long time to give a quarterly forecast.

Gotcha. Okay. Well, thank you very much.

Thanks.

Our next question comes from Chris Quilty of Raymond James. Go ahead sir. Your line is open.

Good evening gentlemen, shifting to Europe, you did quite well, especially given the backdrop of some of the stuff happening in the quarter with the European bond crisis. Did you see any real impact from that, or any lingering follow-on effects?

So, I will let Rich talk about maybe the economic health of our customers, because historically we talk a little bit about their ability to borrow, but from our perspective on the overall business, I would say Chris, the overall theme of our business right now is we are taking some market share. What we have learnt and this is historical ScanSource story, when people have trouble finding products that is when you see us improving our market share because we are going to err on the side of having more inventory than not. And I think it dramatically helped us this past quarter that we had products when others didn’t. One thing that happens when things get tight, products get tight is customers who maybe haven’t called us in a long time are calling us, and they are interested because they can’t get products from their smaller, more regional country specific distributor. So there is fragmentation that exists in Europe that works to the disadvantage of all of those small regional guys. The small regional distributors, they depend on the vendors shipping to them in two or three weeks. Now that lead times have gone up to 12 weeks, I think we are in a much stronger position to take market share. And Rich may want to comment along the economic side if that answers your question.

Yes, on the economic side we did have good performance overall in our receivable portfolio, which would include Europe at the end of the quarter, while we still remain cautious and there are certain countries we are more cautious about in Europe because the economic environment and also in Latin America frankly. So, we continue to underwrite in the similar way that we have all along, but there are some countries where we’re little more cautious about underwriting than others.

Okay. And that was my next question. You've kind of answered it already. But looking over either the last six months or the last two years, what have you seen in the trend of bad debt expense and the amount of credit you are extending?

The bad debt expense that we will report for the current year will be significantly up versus first, we’re going to be above $4.4 million higher than prior years. In the prior years we have had about six and a fraction million of write-offs. So, that is a much figured number. As far as our underwriting goes, so we have got a pretty robust credit team in all of the geographies. We get a lot of information from our customers, and we’re still utilizing the same basic underwriting tenants that we have used in the past and we feel pretty good about those criteria that we use to underwrite our customers.

Okay. And a final question for you, Rich – with the Algol acquisition and the integration, as you look out into the first quarter and I guess the balance of the year, in your operating expenses, should we expect in the sales and marketing line any significant changes, either up or down, with the kind of rate you've shown over the past three quarters, in a $35 million, $36 million range?

You mean the SG&A.

Yes.

Right now, we are looking at it – we are comfortable with our SG&A. That can fluctuate if we do have some problems in the bad debt area. If you look at our quarters in the last year, there are some peaks and valleys in the way that we had to record bad debt. So, bad debt is one item that could cause SG&A to change, but overall our spending is in good control.

And I would add to that Chris, the other area of spending that we will continue to do at this stage is in our European Communications business. As you know that is still new ground for us with the acquisition, and also still in our security business. I would say those are two areas of investment from an SG&A perspective that we think will pay dividends to us down the road.

Okay. You've talked in the past about the security business taking longer to get over the hump than you would have hoped. What has the past year and a half of economic crisis done for you there in terms of either slowing the process or accelerating it the way it has with your more traditional markets?

Well, Chris, I don’t think the economic impact has been seen by that team. They wouldn’t be able to see the impact to be honest. We are in a mode still of – we built a new business model in that business that is kind of a hybrid between the small regional distributor of electronic security products and a couple of these large multinationals that have drive-up warehouses. So we got this new model that is different and I think the fact that we have been able to operate at lower margins from the gross margin lines in the traditional security distributor because they have all the infrastructure. It has given us the ability to come in there and take some market share frankly. Second thing that is going on there that is again insulated from the economic issues this new technology shift to IP. So, people have determined that there is a better return on investment if they buy new IP based cameras, and maintain the service agreement and all the costs associated with traditional analogue technology. So I think that is why we are insulated so far from the economic environment.

Great. Thanks, guys.

Thanks.

(Operator instructions) Our next question comes from Tony Kure of KeyBanc. Go ahead sir. Your line is open.

Good evening, guys.

Hi, Tony.

A couple of quick questions, the bad debt you called out as an impact in the fourth quarter, could you maybe size that for us? And is that an increase from the third quarter that you saw? Or is it on the same level as the third quarter bad debt expense?

Our bad debt expense for the fourth quarter was better than the third quarter, when I say better less than. Actually versus our expectation, we had a better quarter in bad debt.

Okay. So is that then – is what's factored into the first quarter just sort of a flat bad debt expense?

We would normalize our bad debt based upon the full year experience of 2010.

Okay. And in that –

That would say that we put them more in our forecast.

Yes. I guess that's sort of the next question. You mentioned the current year is about $4.4 million higher than prior years. By current year did you mean fiscal 2011 or fiscal 2010?

Fiscal 2010. When you see our 10-K report you will be able to look at the schedule and see that change.

Okay. So that was about $4.5 million higher than 2009, and then you're factoring in a higher expense –

I could be factoring in a similar expense for 2011 then what I have experienced overall in 2010.

Gotcha, okay. And then just looking at the revenue guidance, at the midpoint it's about a sequential decline of about 3%. Just going back over the last several years, I've got an average of, I don't know, mid-single digits, maybe 5% or 6% sequential increase in the first quarter historically. Is what's driving that – well first, is my assessment correct that first quarter is normally a sequentially strong quarter? And if so, what is driving sort of the decline here? Is it more the shortages? Or is it – or is more – were there some pull-throughs? Maybe just help us out there.

Hi Tony, it is Mike. I think two things; one is the shortages that we definitely got a lot of help in June. Things came in. You know, if we had to miss some of those receipts at the end of June and moved into July, we would have had a different story for you today. So, knowing what I know through August today, we have some expectation for some shortages still this quarter. Okay, that is in our forecast. But that could change. The lead times we have also linked into the same time you are having shortages. So we are having to manage a really dramatic different landscape from a purchasing view. That is one item. Number two, that creates more uncertainty than we have had in years past, in a long time. Okay, so the second thing is this is traditionally, seasonally the Avaya big quarter and we are just saying we are not sure that it is going to be as big as it used to be. Last year even it was not as strong a quarter as it had been historically. And so I think some of that end of the fiscal year push may have changed over the last two years, three years, since they are privately held now. And so that is baked into our numbers too is that we are not expecting as big a surge that we used to have in the September quarter from Avaya.

Okay. So from the Avaya standpoint then, it's more their change in their model more recently, versus maybe some underlying organic demand that is not as strong as typically. Is that a fair assessment?

I think that is fair. Right, they traditionally have had compensation plans that gave a lot of incentives or stuff by the end of September, and I think they have gone to more – we have got to have every quarter strong not just September. So I think there are out there trying to engage every quarter.

Okay, thank you. That's helpful.

You bet.

Our next question comes from Ajit Pai of Stifel Nicolaus. Go ahead sir. Your line is open.

Yes, good evening, gentlemen.

Good evening.

Hi, Ajit.

A couple of quick questions. I think the first one is just your commentary right now on receivables and on inventory. You seem to say or suggest that the levels at which they are – they've been going up quite steeply recently – should start stabilizing, which would suggest that also that your free cash flow should start accelerating after this point. So if that indeed is the case, could you give us some color on uses of cash on a go-forward basis? Even with this climb in inventory, you're back to a net cash position, and every year and a half you've – approximately at least the past few years have been making an acquisition. So could you give us what your appetite for acquisition is like right now, and also what – is it more on the international side, like the prior acquisition, or what does the pipeline look like?

Well, Ajit, we are always looking for geographic or strategic acquisitions, and traditionally we have done one or two a year. So we’re always in the market looking for those things. We have been able to absorb the acquisitions without taking on debt in the long run. So you are right, we have been able as growth has slowed down, we have been able to generate cash flow and that has helped us build our business through these strategic acquisitions. So we would still be interested in those kinds of things to augment our businesses.

And is the pipeline fairly rich right now? Are folks more open in this kind of economy than they have been over the past couple of years?

I mean I would say this – this is Mike. I think that is what you would expect, but sometimes people think very highly of their business and they are not willing to sell it cheap. Right, so we all know that there is a balance between a company that has cash and people not wanting to sell below a number that is in their minds. So we always go through that, but our acquisitions have traditionally been fairly small companies, and so we have been able to fairly – pay fairly for them and generate good returns for the company. So we are always looking at and looking out for opportunities like that.

Right. Historically, you've talked about the receivables and inventory being – your investment in these two are being a competitive differentiator, and you just talked about how it has helped you in the most recent quarter or the past couple of quarters when they are shortages. On a go-forward basis you're saying that the current levels as a percentage of sales should be roughly okay, which means that you're going to be generating a lot of cash. Is that a fair assumption on a go-forward basis?

If the growth is slower, yes, we should be able to generate some cash flow. Of course, when you look at the quarters that would be affected by the timing of the payables. The quarter, we actually had some benefit on the payables, we are about three days higher on payables then we were in the quarter before. So when you look at those snapshots there could be some – little bit, but the trend would be to generate some cash flow.

Right. Then how would you prioritize the use of that cash? Because your valuation has come down over the past five years. Your revenues are up 60%. Your earnings are up materially. So – and your stock price hasn't – you know what I mean? So how would you prioritize the use of cash? Are you – would you consider a share buyback? Would you consider – or you still think the best investment is within the business and the acquisitions?

I think so for our board has decided they still want to look at opportunities where we can get stronger than typical margins in these specialty technology businesses, and as long as we can find opportunities like those that we could acquire, and/or start in a new area that we might be a new player. You know, we’re not opposed to a Greenfield opportunity in some of these markets. We have never said that is out of the question. We did that in security if you recall, we did make an acquisition. That is probably one of the reasons it has taken us longer than I would have liked because we started that without an acquisition. So yes, I think we have – we think and I think our board agrees right now other places that we can use our cash today, but we would always look at if we don’t have those, look at some other way to satisfy shareholder return, absolutely.

Got it. And then the last question is just the security business, I think you've talked about it a bit on today's call and provided some color as to the fact that it's a record quarter for security. But as a percentage of the business, is the time – I think you said you'd start calling it out separately once it crosses 10% of overall revenue. Are we anywhere close to that? Do you think it's going to be a 2011 event or any time in the near term?

Well, a couple of things. One is I’m trying not to tip off my competitors, because this is an interesting market where we have entered a place where there are lots of distributors and there is a couple of big ones, and there has been some acquisition activity going on there, and we are trying to not have to talk about it publicly as long as I can, and we have indicated that we will break it out at a certain level. The reality is, our other businesses have started growing well, but at the same time the security, the security that are hard to catch up with the rest of our business right now. But I would hope that we see continued success there in security, and we will be at that level that we will need to talk about with our investors. But we clearly feel like it still is a good business that is profitable and that we are growing it.

And you are not averse to starting a fourth – providing a fourth leg to the stool before security becomes 10%? If you find a new opportunity that's interesting, it sounds like you're open to entering a new opportunity.

We would consider it, and I would say wouldn’t be clearly the priority. It would be at a lower level. The Greenfield opportunity I was really referring to was maybe moving to another geography that we are not already present with our existing products, because we’re still not in Asia-Pacific as you know, and there is a couple of other areas even in our existing regions that we don’t have a significant presence yet. So those are the areas that probably have a priority over a new technology.

Got it. Thank you so much.

You bet.

(Operator instructions) Our next question comes from Chris Quilty of Raymond James. Go ahead sir. Your line is open.

Rich, just a quick housecleaning. Did you give a projected tax rate for the quarter or year?

I did not, but I would project for next year to have a similar tax rate that we got in 2010. So, something in the neighborhood of 35.5% or may be a little bit north of that, but south of 36.

Okay, very good. And just to clarify, I know you don't provide specific guidance, but given – at the margin level – but given what you guided to on EPS, and all other things equal, it looks like your gross margins are going to pop back up to that mid to high 10% range, which I assume reflects a little bit better mix in small or large deal?

I would say maybe from this point, the operating margin we are looking at somewhere at 3.6, 3.7 that kind of number with that tax rate that I just gave you. So it depends upon the mix of business. If we have a similar mix of business that we had this quarter, I don’t think it is going to go back to that 10.3% kind of traditional margin. It will be less than that. But you know that is again the mix with the data products and some of the larger deals that we are seeing nowadays.

Okay, great. Thanks, guys.

Thanks.

(Operator instructions) I show no further questions at this time.

All right. Well, thank you Sharon, and thank you for joining us. Our next conference call to discuss the September 30 quarterly earnings call is expected to be on October 28, 2010. Thank you.

This concludes today’s conference. Thank you for your participation. You may now disconnect.