-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QrE0+ANYxIqZOlZJj9cHYYVqKk6kW7LXp/syCGSZRXrCLGJUcljYH55yI2hpvPd6 r5JTqXfyl80p2W6GozDHKA== 0000007536-94-000010.txt : 19941116 0000007536-94-000010.hdr.sgml : 19941116 ACCESSION NUMBER: 0000007536-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARROW ELECTRONICS INC CENTRAL INDEX KEY: 0000007536 STANDARD INDUSTRIAL CLASSIFICATION: 5065 IRS NUMBER: 111806155 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04482 FILM NUMBER: 94560011 BUSINESS ADDRESS: STREET 1: 25 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163911300 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4482 ARROW ELECTRONICS, INC. (Exact name of Registrant as specified in its charter) New York 11-1806155 (State or other jurisdiction of (I.R.S. Employer Identifi- incorporation or organization) cation Number) 25 Hub Drive, Melville, New York 11747 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (516) 391-1300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $1 par value: 35,305,176 shares outstanding at November 3, 1994. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) Nine Months Ended Three Months Ended September 30 September 30 1994 1993 1994 1993 Sales $2,886,285 $2,095,349 $996,259 $790,941 Costs and expenses: Cost of products sold 2,365,566 1,693,627 821,561 645,697 Selling, general and administrative expenses 311,912 244,811 103,791 87,648 Depreciation and amortization 17,269 12,480 5,887 5,097 Integration charge 21,875 - 21,875 - 2,716,622 1,950,918 953,114 738,442 Operating income 169,663 144,431 43,145 52,499 Equity in earnings of affiliated company - 938 - 325 Interest expense 29,208 21,657 9,342 7,373 Earnings before income taxes and minority interest 140,455 123,712 33,803 45,451 Provision for income taxes 55,801 49,860 12,982 18,858 Earnings before minority interest 84,654 73,852 20,821 26,593 Minority interest 12,656 9,645 4,314 3,077 Net income $ 71,998 $ 64,207 $ 16,507 $ 23,516 Net income used in per common share calculation (reflecting deduction of preferred stock dividends) $ 71,998 $ 63,327 $ 16,507 $ 23,278 Net income per common share: Primary $2.02 $1.85 $ .46 $ .67 Fully diluted $1.91 $1.73 $ .45 $ .63 Average number of common shares and common share equivalents outstanding: Primary 35,717 34,216 35,734 34,806 Fully diluted 39,490 38,982 39,507 39,356 See accompanying notes
-2- ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) September 30, December 31, 1994 1993 (Unaudited) ASSETS Current assets: Cash and short-term investments $ 57,649 $ 60,730 Accounts receivable, less allowance for doubtful accounts ($27,598 in 1994 and $18,597 in 1993) 583,935 411,436 Inventories 562,938 497,661 Prepaid expenses and other assets 19,315 11,878 Total current assets 1,223,837 981,705 Property, plant and equipment at cost: Land 6,030 6,030 Buildings and improvements 39,695 35,188 Machinery and equipment 71,576 59,636 117,301 100,854 Less accumulated depreciation and amortization 50,000 40,900 67,301 59,954 Investments in net assets of acquired businesses 46,067 - Investment in affiliated company - 13,371 Cost in excess of net assets of companies acquired, less accumulated amortization ($20,623 in 1994 and $15,179 in 1993) 249,738 209,515 Other assets 39,780 53,422 $1,626,723 $1,317,967 See accompanying notes.
-3- ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) September 30, December 31, 1994 1993 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 332,721 $ 237,241 Accrued expenses 127,516 108,996 Accrued interest 6,086 5,421 Short-term borrowings, including current maturities of long-term debt 94,411 41,075 Total current liabilities 560,734 392,733 Long-term debt 207,666 189,859 Deferred income taxes and other liabilities 52,622 43,503 Subordinated debentures 125,000 125,000 Minority interest 95,322 71,459 Shareholders' equity: Common stock, par value $1: Authorized - 60,000,000 shares Issued - 35,309,422 shares in 1994 and 35,039,548 shares in 1993 35,309 35,039 Capital in excess of par value 340,312 332,700 Retained earnings 208,847 136,849 Foreign currency translation adjustment 4,808 (7,492) 589,276 497,096 Less: Treasury shares (11,247 in 1994 and 10,872 in 1993) at cost 13 12 Unamortized employee stock awards 3,884 1,671 585,379 495,413 $1,626,723 $1,317,967 See accompanying notes.
-4- ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (IN THOUSANDS) (UNAUDITED) 1994 1993 Cash flows from operating activities: Net income $71,998 $ 64,207 Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest in earnings 12,464 9,645 Integration charge 21,875 - Depreciation and amortization 18,966 14,175 Equity in undistributed earnings of affiliated company - (938) Deferred taxes 8,677 8,465 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (90,065) (115,167) Inventories (28,294) (47,044) Prepaid expenses and other assets (2,470) 3,286 Accounts payable 67,281 82,554 Accrued expenses (22,027) 17,452 Accrued interest 561 4,066 Other (2,050) 1,817 Net cash provided by operating activities 56,916 42,518 Cash flows from investing activities: Acquisitions of property, plant and equipment, net (10,907) (9,096) Cash consideration paid for acquired businesses (80,784) (86,543) Repayment by/(loan to) affiliate 7,730 (7,000) Net cash (used for) investing activities (83,961) (102,639) Cash flows from financing activities: Change in notes payable to banks 9,531 1,406 Repayment of long-term debt (24,592) (3,290) Proceeds from common stock offering - 17,705 Proceeds from exercise of stock options 2,752 2,592 Proceeds from long-term debt 39,351 66,255 Distribution to partners, net of contributions (3,990) (1,542) Dividends paid - (880) Financing fees paid (200) (1,248) Net cash provided by financing activities 22,852 80,998 Net increase (decrease) in cash and short-term investments (4,193) 20,877 Cash and short-term investments at beginning of period 60,730 30,457 Cash and short-term investments from affiliate at beginning of period 1,112 - Cash and short-term investments at end of period $57,649 $ 51,334 Supplemental disclosures of cash flow information Cash paid during the period: Income taxes $43,344 $ 20,899 Interest $29,968 $ 14,992 See accompanying notes
-5- ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) Note A -- Basis of presentation The accompanying consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's audited consolidated financial statements for the year ended December 31, 1993 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. On August 29, 1994, the company completed the acquisition of Gates/FA Distributing, Inc. ("Gates") in a transaction which was accounted for as a pooling-of-interests. Accordingly, the company's consolidated financial statements have been restated to include the operations of Gates for all periods presented. Note B -- Net income per common share Net income per common share for 1994 is based upon the weighted average number of shares of common stock and common stock equivalents outstanding. For the nine months and quarter ended September 30, 1994, the average number of common stock equivalents was 522,706 and 476,962, respectively. Net income per common share on a fully diluted basis for 1994 assumes that the 5-3/4% convertible subordinated debentures (the "convertible subordinated debentures") were converted to common stock at the beginning of the period and the related interest expense, net of taxes, was eliminated. Net income per common share for 1993 is based upon the weighted average number of common stock and common stock equivalents outstanding after deducting preferred stock dividends related to the series B $19.375 convertible exchangeable preferred stock (the "convertible exchangeable preferred stock"), which was converted into common stock in September 1993. For the nine months and quarter ended September 30, 1993, the average number of common stock equivalents was 715,082 and 725,334, respectively. Net income per common share on a fully diluted basis for 1993 assumes that the convertible exchangeable preferred stock and the convertible subordinated debentures were converted to common stock at the beginning of the period. The dividends related to the convertible exchangeable preferred stock and the interest expense on the convertible subordinated debentures, net of taxes, were eliminated. -6- Note C -- Acquisition of electronics distribution businesses On August 29, 1994, the company completed the acquisition of Gates through the exchange of approximately 3,700,000 shares of newly-issued company stock. Gates' reported financial results have been adjusted to conform to the financial presentation of the company. Sales and net income combined for the nine months and three months ended September 30, 1993 and 1994, respectively, are as follows (in thousands): Nine months ended Three months ended September 30 September 30 1994 1993 1994 1993 Sales: Arrow $2,572,311 $1,833,285 $915,881 $697,825 Gates 313,974 262,064 80,378 93,116 Combined $2,886,285 $2,095,349 $996,259 $790,941 Net income: Arrow $ 68,153 $ 58,830 $ 16,330 $ 21,734 Gates 3,845 5,377 177 1,782 Combined $ 71,998 $ 64,207 $ 16,507 $ 23,516 The combined financial data does not reflect the cost savings expected to be achieved from the combination of Gates with the company's business or any sales attrition which may result. The cost savings will result principally from reductions in personnel performing duplicative functions and the elimination of duplicative administrative facilities, selling and stocking locations, and computer and telecommunications equipment. The combined financial data for 1994 includes a special pretax charge of $21,875,000 ($.36 and $.37 per share for the nine months and quarter ended September 30, 1994, respectively) of estimated costs associated with the integration of Gates and related transaction fees. Such estimated integration costs included real estate termination costs and severance and other expenses related to personnel performing duplicative functions. In January 1994, the company acquired an additional 15% share in Spoerle Handelsgesellschaft mbH and Co. and its general partner, Spoerle GmbH (collectively, "Spoerle"), the largest distributor of electronic components in Germany, increasing its holdings to a 70% interest. During the first quarter of 1994, the company acquired an additional 11% share in Silverstar Ltd. S.p.A. ("Silverstar"), the largest distributor of electronic components in Italy, increasing its holdings to a 61% majority interest. The acquisitions are being accounted for as purchase transactions, and Silverstar is consolidated with the company, effective January 1, 1994. Prior to 1994 the company's investment in Silverstar was accounted for under the equity method. In addition, in January 1994 the company acquired the electronic component distribution business of Field Oy, the largest distributor of electronic components in Finland, and in March 1994 the company acquired TH:s Elektronik AB and its subsidiaries, a group of electronic distribution -7- companies serving Norway, Sweden, and Finland. In April 1994, the company acquired Exatec A/S, one of the largest distributors of semiconductors in Denmark. In May 1994, the company acquired Texny (Holdings) Limited, one of Hong Kong's leading distributors of electronic components. The acquisitions are being accounted for as purchase transactions beginning in their respective month of acquisition. In January 1993, the company acquired an additional 15% share in Spoerle, increasing its holdings to a then 55% majority interest. In May 1993, the company acquired the high-reliability electronic component distribution and value-added service businesses of Zeus Components, Inc. ("Zeus"). In June 1993, the company acquired Microprocessor & Memory Distribution Limited ("MMD"), a U.K.-based electronics distributor which focuses on the distribution of high-technology semiconductor products. In August 1993, the company acquired Components Agent Limited ("CAL"), one of the largest electronics distributors in Hong Kong. During the third quarter of 1993 the company acquired a majority interest in Amitron S.A. and the ATD Group, electronics distributors serving the Spanish and Portuguese markets. In November 1993, the company augmented its French operations by acquiring CCI Electronique. Set forth below for comparative purposes is the pro forma combined summary of operations for the nine months ended September 30, 1993 as though the acquisitions in 1993 had occurred on January 1, 1993. Nine Months Ended September 30, 1993 (In thousands except per share data) Sales $2,218,239 Operating income 147,772 Net income 65,220 Net income per common share: Primary 1.87 Fully diluted 1.75 Average number of common shares and common share equivalents outstanding: Primary 34,418 Fully diluted 39,184 The unaudited pro forma combined summary of operations has been prepared utilizing the historical financial statements of the company and the acquired businesses. The unaudited pro forma combined summary of operations includes the effect of the purchase price allocation adjustments and the additional interest expense on debt incurred in connection with the acquisitions as if the debt had been outstanding from the beginning of the period. The purchase price allocation adjustments include the adjustment of the net assets acquired to fair market value and the estimated costs associated with the integration of the businesses. Such estimated costs include professional fees as well as real estate lease termination costs, costs associated with the elimination of certain redundant franchised lines, and severance and other expenses related to personnel performing duplicative functions, all of which are associated with facilities and personnel of the acquired businesses. The unaudited pro forma combined summary of operations does not purport to be indicative of the results which actually would have been obtained if the acquisitions had been made at the beginning of 1993. -8- The unaudited pro forma combined summary of operations does not reflect sales attrition which may result from the combination of Zeus and MMD with the company's businesses. It also does not reflect the cost savings the company achieved from the combination of the Zeus businesses with its own and it expects to achieve when MMD is combined with the company's UK businesses. In September 1994, the company entered into a definitive agreement to acquire Anthem Electronics, Inc. ("Anthem"), a leading distributor of semiconductors and computer products to customers throughout the United States. Under the agreement, which provides for the merger of Anthem and a newly-formed subsidiary of the company, the shareholders of Anthem will receive .875 of a share of company common stock for each of the approximately 12,400,000 shares of Anthem common stock outstanding. The merger will be accounted for as a pooling-of-interests. The merger is subject to customary closing conditions, including the approval of the shareholders of both the company and Anthem. It is estimated that the closing will occur around the end of November. -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. On August 29, 1994, the company completed the acquisition of Gates, a leading commercial distributor of microcomputers, through the exchange of approximately 3.7 million shares of the company's stock for all the stock of Gates. This merger is accounted for as a pooling-of-interests and, accordingly, the accompanying consolidated financial statements have been restated to include the operations of Gates for all periods prior to the merger. Included in 1994's consolidated results is Silverstar, which was accounted for under the equity method prior to January 1994 when the company increased its holdings to a majority interest. Sales Consolidated sales for the nine months and third quarter of 1994 increased 37.7% and 26% compared with the year-earlier periods. Excluding Silverstar, sales for the first nine months and third quarter of 1994 were $2.7 billion and $952 million, respectively, increases of 30.4% and 20.3% over the comparable year-earlier periods. This sales growth was principally due to increased activity levels in each of the company's distribution groups throughout the world and, to a lesser extent, acquisitions in Europe and the Pacific Rim. Operating income The company recorded operating income of $169.7 million and $43.1 million in the first nine months and third quarter of 1994, respectively, compared with $144.4 million and $52.5 million, respectively, in the year-earlier periods. Included in 1994's results is a special pretax charge of $21.9 million associated with the integration of Gates. Excluding the special charge, operating income was $191.5 million and $65 million for the nine months and quarter ended September 30, 1994, respectively. The improvement in operating income, excluding the special charge, in the 1994 periods reflects the impact of increased sales, acquisitions, continued economies of scale and expense containment efforts reducing operating expenses as a percentage of sales, and the consolidation of Silverstar, offset in part by lower gross profit margins. Gross profit margins decreased from prior periods as a result of a change in product mix and competitive pricing pressures. Excluding Silverstar, selling, general and administrative expenses as a percentage of sales decreased from 11.7% and 11.1% in the first nine months and third quarter of 1993, respectively, to 10.6% and 10.3% in the first nine months and third quarter of 1994, respectively. Interest expense Interest expense of $29.2 million and $9.3 million in the first nine months and third quarter of 1994, respectively, increased from $21.7 million during the first nine months of 1993 and $7.4 million in the comparable quarter of 1993. The increase from the first nine months and third quarter of 1993 reflects the consolidation of Silverstar, the acquisition of the incremental 15% of Spoerle in 1994, and the incremental interest associated with businesses acquired subsequent to the third quarter of 1993. -10- Income taxes During the first nine months and third quarter of 1994, the company recorded a provision for taxes at an effective tax rate of 39.7% and 38.4%, respectively, compared with 40.3% and 41.5%, respectively, in the earlier periods. Net income The company recorded net income of $72 and $16.5 million in the first nine months and third quarter of 1994, respectively, compared with $64.2 million in the first nine months of 1993 and $23.5 million in the third quarter of 1993. Excluding the special charge of $13.1 million, net of tax, associated with the integration of Gates, net income was $85.1 million ($2.38 per share) and $29.6 million ($.83 per share) for the first nine months and third quarter of 1994, respectively. The increase in net income over the year-earlier periods is due to increased sales and operating income offset in part by an increase in interest expense as previously discussed. Liquidity and capital resources The company maintains a high level of current assets, primarily accounts receivable and inventories. Consolidated current assets as a percentage of total assets were approximately 77% and 75% at September 30, 1994 and 1993, respectively, excluding the effect of the investments in net assets of acquired businesses. The net amount of cash provided by the company's operating activities during the first nine months of 1994 was $56.9 million, principally reflecting higher net earnings. The net amount of cash used for investing activities was $84 million, including $80.8 million for various acquisitions. The net amount of cash provided by financing activities was $22.9 million, principally reflecting the company's U.S. credit agreement and German bank borrowings, offset in part by the net repayment of debt. The net amount of cash provided by the company's operating activities during the first nine months of 1993 was $42.5 million, principally reflecting increased earnings offset in part by increased working capital requirements supporting higher sales. The net amount of cash used for investing activities was $102.6 million, including approximately $86.5 million for the acquisition of Zeus, MMD, CAL, Amitron and ATD, and an additional 15% interest in Spoerle. The net amount of cash provided by financing activities was $81 million, principally reflecting the proceeds from the company's U.S. credit agreement, German bank borrowings, and the company's May 1993 common stock offering, offset in part by the payment of financing fees and preferred stock dividends. In September 1994, the company entered into a definitive agreement to acquire Anthem, a leading distributor of semiconductors and computer products to customers throughout the United States. Under the agreement, which provides for the merger of Anthem and a newly-formed subsidiary of the company, the shareholders of Anthem will receive .875 of a share of company common stock for each of the approximately 12.4 million shares of Anthem -11- common stock outstanding. The merger will be accounted for as a pooling-of- interests. The merger is subject to customary closing conditions, including the approval of the shareholders of both the company and Anthem. It is estimated that the closing will occur around the end of November. The company believes that its working capital, funds available under its credit agreements, and additional funds generated from operations will be sufficient to satisfy its cash requirements at least through 1996. -12- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 2 - Agreement and Plan of Merger dated as of September 21, 1994 by and among Arrow Electronics, Inc., MTA Acquisition Company and Anthem Electronics, Inc. (incorporated by reference to Exhibit 2 to the company's Registration Statement on Form S-4, Registration No. 33-55645). 11 - Statement Re: Computation of Earnings Per Share (b) Reports on Form 8-K. During the quarter ended September 30, 1994, the company filed no Current Reports on Form 8-K. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARROW ELECTRONICS, INC. Date: November 14, 1994 By:/s/ Robert E. Klatell Robert E. Klatell Senior Vice President and Chief Financial Officer Date: November 14, 1994 By:/s/ Paul J. Reilly Paul J. Reilly Controller -14- EX-11 2 Exhibit 11 ARROW ELECTRONICS, INC. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (In thousands except per share data) Nine Months Ended Three Months Ended September 30, September 30, 1994 1993 1994 1993 Primary Average shares of common stock outstanding 35,194 33,501 35,257 34,081 Net effect of dilutive stock options-based on the treasury method 523 715 477 725 Total 35,717 34,216 35,734 34,806 Net income $71,998 $64,207 $16,507 $23,516 Less preferred stock dividends - 880 - 238 Total $71,998 $63,327 $16,507 $23,278 Per share amount $ 2.02 $ 1.85 $ .46 $ .67 Fully Diluted Average shares of common stock outstanding 35,194 33,501 35,257 34,081 Net effect of dilutive stock options-based on the treasury method 523 783 477 745 Assumed conversion of 5-3/4% convertible subordinated debentures 3,773 3,774 3,773 3,774 Assumed conversion of preferred stock - 924 - 756 Total 39,490 38,982 39,507 39,356 Net income $71,998 $64,207 $16,507 $23,516 Add interest on 5-3/4% convertible subordinated debentures, net of income tax effect 3,235 3,302 1,078 1,101 Total $75,233 $67,509 $17,585 $24,617 Per share amount $ 1.91 $ 1.73 $ .45 $ .63
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD QUARTER 1994 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS DEC-31-1994 JAN-1-1994 SEP-30-1994 9-MOS 1 57,649 0 583,935 27,598 562,938 1,223,837 117,301 50,000 1,626,723 560,734 344,666 0 0 35,309 550,070 1,626,723 2,886,285 2,886,285 2,365,566 2,716,622 0 0 29,208 140,455 55,801 71,998 0 0 0 71,998 2.02 1.91
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