-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ran//wFefdoxBOeJbGGDa+1Y1sQgM9e8hGndRnOCZp4+wbN3C1c+YZh3w92nLHeP mvoEErr56XnYtzxUMoqfiQ== 0000007536-02-000009.txt : 20020514 0000007536-02-000009.hdr.sgml : 20020514 ACCESSION NUMBER: 0000007536-02-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARROW ELECTRONICS INC CENTRAL INDEX KEY: 0000007536 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [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: 02645421 BUSINESS ADDRESS: STREET 1: 25 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163911300 10-Q 1 arw10q1_02.txt FORM 10-Q QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2002 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 March 31, 2002 -------------- 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 incorporation or organization) Identification 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: 100,276,671 shares outstanding at May 3, 2002. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. -------------------- ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF INCOME (In thousands except per share data) (Unaudited) Three Months Ended March 31, ----------------------- 2002 2001 ---- ---- Sales $1,952,240 $3,275,747 ---------- ---------- Costs and expenses: Cost of products sold 1,631,870 2,727,465 Selling, general and administrative expenses 256,994 326,463 Depreciation and amortization 17,671 28,584 Integration charge - 9,375 ---------- ---------- 1,906,535 3,091,887 ---------- ---------- Operating income 45,705 183,860 Equity in earnings (loss) of affiliated companies 153 (396) Interest expense 41,164 65,907 ---------- ---------- Earnings before income taxes and minority interest 4,694 117,557 Provision for income taxes 1,784 45,847 ---------- ---------- Earnings before minority interest 2,910 71,710 Minority interest 126 31 ---------- ---------- Net income $ 2,784 $ 71,679 ========== ========== Net income per share: Basic $.03 $.73 ==== ==== Diluted $.03 $.68 ==== ==== Average number of shares outstanding: Basic 99,535 97,888 ======= ======= Diluted 101,266 107,491 ======= ======= See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands) March 31, December 31, 2002 2001 ----------- ------------ (Unaudited) ASSETS - ------ Current assets: Cash and short-term investments $ 809,506 $ 556,861 Accounts receivable, net 1,426,104 1,458,553 Inventories 1,290,933 1,403,075 Prepaid expenses and other assets 58,054 52,897 ---------- ---------- Total current assets 3,584,597 3,471,386 Property, plant and equipment at cost: Land 42,752 42,971 Buildings and improvements 167,789 167,675 Machinery and equipment 352,761 352,862 ---------- ---------- 563,302 563,508 Less accumulated depreciation and amortization (269,849) (259,134) ---------- ---------- 293,453 304,374 Investments in affiliated companies 35,479 32,917 Cost in excess of net assets of companies acquired, net of amortization ($190,940 in 2002 and 2001) 1,217,975 1,224,283 Other assets 347,194 326,024 ---------- ---------- $5,478,698 $5,358,984 ========== ========== See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands) March 31, December 31, 2002 2001 ----------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 787,534 $ 665,363 Accrued expenses 330,626 344,333 Short-term borrowings 22,151 37,289 ---------- ---------- Total current liabilities 1,140,311 1,046,985 Long-term debt 2,460,970 2,441,983 Other liabilities 101,915 103,555 Shareholders' equity: Common stock, par value $1: Authorized - 160,000,000 shares Issued - 103,855,618 shares in 2002 and 103,856,024 shares in 2001 103,856 103,856 Capital in excess of par value 522,984 524,299 Retained earnings 1,525,868 1,523,084 Foreign currency translation adjustment (264,805) (259,694) ---------- ---------- 1,887,903 1,891,545 Less: Treasury stock (3,623,840 shares in 2002 and 3,998,063 shares in 2001), at cost (96,888) (106,921) Unamortized employee stock awards (10,713) (12,363) Other (4,800) (5,800) ---------- ---------- 1,775,502 1,766,461 ---------- ---------- $5,478,698 $5,358,984 ========== ========== See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Three Months Ended March 31, ---------------------- 2002 2001 ---- ---- (Unaudited) Cash flows from operating activities: Net income $ 2,784 $ 71,679 Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest 126 31 Depreciation and amortization 21,206 32,222 Accretion of discount on convertible debentures 7,097 2,882 Equity in (earnings) loss of affiliated companies (153) 396 Integration charge, net of taxes - 5,719 Deferred income taxes (379) (38,386) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 23,700 281,304 Inventories 102,477 191,948 Prepaid expenses and other assets (8,034) (720) Accounts payable 124,452 (472,012) Accrued expenses (22,850) 34,913 Other 13,604 (16,686) -------- -------- Net cash provided by operating activities 264,030 93,290 -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment, net (6,861) (18,664) Investments (2,409) (3,013) -------- -------- Net cash used for investing activities (9,270) (21,677) -------- -------- Cash flows from financing activities: Sale of accounts receivable under securitization program - 251,737 Change in short-term borrowings (14,204) (525,247) Change in credit facilities 3,960 293,158 Change in long-term debt 2,748 (748,826) Proceeds from convertible debentures - 668,779 Proceeds from exercise of stock options 7,098 1,386 -------- -------- Net cash used for financing activities (398) (59,013) -------- -------- Effect of exchange rate changes on cash (1,717) (970) -------- -------- Net increase in cash and short-term investments 252,645 11,630 Cash and short-term investments at beginning of period 556,861 55,546 -------- -------- Cash and short-term investments at end of period $809,506 $ 67,176 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 3,170 $ 17,260 Interest 17,567 46,786 See accompanying notes. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (Unaudited) Note A -- Basis of Presentation - ------------------------------- The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and 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, 2001 and the notes thereto, which include critical accounting policies and estimates. The results of operations for the interim periods are not necessarily indicative of results for the full year. Note B -- Impact of Recently Issued Accounting Standards - -------------------------------------------------------- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 142, "Goodwill and Other Intangible Assets." This Statement, among other things, eliminates the amortization of goodwill and requires annual tests for determining impairment of goodwill. On January 1, 2002, the company adopted Statement No. 142, and accordingly discontinued the amortization of goodwill. The company will complete the initial transitional goodwill impairment test during the quarter ending June 30, 2002, as required. The following table presents a reconciliation of reported net income and earnings per share to the adjusted net income and earnings per share, which reflects the exclusion of goodwill amortization, net of the related income tax effect (in thousands except per share data): For the Three Months Ended March 31, ------------------- 2002 2001 ---- ---- Net income, as reported $2,784 $71,679 Add: Goodwill amortization, net of tax - 10,308 ------ ------- Adjusted net income $2,784 $81,987 ====== ======= Basic earnings per share, as reported $.03 $.73 Add: Goodwill amortization, net of tax - .11 ---- ---- Adjusted basic earnings per share $.03 $.84 ==== ==== Diluted earnings per share, as reported $.03 $.68 Add: Goodwill amortization, net of tax - .10 ---- ---- Adjusted diluted earnings per share $.03 $.78 ==== ==== In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations," which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recorded in the period incurred and the related asset retirement costs be capitalized. The company is required to adopt Statement No. 143 in the first quarter of 2003 and has not yet completed its evaluation of the effect thereof, if any, on its consolidated financial position and results of operations. In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Statement No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets, including business segments accounted for as discontinued operations. The adoption of Statement No. 144 in the current quarter did not have an impact on the company's consolidated financial position and results of operations. Note C -- Accounts Receivable - ----------------------------- Accounts receivable consists of the following (in thousands): March 31, December 31, 2002 2001 ---------- ----------- Accounts receivable $ 763,895 $ 754,126 Retained interest in securitized accounts receivable 739,910 788,519 Allowance for doubtful accounts (77,701) (84,092) ---------- ---------- $1,426,104 $1,458,553 ========== ========== In March 2002, the company renewed its one-year, $750,000,000 asset securitization program (the "program") under which it sells, on a revolving basis, an individual interest in a pool of its trade accounts receivable. Under the program, the company sells receivables in securitization transactions and retains a subordinated interest and servicing rights to those receivables. At March 31, 2002, there were no receivables sold to and held by third parties under the program, and the company had a subordinated interest in outstanding receivables of $739,910,000. At March 31, 2001, the company had $251,737,000 of receivables sold to and held by third parties under the program. In the event that the company had sold receivables to third parties under the program at March 31, 2002, those receivables would not have been recorded on the company's balance sheet. Thus, any financing provided by this program would not be reflected as indebtedness on the company's balance sheet. Note D -- Integration Charge - ---------------------------- During the first quarter of 2001, the company recorded an integration charge of $9,375,000 ($5,719,000 after taxes) related to the acquisition of Wyle Electronics and Wyle Systems (collectively, "Wyle"). Of the total amount recorded, $1,433,000 represented costs associated with the closing of various office facilities and distribution and value-added centers, $4,052,000 represented costs associated with personnel, $2,703,000 represented costs associated with outside services related to the conversion of systems and certain other costs of the integration of Wyle into the company, and $1,187,000 represented the write-down of property, plant and equipment to estimated fair value. Of the expected $8,188,000 to be spent in cash in connection with the acquisition and integration of Wyle, $7,230,000 was spent as of March 31, 2002. The remaining amount primarily relates to vacated facilities leased with various expiration dates through 2003. Note E -- Earnings per Share - ---------------------------- The following table sets forth the calculation of basic and diluted earnings per share (in thousands except per share data): For the Three Months Ended March 31, -------------------- 2002 2001(a) ---- ------- Net income used for basic earnings per share $ 2,784 $ 71,679 Interest on convertible debentures, net of tax - 1,634 ------- -------- Net income used for diluted earnings per share $ 2,784 $ 73,313 ======= ======== Weighted average shares outstanding for basic earnings per share 99,535 97,888 Net effect of dilutive stock options and restricted stock awards 1,731 2,041 Net effect of convertible debentures - 7,562 ------- -------- Weighted average shares outstanding for diluted earnings per share 101,266 107,491 ======= ======= Basic earnings per share $.03 $.73 ==== ==== Diluted earnings per share (b) $.03 $.68 ==== ==== (a) Excluding the integration charge, net income and net income per share on a basic and diluted basis would have been $77,398,000, $.79, and $.74, respectively, for the three months ended March 31, 2001. (b) Diluted EPS for the three months ended March 31, 2002 excludes the effect of 18,242,000 shares related to convertible debentures. In addition, options to purchase 1,242,000 shares of common stock were outstanding but excluded from the computation because the exercise price of the options was greater than the average market price of the shares. The impact of such common stock equivalents are excluded from the diluted EPS calculation as their effect is anti-dilutive. Note F -- Comprehensive Income (Loss) - ------------------------------------- Comprehensive income (loss) is defined as the aggregate change in shareholders' equity excluding changes in ownership interests. The components of comprehensive income (loss) are as follows (in thousands): For the Three Months Ended March 31, -------------------- 2002 2001 ---- ---- Net income $ 2,784 $ 71,679 Foreign currency translation adjustments (a) (5,111) (55,928) Unrealized gain on securities 1,000 - ------- -------- Comprehensive income (loss) (b) $(1,327) $ 15,751 ======= ======== (a) The foreign currency translation adjustments have not been tax effected as investments in foreign affiliates are deemed to be permanent. (b) Excluding the integration charge of $9,375,000 ($5,719,000 net of the related tax effect), comprehensive income would have been $21,470,000 for the three months ended March 31, 2001. Note G -- Commitments and Contingencies - --------------------------------------- The company, in connection with certain acquisitions, may be required to make future payments that are contingent upon the acquired businesses' earnings and, in certain instances, the achievement of operating goals. During the second quarter of 2002, the company made such payments aggregating $96,869,000, which have been capitalized as cost in excess of net assets of companies acquired. The company is contractually required to make these types of payments in the future. Note H -- Segment and Geographic Information - -------------------------------------------- The company is engaged in the distribution of electronic components to original equipment manufacturers and computer products to value-added resellers. As a result of the company's philosophy of maximizing operating efficiencies through the centralization of certain functions, selected fixed assets and related depreciation, as well as borrowings and goodwill amortization, are not directly attributable to the individual operating segments. Computer products includes North American Computer Products together with UK Microtronica, Nordic Microtronica, ATD (in Iberia), and Arrow Computer Products (in France). Revenue and operating income, by segment, are as follows (in thousands): For the Three Months Ended March 31, ------------------------ 2002 2001 ---- ---- Revenue: Electronic Components $1,349,267 $2,487,773 Computer Products 602,973 787,974 ---------- ---------- Consolidated $1,952,240 $3,275,747 ========== ========== Operating income (loss): Electronic Components $ 50,068 $ 215,044 Computer Products 12,868 7,926 Corporate (17,231) (39,110) ---------- ---------- Consolidated (a) $ 45,705 $ 183,860 ========== ========== (a) Excluding the integration charge of $9,375,000, operating income would have been $193,235,000 for the three months ended March 31, 2001. Total assets, by segment, are as follows (in thousands): March 31, December 31, 2002 2001 ---------- ----------- Total assets: Electronic Components $3,000,546 $3,767,595 Computer Products 930,426 1,000,510 Corporate 1,547,726 590,879 ---------- ---------- Consolidated $5,478,698 $5,358,984 ========== ========== Revenues, by geographic area, are as follows (in thousands): For the Three Months Ended March 31, ------------------------ 2002 2001 ---- ---- Americas $1,160,789 $2,041,207 Europe 625,685 979,824 Asia/Pacific 165,766 254,716 ---------- ---------- Consolidated $1,952,240 $3,275,747 ========== ========== Total assets, by geographic area, are as follows (in thousands): March 31, December 31, 2002 2001 ---------- ----------- Americas $3,540,030 $3,253,575 Europe 1,615,776 1,771,137 Asia/Pacific 322,892 334,272 ---------- ---------- Consolidated $5,478,698 $5,358,984 ========== ========== Note I -- Subsequent Event - -------------------------- In May 2002, the company agreed to sell substantially all of the assets of Gates/Arrow Distributing, the business unit within the company's North American Computer Products Group that sells computer products to value added resellers. The purchase price, a combination of cash and the assumption of stated liabilities, will be determined based upon the adjusted net book value of the assets and liabilities of the business transferred as of the closing date. The company expects to incur a loss of approximately $15 million in connection with the sale. The sale, which is subject to customary regulatory conditions, is expected to occur during the second quarter of 2002. Sales of this business, based upon the first quarter of 2002, are approximately $400 million annually. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- Sales - ----- Consolidated sales for the first quarter of 2002 decreased 40 percent compared with the year-earlier period. This decline was principally due to a 46 percent decrease in sales of electronic components as a result of continued lower volume from telecommunications and networking customers and the contract manufacturers that serve them, and lower demand in the company's core OEM business due to the weakened general economic conditions worldwide. Sales of computer products decreased by 23 percent in the first quarter of 2002 when compared with the year-earlier period, principally driven by a 38 percent decrease in the Gates/Arrow commodity business. Sales in the North American mid-range businesses were 8 percent lower than the year-earlier period. Beginning in mid-2001, the company's computer products businesses implemented a new strategy, which focused less on sales volume and placed more emphasis on profitability. While sales of computer products declined when compared with the first quarter of 2001, operating income increased by 62 percent. In the first quarter of 2002, sales of low margin microprocessors (a product segment not considered a part of the company's core business) decreased by approximately $56 million. Lastly, the translation of the financial statements of the company's international operations into U.S. dollars resulted in reduced revenues of $30 million because of a strengthened U.S. dollar in the first quarter of 2002 compared with the year-earlier period. Operating Income - ---------------- The company recorded operating income of $45.7 million in the first quarter of 2002, compared with operating income of $183.9 million in the year-earlier period. Included in operating income for the first quarter of 2001 is an integration charge of $9.4 million associated with the acquisition of Wyle Electronics and Wyle Systems (collectively, "Wyle") and goodwill amortization of $11.9 million. Excluding the charge and goodwill amortization, operating income for the first quarter of 2001 would have been $205.2 million. The decrease in operating income is due to the dramatic reduction in sales outpacing the speed at which the company was able to reduce expenses. Gross profit margins decreased by 30 basis points. Interest Expense - ---------------- Interest expense of $41.2 million in the first quarter of 2002 decreased from $65.9 million in the year-earlier period as a result of lower debt balances. During the past twelve months, free cash flow has totaled $1.8 billion, thereby permitting the company to reduce debt by $746.4 million and increase cash by $742.3 million. Income Taxes - ------------ The company recorded an income tax provision at an effective tax rate of 38 percent for the first quarter of 2002, compared with a provision for taxes at an effective tax rate of 39 percent in the comparable year-earlier period. The company's effective tax rate is principally impacted by, among other factors, the statutory tax rates in the countries in which it operates and the related level of earnings generated by these operations. Net Income - ---------- The company recorded net income of $2.8 million in the first quarter of 2002, compared with net income of $71.7 million in the year-earlier period. Excluding the aforementioned integration charge and goodwill amortization, net income for the first quarter of 2001 would have been $87.7 million. The decrease in net income is due to significantly decreased sales and lower gross profit margins, offset, in part, by lower interest expense. Liquidity and Capital Resources - ------------------------------- The company maintains a significant investment in accounts receivable and inventories. As a percentage of total assets, accounts receivable and inventories were approximately 50 percent and 70 percent at March 31, 2002 and 2001, respectively. At March 31, 2002, cash and short-term investments increased to $809.5 million from $67.2 million at March 31, 2001. One of the characteristics of the company's business is that in periods of revenue growth, investments in accounts receivable and inventories grow, and the company's need for financing increases. In the periods in which revenue declines, investments in accounts receivable and inventories generally decrease, generating cash. The net amount of cash provided by the company's operating activities during the first quarter of 2002 was $264 million, principally reflecting lower working capital requirements as a result of lower sales. In addition, the company was able to improve net working capital utilization during the quarter. The net amount of cash used for investing activities was $9.3 million, including $6.9 million for various capital expenditures. The net amount of cash used for financing activities was $.4 million, primarily reflecting the repayment of short-term debt, offset, in part, by proceeds from the exercise of stock options. The net amount of cash provided by the company's operating activities during the first quarter of 2001 was $93.3 million, principally reflecting earnings for the quarter. The net amount of cash used for investing activities was $21.7 million, including $18.7 million for various capital expenditures. The net amount of cash used for financing activities was $59 million, primarily reflecting the repayment of short-term and long-term debt, offset, in part, by proceeds from the sale of convertible debentures and accounts receivable under the company's securitization program, as well as borrowings under the company's credit facilities. The company, in connection with certain acquisitions, may be required to make future payments that are contingent upon the acquired businesses' earnings and, in certain instances, the achievement of operating goals. During the second quarter of 2002, the company made such payments aggregating $96.9 million, which have been capitalized as cost in excess of net assets of companies acquired. The company is contractually required to make these types of payments in the future. Information Relating to Forward-Looking Statements - -------------------------------------------------- This report includes forward-looking statements that are subject to certain risks and uncertainties which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, changes in product supply, pricing, and customer demand, competition, other vagaries in the electronic components and computer products markets, and changes in relationships with key suppliers. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. ---------------------------------------------------------- The company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The company, as a large international organization, faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material impact on the company's financial results in the future. The company's primary exposure relates to transactions in which the currency collected from customers is different from the currency utilized to purchase the product sold in Europe, the Asia/Pacific region, and Latin and South America. At the present time, the company hedges only those currency exposures for which natural hedges do not exist. Anticipated foreign currency cash flows and earnings and investments in businesses in Europe, the Asia/Pacific region, and Latin and South America are not hedged as in many instances there are natural offsetting positions. The translation of the financial statements of the non-North American operations is impacted by fluctuations in foreign currency exchange rates. Had the various average foreign currency exchange rates remained the same during the first quarter of 2002 as compared with December 31, 2001, 2002 sales and operating income would have been $11 million and $1 million higher, respectively, than the reported results. The company's interest expense, in part, is sensitive to the general level of interest rates in the Americas, Europe, and the Asia/Pacific region. The company historically has managed its exposure to interest rate risk through the proportion of fixed rate and variable rate debt in its total debt portfolio. At March 31, 2002, as a result of significant generation of operating cash flow, the company had paid down nearly all of its variable rate debt with the net result being that approximately 98 percent of the company's debt was subject to fixed rates and 2 percent of its debt was subject to variable rates. Interest expense, net of interest income, would have fluctuated by approximately $2 million if average interest rates had changed by one percentage point during the first quarter of 2002. This amount was determined by considering the impact of a hypothetical interest rate on the company's average variable rate outstanding borrowings. This analysis does not consider the effect of the level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management could likely take actions to further mitigate any potential negative exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the company's financial structure. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits (99) Press Release - Agreement to sell Gates/Arrow Distributing (b) Reports on Form 8-K None 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: May , 2002 By:/s/ Paul J. Reilly --- ------------------------ Paul J. Reilly Chief Financial Officer EX-99 3 ex99.txt PRESS RELEASE - AGREEMENT TO SELL GATES/ARROW DISTRIBUTING ARROW ELECTRONICS AGREES TO SELL GATES/ARROW UNIT ------------------------------------------------- FOR IMMEDIATE RELEASE - --------------------- MELVILLE, NEW YORK, May 6, 2002 -- Arrow Electronics, Inc. (NYSE:ARW) today announced that it has signed a definitive agreement to sell substantially all of the assets of Gates/Arrow Distributing to Synnex Information Technologies, Inc. Gates/Arrow, the business unit within Arrow's North American Computer Products Group that sells computer products such as printers, monitors, other peripherals, and software to value added resellers in North America, accounted for approximately 5% of Arrow's sales in the March quarter. The transaction does not involve Arrow's midrange businesses (SBM, SupportNet, and MOCA), Arrow Enterprise Storage Solutions, SSD, CSD, Arrow/Wyle Computer Products, or the other business units in the North American Computer Products Group. "Over the past several years, our strategy has been to focus increasingly on our midrange computer products businesses, where our value add is greater, and to reduce the relative importance of the lower gross margin Gates/Arrow business," said Francis M. Scricco, President and Chief Executive Officer of Arrow. "This transaction provides the most attractive avenue for Arrow to exit the Gates/Arrow business while best fulfilling our obligations to our customers, suppliers, and employees," he added. Consummation of the transaction, which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions, is expected to occur within 30 to 45 days. The purchase price, a combination of cash and the assumption of stated liabilities, will be determined based upon the adjusted net book value of the assets and liabilities of the business transferred as of the closing date. Arrow expects to incur a loss of approximately $15 million in connection with the disposal of Gates/Arrow. Synnex Information Technologies is headquartered in Fremont, California. With 2001 sales of $3.2 billion, it is one of the world's leading distributors of computer products and works with leading industry suppliers in PCs and servers, mother boards, CPUs, memory, storage, networking, communications and component products. Arrow Electronics is one of the world's largest distributors of electronic components and computer products and a leading provider of services to the electronics industry. Headquartered in Melville, New York, Arrow serves as a supply channel partner for more than 600 suppliers and over 175,000 original equipment manufacturers, contract manufacturers, and commercial customers through more than 200 sales facilities and 23 distribution centers in 40 countries. Detailed information about Arrow's operations can be found at www.arrow.com. # # # Contact: Robert E. Klatell Executive Vice President 516-391-1300 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release contains forward-looking statements that are subject to certain risks and uncertainties which could cause actual results or facts to differ materially from such statements for a variety of reasons including, but are not limited to: industry conditions, changes in product supply, pricing, and customer demand, competition, other vagaries in the computer and electronic components markets, changes in relationships with key suppliers and the other risks described from time to time in the company's reports to the Securities and Exchange Commission (including the company's Annual Report on Form 10-K). Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any forward-looking statements. -----END PRIVACY-ENHANCED MESSAGE-----