-----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, NkVDc44mTvECzQoLvOGTKmG19sP9Yk1KzaPro0uN1FOYheb6W2JKEHSwTvgPPsCg EOmyxZxzTJmQn1XW9De5rQ== 0000007536-99-000016.txt : 19990813 0000007536-99-000016.hdr.sgml : 19990813 ACCESSION NUMBER: 0000007536-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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: SEC FILE NUMBER: 001-04482 FILM NUMBER: 99686101 BUSINESS ADDRESS: STREET 1: 25 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163911300 10-Q 1 FORM 10-Q FOR JUNE 1999 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 June 30, 1999 ------------- 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: 95,943,600 shares outstanding at July 31, 1999. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. -------------------- ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF INCOME (In thousands except per share data) (Unaudited) Six Months Ended Three Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Sales $4,451,660 $4,049,726 $2,250,028 $2,023,966 ---------- ---------- ---------- ---------- Costs and expenses: Cost of products sold 3,829,239 3,463,516 1,935,889 1,732,635 Selling, general and administrative expenses 425,224 381,913 209,475 190,449 Depreciation and amortization 36,044 24,406 18,324 12,949 Integration charge 24,560 - 24,560 - ---------- ---------- ---------- ---------- 4,315,067 3,869,835 2,188,248 1,936,033 ---------- ---------- ---------- ---------- Operating income 136,593 179,891 61,780 87,933 Equity in earnings (loss) of affiliated companies 38 112 (34) (789) Interest expense 51,310 39,011 26,708 20,334 ---------- ---------- ---------- ---------- Earnings before income taxes and minority interest 85,321 140,992 35,038 66,810 Provision for income taxes 38,619 59,206 17,249 28,643 ---------- ---------- ---------- ---------- Earnings before minority interest 46,702 81,786 17,789 38,167 Minority interest 3,339 3,851 2,767 2,177 ---------- ---------- ---------- ---------- Net income $ 43,363 $ 77,935 $ 15,022 $ 35,990 ========== ========== ========== ========== Net income per share: Basic $.46 $.81 $.16 $.37 ==== ==== ==== ==== Diluted $.45 $.79 $.16 $.37 ==== ==== ==== ==== Average number of shares outstanding: Basic 95,053 96,189 95,138 96,173 ====== ====== ====== ====== Diluted 95,928 98,184 96,016 98,045 ====== ====== ====== ====== See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, December 31, 1999 1998 ------------ ------------- (Unaudited) ASSETS - ------ Current assets: Cash and short-term investments $ 39,235 $ 158,924 Accounts receivable, less allowance for doubtful accounts ($45,190 in 1999 and $48,423 in 1998) 1,478,391 1,354,351 Inventories 1,378,313 1,321,261 Prepaid expenses and other assets 27,743 26,279 ---------- ---------- Total current assets 2,923,682 2,860,815 Property, plant and equipment at cost: Land 17,690 15,087 Buildings and improvements 106,698 90,851 Machinery and equipment 223,813 183,227 ---------- ---------- 348,201 289,165 Less accumulated depreciation and amortization 147,633 134,359 ---------- ---------- 200,568 154,806 Investment in affiliated companies 33,246 23,279 Cost in excess of net assets of companies acquired, net of amortization ($101,540 in 1999 and $91,837 in 1998) 880,020 721,323 Other assets 90,192 79,648 ---------- ---------- $4,127,708 $3,839,871 ========== ========== See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, December 31, 1999 1998 ----------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 732,696 $ 785,596 Accrued expenses 239,601 211,438 Short-term borrowings, including current maturities of long-term debt 144,662 168,066 ---------- ---------- Total current liabilities 1,116,959 1,165,100 Long-term debt 1,441,164 1,040,173 Other liabilities 60,854 77,587 Minority interest 22,847 69,692 Shareholders' equity: Common stock, par value $1: Authorized - 120,000,000 shares Issued - 102,949,640 shares in 1999 and 1998 102,950 102,950 Capital in excess of par value 502,256 506,002 Retained earnings 1,158,189 1,114,826 Foreign currency translation adjustment (72,175) (23,648) ---------- ---------- 1,691,220 1,700,130 Less: Treasury stock (7,008,040 shares in 1999 and 7,321,540 shares in 1998), at cost 189,602 198,281 Unamortized employee stock awards 15,734 14,530 ---------- ---------- 1,485,884 1,487,319 ---------- ---------- $4,127,708 $3,839,871 ========== ========== See accompanying notes. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Six Months Ended June 30, ------------------------ 1999 1998 ---- ---- (Unaudited) Cash flows from operating activities: Net income $ 43,363 $ 77,935 Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest in earnings 3,339 3,851 Depreciation and amortization 39,564 25,259 Equity in undistributed earnings of affiliated companies (38) (112) Integration charge 24,560 - Deferred income taxes (9,146) 5,572 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (81,926) (59,251) Inventories 66,094 (87,441) Prepaid expenses and other assets 2,364 18,230 Accounts payable (79,737) (48,520) Accrued expenses 11,418 (23,570) Other (20,636) (9,176) -------- -------- Net cash used for operating activities (781) (97,223) -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment, net (40,202) (21,918) Cash consideration paid for acquired businesses (348,921) (55,905) -------- -------- Net cash used for investing activities (389,123) (77,823) -------- -------- Cash flows from financing activities: Change in short-term borrowings (1,641) (9,762) Change in credit facilities 362,231 13,052 Repayment of long-term debt (38,560) (111) Proceeds from long-term debt - 195,814 Proceeds from exercise of stock options 283 7,195 Purchases of common stock - (45,833) Distribution to minority partners (37,852) (15,075) -------- -------- Net cash provided by financing activities 284,461 145,280 -------- -------- Effect of exchange rate changes on cash (14,246) (3,231) -------- -------- Net decrease in cash and short-term investments (119,689) (32,997) Cash and short-term investments at beginning of period 158,924 112,665 -------- -------- Cash and short-term investments at end of period $ 39,235 $ 79,668 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 8,785 $ 48,494 Interest 53,077 42,435 See accompanying notes. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 (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, 1998 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. Note B -- Integration charge - ---------------------------- The 1999 consolidated statement of income includes a pre-tax integration charge totaling $24.6 million related to the company's acquisition and integration of the electronics distribution group of Bell Industries and Richey Electronics. Of this amount, $15.2 million represents costs associated with closing facilities and severance payments. The remaining $9.4 million principally represents costs associated with outside resources associated with the conversion of systems, professional fees, and other costs related to the integration of these businesses into Arrow. Excluding the integration charge, net income and net income per share on a basic and diluted basis were $31.5 million and $.33, respectively, for the three months ended June 30, 1999 and $59.8 million, $.63 and $.62, respectively, for the six months ended June 30, 1999. Note C -- 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 Six For the Three Months Ended Months Ended June 30, June 30, ------------------ ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $43,363 $77,935 $15,022 $35,990 ======= ======= ======= ======= Weighed average common shares outstanding for basic earnings per share 95,053 96,189 95,138 96,173 Net effect of dilutive stock options and restricted stock awards 875 1,995 878 1,872 ------- ------- ------- ------- Weighted average common shares outstanding for diluted earnings per share 95,928 98,184 96,016 98,045 ======= ======= ======= ======= Basic earnings per share $.46 $.81 $.16 $.37 ==== ==== ==== ==== Diluted earnings per share $.45 $.79 $.16 $.37 ==== ==== ==== ==== Note D -- Comprehensive Income - ------------------------------ Comprehensive income is defined as the aggregate change in shareholders' equity excluding changes in ownership interests. For the company, the components of comprehensive income are as follows (in thousands): For the Six For the Three Months Ended Months Ended June 30, June 30, --------------------- -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 43,363 $ 77,935 $ 15,022 $ 35,990 Foreign currency translation adjustments(a) (48,527) (14,104) (23,660) (3,319) -------- -------- -------- -------- Comprehensive income (loss)(b) $ (5,164) $ 63,831 $ (8,638) $ 32,671 ======== ======== ======== ======== (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 $24,560, net of the related tax effect, comprehensive income was $11,316 for the six months ended June 30, 1999 and $7,842 for the three months ended June 30, 1999. Note E -- 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 (VARs). Revenue and operating income, by segment, for the six months and quarter ended June 30, 1999 and 1998 are as follows (in thousands): For the Six For the Three Months Ended Months Ended June 30, June 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Electronic Components $3,416,478 $3,135,528 $1,699,859 $1,514,732 Computer Products 1,035,182 914,198 550,169 509,234 ---------- ---------- ---------- ---------- Consolidated $4,451,660 $4,049,726 $2,250,028 $2,023,966 ========== ========== ========== ========== Operating income: Electronic Components $ 168,905 $ 182,410 $ 84,543 $ 85,543 Computer Products 19,327 21,409 15,630 13,612 Corporate (51,639) (23,928) (38,393) (11,222) ---------- ---------- ---------- ---------- Consolidated $ 136,593 $ 179,891 $ 61,780 $ 87,933 ========== ========== ========== ========== Total assets, by segment, as of June 30, 1999 and 1998 are as follows (in thousands): 1999 1998 ---- ---- Total assets: Electronic Components $3,331,418 $2,935,710 Computer Products 602,586 577,036 Corporate 193,704 195,985 ---------- ---------- Consolidated $4,127,708 $3,708,731 ========== ========== 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. Revenues, by geographic area, are as follows (in thousands): For the Six For the Three Months Ended Months Ended June 30, June 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- North America $2,972,368 $2,599,185 $1,531,387 $1,337,101 Europe 1,159,070 1,200,182 553,686 567,108 Asia/Pacific 320,222 250,359 164,955 119,757 ---------- ---------- ---------- ---------- $4,451,660 $4,049,726 $2,250,028 $2,023,966 ========== ========== ========== ========== Total assets, by geographic area, as of June 30, 1999 and 1998 are as follows (in thousands): 1999 1998 ---- ---- North America $2,460,756 $2,057,666 Europe 1,365,938 1,426,843 Asia/Pacific 301,014 224,222 ---------- ---------- $4,127,708 $3,708,731 ========== ========== Note F -- Subsequent Events - --------------------------- In August 1999, the company purchased the 49 percent of Support Net, Inc. ("SNI") which it had not previously owned for a total of $81 million. In connection therewith, the civil action brought by the former minority shareholders and employees of SNI has been dismissed with prejudice by stipulation of the parties. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- The company acquired Richey Electronics, Inc. ("Richey") on January 7, 1999 and the electronics distribution group ("EDG") of Bell Industries, Inc. on January 29, 1999. Both of these transactions have been accounted for as purchases in accordance with Accounting Principles Board Opinion No.16, "Business Combinations." Accordingly, the consolidated results of the company in 1999 include both Richey and EDG from their respective dates of acquisition. Sales - ----- Consolidated sales for the six months and second quarter of 1999 increased 9.9 percent and 11.2 percent, respectively, compared with the year-earlier periods. The sales growth was principally due to the acquisition of EDG and Richey and increased sales of commercial computer products by the company's Gates/Arrow operation. Offsetting, in part, these sales increases were lower sales of microprocessors and weakening European currencies. Excluding the impact of the EDG and Richey acquisitions, foreign exchange rate differences, and lower microprocessor sales, revenue increased by 5 and 8 percent over the first six months and the second quarter of 1998, respectively. Operating income - ---------------- The company recorded operating income of $136.6 million and $61.8 million in the first six months and second quarter of 1999, respectively, compared with $179.9 million and $87.9 million, respectively, in the year-earlier periods. Included in 1999's results is a pre-tax integration charge of $24.6 million associated with the integration of EDG and Richey. Excluding this integration charge, operating income was $161.2 million and $86.3 million for the six months and quarter ended June 30, 1999, respectively. The decrease in operating income is due to continued pressure on gross profit margins in both the commercial computer products markets served by Gates/Arrow and the North American Components operations due to competitive pricing pressures, and to lower sales, competitive pricing pressures and weakening currencies in Europe. Interest expense - ---------------- Interest expense of $51.3 million and $26.7 million in the first six months and second quarter of 1999, respectively, increased from $39 million during the first six months of 1998 and $20.3 million in the comparable quarter of 1998. The increase is the result of increased borrowings to fund acquisitions and investments in working capital, offset, in part, by lower interest rates. Income taxes - ------------ The company recorded a provision for taxes at an effective rate of 45.3 percent and 49.2 percent for the first six months and second quarter of 1999, respectively, compared with 42 percent and 42.9 percent, in the comparable year-earlier periods. Excluding the impact of the aforementioned integration charge, the effective rate was 42.5 percent for the six months and second quarter of 1999. The company's effective tax rate is principally impacted by, among other factors, the statutory tax rates in the countries it operates and the related level of earnings generated by these operations and the nondeductibility of certain expenses. Net income - ---------- The company recorded net income of $43.4 million and $15 million in the first six months and second quarter of 1999, respectively, compared with $77.9 million in the first six months of 1998 and $36 million in the second quarter of 1998. Excluding the aforementioned integration charge, net income was $59.8 million and $31.5 million for the first six months and second quarter of 1999, respectively. The decrease in net income is due to lower operating income and an increase in interest expense. 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 71 percent at June 30, 1999 compared with 75 percent at June 30, 1998. The net amount of cash used for the company's operating activities during the first six months of 1999 was $.8 million, principally reflecting earnings plus non-cash charges, offset, in part, by investments in working capital. The net amount of cash used for investing activities was $389.1 million, including $40.2 million for various capital expenditures and $348.9 million principally for the acquisitions of Richey, EDG and the remaining 10% of Spoerle Electronic as well as certain internet related investments. The net amount of cash provided by financing activities was $284.5 million, reflecting borrowings under the company's credit facilities, offset, in part, by the repayment of Richey's 7.0% convertible subordinated notes and debentures. The net amount of cash used for the company's operating activities during the first six months of 1998 was $97.2 million, principally due to the increase in working capital requirements. The net amount of cash used for investing activities was $77.8 million, including approximately $55.9 million for various acquisitions. The net amount of cash provided by financing activities was $145.3 million, principally reflecting the $196 million of proceeds from the issuance in May 1998 of the company's 6 7/8% senior debentures, offset, in part, by purchases of the company's common stock. Year 2000 Update - ---------------- The company previously initiated a comprehensive, worldwide review to identify, evaluate and address Year 2000 issues and implemented a plan to resolve those issues. Included within the scope of this initiative are operational and information technology computer systems; embedded systems contained in machinery and equipment including warehousing and telecommunications equipment; and third party relationships, including trade and non-trade vendors, carriers, and other principal business partners. In the information technology arena, the company divided its remediation plan into the following phases: inventory, assessment, remediation, testing, and monitoring. The inventory, assessment, and remediation phases have been substantially completed, and the testing and monitoring phases have progressed on schedule, and as of July 31, 1999 have been substantially completed. With respect to non-information technology, or embedded systems, the company has substantially completed the inventory and assessment phases, and remediation and testing are progressing according to schedule, with completion anticipated during the third quarter of 1999. The company is currently engaged in a review of the Year 2000 compliance efforts of key suppliers and other principal business partners upon whom it depends for essential products and services. There can be no guarantee that these parties will resolve their Year 2000 issues with respect to products, services or critical systems, and processes in a timely manner. Management believes that failure or delay by any of these parties could possibly cause a significant disruption to the company's business. The company is in the process of developing contingency plans to address these and other issues. 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 computer and electronic components 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. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- (a) The company's Annual Meeting of Shareholders was held on May 12, 1999 (the "Annual Meeting"). (b) The matters voted upon at the Annual Meeting and the results of the voting were as follows: (i) The following individuals were elected by the shareholders to serve as Directors: Board Member In Favor Withheld ------------ -------- -------- Daniel W. Duval 86,379,017 322,396 Carlo Giersch 85,624,533 1,076,880 John N. Hanson 86,346,621 354,792 Stephen P. Kaufman 86,622,091 1,079,322 Roger King 85,636,001 1,065,412 Robert E. Klatell 85,636,367 1,065,046 Karen Gordon Mills 86,378,723 322,690 Barry W. Perry 86,382,221 319,192 Richard S. Rosenbloom 86,339,308 362,105 Robert S. Throop 85,635,427 1,065,986 John C. Waddell 85,632,519 1,068,894 (ii) The ratification and approval of the adoption of the Chief Executive Officer 1999 Performance Bonus Plan was voted upon as follows: 81,930,317 shares in favor; 4,629,700 shares against; and 141,396 shares abstaining. (iii) The appointment of Ernst & Young LLP as auditors of the company was voted upon as follows: 86,581,320 shares in favor; 87,206 shares against; and 32,887 shares abstaining. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. (27) Financial Data Schedule (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: August 12, 1999 By:/s/ Sam R. Leno ------------------------- Sam R. Leno Senior Vice President and Chief Financial Officer Date: August 12, 1999 By:/s/ Paul J. Reilly ------------------------- Paul J. Reilly Vice President-Finance EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S.DOLLARS DEC-31-1999 JAN-1-1999 JUN-30-1999 6-MOS 1 39,235 0 1,478,391 45,190 1,378,313 2,923,682 348,201 147,633 4,127,708 1,116,959 1,441,164 0 0 102,950 1,382,934 4,127,708 4,451,660 4,451,660 3,829,239 4,315,067 0 9,955 51,310 85,321 38,619 43,363 0 0 0 43,363 0.46 0.45
-----END PRIVACY-ENHANCED MESSAGE-----