EX-99.1 2 a4874467ex991.txt EXHIBIT 99.1 Exhibit 99.1 Arrow Electronics Announces First Quarter Results; Cash Flow from Operations in Excess of $150 Million MELVILLE, N.Y.--(BUSINESS WIRE)--April 27, 2005--Arrow Electronics, Inc. (NYSE:ARW) today reported first quarter 2005 net income of $57.2 million ($.49 and $.47 per share on a basic and diluted basis, respectively) on sales of $2.73 billion, compared with net income of $29.5 million ($.28 and $.27 per share on a basic and diluted basis, respectively) on sales of $2.63 billion in the first quarter of 2004. Cash flow from operations in the first quarter of 2005 was $150.4 million compared to a use of cash of $122.3 million in the first quarter of 2004. The company's results for the first quarter of 2005 and 2004 include a number of items outlined below that impact their comparability. A reconciliation of these items is provided under the heading "Certain Non-GAAP Financial Information". Excluding those items, net income for the quarter ended April 1, 2005 would have been $58.7 million ($.50 and $.49 per share on a basic and diluted basis, respectively) and net income for the quarter ended March 31, 2004 would have been $50.2 million ($.47 and $.44 per share on a basic and diluted basis, respectively). Consolidated operating income of $110.9 million, excluding the items impacting comparability, posted its ninth consecutive quarterly year-on-year increase. Operating income as a percentage of sales, excluding the previously mentioned items, increased by 10 basis points sequentially and was flat year-on-year. The company also noted that, in connection with a review of payroll withholding tax relating to non-salary benefit items in Germany, it had recorded a charge of approximately $5.0 million ($3.4 million net of related taxes or $.03 per share) in operating expenses covering the years 2001 through 2004. "Our initiatives to be better organized, lower our cost structure and manage working capital more efficiently continue to drive improving operating results," said William E. Mitchell, President and Chief Executive Officer of Arrow. "Ongoing operating expenses, excluding the impact of the July 2004 Disway acquisition and a weakening dollar, were down $12 million and we generated over $150 million in cash flow from operations." Worldwide components sales of $2.09 billion were up 5% from $1.99 billion in the fourth quarter and up 3% from $2.03 billion in last year's first quarter. Operating income as a percentage of sales was 4.6%, flat sequentially and down 80 basis points from last year's first quarter. Worldwide computer products sales totaled $632 million, down 14% from the seasonally strong fourth quarter and up 7% over last year. Operating income as a percentage of sales declined 10 basis points from the fourth quarter and was up 210 basis points over last year. "Our North American Computer Products businesses' focus on expanding its product offerings and outgrowing the market while strictly managing costs has resulted in their 15th consecutive quarter of year-on-year growth in operating income," said Mr. Mitchell. The company's results for the first quarter of 2005 and 2004 include a number of items outlined below that impact their comparability: -- The company announced, during the first quarter of 2005, that it would be taking additional actions to better optimize the use of its mainframe, reduce real estate costs, be more efficient in its distribution centers, and to be more productive. These actions are expected to further reduce costs by approximately $50 million on an annual basis with $40 million to be realized in 2005. Approximately $7 million of the expected 2005 cost reduction was achieved in the first quarter. The estimated charges associated with these actions are expected to total approximately $7.5 million. In the first quarter of 2005, approximately $4.1 million ($2.6 million net of related taxes or $.02 per share) of these charges were recorded. The company expects to record the balance of approximately $3.4 million over the next several quarters. -- During the first quarter of 2005, the company received EUR 1.5 million ($2.0 million) in full settlement of claims for indemnification under the purchase agreement relating to the acquisition of a French company in 2000. The net amount of the settlement of $1.7 million ($1.3 million net of related taxes or $.01 per share on a basic basis) has been recorded as an acquisition indemnification credit. -- During the first quarter of 2005, the company repurchased $13.2 million accreted value of its zero coupon convertible debentures due in 2021, which could have been initially put to the company in February 2006. The related loss on the repurchase, including the premium paid and the write-off of related deferred financing costs, aggregated $355 thousand ($212 thousand net of related taxes). -- During the first quarter of 2004, the company repurchased $91.9 million accreted value of its zero coupon convertible debentures. The related loss on the repurchase, including the premium paid and the write-off of related deferred financing costs, aggregated $4.8 million ($2.9 million net of related taxes or $.03 per share). In January 2004, the company repurchased, through a series of transactions, $41.5 million principal amount of its 8.7% senior notes, due in October 2005. In March 2004, the company repurchased and/or redeemed the remaining outstanding $208.5 million principal amount of these same notes. The premium paid and the related deferred financing costs written-off upon the repurchase and/or redemption of this debt, net of the gain recognized by terminating the related interest rate swaps, aggregated $18.9 million ($11.3 million net of related taxes or $.10 and $.09 per share on a basic and diluted basis, respectively). -- During the first quarter of 2004 and 2003, the company announced a series of steps to improve its operating efficiencies and to become more effectively organized resulting in annualized savings in excess of $100 million. During the first quarter of 2004, the company recorded related charges of $8.8 million ($6.5 million net of related taxes or $.06 and $.05 per share on a basic and diluted basis, respectively). "The components markets continue to send mixed signals. Lead times are short, product is readily available, and customer ordering patterns have remained relatively consistent for several quarters. Yet in certain regions our components book-to-bill was at its highest level in three quarters," said Paul J. Reilly, Chief Financial Officer of Arrow. "We expect the fewer number of shipping days in the second quarter to negatively impact our level of revenue in the coming quarter. Based upon all of the information known to us today, we expect second quarter revenues to be between $2.7 billion and $2.8 billion with earnings per share on a diluted basis, excluding charges, in the range of $.49 to $.53 per share," said Mr. Reilly. "We remain committed to our strategy of outperforming the market, operational excellence and continuous process improvement, a philosophy of shared leadership, and greater financial stability," said Mr. Mitchell, "and we continue to focus on creating greater levels of value for our shareholders." Arrow Electronics is a major global provider of products, services, and solutions to industrial and commercial users of electronic components and computer products. Headquartered in Melville, New York, Arrow serves as a supply channel partner for nearly 600 suppliers and 150,000 original equipment manufacturers, contract manufacturers, and commercial customers through a global network of more than 200 locations in 53 countries and territories. Certain Non-GAAP Financial Information In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (GAAP), the company provides certain non-GAAP financial information relating to operating income, net income and net income per basic and diluted share, each as adjusted for certain charges and losses that the company believes impact the comparability of its results of operations. These charges and losses arise out of the company's acquisitions of other companies, the company's efficiency enhancement initiatives, and the prepayment of debt. Reconciliations of the company's non-GAAP financial information to GAAP are set forth in the table below. The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company's operating performance and underlying trends in the company's business because management considers the charges and losses referred to above to be outside the company's core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company's financial and operating performance. In addition, the company's Board of Directors uses this non-GAAP financial information in evaluating management performance and setting management compensation. The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. Safe Harbor 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 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, the effects of additional actions taken to lower costs, the ability of the company to generate additional cash flow 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 and Quarterly Reports on Form 10-Q). Forward-looking statements are those statements, which are not statements of historical fact. You can identify these forward-looking statements by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. 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. ARROW ELECTRONICS, INC. EARNINGS RECONCILIATION (In thousands except per share data) Three Months Ended ---------------------- April 1, March 31, 2005 2004 ---------- ---------- Operating income, as reported $ 108,493 $ 97,763 Acquisition indemnification credit (1,672) - Restructuring charges 4,038 8,818 ---------- ---------- Operating income, as adjusted $ 110,859 $ 106,581 ========== ========== Net income, as reported $ 57,191 $ 29,525 Acquisition indemnification credit (1,267) - Restructuring charges 2,533 6,495 Loss on prepayment of debt 212 14,191 ---------- ---------- Net income, as adjusted $ 58,669 $ 50,211 ========== ========== Net income per basic share, as reported $ .49 $ .28 Acquisition indemnification credit (.01) - Restructuring charges .02 .06 Loss on prepayment of debt - .13 ---------- ---------- Net income per basic share, as adjusted $ .50 $ .47 ========== ========== Net income per diluted share, as reported(a) $ .47 $ .27 Restructuring charges .02 .05 Loss on prepayment of debt - .12 ---------- ---------- Net income per diluted share, as adjusted $ .49 $ .44 ========== ========== (a) In computing net income per diluted share for the three months ended April 1, 2005 and March 31, 2004, net income was increased by $1,673 and $3,370, respectively, for interest (net of taxes) related to the zero coupon convertible debentures ("convertible debentures") which are dilutive common stock equivalents. In addition, the diluted weighted average number of shares outstanding for the three months ended April 1, 2005 and March 31, 2004 includes 6,508 shares and 13,389 shares, respectively, related to the convertible debentures. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except per share data) Three Months Ended ---------------------- April 1, March 31, 2005 2004 ---------- ---------- Sales $2,726,871 $2,625,958 ---------- ---------- Costs and expenses: Cost of products sold 2,294,642 2,202,738 Selling, general and administrative expenses 306,798 298,422 Depreciation and amortization 14,572 18,217 Acquisition indemnification credit (1,672) - Restructuring charges 4,038 8,818 ---------- ---------- 2,618,378 2,528,195 ---------- ---------- Operating income 108,493 97,763 Equity in earnings of affiliated companies 1,078 445 Loss on prepayment of debt 355 23,730 Interest expense, net 24,100 30,720 ---------- ---------- Income before income taxes and minority interest 85,116 43,758 Provision for income taxes 27,744 14,082 ---------- ---------- Income before minority interest 57,372 29,676 Minority interest 181 151 ---------- ---------- Net income $ 57,191 $ 29,525 ========== ========== Net income per share: Basic $ .49 $ .28 ========== ========== Diluted $ .47 $ .27 ========== ========== Average number of shares outstanding: Basic 116,212 106,753 Diluted 124,027 121,666 This interim report is subject to independent audit at year-end. ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (In thousands) April 1, December 31, 2005 2004 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 612,988 $ 305,294 Short-term investments - 158,600 ---------- ---------- Total cash and short-term investments 612,988 463,894 Accounts receivable, net 2,009,229 1,984,122 Inventories 1,410,959 1,486,478 Prepaid expenses and other assets 109,338 93,039 ---------- ---------- Total current assets 4,142,514 4,027,533 ---------- ---------- Property, plant and equipment at cost: Land 40,228 40,340 Buildings and improvements 183,071 184,344 Machinery and equipment 418,462 418,721 ---------- ---------- 641,761 643,405 Less: accumulated depreciation and amortization (390,053) (380,422) ---------- ---------- Property, plant and equipment, net 251,708 262,983 ---------- ---------- Investments in affiliated companies 36,607 34,302 Cost in excess of net assets of companies acquired 952,980 974,285 Other assets 195,222 209,998 ---------- ---------- Total assets $5,579,031 $5,509,101 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $1,338,883 $1,261,971 Accrued expenses 411,311 395,955 Short-term borrowings, including current portion of long-term debt 301,170 8,462 ---------- ---------- Total current liabilities 2,051,364 1,666,388 ---------- ---------- Long-term debt 1,154,565 1,465,880 Other liabilities 181,920 182,647 Shareholders' equity: Common stock, par value $1: Authorized - 160,000 shares in 2005 and 2004 Issued - 117,675 shares in 2005 and 2004 117,675 117,675 Capital in excess of par value 796,207 797,828 Retained earnings 1,202,997 1,145,806 Foreign currency translation adjustment 113,938 190,595 ---------- ---------- 2,230,817 2,251,904 Less: Treasury stock (783 and 1,374 shares in 2005 and 2004, respectively), at cost (20,938) (36,735) Unamortized employee stock awards (3,290) (3,738) Other (15,407) (17,245) ---------- ---------- Total shareholders' equity 2,191,182 2,194,186 ---------- ---------- Total liabilities and shareholders' equity $5,579,031 $5,509,101 ========== ========== This interim report is subject to independent audit at year-end. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Three Months Ended ---------------------- April 1, March 31, 2005 2004 ---------- ---------- Cash flows from operating activities: Net income $ 57,191 $ 29,525 ---------- ---------- Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest 181 151 Depreciation and amortization 15,544 19,820 Accretion of discount on convertible debentures 2,797 5,636 Equity in earnings of affiliated companies (1,078) (445) Deferred income taxes (985) 2,793 Acquisition indemnification credit, net of taxes (1,267) - Restructuring charges, net of taxes 2,533 6,495 Loss on prepayment of debt, net of taxes 212 14,191 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (52,515) (115,570) Inventories 56,721 (94,345) Prepaid expenses and other assets (14,749) (1,437) Accounts payable 88,898 27,756 Accrued expenses (4,214) (9,389) Other 1,122 (7,524) ---------- ---------- Net cash provided by (used for) operating activities 150,391 (122,343) ---------- ---------- Cash flows from investing activities: Acquisition of property, plant and equipment, net (5,058) (6,175) Cash consideration paid for acquired businesses - (12,179) Investments 2,662 464 Purchase of short-term investments (230,456) (72,100) Proceeds from sale of short-term investments 389,056 50,800 ---------- ---------- Net cash provided by (used for) investing activities 156,204 (39,190) ---------- ---------- Cash flows from financing activities: Change in short-term borrowings 4,495 2,144 Change in long-term debt (486) (718) Repurchase of senior notes - (268,399) Repurchase of convertible debentures (13,328) (95,384) Proceeds from common stock offering - 312,789 Proceeds from exercise of stock options 11,945 3,791 ---------- ---------- Net cash provided by (used for) financing activities 2,626 (45,777) ---------- ---------- Effect of exchange rate changes on cash (1,527) (6,808) ---------- ---------- Net increase (decrease) in cash and cash equivalents 307,694 (214,118) Cash and cash equivalents at beginning of period 305,294 612,404 ---------- ---------- Cash and cash equivalents at end of period $ 612,988 $ 398,286 ========== ========== This interim report is subject to independent audit at year-end. ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) Three Months Ended ---------------------- April 1, March 31, 2005 2004 ---------- ---------- Sales: Components $2,094,743 $2,033,853 Computer products 632,128 592,105 ---------- ---------- Consolidated $2,726,871 $2,625,958 ========== ========== Operating income: Components $ 95,747 $ 110,440 Computer products 35,684 20,618 Corporate (a) (22,938) (33,295) ---------- ---------- Consolidated $ 108,493 $ 97,763 ========== ========== (a) Includes an acquisition indemnification credit of $1.7 million and restructuring charges of $4.0 million for the three months ended April 1, 2005 and restructuring charges of $8.8 million for the three months ended March 31, 2004. This interim report is subject to independent audit at year-end. CONTACT: Arrow Electronics, Inc. Ira M. Birns Vice President and Treasurer 631-847-1657 Paul J. Reilly Vice President and Chief Financial Officer 631-847-1872 or Media Contact: Jacqueline F. Strayer Vice President, Corporate Communications 631-847-2101