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0001206774-03-000833.txt : 20031113
0001206774-03-000833.hdr.sgml : 20031113
20031113172238
ACCESSION NUMBER: 0001206774-03-000833
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20030930
FILED AS OF DATE: 20031113
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: 03999296
BUSINESS ADDRESS:
STREET 1: 25 HUB DR
CITY: MELVILLE
STATE: NY
ZIP: 11747
BUSINESS PHONE: 5163911300
MAIL ADDRESS:
STREET 1: 50 MARCUS DR
CITY: MELVILLE
STATE: NY
ZIP: 11747
10-Q
1
d13548_10-q.htm
AutoCoded Document
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, 2003
or
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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
incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
|
|
|
50 Marcus Drive, Melville, New York |
|
11747 |
(Address of principal executive
offices) |
|
(Zip Code) |
(631) 847-2000
(Registrants telephone number, including area code)
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.
xYes
o No
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). xYes
o No
Indicate
the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Common stock, $1 par value: 100,880,925 shares outstanding at October 31, 2003.
TABLE OF CONTENTS
2
ARROW ELECTRONICS, INC.
INDEX
|
Page
|
Part I. Financial Information |
|
|
|
| |
|
|
Item 1. Financial Statements | |
Consolidated Statement of Operations | |
3 |
|
Consolidated Balance Sheet | |
4 |
|
Consolidated Statement of Cash Flows | |
5 |
|
Notes to Consolidated Financial Statements | |
6 |
|
| |
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | |
21 |
|
| |
|
|
Item 3. Quantitative and Qualitative Disclosure About Market Risk | |
30 |
|
| |
|
|
Item 4. Controls and Procedures | |
31 |
|
| |
|
|
Part II. Other Information | |
|
|
| |
|
|
Item 4. Submission of Matters to a Vote of Security Holders | |
32 |
|
| |
|
|
Item 6. Exhibits and Reports on Form 8-K | |
32 |
|
| |
|
|
Signature | |
33 |
|
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ARROW
ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share
data)
(Unaudited)
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2003
|
|
2002
|
|
2003
|
|
2002
|
Sales |
|
$ 2,095,245 |
|
$ 1,811,339 |
|
$ 6,198,489 |
|
$ 5,499,195 |
|
|
| |
| |
| |
| |
Costs and expenses: | |
Cost of products sold | |
1,751,680 |
|
1,502,717 |
|
5,164,764 |
|
4,556,453 |
|
Selling, general and administrative expenses | |
271,767 |
|
254,610 |
|
823,194 |
|
763,958 |
|
Depreciation and amortization | |
15,512 |
|
16,190 |
|
50,469 |
|
50,500 |
|
Acquisition indemnification charge | |
13,002 |
|
|
|
13,002 |
|
|
|
Restructuring charges | |
9,100 |
|
|
|
30,342 |
|
|
|
Integration charge | |
|
|
|
|
6,904 |
|
|
|
Severance charge | |
|
|
|
|
|
|
5,375 |
|
|
| |
| |
| |
| |
| |
2,061,061 |
|
1,773,517 |
|
6,088,675 |
|
5,376,286 |
|
|
| |
| |
| |
| |
Operating income | |
34,184 |
|
37,822 |
|
109,814 |
|
122,909 |
|
| |
|
|
|
|
|
|
|
|
Equity in earnings of affiliated companies | |
1,751 |
|
1,000 |
|
3,136 |
|
1,966 |
|
| |
|
|
|
|
|
|
|
|
Loss on prepayment of debt | |
3,292 |
|
18,776 |
|
6,234 |
|
18,776 |
|
| |
|
|
|
|
|
|
|
|
Interest expense, net | |
36,202 |
|
38,373 |
|
101,367 |
|
120,445 |
|
|
| |
| |
| |
| |
Income (loss) before income taxes and minority interest | |
(3,559 |
) |
(18,327 |
) |
5,349 |
|
(14,346 |
) |
| |
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes | |
2,888 |
|
(6,964 |
) |
5,586 |
|
(5,560 |
) |
|
| |
| |
| |
| |
Loss before minority interest | |
(6,447 |
) |
(11,363 |
) |
(237 |
) |
(8,786 |
) |
| |
|
|
|
|
|
|
|
|
Minority interest | |
(213 |
) |
(246 |
) |
75 |
|
(330 |
) |
|
| |
| |
| |
| |
Loss from continuing operations | |
(6,234 |
) |
(11,117 |
) |
(312 |
) |
(8,456 |
) |
| |
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes | |
(including net loss from disposal of $6,120) | |
|
|
|
|
|
|
(5,911 |
) |
|
| |
| |
| |
| |
Loss before cumulative effect of change in accounting principle | |
(6,234 |
) |
(11,117 |
) |
(312 |
) |
(14,367 |
) |
| |
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting | |
principle | |
|
|
|
|
|
|
(603,709 |
) |
|
| |
| |
| |
| |
Net loss | |
$ (6,234 |
) |
$ (11,117 |
) |
$ (312 |
) |
$ (618,076 |
) |
|
| |
| |
| |
| |
Net loss per basic and diluted share: | |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations | |
$ (.06 |
) |
$ (.11 |
) |
$ |
|
$ (.09 |
) |
Loss from discontinued operations | |
|
|
|
|
|
|
(.06 |
) |
| |
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle | |
|
|
|
|
|
|
(6.05 |
) |
|
| |
| |
| |
| |
Net loss per basic and diluted share | |
$ (.06 |
) |
$ (.11 |
) |
$ |
|
$ (6.20 |
) |
|
| |
| |
| |
| |
Average number of basic and diluted shares outstanding | |
100,142 |
|
99,874 |
|
100,073 |
|
99,737 |
|
See
accompanying notes.
3
ARROW
ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
|
September 30, 2003
|
|
December 31, 2002
|
|
(Unaudited) |
|
ASSETS |
|
|
|
|
|
Cash and short-term investments | |
$ 677,948 |
|
$ 694,092 |
|
Accounts receivable, net | |
1,561,315 |
|
1,378,562 |
|
Inventories | |
1,296,705 |
|
1,201,271 |
|
Prepaid expenses and other assets | |
56,739 |
|
59,810 |
|
|
| |
| |
Total current assets | |
3,592,707 |
|
3,333,735 |
|
|
| |
| |
Property, plant and equipment at cost: | |
|
|
|
|
Land | |
43,194 |
|
42,805 |
|
Buildings and improvements | |
192,984 |
|
186,427 |
|
Machinery and equipment | |
409,223 |
|
384,689 |
|
|
| |
| |
| |
645,401 |
|
613,921 |
|
Less accumulated depreciation and amortization | |
(361,049 |
) |
(314,403 |
) |
|
| |
| |
| |
284,352 |
|
299,518 |
|
| |
|
|
|
|
Investments in affiliated companies | |
35,081 |
|
32,527 |
|
Cost in excess of net assets of companies acquired | |
872,277 |
|
748,368 |
|
Other assets | |
251,938 |
|
253,457 |
|
|
| |
| |
| |
$ 5,036,355 |
|
$ 4,667,605 |
|
|
| |
| |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
|
|
|
|
Current liabilities: | |
Accounts payable | |
$ 951,776 |
|
$ 917,271 |
|
Accrued expenses | |
330,747 |
|
258,774 |
|
Short-term borrowings, including current portion of long-term debt | |
203,210 |
|
286,348 |
|
|
| |
| |
Total current liabilities | |
1,485,733 |
|
1,462,393 |
|
|
| |
| |
Long-term debt | |
2,026,335 |
|
1,807,113 |
|
Other liabilities | |
170,609 |
|
162,850 |
|
Shareholders' equity: | |
|
|
|
|
Common stock, par value $1: | |
Authorized 160,000,000 shares | |
Issued 103,877,000 and 103,878,000 shares | |
in 2003 and 2002, respectively | |
103,877 |
|
103,878 |
|
Capital in excess of par value | |
505,203 |
|
510,446 |
|
Retained earnings | |
912,290 |
|
912,602 |
|
Foreign currency translation adjustment | |
(33,625 |
) |
(145,231 |
) |
|
| |
| |
| |
1,487,745 |
|
1,381,695 |
|
Less: Treasury stock (3,069,000 and 3,431,000 | |
|
|
|
|
shares in 2003 and 2002, respectively), | |
|
|
|
|
at cost | |
(82,029 |
) |
(91,775 |
) |
Unamortized employee stock awards | |
(9,595 |
) |
(9,377 |
) |
Other | |
(42,443 |
) |
(45,294 |
) |
|
| |
| |
| |
1,353,678 |
|
1,235,249 |
|
|
| |
| |
| |
$ 5,036,355 |
|
$ 4,667,605 |
|
|
| |
| |
See
accompanying notes.
4
ARROW
ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
|
Nine Months Ended September 30,
|
|
|
2003
|
|
2002
|
Cash flows from operating activities: |
|
|
|
|
|
Net loss | |
$ (312 |
) |
$(618,076 |
) |
Loss from discontinued operations, net of taxes |
|
|
|
(5,911 |
) |
|
| |
| |
Net loss from continuing operations | |
(312 |
) |
(612,165 |
) |
Adjustments to reconcile net loss to net cash provided
by operations: | |
|
|
|
|
Minority interest | |
75 |
|
(330 |
) |
Depreciation and amortization | |
54,438 |
|
60,819 |
|
Accretion of discount on convertible debentures | |
21,760 |
|
21,516 |
|
Equity in earnings of affiliated companies | |
(3,136 |
) |
(1,966 |
) |
Deferred income taxes | |
(5,949 |
) |
(510 |
) |
Acquisition indemnification charge, net | |
13,002 |
|
|
|
Restructuring charges, net of taxes | |
20,732 |
|
|
|
Integration charge, net of taxes | |
4,822 |
|
|
|
Loss on prepayment of debt, net of taxes | |
3,728 |
|
11,641 |
|
Severance charge, net of taxes | |
|
|
3,214 |
|
Cumulative effect of change in accounting principle | |
|
|
603,709 |
|
Change in assets and liabilities, net of effects of acquired businesses: |
|
|
|
|
|
Accounts receivable |
|
(33,943 |
) |
135,003 |
|
Inventories | |
52,809 |
|
239,228 |
|
Prepaid expenses and other assets | |
3,157 |
|
(10,644 |
) |
Accounts payable | |
(41,103 |
) |
178,079 |
|
Accrued expenses | |
44,900 |
|
(10,372 |
) |
Other | |
4,983 |
|
(29,952 |
) |
|
| |
| |
Net cash provided by operating activities | |
139,963 |
|
587,270 |
|
|
| |
| |
Cash flows from investing activities: | |
|
|
|
|
Acquisition of property, plant and equipment, net | |
(21,755 |
) |
(34,393 |
) |
Cash consideration paid for acquired businesses | |
(231,288 |
) |
(111,687 |
) |
Proceeds from sale of discontinued operations | |
1,025 |
|
38,461 |
|
Investments | |
763 |
|
(5,832 |
) |
Proceeds from sale of investments | |
|
|
6,956 |
|
Proceeds from note receivable | |
|
|
41,667 |
|
|
| |
| |
Net cash used for investing activities | |
(251,255 |
) |
(64,828 |
) |
|
| |
| |
Cash flows from financing activities: | |
|
|
|
|
Change in short-term borrowings | |
(25,208 |
) |
(58,874 |
) |
Change in credit facilities | |
(13 |
) |
176 |
|
Change in long-term debt | |
(1,014 |
) |
(17,519 |
) |
Repurchase of senior notes | |
(90,197 |
) |
(313,451 |
) |
Proceeds from senior note offering | |
346,286 |
|
|
|
Repurchase of zero coupon convertible debentures | |
(154,355 |
) |
|
|
Proceeds from exercise of stock options | |
243 |
|
8,332 |
|
|
| |
| |
Net cash provided by (used for) financing activities | |
75,742 |
|
(381,336 |
) |
|
| |
| |
Effect of exchange rate changes on cash | |
19,406 |
|
19,853 |
|
|
| |
| |
Net increase (decrease) in cash and short-term investments | |
(16,144 |
) |
160,959 |
|
Cash and short-term investments at beginning of period | |
694,092 |
|
556,861 |
|
|
| |
| |
Cash and short-term investments at end of period | |
$ 677,948 |
|
$ 717,820 |
|
|
| |
| |
Supplemental disclosures of cash flow information: | |
Cash paid (refunded) during the period for: | |
|
|
|
|
Income taxes | |
$(62,515 |
) |
$(39,582 |
) |
Interest | |
74,608 |
|
97,401 |
|
See accompanying notes.
5
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
Note A
Basis of Presentation
The
accompanying consolidated financial statements of Arrow Electronics, Inc. (the
company) were prepared in accordance with accounting principles
generally accepted in the United States and reflect all adjustments, 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 notes
necessary for a complete presentation and, accordingly, should be read in
conjunction with the companys quarterly unaudited consolidated financial
statements for 2003 and the companys audited consolidated financial
statements for the year ended December 31, 2002 and the notes thereto. 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
January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities,
(FIN 46) which provides guidance on identifying and assessing
interests in variable interest entities to decide whether to consolidate that
entity. FIN 46 requires consolidation of existing unconsolidated variable
interest entities if the entities do not effectively disperse risk among parties
involved. The company adopted FIN 46 during the first quarter of 2003, as
required, for any variable interest entities created after January 31, 2003. The
adoption of this provision of FIN 46 did not have an impact on the
companys consolidated financial position and results of operations. On
October 9, 2003, the FASB issued FASB Staff Position No. FIN 46-6, deferring the
effective date for applying the provision of FIN 46 for variable interest
entities created before February 1, 2003 to the fourth quarter of 2003. The
adoption of this provision is not anticipated to have a material impact on the
companys consolidated financial position and results of operations.
In
April 2003, the FASB issued Statement No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The adoption of this Statement in the current quarter did not
have a material impact on the companys consolidated financial position and
results of operations.
In May
2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This
Statement establishes standards regarding how an issuer classifies, measures,
and discloses certain types of financial instruments having characteristics of
both liabilities and equity. It requires that an issuer classify a freestanding
financial instrument that is within its scope as a liability. The adoption of
this provision in the current quarter did not have an impact on the
companys consolidated financial position and results of operations. In
addition, this statement provides guidance on how to account for noncontrolling
interests of a limited-life subsidiary. This provision has been deferred and the
company will continue to evaluate the impact upon further clarification from the
FASB. The adoption of this provision is not anticipated to have a material
impact on the companys consolidated financial position and results of
operations.
6
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
Note C
Acquisitions/Dispositions
In
August 2003, the company sold the inventories of its Nordic Computer Products
business, a business unit within the companys computer products group that
distributed PC components to hardware integrators and resellers in Norway,
Sweden, Denmark, and Finland, for approximately $1,000,000. The companys
results for the third quarter and first nine months of 2003 include a loss of
$1,320,000 related to the disposal of the Nordic Computer Products business.
In
February 2003, the company acquired substantially all the assets of the
Industrial Electronics Division (IED) of Pioneer-Standard
Electronics, Inc., which was integrated into the North American Components
group. IED serves industrial original equipment manufacturers (OEMs)
and contract manufacturers. The net cost of this acquisition was $225,953,000,
subject to adjustment based upon an audit of the assets and liabilities being
acquired.
The
cost of the IED acquisition has been allocated on a preliminary basis among the
assets acquired and liabilities assumed on the basis of their estimated fair
values. Such purchase price allocation will be finalized after the completion of
the aforementioned audit. For financial reporting purposes, the acquisition is
accounted for as a purchase transaction in accordance with FASB Statement No.
141, Business Combinations. Accordingly, the consolidated results of
the company in 2003 include IEDs performance from the date of acquisition.
During
the first nine months of 2002, the company purchased 100 percent of a division
of Adecom Srl and acquired a 51 percent interest in Adecom Services Srl. During
this nine month period the company also increased its holdings in IR Electronic
from 64 percent to 100 percent and increased the companys ownership in
Arrow/Ally, Inc. from 75 percent to 97.4 percent. The aggregate cost of these
acquisitions was $4,104,000.
In
connection with certain acquisitions, the company 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 first nine
months of 2002, the company made such payments aggregating $108,470,000, of
which $95,659,000 was capitalized as cost in excess of net assets of companies
acquired and $12,811,000 was recorded as a reduction of capital in excess of par
value. The company does not have any requirements to make additional payments.
In a limited
number of instances the company is contractually required to purchase the shareholder
interest held by others in its majority (but less than 100 percent) owned subsidiaries.
Such payments, which are dependent upon the occurrence of certain events and the passage
of time, are to be based upon a multiple of earnings (as defined in the relevant
agreements) over a contractually determined period and, in certain instances, capital
structure. In most instances the amount to be paid will not be less than the book value
of the shares. During the first nine months of 2003, the company made such payments,
which were principally capitalized as cost in excess of net assets of companies acquired
offset by the carrying value of the minority interest, in the amounts of $2,099,000 to
increase its ownership interest in Arrow Components (NZ) Limited from 75 percent to 100
percent; $477,000 to increase its ownership interest in Dicopel US and Dicopel SA from
60 percent to 70 percent; and $2,800,000 to increase its ownership interest in
Components Agent (Cayman) Limited from 90 percent to 100 percent. Based upon the
performance of the remaining businesses with potential contractual payments through
September 30, 2003, such payments would be approximately $5,800,000, which would
principally be capitalized as cost in excess of net assets of companies acquired offset
by the carrying value of the related minority interest. These
7
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
remaining contractual payment amounts will change as the performance of these
subsidiaries change.
Note D
Investments
The
company has a 50 percent interest in Marubun/Arrow, a joint venture with Marubun
Corporation, and a 50 percent interest in Altech Industries (Pty.) Ltd., a joint
venture with Allied Technologies Limited. These investments are accounted for
using the equity method and are included in Investments in affiliated
companies in the accompanying consolidated balance sheet.
During
the first quarter of 2003, in connection with the acquisition of IED, and
included in the purchase price thereof, the company paid $10,799,000 to acquire
a 5 percent interest in World Peace Industrial Co. Ltd. The company also has an
8.4 percent ownership interest in Marubun Corporation. These investments are
accounted for as available-for-sale securities using the fair value method and
are included in long-term Other assets in the accompanying
consolidated balance sheet.
The
company assesses its investments accounted for as available-for-sale on a
quarterly basis to determine whether declines in market value below cost are
other than temporary. When the decline is determined to be other than temporary,
the cost basis for the individual security is reduced and a loss is realized in
the period in which it occurs. The company makes such determination based upon
the quoted market price and operating results of the investment. In addition,
the company evaluates its intent to retain the investment over a period of time
which would be sufficient to allow for any recovery in market value. The cost
basis, gross unrealized holding losses, and fair value of investments accounted
for as available-for-sale are as follows (in thousands):
|
September 30, 2003
|
|
December 31, 2002
|
Cost basis |
|
$ 33,864 |
|
$ 23,065 |
|
Gross unrealized holding losses | |
(8,871 |
) |
(13,195 |
) |
|
| |
| |
Fair value | |
$ 24,993 |
|
$ 9,870 |
|
|
| |
| |
The
unrealized losses related to these investments are included in the
shareholders equity section in the accompanying consolidated balance sheet
as a component of Other.
Note E
Discontinued Operations
In May
2002, the company sold substantially all of the assets of Gates/Arrow, a
business unit within the companys North American Computer Products group
(NACP) that sold commodity computer products such as printers,
monitors, other peripherals, and software to value-added resellers in North
America. The total cash proceeds of $42,873,000, after price adjustments, have
been collected. The assets sold consisted primarily of accounts receivable,
inventories, and property and equipment. The buyer also assumed certain
liabilities.
The
disposition of the Gates/Arrow operation represents a disposal of a
component of an entity as defined in FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
Accordingly, the first nine months of 2002 includes income from discontinued
operations of $209,000, net of related taxes.
8
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
The
company recorded a loss of $6,120,000 (net of related taxes of $4,114,000 or
$.06 per share on a basic and diluted basis) on the disposal of Gates/Arrow. The
loss consisted of the following (in thousands):
|
|
Personnel costs |
|
$ 1,250 |
|
Facilities | |
3,144 |
|
Professional fees | |
599 |
|
Asset write-down | |
3,000 |
|
Other | |
2,241 |
|
|
| |
| |
$10,234 |
|
|
| |
Utilization
of these charges as of September 30, 2003 is as follows (in thousands):
|
Personnel Costs
|
|
Facilities
|
|
Professional Fees
|
|
Asset Write-Down
|
|
Other
|
|
Total
|
Original accrual |
|
$ 1,250 |
|
$ 3,144 |
|
$ 599 |
|
$ 3,000 |
|
$ 2,241 |
|
$ 10,234 |
|
Payments | |
(1,052 |
) |
(227 |
) |
(355 |
) |
|
|
(168 |
) |
(1,802 |
) |
Non-cash usage | |
|
|
(904 |
) |
|
|
(3,000 |
) |
|
|
(3,904 |
) |
|
| |
| |
| |
| |
| |
| |
December 2002 | |
198 |
|
2,013 |
|
244 |
|
|
|
2,073 |
|
4,528 |
|
Payments | |
(50 |
) |
(630 |
) |
(43 |
) |
|
|
(28 |
) |
(751 |
) |
Non-cash usage | |
|
|
|
|
|
|
|
|
(2,000 |
) |
(2,000 |
) |
|
| |
| |
| |
| |
| |
| |
September 2003 | |
$ 148 |
|
$ 1,383 |
|
$ 201 |
|
$ |
|
$ 45 |
|
$ 1,777 |
|
|
| |
| |
| |
| |
| |
| |
Approximately
$1,000,000 of the remaining balance will be spent before the end of 2003.
Operating
results of Gates/Arrow were as follows (in thousands):
|
For the Nine Months Ended September 30, 2002 (a)
|
Net sales |
|
$ 180,534 |
|
|
| |
Loss from discontinued operations, | |
net of taxes (including net loss | |
from disposal of $6,120) | |
$ (5,911 |
) |
|
| |
|
(a) |
|
Operating results for the nine months ended September 30, 2002 are through the disposition date of May 31, 2002. |
Note F
Accounts Receivable
In
February 2003, the company renewed its asset securitization program (the
program) and made certain changes to the terms of the program,
including a reduction in the size of the program from $750,000,000 to
$550,000,000. Under the program, the company can sell, on a revolving basis, an
individual interest in a pool of certain North American trade accounts
receivable and retain a subordinated interest and servicing rights to those
receivables. At September 30, 2003 and December 31, 2002, there were no
receivables sold to and held by third parties under the program and accordingly,
the company had no obligations outstanding under the program. The company has
not utilized this facility since June 2001.
9
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
Accounts
receivable consists of the following (in thousands):
|
September 30, 2003
|
|
December 31, 2002
|
Accounts receivable |
|
$ 1,621,901 |
|
$ 1,431,167 |
|
Allowance for doubtful accounts | |
(60,586 |
) |
(52,605 |
) |
|
| |
| |
| |
$ 1,561,315 |
|
$ 1,378,562 |
|
|
| |
| |
Note G
Cost in Excess of Net Assets of Companies Acquired
In
June 2001, the 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.
As
required by Statement No. 142, the company completed the two steps required to
identify and measure goodwill impairment for each reporting unit as of January
1, 2002. The first step involved identifying all reporting units with carrying
values (including goodwill) in excess of fair value determined by reference to
comparable businesses using a weighted average EBIT multiple. The reporting
units identified from the first step were then measured for impairment by
comparing the units fair value to their carrying value. Those reporting
units having a carrying value substantially exceeding their fair value were
identified as being fully impaired, and the company fully wrote down the related
goodwill. For reporting units with potential impairment, the company determined
the fair value of the assets and liabilities of the unit and wrote down the
goodwill to its implied fair value accordingly. The majority of the reporting
units assets and liabilities were inventory, accounts receivable, accounts
payable, and accrued expenses, which are carried at fair value. No other
impairment indicators have arisen since January 1, 2002. All remaining and
future acquired goodwill will be subject to an impairment test in the fourth
quarter of each year, or earlier if indicators of potential impairment exist.
As a
result of the evaluation process performed during the second quarter of 2002 as
required by Statement No. 142, the company recorded an impairment charge of
$603,709,000 ($6.05 per share on a basic and diluted basis), which was recorded
as a cumulative effect of change in accounting principle at January 1, 2002.
The
following table presents the carrying amount of cost in excess of net assets of
companies acquired, allocated to reportable segments (in thousands):
|
Electronic Components
|
|
Computer Products
|
|
Total
|
Carrying value at December 31, 2001 |
|
$ 902,093 |
|
$ 322,190 |
|
$ 1,224,283 |
|
Cumulative effect of change in | |
accounting principle | |
(281,519 |
) |
(322,190 |
) |
(603,709 |
) |
Additions | |
88,615 |
|
|
|
88,615 |
|
Other (principally foreign currency | |
translation) | |
39,179 |
|
|
|
39,179 |
|
|
| |
| |
| |
Carrying value at December 31, 2002 | |
748,368 |
|
|
|
748,368 |
|
Additions | |
72,165 |
|
|
|
72,165 |
|
Other (principally foreign currency translation) | |
51,744 |
|
|
|
51,744 |
|
|
| |
| |
| |
Carrying value at September 30, 2003 | |
$ 872,277 |
|
$ |
|
$ 872,277 |
|
|
| |
| |
| |
10
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
The company does not have any other intangible assets subject to valuation under Statement No. 142.
Note H
Debt
During
the third quarter of 2003, the company repurchased $154,891,000 accreted amount
of zero coupon convertible debentures due in 2021, which could have been put to
the company in February 2006. The related loss on the repurchase aggregated
$3,292,000 ($1,969,000 net of related taxes or $.02 per share on a basic and
diluted basis), which includes the write-off of related deferred financing costs
offset, in part, by the discount on the repurchase. The loss on the repurchase
is recognized in the loss from continuing operations in the companys
consolidated statement of operations.
In
June 2003, the company completed the sale of $350,000,000 principal amount of
6.875% senior notes due in 2013. The net proceeds of the offering of
$346,286,000 were used to repay the companys 8.2% senior notes which
matured in October 2003 and for general corporate purposes. The additional debt
the company carried during the period between the sale of the 6.875% senior notes in June 2003
and the repayment of the 8.2% senior notes in October 2003 negatively impacted
the third quarter loss by $4,700,000 ($2,900,000 net of related taxes).
During
the first nine months of 2003, the company repurchased $84,820,000 principal
amount of 8.2% senior notes, due in October 2003. The premium paid and the
related deferred financing costs written-off upon the repurchase of this debt
aggregated $2,942,000 ($1,759,000 net of related taxes or $.02 per share on a
basic and diluted basis), and is recognized in the loss from continuing
operations in the companys consolidated statement of operations. As a
result of these transactions, net interest expense was reduced by approximately
$3,300,000 from the dates of the repurchases through the 2003 maturity date.
The
company utilized $192,010,000 of the proceeds from the 6.875% senior note
offering to repay the outstanding principal amount of the 8.2% senior notes
which matured on October 1, 2003.
During
the third quarter and first nine months of 2002, the company repurchased
$307,470,000 principal amount of senior notes, due in the fourth quarter of
2003. The premium paid and the related deferred financing costs written-off upon
the repurchase of this debt aggregated $18,776,000 ($11,641,000 net of related
taxes or $.11 per share on a basic and diluted basis), and is recognized in the
loss from continuing operations in the companys consolidated statement of
operations. As a result of these transactions, net interest expense was reduced
by approximately $26,500,000 from the dates of the repurchases through the 2003
maturity date. As required by FASB Statement No. 145, Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, the loss on extinguishment of debt, which was previously
recorded as an extraordinary item, was reclassified to the loss from continuing
operations.
In
August 2002, the company entered into a series of interest rate swaps (the
swaps) with third parties, with an aggregate notional amount of
$250,000,000, in order to hedge the change in fair value of the companys
8.7% senior notes, due in 2005, as a result of fluctuations in interest rates.
These contracts are classified as fair value hedges and mature in October 2005.
The swaps modify the companys interest rate exposure by effectively
converting the fixed 8.7% senior notes to a floating rate based on six-month
U.S. dollar LIBOR plus a spread (effective rate of 6.27% at September 30, 2003)
through their maturities. The company accounts for these fair value
11
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
hedges in
accordance with FASB Statement No. 133. The hedges were assessed as effective in
as much as the market value adjustments for the hedged notes and the swaps
directly offset each other. The fair value of the swaps at September 30, 2003
and December 31, 2002 was $11,352,000 and $9,519,000, respectively, and is
included in long-term Other assets in the accompanying consolidated
balance sheet and the offsetting adjustment to the carrying value of the debt
hedged is included in Long-term debt in the accompanying
consolidated balance sheet.
Note I
Restructuring, Integration, and Other Charges
Restructuring
During
the first nine months of 2003, the company implemented actions to become more
effectively organized and to improve its operating efficiencies, with targeted
annualized savings of $75,000,000, of which approximately $17,000,000 was
realized in the first six months of 2003 and approximately $20,000,000 was
realized in the third quarter of 2003. The estimated restructuring charges
associated with these actions total $38,500,000 with $21,242,000 ($14,407,000
net of related taxes or $.14 per share on a basic and diluted basis) recorded in
the first six months of 2003 and $9,100,000 ($6,325,000 net of related taxes or
$.06 per share on a basic and diluted basis) recorded in the third quarter of
2003. The remaining amount of approximately $8,200,000 will be recorded over the
next several quarters. Approximately $33,800,000 of the charge is expected to be
spent in cash.
The
company has taken these steps in order to make its organizational structure,
systems, and processes more efficient. The restructuring charges consisted
primarily of severance costs relating to the elimination of approximately 930
positions, or 8 percent, out of a worldwide total of 11,700 positions and a
further rationalization of the companys physical logistics network. There
was no single group of employees impacted by these restructuring actions.
Instead it impacted both exempt and non-exempt employees across multiple
locations, segments, and functions. As part of the physical logistics network
rationalization, two primary distribution centers in England will be closed, and
their operations will be centralized in the newer, state-of-the-art,
pan-European facility in Venlo, the Netherlands, over the next several months.
In addition, the primary distribution center in Brookhaven, New York will also
be closed, and customers and suppliers will be serviced out of a newer, more
efficient distribution center in Reno, Nevada. Further, the company exited its
Nordic Computer Products business serving hardware integrators and resellers in
Norway, Sweden, Denmark, and Finland.
Total
restructuring charges are comprised of the following at September 30, 2003 (in
thousands):
|
Personnel Costs
|
|
Facilities
|
|
Customer Termination
|
|
Inventory Write-Down
|
|
IT and Other
|
|
Total
|
December 2001 (a) |
|
$ 4,921 |
|
$ 10,529 |
|
$ 24,200 |
|
$ 71,155 |
|
$ 5,756 |
|
$ 116,561 |
|
Reclassification | |
1,028 |
|
|
|
(2,097 |
) |
|
|
1,069 |
|
|
|
Payments | |
(5,949 |
) |
(1,945 |
) |
|
|
|
|
(2,982 |
) |
(10,876 |
) |
Non-cash usage | |
|
|
|
|
(16,738 |
) |
(64,158 |
) |
(864 |
) |
(81,760 |
) |
|
| |
| |
| |
| |
| |
| |
December 2002 | |
|
|
8,584 |
|
5,365 |
|
6,997 |
|
2,979 |
|
23,925 |
|
Additions (b) | |
19,499 |
|
5,169 |
|
|
|
1,359 |
|
4,315 |
|
30,342 |
|
Payments | |
(13,010 |
) |
(2,106 |
) |
|
|
|
|
(1,661 |
) |
(16,777 |
) |
Non-cash usage | |
|
|
|
|
|
|
(6,997 |
) |
(3,059 |
) |
(10,056 |
) |
|
| |
| |
| |
| |
| |
| |
September 2003 | |
$ 6,489 |
|
$ 11,647 |
|
$ 5,365 |
|
$ 1,359 |
|
$ 2,574 |
|
$ 27,434 |
|
|
| |
| |
| |
| |
| |
| |
|
(a) |
|
Represents costs associated with the restructuring charge recorded in the third
quarter of 2001. |
12
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
(b) |
|
Represents costs associated with the restructuring charges recorded in the first
nine months of 2003. |
Integration
In the
first quarter of 2003, the company recorded integration costs of $18,407,000
($14,063,000 net of related taxes) related to the acquisition of IED. Of the
total amount recorded, $6,904,000 ($4,822,000 net of related taxes or $.05 per
share on a basic and diluted basis), relating primarily to severance costs for
the companys employees, was charged to the loss from continuing operations
and $11,503,000 ($9,241,000 net of related taxes) relating primarily to
severance costs for IED employees and professional fees, was recorded as
additional goodwill. Approximately $18,200,000 of the integration costs is
expected to be spent in cash.
Total
integration charges, comprised of the integration charge recorded in connection
with the acquisition of IED together with various integration charges related to
previous acquisitions, are comprised of the following at September 30, 2003 (in
thousands):
|
Personnel Costs
|
Facilities
|
Asset Write-Down
|
IT and Other
|
Total
|
December 2001 (a) |
|
$ 5,725 |
|
$ 19,421 |
|
$ 2,422 |
|
$ 15,237 |
|
$ 42,805 |
|
Payments | |
(2,972 |
) |
(3,079 |
) |
(189 |
) |
(5,308 |
) |
(11,548 |
) |
Reversals | |
|
|
(7 |
) |
|
|
(407 |
) |
(414 |
) |
Foreign currency translation | |
259 |
|
(1,153 |
) |
(223 |
) |
1,108 |
|
(9 |
) |
Non-cash usage | |
|
|
(30 |
) |
(1,573 |
) |
(2,406 |
) |
(4,009 |
) |
| |
|
|
|
|
|
|
|
|
|
|
December 2002 | |
3,012 |
|
15,152 |
|
437 |
|
8,224 |
|
26,825 |
|
Additions (b) | |
10,211 |
|
|
|
|
|
8,196 |
|
18,407 |
|
Payments | |
(10,087 |
) |
(2,709 |
) |
|
|
(6,981 |
) |
(19,777 |
) |
Reversals | |
|
|
|
|
|
|
(680 |
) |
(680 |
) |
Foreign currency translation | |
3 |
|
(40 |
) |
(59 |
) |
(94 |
) |
(190 |
) |
Non-cash usage | |
|
|
|
|
(89 |
) |
(1,426 |
) |
(1,515 |
) |
| |
|
|
|
|
|
|
|
|
|
|
September 2003 | |
$ 3,139 |
|
$ 12,403 |
|
$ 289 |
|
$ 7,239 |
|
$ 23,070 |
|
| |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents costs associated with various prior acquisitions. |
(b) |
|
Represents
costs associated with the acquisition and integration of IED. |
The
remaining restructuring and integration charges of $50,504,000 as of September
30, 2003, of which $36,132,000 is expected to be spent in cash, will be utilized
as follows:
|
|
The personnel accruals of $9,628,000 will be principally utilized to cover
costs associated with the termination of personnel resulting from the 2003
restructurings and the IED acquisition, as well as international personnel costs
relating to prior restructurings which are expected to be spent over the next 12
months. |
|
|
The facilities accruals totaling $24,050,000 relate to terminated leases with
expiration dates through 2010. Approximately $2,567,000 is expected to be paid
before the end of 2003. The minimum lease payments for these leases are
approximately $7,296,000 in 2004, $5,612,000 in 2005, $4,887,000 in 2006,
$1,283,000 in 2007, and $2,405,000 thereafter. |
13
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
|
|
The customer termination accrual of $5,365,000 relates to costs associated
with the termination of certain customer programs principally related to
services not traditionally provided by the company and is expected to be
utilized by the end of 2004. |
|
|
Asset and inventory write-downs of $1,648,000 relate primarily to fixed assets,
leasehold improvements, and inventory write-downs, the majority of which are
expected to be utilized by the end of 2003. |
|
|
IT and Other of $9,813,000 primarily represents leases for hardware and
software, consulting contracts for logistics services, and professional fees
related to investment banking and legal and accounting services with expected
utilization dates through 2005. Approximately $4,386,000 is expected to be
utilized in 2003, $3,727,000 in 2004, and $1,700,000 in 2005. |
Acquisition Indemnification
In
April 2000, the company purchased Tekelec Europe SA (Tekelec), a
French company, from Tekelec Airtronic SA (Airtronic) and certain
other selling shareholders. Pursuant to the share purchase agreement, Airtronic
agreed to indemnify the company against certain liabilities. Since the closing
of the acquisition, Tekelec has received (i) claims by the French tax
authorities relating to alleged fraudulent activities intended to avoid the
payment of value-added tax in respect of periods prior to closing in the amount
of 11,327,000 ($13,002,000 at the quarter-end exchange rate), including
penalties and interest (the VAT Matter); (ii) a product liability
claim in the amount of 11,333,000 ($13,008,000); and (iii) claims for
damages from certain former employees of Tekelec for wrongful dismissal or
additional compensation in the amount of 467,000 ($536,000). Tekelec has
notified Airtronic of these claims and invoked its right to indemnification
under the purchase agreement.
The
VAT Matter is currently the subject of administrative proceedings in France, and
Airtronic has elected to assume the defense of this claim, in accordance with
the terms of the purchase agreement, and has asserted certain defenses to the
claim. In September 2003, the French courts confirmed the criminal conviction of
the son of the former president of Airtronic, who was an employee of Tekelec
prior to the acquisition, for tax fraud involving conduct similar in part to
that alleged in connection with the tax claim against Tekelec.
The
product liability claim is subject to French legal proceedings under which
separate determinations are made as to whether the products were defective and
the amount of damages sustained by the purchaser. The manufacturer of the
product is also a party to these proceedings. Arrow believes that it has valid
defenses to this claim and intends to vigorously defend these proceedings.
During
2003, judgments were rendered in favor of the former employees and Tekelec,
while appealing, has been ordered to pay damages in the amount of 364,000
($418,000). This amount has previously been accrued by the company in connection
with the accounting for the acquisition of Tekelec. Tekelec has demanded payment
of this amount from Airtronic and received in response a letter, dated October
8, 2003, asserting that the indemnification provisions of the purchase agreement
are not enforceable. The company has been advised by counsel that the
indemnification provisions are enforceable and intends to pursue its rights for
indemnification vigorously.
Airtronic,
a privately held French company, has recently obtained an extension until
December 31, 2003 to file its 2002 financial statements. Consequently, no
current financial information about Airtronic is available. In light of the
14
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
companys current inability to assess Airtronics ability to fulfill
its obligations under the indemnity with respect to the VAT Matter, an
acquisition indemnification charge of $13,002,000 ($.13 per share on a basic and
diluted basis) was recognized.
Note J
Loss Per Share
The
following table sets forth the calculation of basic and diluted loss per share
(EPS) (in thousands except per share data):
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|
2003 (a)
|
2002 (b)
|
2003 (c)
|
2002 (d)
|
Loss from continuing operations |
|
$ (6,234 |
) |
$(11,117 |
) |
$ (312 |
) |
$ (8,456 |
) |
Loss from discontinued operations, net of | |
taxes | |
|
|
|
|
|
|
(5,911 |
) |
| |
|
|
|
|
|
|
|
|
Loss before cumulative effect of | | | | | | | | | |
change in accounting principle | |
(6,234 |
) |
(11,117 |
) |
(312 |
) |
(14,367 |
) |
Cumulative effect of change in accounting | |
principle | |
|
|
|
|
|
|
(603,709 |
) |
| |
|
|
|
|
|
|
|
|
Net loss | |
$ (6,234 |
) |
$(11,117 |
) |
$ (312 |
) |
$(618,076 |
) |
| |
|
|
|
|
|
|
|
|
Net loss per basic and diluted share: | |
Loss from continuing operations | |
$ (.06 |
) |
$ (.11 |
) |
$ |
|
$ (.09 |
) |
Loss from discontinued operations | |
|
|
|
|
|
|
(.06 |
) |
Cumulative effect of change in | | | | | | | | | |
accounting principle | |
|
|
|
|
|
|
(6.05 |
) |
| |
|
|
|
|
|
|
|
|
Net loss per basic and diluted share (e) | |
$ (.06 |
) |
$ (.11 |
) |
$ |
|
$ (6.20 |
) |
| |
|
|
|
|
|
|
|
|
Weighted average shares outstanding for | | | | | | | | | |
basic and diluted EPS | |
100,142 |
|
99,874 |
|
100,073 |
|
99,737 |
|
| |
|
|
|
|
|
|
|
|
(a) |
|
Includes an acquisition indemnification charge of $13,002,000 ($.13 per share on
a basic and diluted basis), a restructuring charge of $9,100,000 ($6,325,000 net
of related taxes or $.06 per share on a basic and diluted basis), and a loss on
prepayment of debt of $3,292,000 ($1,969,000 net of related taxes or $.02 per
share on a basic and diluted basis). |
(b) |
|
Includes a loss on prepayment of debt of $18,776,000 ($11,641,000 net of related
taxes or $.11 per share on a basic and diluted basis). |
(c) |
|
Includes an acquisition indemnification charge of $13,002,000 ($.13 per share on
a basic and diluted basis), restructuring charges of $30,342,000 ($20,732,000
net of related taxes or $.21 per share on a basic and diluted basis), an
integration charge of $6,904,000 ($4,822,000 net of related taxes or $.05 per
share on a basic and diluted basis), and a loss on prepayment of debt of
$6,234,000 ($3,728,000 net of related taxes or $.04 per share on a basic and
diluted basis). |
(d) |
|
Includes a severance charge of $5,375,000 ($3,214,000 net of related taxes or
$.03 per share on a basic and diluted basis), and a loss on prepayment of debt
of $18,776,000 ($11,641,000 net of related taxes or $.11 per share on a basic
and diluted basis). |
15
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
(e) |
|
Diluted EPS for the three and nine months ended September 30, 2003 excludes the
effect of 16,736,000 and 17,733,000 shares, respectively, related to convertible
debentures. Diluted EPS for the three and nine months ended September 30, 2002
excludes the effect of 18,242,000 shares related to convertible debentures. In
addition, the effect of options to purchase 8,074,000 and 8,347,000 shares for
the three and nine months ended September 30, 2003, respectively, were excluded
from the calculation and
the effect of options to purchase 8,717,000 and 5,395,000 shares for the three and nine
months ended September 30, 2002, respectively, were excluded from the calculation. The
impact of such common stock equivalents are excluded from the calculation of EPS on a
diluted basis as their effect is anti-dilutive. |
Note K
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 September 30,
|
For the Nine Months Ended September 30,
|
|
2003 (a)
|
2002 (b)
|
2003 (c)
|
2002 (d)
|
Net loss |
|
$(6,234 |
) |
$(11,117 |
) |
$ (312 |
) |
$(618,076 |
) |
Foreign currency translation adjustment (e) | |
9,202 |
|
(5,571 |
) |
111,606 |
|
57,227 |
|
Unrealized gain (loss) on securities | |
2,295 |
|
(1,600 |
) |
2,851 |
|
(900 |
) |
| |
|
|
|
|
|
|
|
|
Comprehensive income (loss) | |
$ 5,263 |
|
$(18,288 |
) |
$ 114,145 |
|
$(561,749 |
) |
| |
|
|
|
|
|
|
|
|
(a) |
|
Includes an acquisition indemnification charge of $13,002,000 ($.13 per share on
a basic and diluted basis), a restructuring charge of $9,100,000 ($6,325,000 net
of related taxes or $.06 per share on a basic and diluted basis), and a loss on
prepayment of debt of $3,292,000 ($1,969,000 net of related taxes or $.02 per
share on a basic and diluted basis). |
(b) |
|
Includes a loss on prepayment of debt of $18,776,000 ($11,641,000 net of related
taxes or $.11 per share on a basic and diluted basis). |
(c) |
|
Includes an acquisition indemnification charge of $13,002,000 ($.13 per share on
a basic and diluted basis), restructuring charges of $30,342,000 ($20,732,000
net of related taxes or $.21 per share on a basic and diluted basis), an
integration charge of $6,904,000 ($4,822,000 net of related taxes or $.05 per
share on a basic and diluted basis), and a loss on prepayment of debt of
$6,234,000 ($3,728,000 net of related taxes or $.04 per share on a basic and
diluted basis). |
(d) |
|
Includes a severance charge of $5,375,000 ($3,214,000 net of related taxes or
$.03 per share on a basic and diluted basis), and a loss on prepayment of debt
of $18,776,000 ($11,641,000 net of related taxes or $.11 per share on a basic
and diluted basis), a loss from discontinued operations of $5,911,000 net of
taxes ($.06 per share on a basic and diluted basis), and a cumulative effect of
change in accounting principle of $603,709,000 ($6.05 per share on a basic and
diluted basis). |
(e) |
|
The foreign currency translation adjustment has not been tax effected as
investments in foreign affiliates are deemed to be permanent. |
16
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
Note L
Employee Stock Plans
The
company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for
its various stock option plans (option plans). If compensation
expense for the companys option plans had been determined based upon fair
value at the grant dates for awards under the option plans in accordance with
FASB Statement No. 123, Accounting for Stock-Based Compensation, the
companys pro forma net loss and basic and diluted loss per share would
have been as follows (in thousands except per share data):
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|
2003
|
2002
|
2003
|
2002
|
Net loss, as reported |
|
$(6,234 |
) |
$(11,117 |
) |
$ (312 |
) |
$(618,076 |
) |
Less: Impact of stock-based employee | |
compensation expense determined | |
under fair value method, net of | |
related taxes | |
(2,454 |
) |
(2,427 |
) |
(7,567 |
) |
(7,705 |
) |
| |
|
|
|
|
|
|
|
|
Pro forma net loss | |
$(8,688 |
) |
$(13,544 |
) |
$(7,879 |
) |
$(625,781 |
) |
| |
|
|
|
|
|
|
|
|
Net loss per basic and diluted | |
share: | |
As reported | |
$ (.06 |
) |
$ (.11 |
) |
$ |
|
$ (6.20 |
) |
| |
|
|
|
|
|
|
|
|
Pro forma | |
$ (.09 |
) |
$ (.14 |
) |
$ (.08 |
) |
$ (6.27 |
) |
| |
|
|
|
|
|
|
|
|
Note M
Contingencies
In
April 2000, the company purchased Tekelec, a French company, from Airtronic and
certain other selling shareholders. Pursuant to the share purchase agreement,
Airtronic agreed to indemnify the company against certain liabilities. Since the
closing of the acquisition, Tekelec has received (i) claims by the French tax
authorities relating to alleged fraudulent activities intended to avoid the
payment of value-added tax in respect of periods prior to closing in the amount
of 11,327,000 ($13,002,000 at the quarter-end exchange rate), including
penalties and interest (the VAT Matter); (ii) a product liability
claim in the amount of 11,333,000 ($13,008,000); and (iii) claims for
damages from certain former employees of Tekelec for wrongful dismissal or
additional compensation in the amount of 467,000 ($536,000). Tekelec has
notified Airtronic of these claims and invoked its right to indemnification
under the purchase agreement.
The
VAT Matter is currently the subject of administrative proceedings in France, and
Airtronic has elected to assume the defense of this claim, in accordance with
the terms of the purchase agreement, and has asserted certain defenses to the
claim. In September 2003, the French courts confirmed the criminal conviction of
the son of the former president of Airtronic, who was an employee of Tekelec
prior to the acquisition, for tax fraud involving conduct similar in part to
that alleged in connection with the tax claim against Tekelec.
The
product liability claim is subject to French legal proceedings under which
separate determinations are made as to whether the products were defective and
the amount of damages sustained by the purchaser. The manufacturer of the
product is also a party to these proceedings. Arrow believes that it has valid
defenses to this claim and intends to vigorously defend these proceedings.
17
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
During
2003, judgments were rendered in favor of the former employees and Tekelec,
while appealing, has been ordered to pay damages in the amount of 364,000
($418,000). This amount has previously been accrued by the company in connection
with the accounting for the acquisition of Tekelec. Tekelec has demanded payment
of this amount from Airtronic and received in response a letter, dated October
8, 2003, asserting that the indemnification provisions of the purchase agreement
are not enforceable. The company has been advised by counsel that the
indemnification provisions are enforceable and intends to pursue its rights for
indemnification vigorously.
Airtronic,
a privately held French company, has recently obtained an extension until
December 31, 2003 to file its 2002 financial statements. Consequently, no
current financial information about Airtronic is available. In light of the
companys current inability to assess Airtronics ability to fulfill
its obligations under the indemnity with respect to the VAT Matter, an
acquisition indemnification charge of $13,002,000 ($.13 per share on a basic and
diluted basis) was recognized.
In
connection with the purchase of Wyle Electronics (Wyle) from the
VEBA group in 2000, the company assumed the then outstanding obligations of
Wyle. In 1994, Wyle sold one of its divisions, Wyle Laboratories, an engineering
unit specializing in the testing of military, aerospace, and commercial
products. As a result, among the Wyle obligations the company assumed was
Wyles indemnification of the purchasers of Wyle Laboratories for any
environmental clean-up costs associated with then existing contamination or
violation of environmental regulations. Under the terms of the companys
subsequent purchase of Wyle from VEBA, VEBA agreed to indemnify the company for
costs related to environmental pollution associated with Wyle, including those
associated with its prior sale of Wyle Laboratories.
The
company is aware of two Wyle Laboratories facilities at which contaminated
groundwater has been identified, with respect to each of which remediation, in
form and cost are as yet undetermined, may be required. In addition, Wyle
Laboratories has been named a defendant in a putative class action regarding,
among other things, the environmental impact of its past operations at one of
those sites, at Norco, California. The company and Wyle Laboratories have
entered into a voluntary consent decree with the California Department of Toxic
Substance Control regarding the clean-up at Norco. The scope of work under the
consent decree has not yet been finalized and the associated costs have
therefore not yet been determined. Wyle Laboratories has demanded
indemnification with respect to the sites and the litigation, and the company
has, in turn, demanded indemnification from VEBA. VEBA merged with another large
German publicly-traded conglomerate in June 2000 and the combined entity is now
known as E.ON AG, which remains responsible for VEBAs liabilities. In
2002, E.ON AG had sales of 37,000,000,000 (approximately $34,879,000,000
at the 2002 average exchange rate) and assets in excess of 113,000,000,000
(approximately $117,954,000,000 at the year-end exchange rate). E.ON AG has yet
to acknowledge liability in respect of the Wyle sites, and discussions between
E.ON AG and the company are ongoing.
In
addition, the United States Environmental Protection Agency has named the
company as a de minimis potentially responsible party at a Superfund site in
Whittier, California in connection with Wyles transmission of certain
materials to a recycling operation prior to 1995.
The
company believes that any cost which it may incur in connection with potential
remediation at the Wyle Laboratories sites or the Whittier, California Superfund
site and any related litigation is covered by the VEBA indemnification (except,
under the terms thereof, for 15 percent of the first $3,000,000 of all
environmental claims in the aggregate, or $450,000). Further, the company
believes that even in the absence of the VEBA
18
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
indemnification, potential
remediation costs associated with the sites would not have a material adverse
impact on the companys financial position, liquidity, or results of
operations.
From time to
time in the normal course of business the company may become liable with respect to
other pending and threatened litigation, environmental, and tax matters. It is not
anticipated that any such matters will have a material adverse impact on the companys
financial position, liquidity, or results of operations.
Note N
Segment and Geographic Information
The
company is engaged in the distribution of electronic components to OEMs and
computer products to value-added resellers and OEMs. As a result of the
companys philosophy of maximizing operating efficiencies through the
centralization of certain functions, selected fixed assets and related
depreciation, as well as borrowings, are not directly attributable to the
individual operating segments. Computer products includes NACP together with
Nordic Microtronica, UK Microtronica, ATD (in Iberia), and Arrow Computer
Products (in France). Certain prior year amounts have been reclassified to
conform with current year presentation.
Revenues
and operating income, by segment, are as follows (in thousands):
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|
2003 (a)
|
2002
|
2003 (b)
|
2002 (c)
|
Revenues: |
|
|
|
|
|
|
|
|
|
Electronic Components | |
$ 1,578,987 |
|
$ 1,315,337 |
|
$ 4,643,426 |
|
$ 4,004,983 |
|
Computer Products | |
516,258 |
|
496,002 |
|
1,555,063 |
|
1,494,212 |
|
| |
|
|
|
|
|
|
|
|
Consolidated | |
$ 2,095,245 |
|
$ 1,811,339 |
|
$ 6,198,489 |
|
$ 5,499,195 |
|
| |
|
|
|
|
|
|
|
|
Operating income: | |
Electronic Components | |
$ 61,940 |
|
$ 44,291 |
|
$ 166,551 |
|
$ 143,676 |
|
Computer Products | |
13,349 |
|
10,333 |
|
47,640 |
|
34,987 |
|
Corporate | |
(41,105 |
) |
(16,802 |
) |
(104,377 |
) |
(55,754 |
) |
| |
|
|
|
|
|
|
|
|
Consolidated | |
$ 34,184 |
|
$ 37,822 |
|
$ 109,814 |
|
$ 122,909 |
|
| |
|
|
|
|
|
|
|
|
(a) |
|
Corporate includes an acquisition indemnification charge of $13,002,000 and a
restructuring charge of $9,100,000. |
(b) |
|
Corporate includes an acquisition indemnification charge of $13,002,000,
restructuring charges of $30,342,000, and an integration charge of $6,904,000. |
(c) |
|
Corporate includes a severance charge of $5,375,000. |
Total assets, by segment, are as follows (in thousands):
|
September 30, 2003
|
|
December 31, 2002
|
|
Electronic Components |
|
|
$3,789,379 |
|
|
$3,404,156 |
|
Computer Products | |
|
545,356 |
|
|
609,652 |
|
Corporate | |
|
701,620 |
|
|
653,797 |
|
| |
|
|
|
|
|
|
Consolidated | |
|
$5,036,355 |
|
|
$4,667,605 |
|
| |
|
|
|
|
|
|
19
ARROW
ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2003
(Unaudited)
Revenues,
by geographic area, are as follows (in thousands):
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|
2003
|
2002
|
2003
|
2002
|
Americas |
|
$1,257,484 |
|
$1,067,623 |
|
$3,585,146 |
|
$3,216,810 |
|
Europe | |
642,056 |
|
587,050 |
|
2,040,589 |
|
1,798,575 |
|
Asia/Pacific | |
195,705 |
|
156,666 |
|
572,754 |
|
483,810 |
|
| |
|
|
|
|
|
|
|
|
Consolidated | |
$2,095,245 |
|
$1,811,339 |
|
$6,198,489 |
|
$5,499,195 |
|
| |
|
|
|
|
|
|
|
|
Total
assets, by geographic area, are as follows (in thousands):
|
September 30, 2003
|
|
December 31, 2002
|
|
Americas |
|
|
$2,863,008 |
|
|
$2,619,996 |
|
Europe | |
|
1,799,848 |
|
|
1,717,709 |
|
Asia/Pacific | |
|
373,499 |
|
|
329,900 |
|
| |
|
|
|
|
|
|
Consolidated | |
|
$5,036,355 |
|
|
$4,667,605 |
|
| |
|
|
|
|
|
|
20
Item
2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Sales
Consolidated
sales of $2.1 billion and $6.2 billion for the third quarter and first nine
months of 2003, respectively, increased by $283.9 million (15.7 percent) and
$699.3 million (12.7 percent), respectively, compared with the year-earlier
periods. Sales in the Americas increased by $191.4 million (18.0 percent) and
$367.7 million (11.5 percent), respectively, in the third quarter and first nine
months of 2003 compared with the year-earlier periods principally due to an
increase in sales of electronic components. European sales increased by $55.0
million (9.4 percent) and $242.0 million (13.5 percent), respectively, in the
third quarter and first nine months of 2003 compared with the year-earlier
periods principally as a result of the impact of a weakening U.S. dollar on the
translation of the companys European financial statements. Asia/Pacific
sales increased by $39.0 million (24.9 percent) and $88.9 million (18.4
percent), respectively, in the third quarter and first nine months of 2003
compared with the year-earlier periods as a result of improved market
conditions, as well as the companys increased focus in this region. The
consolidated increase in sales was impacted by the translation of the
companys international financial statements into U.S. dollars which
resulted in increased revenues of $63.1 million and $268.4 million in the third
quarter and first nine months of 2003, respectively, compared with the
year-earlier periods, due to a weakening U.S. dollar.
Sales
of electronic components increased by $263.7 million (20.0 percent) and $638.4
million (15.9 percent) for the third quarter and first nine months of 2003,
respectively, compared with the year-earlier periods. Sales in the North
American Components business increased by 26.1 percent and 16.0 percent for the
third quarter and first nine months of 2003, respectively, compared with the
year-earlier periods. This increase was primarily a result of the acquisition of
the Industrial Electronics Division (IED) of Pioneer-Standard
Electronics, Inc. in late February 2003. The remaining factors impacting the
overall increase in worldwide sales of electronics components include the
aforementioned impact of foreign exchange and increased sales in the
Asia/Pacific region as well as increased sales to North American contract
manufacturers.
Computer
products sales for the third quarter and first nine months of 2003 increased by
$20.3 million (4.1 percent) and $60.9 million (4.1 percent), respectively,
compared with the year-earlier periods. Sales in the North America Enterprise
Computing Solutions business increased by 9.1 percent and 13.0 percent for the
third quarter and first nine months of 2003, respectively, compared with the
year-earlier periods. Sales in the computer products original equipment
manufacturers (OEM) business increased by 11.7 percent and 8.3
percent, respectively, for the third quarter and first nine months of 2003
compared with the year-earlier periods. The OEM market continues to be impacted
by reduced activity levels at large complex telecommunications and networking
companies. These increases were offset, in part, by the decrease in sales of the
Nordic Computer Products business of 61.3 percent and 20.3 percent for the third
quarter and nine months of 2003, respectively, compared with the year-earlier
periods, resulting from the disposal of this business in the current
quarter.
Gross Profit
The company
recorded gross profit of $343.6 million and $1.0 billion, respectively, in the third
quarter and first nine months of 2003, compared with gross profit of $308.6 million and
$942.7 million in the respective year-earlier periods. The increase in gross profit was
principally due to the increase in sales in the third quarter and first nine months of
2003. The gross profit margin for the third quarter and first nine months of 2003
decreased by approximately 60 basis points and 40 basis points, respectively, when
compared with the year-earlier periods. The decrease in gross profit
21
percentage was due primarily
to margin pressures in the components businesses around the world.
Restructuring,
Integration, and Other Charges
Restructuring
During
the first nine months of 2003, the company implemented actions to become more
effectively organized and to improve its operating efficiencies, with targeted
annualized savings of $75.0 million, of which approximately $17.0 million was
realized in the first six months of 2003 and approximately $20.0 million was
realized in the third quarter of 2003. The estimated restructuring charges
associated with these actions total $38.5 million with $21.2 million ($14.4
million net of related taxes or $.14 per share on a basic and diluted basis)
recorded in the first six months of 2003 and $9.1 million ($6.3 million net of
related taxes or $.06 per share on a basic and diluted basis) recorded in the
third quarter of 2003. The remaining amount of approximately $8.2 million will
be recorded over the next several quarters. Approximately $33.8 million of the
charge is expected to be spent in cash.
The
company has taken these steps in order to make its organizational structure,
systems, and processes more efficient. The restructuring charges consisted
primarily of severance costs relating to the elimination of approximately 930
positions, or 8 percent, out of a worldwide total of 11,700 positions and a
further rationalization of the companys physical logistics network. There
was no single group of employees impacted by these restructuring actions.
Instead it impacted both exempt and non-exempt employees across multiple
locations, segments, and functions. As part of the physical logistics network
rationalization, two primary distribution centers in England will be closed, and
their operations will be centralized in the newer, state-of-the-art,
pan-European facility in Venlo, the Netherlands, over the next several months.
In addition, the primary distribution center in Brookhaven, New York will also
be closed, and customers and suppliers will be serviced out of a newer, more
efficient distribution center in Reno, Nevada. Further, the company exited its
Nordic Computer Products business serving hardware integrators and resellers in
Norway, Sweden, Denmark, and Finland.
Integration
In the
first quarter of 2003, the company recorded integration costs of $18.4 million
($14.1 million net of related taxes) related to the acquisition of IED. Of the
total amount recorded, $6.9 million ($4.8 million net of related taxes or $.05
per share on a basic and diluted basis), relating primarily to severance costs
for the companys employees, was charged to the loss from continuing
operations and $11.5 million ($9.2 million net of related taxes) relating
primarily to severance costs for IED employees and professional fees, was
recorded as additional goodwill. Approximately $18.2 million of the integration
costs is expected to be spent in cash.
The
remaining restructuring and integration charges of $50.5 million as of September
30, 2003, of which $36.1 million is expected to be spent in cash, will be
utilized as follows:
|
|
The personnel accruals of $9.6 million will be principally utilized to cover
costs associated with the termination of personnel resulting from the 2003
restructurings and the IED acquisition, as well as international personnel costs
relating to prior restructurings which are expected to be spent over the next 12
months. |
|
|
The facilities accruals totaling $24.1 million relate to terminated leases with
expiration dates through 2010. Approximately $2.6 million is expected to be paid
before the end of 2003. The minimum lease payments for these leases are
approximately $7.3 million in 2004, $5.6 million in 2005, $4.9 million in 2006,
$1.3 million in 2007, and $2.4 million thereafter. |
22
|
|
The customer termination accrual of $5.4 million relates to costs associated
with the termination of certain customer programs principally related to
services not traditionally provided by the company and is expected to be
utilized by the end of 2004. |
|
|
Asset and inventory write-downs of $1.6 million relate primarily to fixed
assets, leasehold improvements, and inventory write-downs, the majority of which
are expected to be utilized by the end of 2003. |
|
|
IT and Other of $9.8 million primarily represents leases for hardware and
software, consulting contracts for logistics services, and professional fees
related to investment banking and legal and accounting services with expected
utilization dates through 2005. Approximately $4.4 million is expected to be
utilized in 2003, $3.7 million in 2004, and $1.7 million in 2005. |
Acquisition
Indemnification
In
April 2000, the company purchased Tekelec Europe SA (Tekelec), a
French company, from Tekelec Airtronic SA (Airtronic) and certain
other selling shareholders. Pursuant to the share purchase agreement, Airtronic
agreed to indemnify the company against certain liabilities. Since the closing
of the acquisition, Tekelec has received (i) claims by the French tax
authorities relating to alleged fraudulent activities intended to avoid the
payment of value-added tax in respect of periods prior to closing in the amount
of 11.3 million ($13.0 million at the quarter-end exchange rate),
including penalties and interest (the VAT Matter); (ii) a product
liability claim in the amount of 11.3 million ($13.0 million); and (iii)
claims for damages from certain former employees of Tekelec for wrongful
dismissal or additional compensation in the amount of .5 million ($.5
million). Tekelec has notified Airtronic of these claims and invoked its right
to indemnification under the purchase agreement.
The
VAT Matter is currently the subject of administrative proceedings in France, and
Airtronic has elected to assume the defense of this claim, in accordance with
the terms of the purchase agreement, and has asserted certain defenses to the
claim. In September 2003, the French courts confirmed the criminal conviction of
the son of the former president of Airtronic, who was an employee of Tekelec
prior to the acquisition, for tax fraud involving conduct similar in part to
that alleged in connection with the tax claim against Tekelec.
The
product liability claim is subject to French legal proceedings under which
separate determinations are made as to whether the products were defective and
the amount of damages sustained by the purchaser. The manufacturer of the
product is also a party to these proceedings. Arrow believes that it has valid
defenses to this claim and intends to vigorously defend these proceedings.
During
2003, judgments were rendered in favor of the former employees and Tekelec,
while appealing, has been ordered to pay damages in the amount of .4
million ($.4 million). This amount has previously been accrued by the company in
connection with the accounting for the acquisition of Tekelec. Tekelec has
demanded payment of this amount from Airtronic and received in response a
letter, dated October 8, 2003, asserting that the indemnification provisions of
the purchase agreement are not enforceable. The company has been advised by
counsel that the indemnification provisions are enforceable and intends to
pursue its rights for indemnification vigorously.
Airtronic, a
privately held French company, has recently obtained an extension until December 31,
2003 to file its 2002 financial statements. Consequently, no current financial
information about Airtronic is available. In light of the companys current
inability to assess Airtronics ability to fulfill its obligations under the
indemnity with respect to the VAT Matter, an acquisition indemnification
charge of $13.0 million ($.13 per share on a basic and diluted basis) was recognized.
23
Loss on
Prepayment of Debt
During
the third quarter of 2003, the company repurchased $154.9 million accreted
amount of zero coupon convertible debentures due in 2021, which could have been
put to the company in February 2006. The related loss on the repurchase
aggregated $3.3 million ($2.0 million net of related taxes or $.02 per share on
a basic and diluted basis), which includes the write-off of related deferred
financing costs offset, in part, by the discount on the repurchase. The loss on
the repurchase is recognized in the loss from continuing operations in the
companys consolidated statement of operations.
During
the first nine months of 2003, the company repurchased $84.8 million principal
amount of 8.2% senior notes, due in October 2003. The premium paid and the
related deferred financing costs written-off upon the repurchase of this debt
aggregated $2.9 million ($1.8 million net of related taxes or $.02 per share on
a basic and diluted basis), and is recognized in the loss from continuing
operations in the companys consolidated statement of operations. As a
result of these transactions, net interest expense was reduced by approximately
$3.3 million from the dates of the repurchases through the 2003 maturity date.
During
the third quarter and first nine months of 2002, the company repurchased $307.5
million principal amount of senior notes, due in the fourth quarter of 2003. The
premium paid and the related deferred financing costs written-off upon the
repurchase of this debt aggregated $18.8 million ($11.6 million net of related
taxes or $.11 per share on a basic and diluted basis), and is recognized in the
loss from continuing operations in the companys consolidated statement of
operations. As a result of these transactions, net interest expense was reduced
by approximately $26.5 million from the dates of the repurchases through the
2003 maturity date. As required by FASB Statement No. 145, Recission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, the loss on extinguishment of debt, which was
previously recorded as an extraordinary item, was reclassified to the loss from
continuing operations.
Discontinued
Operations
In May
2002, the company sold substantially all of the assets of Gates/Arrow, a
business unit within the companys North American Computer Products group
that sold commodity computer products such as printers, monitors, other
peripherals, and software to value-added resellers in North America. The total
cash proceeds of $42.9 million, after price adjustments, have been collected.
The assets sold consisted primarily of accounts receivable, inventories, and
property and equipment. The buyer also assumed certain liabilities.
The
disposition of the Gates/Arrow operation represents a disposal of a
component of an entity as defined in Financial Accounting Standards
Board (FASB) Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Accordingly, the first nine months of
2002 includes income from discontinued operations of $.2 million, net of related
taxes.
The
company recorded a loss of $6.1 million (net of related taxes of $4.1 million or
$.06 per share on a basic and diluted basis) on the disposal of Gates/Arrow.
Change in
Accounting Principle
In
June 2001, the 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.
24
As
required by Statement No. 142, the company completed the two steps required to
identify and measure goodwill impairment for each reporting unit as of January
1, 2002. The first step involved identifying all reporting units with carrying
values (including goodwill) in excess of fair value determined by reference to
comparable businesses using a weighted average EBIT multiple. The reporting
units identified from the first step were then measured for impairment by
comparing the units fair value to their carrying value. Those reporting
units having a carrying value substantially exceeding their fair value were
identified as being fully impaired, and the company fully wrote down the related
goodwill. For reporting units with potential impairment, the company determined
the fair value of the assets and liabilities of the unit and wrote down the
goodwill to its implied fair value accordingly. The majority of the reporting
units assets and liabilities were inventory, accounts receivable, accounts
payable, and accrued expenses, which are carried at fair value. No other
impairment indicators have arisen since January 1, 2002. All remaining and
future acquired goodwill will be subject to an impairment test in the fourth
quarter of each year, or earlier if indicators of potential impairment exist.
As a
result of the evaluation process performed during the second quarter of 2002 as
required by Statement No. 142, the company recorded an impairment charge of
$603.7 million ($6.05 per share on a basic and diluted basis), which was
recorded as a cumulative effect of change in accounting principle at January 1,
2002.
Operating Income
The
company recorded operating income of $34.2 million and $109.8 million in the
third quarter and first nine months of 2003, respectively, compared with
operating income of $37.8 million and $122.9 million in the respective
year-earlier periods. Included in operating income for the third quarter of 2003
are the aforementioned acquisition indemnification charge of $13.0 million and
restructuring charge of $9.1 million. Included in operating income for the first
nine months of 2003 are the aforementioned acquisition indemnification charge of
$13.0 million, restructuring charges of $30.3 million, and integration charge of
$6.9 million. The first nine months of 2002 include the aforementioned severance
charge of $5.4 million.
The
decrease in operating income for the third quarter of 2003 compared with the
year-earlier period is primarily due to the aforementioned integration,
restructuring, and acquisition indemnification charges, offset in part by the
increase in sales and reduction of operating expenses as a percentage of sales.
Operating income for the first nine months of 2003 decreased as compared to the
year-earlier period primarily as a result of the aforementioned acquisition
indemnification, integration, and restructuring charges recorded in 2003.
Operating
expenses increased by $38.6 million and $104.1 million in the third quarter and first
nine months of 2003, respectively, compared with the year-earlier periods. The increase
in operating expenses is principally due to the aforementioned charges, the acquisition
of IED, unfavorable foreign exchange impact, and variable expenses tied to changes in
the mix of sales between components and
computer products offset, in part, by the cost savings realized from the current year
restructurings.
Interest Expense
Net
interest expense of $36.2 million and $101.4 million in the third quarter and
first nine months of 2003, respectively, decreased from $38.4 million and $120.4
million in the respective year-earlier periods due to lower debt balances as a
result of the generation of cash from operations during the current periods
offset, in part, by the loss of interest income from the cash utilized to pay
for the acquisition of IED together with declining interest rates on high
quality liquid investments. The decrease was also offset by the
25
additional
interest paid as a result of the incremental debt resulting from the issuance of
the 6.875% senior notes.
Income Taxes
The
company recorded an income tax provision of $2.9 million on a loss before income
taxes and minority interest of $3.6 million and a provision of $5.6 million on
income before income taxes and minority interest of $5.4 million for the third
quarter and first nine months of 2003, compared with a benefit from income taxes
from continuing operations of $7.0 million on a loss before income taxes and
minority interest of $18.3 million and a tax benefit of $5.6 million on a loss
before income taxes and minority interest of $14.3 million in the comparable
year-earlier periods. The principal reason for recording an income tax provision
on a loss is that the acquisition indemnification charge is not deductible for
tax purposes. In addition, the income taxes recorded in 2003 and 2002 were
impacted by the estimated tax benefit related to the aforementioned
restructuring charges. The companys 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 income generated by these operations.
Net Loss
The
company recorded a net loss of $6.2 million and $.3 million in the third quarter
and first nine months of 2003 compared with net losses of $11.1 million and
$618.1 million in the third quarter and first nine months of 2002. Included in
the results for the third quarter of 2003 are the acquisition indemnification
charge, restructuring charge and loss on prepayment of debt. Included in the
results for the first nine months of 2003 are the aforementioned acquisition
indemnification, restructuring and integration charges, and the loss on
prepayment of debt. Included in the results for the third quarter of 2002 is the
loss on prepayment of debt. Included in the results for the first nine months of
2002 are the aforementioned severance charge, loss from discontinued operations,
loss on prepayment of debt, and goodwill impairment charge resulting from a
change in accounting principle.
The
company recorded losses from continuing operations of $6.2 million in the third
quarter of 2003 and losses from continuing operations of $.3 million for the
first nine months of 2003, compared with net losses from continuing operations
of $11.1 million and $8.5 million in the third quarter and first nine months of
2002. The decrease in the loss from continuing operations is principally due to
the increase in sales, primarily as a result of the acquisition of IED, cost
savings realized from the aforementioned restructuring efforts, a decrease in
interest expense, and the decrease in losses on the prepayment of debt, offset,
in part, by the aforementioned acquisition indemnification, restructuring, and
integration charges, the decrease in gross profit margins, and the increase in
operating expenses as a result of the acquisition of IED.
Liquidity and Capital Resources
The
company historically has maintained a significant investment in accounts
receivable and inventories. As a percentage of total assets, accounts receivable
and inventories were approximately 57 percent and 55 percent at September 30,
2003 and December 31, 2002, respectively. At September 30, 2003, cash and
short-term investments decreased to $677.9 million from $694.1 million at
December 31, 2002 primarily as a result of $226.0 million utilized to pay for
the acquisition of IED, $90.2 million used to repurchase senior notes due in
October 2003, and $154.4 million used to repurchase convertible debentures,
offset, in part, by the net proceeds of $346.3 million from the June 2003 senior
note offering and lower working capital requirements. During the first nine
months of 2003, free cash flow (defined as cash from operations less capital
expenditures) was $118.2 million.
26
The
net amount of cash provided by the companys operating activities during
the first nine months of 2003 was $140.0 million, principally a result of
earnings from operations, net of the cash component of the acquisition
indemnification charge, restructuring charges, and integration charge, as well
as the receipt of tax refunds related to 2002, offset, in part, by working
capital required to support the increase in sales. The net amount of cash used
for investing activities was $251.3 million, including $231.3 million for
consideration paid for acquired businesses and $21.8 million for various capital
expenditures. The net amount of cash provided by financing activities was $75.7
million, primarily reflecting the net proceeds of $346.3 million from the June
2003 senior note offering offset, in part, by $90.2 million used to prepay
senior notes due in the fourth quarter of 2003, $154.9 million used to
repurchase the zero coupon convertible debentures, and the repayment of
short-term debt.
The
net amount of cash provided by the companys operating activities during
the first nine months of 2002 was $587.3 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 period.
The net amount of cash used for investing activities was $64.8 million,
including $111.7 million for consideration paid for acquired businesses and
$34.4 million for various capital expenditures offset, in part, by the cash
proceeds of $38.5 million from the sale of Gates/Arrow and the partial
prepayment of a note receivable of $41.7 million. The net amount of cash used
for financing activities was $381.3 million, primarily reflecting $313.5 million
used for the early retirement of senior notes due in the fourth quarter of 2003
and the repayment of short-term and long-term debt.
During
the third quarter of 2003, the company repurchased $154.9 million accreted
amount of zero coupon convertible debentures due in 2021, which could have been
put to the company in February 2006. The related loss on the repurchase
aggregated $3.3 million ($2.0 million net of related taxes or $.02 per share on
a basic and diluted basis), which includes the write-off of related deferred
financing costs offset, in part, by the discount on the repurchase. The loss on
the repurchase is recognized in the loss from continuing operations in the
companys consolidated statement of operations.
In
June 2003, the company completed the sale of $350.0 million principal amount of
6.875% senior notes due in 2013. The net proceeds of the offering of $346.3
million were used to repay the companys 8.2% senior notes which matured in
October 2003 and for general corporate purposes. The additional debt the company
carried during the period between the sale of the 6.875% senior notes in June
2003 and the repayment of the 8.2% senior notes in October 2003 negatively
impacted the third quarter loss by $4.7 million ($2.9 million net of related
taxes).
During the
first nine months of 2003, the company repurchased $84.8 million principal amount of
8.2% senior notes, due in October 2003. The premium paid and the related deferred
financing costs written-off upon the repurchase of this debt aggregated $2.9 million
($1.8 million net of related taxes or $.02 per share on a
basic and diluted basis), and is recognized in the loss from continuing operations in
the companys consolidated statement of operations. As a result of these
transactions, net interest expense was reduced by approximately $3.3 million from the
dates of the repurchases through the 2003 maturity date.
The company utilized $192.0
million of the proceeds from the 6.875% senior note offering to repay the
outstanding principal amount of the 8.2% senior notes which matured on October
1, 2003.
In
February 2003, the company acquired substantially all of the assets of IED. The
net cost of this acquisition was $226.0 million, subject to adjustment based
upon an audit of the assets and liabilities being acquired. The company expects
this acquisition to improve earnings by $.20 per share annually after the first
full year following completion of the integration.
27
In
February 2003, the company amended its three-year revolving credit facility to
make certain changes to the terms of the facility, including amendments to
covenants and a reduction in the size of the facility from $625.0 million to
$450.0 million. The three-year revolving credit facility, as amended, bears
interest at the applicable eurocurrency rate plus a margin which is based on
facility utilization and other factors. At September 30, 2003 and December 31,
2002, the company had no outstanding borrowings under this facility.
In
February 2003, the company renewed its asset securitization program (the
program) and made certain changes to the terms of the program,
including a reduction in the size of the program from $750.0 million to $550.0
million. Under the program, the company can sell, on a revolving basis, an
individual interest in a pool of certain North American trade accounts
receivable and retain a subordinated interest and servicing rights to those
receivables. At September 30, 2003 and December 31, 2002, there were no
receivables sold to and held by third parties under the program and accordingly,
the company had no obligations outstanding under the program. The company has
not utilized this facility since June 2001.
During
the third quarter and first nine months of 2002, the company repurchased $307.5
million principal amount of senior notes, due in the fourth quarter of 2003. The
premium paid and the related deferred financing costs written-off upon the
repurchase of this debt aggregated $18.8 million ($11.6 million net of related
taxes or $.11 per share on a basic and diluted basis), and is recognized in the
loss from continuing operations in the companys consolidated statement of
operations. As a result of these transactions, net interest expense was reduced
by approximately $26.5 million from the dates of the repurchases through the
2003 maturity date. As required by FASB Statement No. 145, the loss on
extinguishment of debt, which was previously recorded as an extraordinary item,
was reclassified to the loss from continuing operations.
During
the first nine months of 2003, the company implemented actions to become more
effectively organized and to improve its operating efficiencies, with targeted
annualized savings of $75.0 million, of which approximately $17.0 million was
realized in the first six months of 2003 and approximately $20.0 million was
realized in the third quarter of 2003. The estimated restructuring charges
associated with these actions total $38.5 million with $21.2 million ($14.4
million net of related taxes or $.14 per share on a basic and diluted basis)
recorded in the first six months of 2003 and $9.1 million ($6.3 million net of
related taxes or $.06 per share on a basic and diluted basis) recorded in the
third quarter of 2003. The remaining amount of approximately $8.2 million will
be recorded over the next several quarters. Approximately $33.8 million of the
charge is expected to be spent in cash.
The company
has taken these steps in order to make its organizational structure, systems,
and processes more efficient. The restructuring charges consisted primarily of
severance costs relating to the elimination of approximately 930 positions, or 8
percent, out of a worldwide total of 11,700 positions and a further
rationalization of the companys physical logistics network. There
was no single group of employees impacted by these restructuring actions. Instead it
impacted both exempt and non-exempt employees across multiple locations, segments, and
functions. As part of the physical logistics network rationalization, two primary
distribution centers in England will be closed, and their operations will be centralized
in the newer, state-of-the-art, pan-European facility in Venlo, the Netherlands, over
the next several months. In addition, the primary distribution center in Brookhaven, New
York will also be closed, and customers and suppliers will be serviced out of a newer,
more efficient distribution center in Reno, Nevada. Further, the company exited its
Nordic Computer Products business serving hardware integrators and resellers in Norway,
Sweden, Denmark, and Finland.
In a
limited number of instances the company is contractually required to purchase
the shareholder interest held by others in its majority (but less
28
than 100
percent) owned subsidiaries. Such payments, which are dependent upon the
occurrence of certain events and the passage of time, are to be based upon a
multiple of earnings (as defined in the relevant agreements) over a
contractually determined period and, in certain instances, capital structure. In
most instances the amount to be paid will not be less than the book value of the
shares. During the first nine months of 2003, the company made such payments,
which were principally capitalized as cost in excess of net assets of companies
acquired offset by the carrying value of the minority interest, in the amounts
of $2.1 million to increase its ownership interest in Arrow Components (NZ)
Limited from 75 percent to 100 percent; $.5 million to increase its
ownership interest in Dicopel US and Dicopel SA from 60 percent to 70 percent;
and $2.8 million to increase its ownership interest in Components Agent (Cayman)
Limited from 90 percent to 100 percent. Based upon the performance of the
remaining businesses with potential contractual payments through September 30,
2003, such payments would be approximately $5.8 million, which would principally
be capitalized as cost in excess of net assets of companies acquired offset by
the carrying value of the related minority interest. These remaining contractual
payment amounts will change as the performance of these subsidiaries change.
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, changes in relationships with key suppliers, the effects of additional
actions taken to lower costs, and the companys ability to generate
additional cash flow. 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.
29
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
companys financial results in the future. The companys 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. The companys policy
is to hedge substantially all currency exposures for which natural hedges do not
exist. Natural hedges exist when purchases and sales within a specific country
are both denominated in the same currency and therefore no exposure exists to
hedge with a foreign exchange forward or option contract (collectively,
foreign exchange contracts). In Asia, for example, sales and
purchases are primarily denominated in U.S. dollars, resulting in a
natural hedge. Natural hedges exist in most countries in which the
company operates, although the percentage of natural offsets vs. offsets which
need to be hedged by foreign exchange contracts will vary from country to
country. The company does not enter into foreign exchange contracts for trading
purposes. The risk of loss on a foreign exchange contract is the risk of
nonperformance by the counterparties, which the company minimizes by limiting
its counterparties to major financial institutions. The fair value of the
foreign exchange contracts is estimated using market quotes. The notional amount
of the foreign exchange contracts at September 30, 2003 and December 31, 2002
was $182.8 million and $264.8 million, respectively. The carrying amounts, which
are nominal, approximated fair value at September 30, 2003 and December 31,
2002. 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 nine months of 2003 as compared with the average rates for 2002, sales and
operating income would have been approximately $268.4 million and $14.4 million
lower, respectively, than the reported results for 2003. Sales and operating
income would have fluctuated by approximately $188.0 million and $8.4 million,
respectively, if average foreign exchange rates changed by ten percent in the
first nine months of 2003. This amount was determined by considering the impact
of a hypothetical foreign exchange rate on the sales and operating income of the
companys international operations.
The
companys 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 floating rate debt in its total debt portfolio. In
addition, the company has from time-to-time used interest rate swaps that
convert certain fixed rate debt to floating rate debt, effectively hedging the
change in fair value of the fixed rate debt resulting from fluctuations in
interest rates. During 2002, as a result of significant generation of operating
cash flow, the company paid down nearly all of its floating rate debt. This
reduction in floating rate debt was offset, in part, by the impact of the
aforementioned swaps. As a result, at September 30, 2003, approximately 87
percent of the companys debt was subject to fixed rates, and 13 percent of
its debt was subject to floating rates. Interest expense, net of interest
income, would have fluctuated by approximately $2.2 million if average interest
rates changed by one percentage point in the first nine months of 2003. This
amount was determined by considering the impact of a hypothetical interest rate
on the companys average floating rate on investments and outstanding debt.
This analysis does not consider the effect of the level of overall economic
activity that could exist. In the event of a change in the level of economic
activity which may adversely impact interest rates, the company could likely
take actions to further mitigate any potential negative exposure to the change.
However, due to the uncertainty of the specific actions that might be taken and
their possible effects, the sensitivity analysis assumes no changes in the
companys financial structure.
30
Item
4. Controls and Procedures.
The
companys chief executive officer and chief financial officer have
evaluated the effectiveness of the companys disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the Exchange Act)) as of September 30, 2003.
Based on such evaluation, they have concluded that, as of September 30, 2003,
the companys disclosure controls and procedures were effective to ensure
that information required to be disclosed by the company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission. However, in evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
There
were no significant changes in the companys internal controls over
financial reporting or in other factors that could significantly affect the
companys internal controls over financial reporting during the period
covered by this quarterly report.
31
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Item 6. Exhibits
and Reports on Form 8-K.
|
31(i) |
|
Certification of William E. Mitchell, Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
| |
| |
|
31(ii)
| |
Certification of Paul J. Reilly, Chief Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
| |
| |
|
32(i) | |
Certification of William E. Mitchell, Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
| |
| |
|
32(ii)
| |
Certification of Paul J. Reilly, Chief Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
Subsequent
to filing the June 30, 2003 Form 10-Q, the company filed the following Current Reports on Form 8-K: |
|
Date of Report |
|
Item Reported |
|
|
October 17, 2003 | |
Notice of temporary suspension of trading under the company's Employee Benefits Plan | |
|
|
October 23, 2003 | |
Press release announcing the company's third quarter 2003 results | |
32
SIGNATURE
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.
Date: November 13, 2003 |
|
By: /s/ Paul J. Reilly |
|
|
| |
| |
Paul J. Reilly Vice President and Chief Financial Officer | |
33
EX-31.(I)
3
ex31i.htm
UNITED STATES
Exhibit 31(i)
Arrow
Electronics, Inc.
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, William E. Mitchell, Chief Executive Officer, certify that: |
|
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of Arrow Electronics, Inc.; |
|
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
|
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a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
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a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: November 13, 2003 By:/s/ William E. Mitchell
William E. Mitchell
President and Chief Executive
Officer
EX-31.(II)
4
ex31ii.htm
UNITED STATES
Exhibit 31(ii)
Arrow
Electronics, Inc.
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Paul J. Reilly, Chief Financial Officer, certify that: |
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1. |
I have reviewed this quarterly report on Form 10-Q of Arrow Electronics, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
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a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: November 13, 2003 By:/s/ Paul J. Reilly
Paul J. Reilly
Vice President and Chief Financial Officer
EX-32.(I)
5
ex32.htm
Arrow Electronics, Inc
Exhibit 32(i)
Arrow Electronics, Inc.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Arrow Electronics, Inc. (the "company") for the period ended September 30, 2003 (the "Report"), I, William E. Mitchell, Chief Executive Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
- The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
Date: November 13, 2003 By: /s/ William E. Mitchell
William E. Mitchell
President and Chief
Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EX-32.(II)
6
ex32ii.htm
Arrow Electronics, Inc
Exhibit 32(ii)
Arrow Electronics, Inc.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Arrow Electronics, Inc. (the "company") for the period ended September 30, 2003 (the "Report"), I, Paul J. Reilly, Chief Financial Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
- The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
Date: November 13, 2003 By: /s/ Paul J. Reilly
Paul J. Reilly
Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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