UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4482
ARROW ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
New York 11-1806155
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation Number)
25 Hub Drive, Melville, New York 11747
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (516) 391-1300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's class-
es of common stock, as of the latest practicable date.
Common stock, $1 par value: 31,473,528 shares outstanding at
April 29, 1994.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
1994 1993
<S> <C> <C>
Sales $820,783 $551,391
Costs and expenses:
Cost of products sold 660,420 431,300
Selling, general and administrative
expenses 96,482 74,171
Depreciation and amortization 5,466 3,328
762,368 508,799
Operating income 58,415 42,592
Equity in earnings of affiliated company - 300
Interest expense 9,021 6,928
Earnings before income taxes
and minority interest 49,394 35,964
Provision for income taxes 19,890 14,036
Earnings before minority interest 29,504 21,928
Minority interest 4,243 3,946
Net income $ 25,261 $ 17,982
Net income used in per common share
calculation (reflecting deduction of
preferred stock dividends) $ 25,261 $ 17,661
Net income per common share:
Primary $.79 $.59
Fully diluted $.74 $.55
Average number of common shares and common
share equivalents outstanding:
Primary 31,898 29,995
Fully diluted 35,672 34,778
</TABLE>
See accompanying notes
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<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
Current assets: $ 54,748 $ 60,730
Cash and short-term investments
Accounts receivable, less allowance
for doubtful accounts ($22,164 in
1994 and $16,491 in 1993) 478,635 363,084
Inventories 470,252 434,953
Prepaid expenses and other assets 14,603 10,841
Total current assets 1,018,238 869,608
Property, plant and equipment at cost:
Land 5,700 5,700
Buildings and improvements 35,251 33,709
Machinery and equipment 59,261 55,148
100,212 94,557
Less accumulated depreciation and
amortization 41,216 38,606
58,996 55,951
Investment in affiliated company - 13,371
Investments in net assets of
acquired businesses 19,180 -
Cost in excess of net assets of companies
acquired, less accumulated amortization
($15,774 in 1994 and $13,514 in 1993) 229,622 199,383
Other assets 43,054 52,991
$1,369,090 $1,191,304
</TABLE>
See accompanying notes.
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<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 253,986 $ 190,013
Accrued expenses 133,772 104,146
Accrued interest 6,820 5,421
Short-term borrowings, including current
maturities of long-term debt 62,881 40,965
Total current liabilities 457,459 340,545
Long-term debt 172,272 153,828
Deferred income taxes and other liabilities 49,110 43,457
Subordinated debentures 125,000 125,000
Minority interest 80,450 71,459
Shareholders' equity:
Common stock, par value $1:
Authorized - 60,000,000 shares
Issued - 31,477,563 shares in 1994
and 31,298,335 shares in 1993 31,477 31,298
Capital in excess of par value 315,145 310,203
Retained earnings 149,950 124,689
Foreign currency translation adjustment (8,623) (7,492)
487,949 458,698
Less: Treasury shares (10,872 in 1994
and 1993) at cost 12 12
Unamortized employee stock awards 3,138 1,671
484,799 457,015
$1,369,090 $1,191,304
</TABLE>
See accompanying notes.
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<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,261 $ 17,982
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 4,243 3,946
Depreciation and amortization 6,031 3,750
Equity in undistributed earnings of
affiliated company - (300)
Deferred taxes 2,123 973
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (46,092) (34,592)
Inventories (8,408) 13,041
Prepaid expenses and other assets 491 2,143
Accounts payable 41,708 (9,319)
Accrued expenses 11,931 6,675
Accrued interest payable 1,247 3,351
Other (1,588) 856
Net cash provided by operating activities 36,947 8,506
Cash flows from investing activities:
Acquisitions of property, plant and
equipment, net (1,936) (713)
Repayment of loan from affiliate 7,730 -
Cash consideration paid for acquired businesses (51,904) (25,145)
Net cash (used for) investing activities (46,110) (25,858)
Cash flows from financing activities:
Change in short-term borrowings (13,138) 1,484
Repayment of long-term debt (7,036) (172)
Proceeds from exercise of stock options 1,962 639
Proceeds from long-term debt 23,351 43,892
Distributions to partners (2,870) (725)
Financing fees paid (200) (753)
Dividends paid - (321)
Net cash provided by financing activities 2,069 44,044
Net increase (decrease) in cash and
short-term investments (7,094) 26,692
Cash and short-term investments at beginning of
period 60,730 3,393
Cash and short-term investments from affiliate
at beginning of period 1,112 27,057
Cash and short-term investments at end of period $ 54,748 $ 57,142
Supplemental disclosures of cash flow information:
Cash paid during the period:
Income taxes $ 14,196 $ 96
Interest 8,141 1,125
</TABLE>
See accompanying notes.
-5-
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
Note A -- Basis of presentation
The accompanying consolidated financial statements reflect all
adjustments, consisting only of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the consolidated
financial position and results of operations at and for the periods
presented. Such financial statements do not include all the information or
footnotes necessary for a complete presentation and, accordingly, should be
read in conjunction with the company's audited consolidated financial
statements for the year ended December 31, 1993 and the notes thereto. The
results of operations for the interim periods are not necessarily indicative
of results for the full year.
Note B -- Net income per common share
Net income per common share for 1994 is based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding. For the three months ended March 31, 1994 the average number
of common stock equivalents was 500,204. Net income per common share on a
fully diluted basis for 1994 assumes that the 5-3/4% convertible
subordinated debentures were converted to common stock at the beginning of
the period and the related interest expense, net of taxes, was eliminated.
Net income per common share for 1993 is based upon the weighted
average number of common stock and common stock equivalents outstanding
after deducting preferred stock dividends related to the series B $19.375
convertible exchangeable preferred stock (the "convertible exchangeable
preferred stock"), which was converted into common stock in September 1993.
For the three months ended March 31, 1993 the average number of common stock
equivalents was 659,354. Net income per common share on a fully diluted
basis for 1993 assumes that the convertible exchangeable preferred stock and
the 5-3/4% convertible subordinated debentures were converted to common
stock at the beginning of the period. The dividends related to the
convertible exchangeable preferred stock and the interest expense on the
5-3/4% convertible subordinated debentures, net of taxes, were eliminated.
Note C -- Acquisition of electronics distribution businesses
In January 1994, the company acquired an additional 15% share, for
approximately $23,400,000, in Spoerle Handelsgesellschaft mbH and Co. and
its general partner, Spoerle GmbH (collectively, "Spoerle"), the largest
distributor of electronic components in Germany, increasing its holdings to
a 70% majority interest. During the first quarter of 1994, the company
acquired an additional 11% share in Silverstar Ltd. S.p.A. ("Silverstar"),
the largest distributor of electronic components in Italy, increasing its
holdings to a 61% majority interest. The acquisitions are being accounted
for as purchase transactions, and Silverstar is consolidated with the
-6-
company effective January 1, 1994. Prior to 1994 the company's investment
in Silverstar was accounted for under the equity method.
In addition, in January 1994 the company acquired the electronic
component distribution business of Field Oy, the largest distributor of
electronic components in Finland, and in March 1994 the company acquired
TH:s Elektronik AB and its subsidiaries, a group of electronic distribution
companies serving Norway, Sweden, and Finland. The acquisitions are being
accounted for as purchase transactions beginning in their respective month
of acquisition.
In January 1993, the company acquired an additional 15% share, for
approximately $25,145,000, in Spoerle, increasing its holdings to a then 55%
majority interest. In May 1993, the company acquired the high-reliability
electronic component distribution and value-added service businesses of Zeus
Components, Inc. ("Zeus"). In June 1993, the company acquired Microprocessor
& Memory Distribution Limited ("MMD"), a U.K.-based electronics distributor
which focuses on the distribution of high-technology semiconductor products.
In August 1993, the company acquired Components Agent Limited ("CAL"), one
of the largest electronics distributors in Hong Kong. During the third
quarter of 1993 the company acquired a majority interest in Amitron S.A. and
the ATD Group, electronics distributors serving the Spanish and Portuguese
markets. In November 1993, the company augmented its French operations by
acquiring CCI Electronique.
Set forth below for comparative purposes is the pro forma combined
summary of operations for the three months ended March 31, 1993 as though
the acquisitions in 1993 had occurred on January 1, 1993.
Three Months Ended
March 31, 1993
(In thousands except per share data)
Sales $612,210
Operating income 44,031
Net income 18,333
Net income per common share:
Primary .59
Fully diluted .55
Average number of common shares and common
share equivalents outstanding:
Primary 30,557
Fully diluted 35,340
The unaudited pro forma combined summary of operations has been
prepared utilizing the historical financial statements of Arrow and the
acquired businesses. The unaudited pro forma combined summary of operations
includes the effect of the purchase price allocation adjustments and the
additional interest expense on debt incurred in connection with the
acquisitions as if the debt had been outstanding from the beginning of the
period. The purchase price allocation adjustments include the adjustment of
the net assets acquired to fair market value and the estimated costs
associated with the integration of the businesses. Such estimated costs
include professional fees as well as real estate lease termination costs,
costs associated with the elimination of certain redundant franchised lines,
-7-
and severance and other expenses related to personnel performing duplicative
functions, all of which are associated with facilities and personnel of the
acquired businesses. The unaudited pro forma combined summary of operations
does not purport to be indicative of the results which actually would have
been obtained if the acquisitions had been made at the beginning of 1993.
The unaudited pro forma combined summary of operations does not
reflect sales attrition which may result from the combination of Zeus and
MMD with Arrow's businesses. It also does not reflect the cost savings the
company expects to achieve from the combination of the Zeus and MMD
businesses with its own.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Included in 1994's consolidated results is Silverstar, which was
accounted for under the equity method prior to January 1994 when Arrow
increased its holdings to a majority interest.
Sales
Consolidated sales of $820.8 million in the first quarter of 1994
were 48.9% and 16.9% ahead of last year's first quarter and the immediately
preceding quarter, respectively. Excluding Silverstar, sales for the first
quarter were $770 million, an increase of 39.7% and 9.6% over the first
quarter of 1993 and the immediately preceding quarter, respectively.
Worldwide sales, excluding the impact of acquisitions, advanced 22% over the
first quarter of 1993, reflecting increased activity levels in each of the
company's distribution groups.
Operating income
The company recorded operating income of $58.4 million in the
first quarter of 1994, compared to $42.6 million in the first quarter of
1993 and $47.7 million in the immediately preceding quarter. The
improvement in operating income over the first quarter of 1993 reflects the
impact of increased sales, continued economies of scale and expense
containment efforts reducing operating expenses as a percentage of sales,
and the consolidation of Silverstar. Excluding Silverstar, operating income
was $53.5 million and operating expenses as a percentage of sales decreased
from 14.1% in the first quarter of 1993 to 12.3%.
The increase in operating income over the immediately preceding
quarter reflects the consolidation of Silverstar and increased sales.
Operating expenses as a percentage of sales, excluding Silverstar, decreased
from 12.5% in the fourth quarter of 1993 to 12.3% in the first quarter of
1994.
Interest expense
Interest expense of $9 million in the first quarter of 1994
increased from $6.9 million in the comparable quarter of 1993 and $4.9
million in the immediately preceding quarter. The increase from the first
quarter of 1993 reflects the borrowings associated with the acquisition of
the incremental 15% of Spoerle in 1994, the consolidation of Silverstar, and
the incremental interest associated with businesses acquired subsequent to
the first quarter of 1993.
-8-
The increase in interest expense compared with the immediately
preceding quarter was due to the consolidation of Silverstar and the
borrowings associated with the acquisition of the incremental 15% interest
in Spoerle in January 1994.
Income taxes
In the first quarter of 1994, the company recorded a provision for
taxes at an effective tax rate of 40.3%, compared with 39% in the year-
earlier period and 41.8% in the immediately preceding quarter.
Net income
The company recorded net income of $25.3 million in the first
quarter of 1994, compared with $18 million in the first quarter of 1993 and
$22.7 million in the fourth quarter of 1993. The increase in net income
over the year-earlier period and the immediately preceding period is due to
increased sales and lower operating expenses as a percentage of sales offset
in part by an increase in interest expense as previously discussed.
Liquidity and capital resources
The company maintains a high level of current assets, primarily
accounts receivable and inventories. Consolidated current assets as a
percentage of total assets were approximately 75% for both the first quarter
of 1994 and 1993, excluding the effect of the investments in net assets of
acquired businesses in 1994.
The net amount of cash provided by the company's operating
activities during the first quarter of 1994 was $36.9 million, principally
reflecting higher net earnings. The net amount of cash used for investing
activities was $46.1 million, including $51.9 million for various
acquisitions.
The net amount of cash provided by the company's operating
activities during the first quarter of 1993 was $8.5 million, principally
reflecting increased earnings. The net amount of cash used for investing
activities was $25.9 million, including approximately $25.1 million for the
acquisition of an additional 15% interest in Spoerle. The company financed
the acquisition through borrowings under the company's U.S. credit agreement
and bank borrowings in Germany.
The company believes that its working capital, funds available
under its credit agreement, and additional funds generated from operations
will be sufficient to satisfy its cash requirements at least through 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 - Statement Re: Computation of Earnings Per Share
(b) Reports on Form 8-K.
During the quarter ended March 31, 1994, the company filed
no Current Reports on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARROW ELECTRONICS, INC.
Date: May 13, 1994 By:/s/ Robert E. Klatell
Robert E. Klatell
Senior Vice President
and Chief Financial Officer
Date: May 13, 1994 By:/s/ Paul J. Reilly
Paul J. Reilly
Controller
-10-
Exhibit 11
<TABLE>
ARROW ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
<CAPTION>
Three Months Ended
March 31,
1994 1993
Primary
<S> <C> <C>
Average shares of common stock
outstanding 31,398 29,336
Net effect of dilutive stock
options-based on the treasury
method 500 659
Total 31,898 29,995
Net income $25,261 $17,982
Less preferred stock dividends - 321
Total $25,261 $17,661
Per share amount $ .79 $ .59
Fully Diluted
Average shares of common stock
outstanding 31,398 29,336
Net effect of dilutive stock
options-based on the treasury
method 500 659
Assumed conversion of 5-3/4%
convertible subordinated debentures 3,774 3,774
Assumed conversion of preferred stock - 1,009
Total 35,672 34,778
Net income $25,261 $17,982
Add interest on 5-3/4% convertible
subordinated debentures, net of
income tax effect 1,078 1,101
Total $26,339 $19,083
Per share amount $ .74 $ .55
</TABLE>
