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, 1995
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 classes
of common stock, as of the latest practicable date.
Common stock, $1 par value: 50,602,844 shares outstanding at
November 3, 1995.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $4,358,157 $3,393,093 $1,459,591 $1,161,423
Costs and expenses:
Cost of products sold 3,592,195 2,793,231 1,202,797 960,507
Selling, general and
administrative expenses 427,591 362,447 140,580 120,740
Depreciation and amortization 23,687 19,657 8,135 6,698
Integration charge - 21,875 - 21,875
4,043,473 3,197,210 1,351,512 1,109,820
Operating income 314,684 195,883 108,079 51,603
Equity in earnings of
affiliated company 2,168 - 398 -
Interest expense 34,641 27,685 12,455 8,695
Earnings before income taxes
and minority interest 282,211 168,198 96,022 42,908
Provision for income taxes 114,787 67,481 38,414 16,815
Earnings before minority
interest 167,424 100,717 57,608 26,093
Minority interest 19,863 12,656 6,650 4,314
Net income $ 147,561 $ 88,061 $ 50,958 $ 21,779
Net income per common share
Primary $3.12 $1.89 $1.07 $.47
Fully diluted $2.94 $1.81 $1.01 $.45
Average number of common shares
and common share equivalents
outstanding:
Primary 47,268 46,563 47,740 46,578
Fully diluted 51,264 50,337 51,519 50,351
See accompanying notes.
</TABLE>
-2-
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term investments $ 77,644 $ 105,606
Accounts receivable, less allowance
for doubtful accounts ($36,681 in
1995 and $31,132 in 1994) 931,450 697,021
Inventories 935,466 725,436
Prepaid expenses and other assets 34,411 30,180
Total current assets 1,978,971 1,558,243
Property, plant and equipment at cost:
Land 11,956 11,970
Buildings and improvements 67,315 53,962
Machinery and equipment 105,345 84,740
184,616 150,672
Less: accumulated depreciation and
amortization 70,644 60,857
113,972 89,815
Investment in affiliated company 35,706 -
Cost in excess of net assets of companies
acquired, less accumulated amortization
($44,968 in 1995 and $36,057 in 1994) 386,181 334,297
Other assets 58,725 56,419
$2,573,555 $2,038,774
See accompanying notes.
</TABLE>
-3-
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 473,299 $ 411,766
Accrued expenses 244,640 191,574
Short-term borrowings, including
current maturities of long-term debt 138,003 86,123
Total current liabilities 855,942 689,463
Long-term debt 410,417 224,398
Deferred income taxes and other liabilities 69,072 56,335
Subordinated debentures 124,970 125,000
Minority interest 95,339 105,693
Shareholders' equity:
Common stock, par value $1:
Authorized - 80,000,000 shares
Issued - 46,817,358 shares in 1995
and 46,167,913 shares in 1994 46,817 46,168
Capital in excess of par value 409,739 388,913
Retained earnings 547,650 400,089
Foreign currency translation adjustment 20,048 6,367
1,024,254 841,537
Less: Unamortized employee stock awards
and other 6,439 3,652
1,017,815 837,885
$2,573,555 $2,038,774
See accompanying notes.
</TABLE>
-4-
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $147,561 $ 88,061
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 19,863 12,656
Integration charge - 21,875
Depreciation and amortization 25,035 21,355
Equity in undistributed earnings of
affiliated company (2,168) -
Deferred income taxes 10,926 8,677
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (214,527) (83,836)
Inventories (184,510) (29,904)
Prepaid expenses and other assets (3,328) (2,840)
Accounts payable 49,990 75,986
Accrued expenses 41,946 (24,275)
Other (6,236) (5,873)
Net cash provided by (used for)
operating activities (115,448) 81,882
Cash flows from investing activities:
Acquisitions of property, plant and
equipment, net (34,743) (13,081)
Cash consideration paid for acquired businesses (95,719) (80,784)
Repayment by affiliate - 7,730
Collection of notes receivable from officers 190 1,796
Net cash (used for) investing activities (130,272) (84,339)
Cash flows from financing activities:
Change in short term borrowings 45,877 9,531
Proceeds from credit facilities 167,312 17,229
Repayment of long-term debt (22,297) (16,821)
Proceeds from long-term debt 37,226 14,351
Proceeds from exercise of stock options 12,426 3,677
Distribution to partners (29,965) (3,990)
Financing fees paid (516) (200)
Net cash provided by financing activities 210,063 23,777
Effect of exchange rate changes on cash 7,695 3,631
Net increase (decrease) in cash and
short-term investments (27,962) 24,951
Cash and short-term investments at beginning of
period 105,606 80,962
Cash and short-term investments from affiliate
at beginning of period - 1,112
Cash and short-term investments at end of period $ 77,644 $107,025
Supplemental disclosures of cash flow information
Cash paid during the period:
Income taxes $72,119 $ 43,344
Interest 34,416 29,968
See accompanying notes
</TABLE>
-5-
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(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, 1994 and the notes thereto. The results of
operations for the interim periods are not necessarily indicative of results
for the full year.
In November 1994, the company completed the acquisition of Anthem
Electronics, Inc. ("Anthem") in a transaction accounted for as a pooling of
interests. Accordingly, the 1994 consolidated statements of income and cash
flows have been restated to include the operations of Anthem.
Note B -- Net income per common share
Net income per common share on a primary basis is based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding. For the nine months ended September 30, 1995 and 1994, the
average number of common stock equivalents was 754,083 and 608,456,
respectively. For the quarter ended September 30, 1995 and 1994, the average
number of common stock equivalents was 1,006,711 and 541,712 respectively.
Net income per common share on a fully diluted basis assumes that
the 5-3/4% convertible subordinated debentures (the "debentures") were
converted to common stock at the beginning of the period and the related
interest expense, net of taxes, was eliminated.
Note C -- Credit agreement
In August 1995, the company's credit agreement with a group of banks
was amended to increase the amount of borrowings available to $500,000,000
from $175,000,000, to reduce the borrowing rate, and to extend the maturity
date to August 2000. The amended facility allows for up to $250,000,000 of
the borrowings to be denominated in foreign currencies.
Note D - Subsequent event
On October 5, 1995, the company called for redemption its 5-3/4%
debentures due 2002. The conversion resulted in the issuance of 3,772,254
shares of common stock on October 25, 1995.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Sales
Consolidated sales for the nine months and third quarter of 1995
increased 28.4% and 25.7% compared with year-earlier periods. This sales
growth was principally due to increased activity levels in each of the
company's distribution groups throughout the world and, to a lesser extent,
acquisitions in Europe and the Pacific Rim.
Operating income
The company recorded operating income of $314.7 million and $108.1
million in the first nine months and third quarter of 1995, respectively,
compared with $195.9 million and $51.6 million, respectively, in the year-
earlier periods. Excluding the special charge of $21.9 million associated
with the integration of Gates, operating income was $217.8 million and $73.5
million for the nine months and three months ended September 30, 1994,
respectively. The improvement in operating income reflects the impact of
increased sales, acquisitions, and the benefits of economies of scale
resulting from the integration of Anthem and Gates with Arrow.
Interest expense
Interest expense of $34.6 million and $12.5 million in the first
nine months and third quarter of 1995, respectively, increased from $27.7
million during the first nine months of 1994 and $8.7 million in the
comparable quarter of 1994. The increase from the first nine months and third
quarter of 1994 reflects increased company borrowings to finance working
capital requirements necessary to support higher sales.
Income taxes
During the first nine months and third quarter of 1995 the company
recorded a provision for taxes at an effective tax rate of 40.7% and 40.0%
compared with 40.1% and 39.2%, respectively, in the year-earlier periods. The
increase in the provision from the comparable year-earlier periods is due to
increased earnings in countries with higher marginal tax rates.
Net income
The company recorded net income of $147.6 million and $51.0 million
in the first nine months and third quarter of 1995, respectively, compared
with $88.1 million in the first nine months of 1994 and $21.8 million in the
third quarter of 1994. Excluding the special charge of $21.9 million ($13.1
million after taxes) associated with the integration of Gates, net income was
$101.2 million ($2.17 per share on a primary basis) and $34.9 million ($.75
per share on a primary basis) for the nine months and three months ended
September 30, 1994, respectively. The increase in net income over the year-
earlier periods 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.
-7-
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 77% and 79% at September 30,
1995 and 1994, respectively, excluding in 1994, the effect of the investments
in net assets of acquired businesses.
The net amount of cash used for the company's operating activities
during the first nine months of 1995 was $115.4 million, principally
reflecting increased working capital requirements supporting higher sales.
The net amount of cash used for investing activities was $130.3 million,
including $95.7 million for various acquisitions. The net amount of cash
provided by financing activities was $210.1 million, principally reflecting
the company's U.S. credit agreements and European bank borrowings, offset in
part by distributions to partners and the net repayment of debt.
The net amount of cash provided by the company's operating
activities during the first nine months of 1994 was $81.9 million, principally
reflecting earnings. The net amount of cash used for investing activities was
$84.3 million, including approximately $80.8 million for various acquisitions.
The net amount of cash provided by financing activities was $23.8 million,
principally reflecting the company's U.S. credit agreements and European bank
borrowings, offset in part by the net payment of debt.
In October 1995, the company called for redemption its 5-3/4%
convertible subordinated debentures, due 2002, which resulted in the issuance
of 3,772,254 shares of common stock and eliminated approximately $125,000,000
in long term debt.
The company believes that its working capital, funds available under
its credit agreements, and additional funds generated from operations will be
sufficient to satisfy its cash requirements at least through 1997.
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.
None
-8-
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: November 13, 1995 By:/s/ Robert E. Klatell
Robert E. Klatell
Executive Vice President
and Chief Financial Officer
Date: November 13, 1995 By:/s/ Paul J. Reilly
Paul J. Reilly
Controller
-9-
Exhibit 11
<TABLE>
ARROW ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30 __
1995 1994 1995 1994
Primary
<S> <C> <C> <C> <C>
Average shares of common stock
outstanding 46,514 45,955 46,734 46,036
Net effect of dilutive stock
options - based on the
treasury method 754 608 1,006 542
Total 47,268 46,563 47,740 46,578
Net income $147,561 $88,061 $50,958 $21,779
Per share amount $ 3.12 $ 1.89 $ 1.07 $ .47
Fully Diluted
Average shares of common stock
outstanding 46,514 45,955 46,734 46,036
Net effect of dilutive stock
options - based on the
treasury method 977 608 1,012 541
Assumed conversion of 5-3/4%
convertible subordinated
debentures 3,773 3,774 3,773 3,774
Total 51,264 50,337 51,519 50,351
Net income $147,561 $88,061 $50,958 $21,779
Add interest on 5-3/4%
convertible subordinated
debentures, net of income
tax effect 3,234 3,234 1,078 1,078
Total $150,795 $91,295 $52,036 $22,857
Per share amount $ 2.94 $ 1.81 $ 1.01 $ .45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SEPTEMBER 1995 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 77,644
<SECURITIES> 0
<RECEIVABLES> 931,450
<ALLOWANCES> 36,681
<INVENTORY> 935,466
<CURRENT-ASSETS> 1,978,971
<PP&E> 184,616
<DEPRECIATION> 70,644
<TOTAL-ASSETS> 2,573,555
<CURRENT-LIABILITIES> 855,942
<BONDS> 535,387
0
0
<COMMON> 46,817
<OTHER-SE> 970,998
<TOTAL-LIABILITY-AND-EQUITY> 2,573,555
<SALES> 4,358,157
<TOTAL-REVENUES> 4,358,157
<CGS> 3,592,195
<TOTAL-COSTS> 4,043,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,854
<INTEREST-EXPENSE> 34,641
<INCOME-PRETAX> 282,211
<INCOME-TAX> 114,787
<INCOME-CONTINUING> 147,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,561
<EPS-PRIMARY> 3.12
<EPS-DILUTED> 2.94
</TABLE>
