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, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-4482
------
ARROW ELECTRONICS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-1806155
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 Hub Drive, Melville, New York 11747
- -------------------------------- -----------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (516) 391-1300
-----------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $1 par value: 98,192,497 shares outstanding at
October 31, 1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $5,653,471 $4,902,348 $1,949,396 $1,597,379
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 4,782,974 4,111,210 1,657,850 1,353,394
Selling, general and
administrative expenses 519,542 454,592 173,784 147,377
Depreciation and amortization 32,129 27,608 11,295 9,254
Integration charge 21,600 - 21,600 -
Realignment charge 37,900 - 37,900 -
---------- ---------- ---------- ----------
5,394,145 4,593,410 1,902,429 1,510,025
---------- ---------- ---------- ----------
Operating income 259,326 308,938 46,967 87,354
Equity in earnings (loss) of
affiliated company 1,006 (419) 474 (391)
Interest expense 48,193 29,963 18,145 8,813
---------- ---------- ---------- ----------
Earnings before income
taxes and minority interest 212,139 278,556 29,296 78,150
Provision for income taxes 92,156 110,591 17,165 31,419
---------- ---------- --------- ----------
Earnings before minority interest 119,983 167,965 12,131 46,731
Minority interest 8,628 13,304 2,849 2,975
---------- ---------- ---------- ----------
Net income $ 111,355 $ 154,661 $ 9,282 $ 43,756
========== ========== ========== ==========
Net income per common share $1.11 $1.50 $.09 $.43
===== ===== ==== ====
Average number of common shares
and common share equivalents
outstanding 100,573 102,930 99,828 102,892
======= ======= ====== =======
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and short-term investments $ 137,014 $ 136,400
Accounts receivable, less allowance
for doubtful accounts ($44,160 in 1997
and $39,753 in 1996) 1,199,584 902,878
Inventories 1,184,623 1,044,841
Prepaid expenses and other assets 26,796 36,004
---------- ----------
Total current assets 2,548,017 2,120,123
Property, plant and equipment at cost:
Land 9,607 8,712
Buildings and improvements 74,648 77,257
Machinery and equipment 146,639 127,633
---------- ----------
230,894 213,602
Less accumulated depreciation and
amortization 110,398 98,377
---------- ----------
120,496 115,225
Investment in affiliated company 35,206 34,200
Cost in excess of net assets of
companies acquired, net of amortization
($66,377 in 1997 and $57,802 in 1996) 638,988 388,787
Other assets 80,838 52,016
---------- ----------
$3,423,545 $2,710,351
========== ==========
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 751,901 $ 594,474
Accrued expenses 315,449 180,129
Short-term borrowings, including current
maturities of long-term debt 67,609 71,504
---------- ----------
Total current liabilities 1,134,959 846,107
Long-term debt 787,865 344,562
Deferred income taxes and other liabilities 87,734 68,488
Minority interest 62,915 92,712
Shareholders' equity:
Common stock, par value $1:
Authorized - 120,000,000 shares
Issued - 102,949,640 shares in 1997 and
102,392,770 shares in 1996 102,950 102,393
Capital in excess of par value 507,383 498,716
Retained earnings 916,697 805,342
Foreign currency translation adjustment (34,397) 8,753
---------- ----------
1,492,633 1,415,204
Less: Treasury stock (4,712,783 shares in 1997
and 2,139,398 shares in 1996), at cost 122,780 49,065
Unamortized employee stock awards 19,781 7,657
---------- ----------
1,350,072 1,358,482
---------- ----------
$3,423,545 $2,710,351
========== ==========
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $111,355 $154,661
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 8,628 13,304
Depreciation and amortization 35,266 29,372
Equity in undistributed (earnings) loss
of affiliated company (1,006) 419
Realignment and integration charges 59,500 -
Deferred income taxes (11,615) 7,673
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (227,719) (35,760)
Inventories (62,668) 59,561
Prepaid expenses and other assets 7,375 10,703
Accounts payable 107,944 8,245
Accrued expenses 4,103 (15,631)
Other 2,151 4,613
--------- ---------
Net cash provided by operating activities 33,314 237,160
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (22,198) (22,553)
Proceeds from sale of building - 10,442
Cash consideration paid for acquired businesses (350,870) (37,759)
Other - 1,752
--------- ---------
Net cash used for investing activities (373,068) (48,118)
--------- ---------
Cash flows from financing activities:
Change in short-term borrowings 31,012 (52,096)
Change in credit facilities 33,089 (109,372)
Repayment of long-term debt (1,450) (6,896)
Proceeds from long-term debt 394,335 -
Proceeds from exercise of stock options 15,549 8,843
Purchases of common stock (101,009) (9,787)
Distribution to minority partners (17,389) (9,378)
--------- ---------
Net cash provided by (used for)
financing activities 354,137 (178,686)
--------- ---------
Effect of exchange rate changes on cash (13,769) (4,312)
--------- ---------
Net increase in cash and short-term investments 614 6,044
Cash and short-term investments at beginning
of period 136,400 93,947
--------- ---------
Cash and short-term investments at end of period $ 137,014 $ 99,991
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 83,410 $ 103,809
Interest 43,788 33,271
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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, 1996 and
the notes thereto. The results of operations for the interim
periods are not necessarily indicative of results for the full
year.
Note B -- Stock split
- ---------------------
All share and per share amounts have been adjusted to reflect a
2-for-1 stock split in the form of a 100% stock dividend paid
on October 15, 1997 to shareholders of record on October 3,
1997.
Note C -- Authorized shares and net income per common share
- -----------------------------------------------------------
Net income per common share is based upon the weighted average
number of shares of common stock and common stock equivalents
outstanding. For the nine months ended September 30, 1997 and
1996, the average number of common stock equivalents was
1,686,660 and 1,157,384, respectively. For the quarter ended
September 30, 1997 and 1996, the average number of common stock
equivalents was 1,714,656 and 887,312, respectively.
Note D - Special charges
- ------------------------
The consolidated statement of income includes special pre-tax
charges totaling $59,500,000 ($.40 and $.41 per share for the
nine months and quarter ended September 30, 1997, respectively)
related to the realignment of the company's North American
components operations and the integration of the volume
electronic distribution businesses (FES Group) of Premier
Farnell plc acquired earlier in 1997. Of this amount
$37,900,000 represents costs associated with the realignment of
the North American components operations into seven operating
groups based on customer needs. The costs associated with this
realignment principally include real estate termination costs,
severance and other expenses related to personnel, and costs
related to communicating the announcement of the realignment to
customers, suppliers, and employees. The remaining $21,600,000
represents costs associated with the integration of the FES
group including real estate termination costs, severance and
other expenses related to personnel performing duplicative
functions, professional fees, and the disposal of duplicative
fixed assets.
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
1997 increased 15 percent and 22 percent, respectively,
compared with the year-earlier periods. This sales growth
was principally due to increased activity levels throughout
the world and the acquisition of the FES Group offset, in
part, by the impact of a stronger U.S. dollar. Excluding
the FES Group, sales for the nine months and third quarter
of 1997 increased more than 9 percent and 15 percent,
respectively, compared with the year-earlier periods.
Operating income
- ----------------
The company recorded operating income of $259.3 million and
$47.0 million in the first nine months and third quarter of
1997, respectively, compared with $308.9 million and $87.4
million, respectively, in the year-earlier periods.
Included in 1997's results are special pre-tax charges of
$21.6 million associated with the integration of the FES
Group and $37.9 million related to the realignment of the
company's North American components operations. Excluding
these special charges, operating income was $318.8 million
and $106.5 million for the nine months and quarter ended
September 30, 1997, respectively. The improvement in
operating income, excluding the special charges, in the
first nine months and third quarter of 1997, compared with
the year-earlier periods, reflects the impact of increased
sales, the acquisition of the FES Group, and economies of
scale offset, in part, by lower gross profit margins caused
by competitive pricing pressures and a changing product mix
more heavily weighted to commercial computer products.
Interest expense
- ----------------
Interest expense of $48.2 million and $18.1 million in the
first nine months and third quarter of 1997, respectively,
increased from $30 million during the first nine months of 1996
and $8.8 million in the comparable quarter of 1996. The
increase from the first nine months and third quarter of 1996
is a result of acquisitions, the repurchase of the company's
common stock, and investments in working capital.
Income taxes
- ------------
Excluding the special charges, the company recorded a provision
for taxes at an effective rate of 40.9 percent and 40.8 percent
for the first nine months and third quarter of 1997,
respectively, compared with 39.7 percent and 40.2 percent in
the comparable year-earlier periods. The increase in the
provision for 1997 compared with the year earlier periods is
due to increased earnings in countries with higher marginal tax
rates.
Net income
- ----------
The company recorded net income of $111.4 million and $9.3
million in the first nine months and third quarter of 1997,
respectively, compared with $154.7 million in the first nine
months of 1996 and $43.8 million in the third quarter of 1996.
Excluding the special charges of $16.9 million, net of tax,
associated with the integration of the FES Group and the
special charge of $23.5 million, net of tax, related to the
realignment of the company's North American components
operations, net income was $151.8 million ($1.51 per share) and
$49.7 million ($.50 per share) for the first nine months and
third quarter of 1997, respectively. The decrease in net
income for the first nine months is due to a decrease in gross
profit margins and an increase in interest expense offset, in
part, by higher sales. The increase in net income for the
third quarter is attributable to higher operating income
offset, in part, by an increase in interest expense.
Liquidity and capital resources
- -------------------------------
The company maintains a high level of current assets, primarily
accounts receivable and inventories. Consolidated current
assets as a percentage of total assets were approximately 74
percent and 78 percent at September 30, 1997 and 1996,
respectively.
The net amount of cash provided by the company's operating
activities during the first nine months of 1997 was $33.3
million, principally reflecting earnings plus non-cash charges
offset, in part, by increased working capital requirements
supporting higher sales. The net amount of cash used for
investing activities was $373.1 million, including
approximately $350.9 million for investments and acquisitions.
The net amount of cash provided by financing activities was
$354.1 million reflecting the $393 million of proceeds from the
issuance in January 1997 of the company's senior notes and
senior debentures and increases in the company's credit
facilities offset, in part, by the purchase of the company's
common stock.
The net amount of cash provided by the company's operating
activities during the first nine months of 1996 was $237.2
million, principally reflecting increased earnings and improved
working capital usage. The net amount of cash used for
investing activities was $48.1 million, including $22.6 million
for various capital expenditures and $37.8 million for various
investments and acquisitions. The net amount of cash used for
financing activities was $178.7 million, principally reflecting
the reduction in the company's borrowings, purchases of the
company's common stock and distributions to partners.
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 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
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.
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 12, 1997 By:/s/ Gerald Luterman
-------------------
Gerald Luterman
Senior Vice President
and
Chief Financial Officer
Date: November 12, 1997 By:/s/ Paul J. Reilly
------------------
Paul J. Reilly
Vice President and
Corporate Controller
Exhibit 11
ARROW ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares of common stock
outstanding 98,886 101,772 98,113 102,004
Net effect of dilutive stock options -
based on the treasury method 1,687 1,158 1,715 888
-------- -------- -------- --------
Total 100,573 102,930 99,828 102,892
======== ======== ======== ========
Net income $111,355 $154,661 $ 9,282 $ 43,756
======== ======== ======== ========
Per share amount $ 1.11 $ 1.50 $ 0.09 $ 0.43
======== ======== ======== ========
Fully Diluted (A)
- -----------------
Average shares of common stock
outstanding 98,886 101,772 98,113 102,004
Net effect of dilutive stock options -
based on the treasury method 1,781 1,162 1,715 1,026
-------- -------- -------- --------
Total 100,667 102,934 99,828 103,030
======== ======== ======== ========
Net income $111,355 $154,661 $ 9,282 $ 43,756
======== ======== ======== ========
Per share amount $ 1.11 $ 1.50 $ 0.09 $ 0.42
======== ======== ======== ========
(A) This calculation is submitted in accordance with Regulation S-K,
Item 601(b)(11), although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE SEPTEMBER 1997
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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 137,014
<SECURITIES> 0
<RECEIVABLES> 1,199,584
<ALLOWANCES> 44,160
<INVENTORY> 1,184,623
<CURRENT-ASSETS> 2,548,017
<PP&E> 230,894
<DEPRECIATION> 110,398
<TOTAL-ASSETS> 3,423,545
<CURRENT-LIABILITIES> 1,134,959
<BONDS> 787,865
0
0
<COMMON> 102,950
<OTHER-SE> 1,247,122
<TOTAL-LIABILITY-AND-EQUITY> 3,423,545
<SALES> 5,653,471
<TOTAL-REVENUES> 5,653,471
<CGS> 4,782,974
<TOTAL-COSTS> 5,394,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,855
<INTEREST-EXPENSE> 48,193
<INCOME-PRETAX> 212,139
<INCOME-TAX> 92,156
<INCOME-CONTINUING> 111,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,355
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
