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 June 30, 1998
-------------
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: 95,568,825 shares outstanding at July 31, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements.
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $4,049,726 $3,704,075 $2,023,966 $1,848,742
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 3,463,516 3,125,124 1,732,635 1,555,352
Selling, general and
administrative expenses 381,913 345,758 190,449 173,983
Depreciation and amortization 24,406 20,834 12,949 11,145
---------- ---------- ---------- ----------
3,869,835 3,491,716 1,936,033 1,740,480
---------- ---------- ---------- ----------
Operating income 179,891 212,359 87,933 108,262
Equity in earnings (loss) of
affiliated companies 112 532 (789) 234
Interest expense 39,011 30,048 20,334 16,103
---------- ---------- ---------- ----------
Earnings before income
taxes and minority interest 140,992 182,843 66,810 92,393
Provision for income taxes 59,206 74,991 28,643 37,799
---------- ---------- ---------- ----------
Earnings before minority interest 81,786 107,852 38,167 54,594
Minority interest 3,851 5,779 2,177 2,815
---------- --------- ---------- ----------
Net income $ 77,935 $ 102,073 $ 35,990 $ 51,779
========== ========== ========== ==========
Net income per share:
Basic $.81 $1.03 $.37 $.52
==== ===== ==== ====
Diluted $.79 $1.01 $.37 $.52
==== ===== ==== ====
Average number of shares
outstanding:
Basic 96,189 98,964 96,173 98,698
====== ======= ====== =======
Diluted 98,184 100,624 98,045 100,320
====== ======= ====== =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 79,668 $ 112,665
Accounts receivable, less allowance
for doubtful accounts ($47,547 in 1998
and $46,055 in 1997) 1,325,196 1,245,354
Inventories 1,333,783 1,230,053
Prepaid expenses and other assets 23,759 42,268
---------- ----------
Total current assets 2,762,406 2,630,340
Property, plant and equipment at cost:
Land 10,103 9,699
Buildings and improvements 77,516 75,431
Machinery and equipment 154,836 143,030
---------- ----------
242,455 228,160
Less accumulated depreciation and
amortization (118,907) (113,923)
---------- ----------
123,548 114,237
Investment in affiliated companies 55,411 54,914
Cost in excess of net assets of
companies acquired, net of amortization
($78,765 in 1998 and $69,899 in 1997) 675,929 645,152
Other assets 91,437 93,230
---------- ----------
$3,708,731 $3,537,873
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 732,851 $ 767,088
Accrued expenses 285,550 285,673
Short-term borrowings, including current
maturities of long-term debt 134,622 143,723
---------- ----------
Total current liabilities 1,153,023 1,196,484
Long-term debt 1,022,372 823,099
Deferred income taxes and other liabilities 86,115 87,254
Minority interest 57,827 70,278
Shareholders' equity:
Common stock, par value $1:
Authorized - 120,000,000 shares
Issued - 102,949,640 shares in 1998 and 1997 102,950 102,950
Capital in excess of par value 504,881 506,656
Retained earnings 1,046,933 968,998
Foreign currency translation adjustment (49,985) (35,881)
---------- ----------
1,604,779 1,542,723
Less: Treasury stock (7,218,065 shares in 1998
and 6,011,903 shares in 1997) 196,595 164,207
Unamortized employee stock awards 18,790 17,758
---------- ----------
1,389,394 1,360,758
---------- ----------
$3,708,731 $3,537,873
========== ==========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended
June 30,
-----------------------
1998 1997
---- ----
<S> (Unaudited)
Cash flows from operating activities: <C> <C>
Net income $ 77,935 $ 102,073
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 3,851 5,779
Depreciation and amortization 25,259 22,861
Equity in undistributed (earnings) loss
of affiliated companies (112) (532)
Deferred income taxes 5,572 6,995
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (59,251) (152,191)
Inventories (87,441) (72,836)
Prepaid expenses and other assets 18,230 (446)
Accounts payable (48,520) (36,857)
Accrued expenses (23,570) 4,210
Other (9,176) 2,528
Net cash provided by (used for) -------- ---------
operating activities (97,223) (118,416)
-------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (21,918) (14,000)
Cash consideration paid for acquired businesses (55,905) (341,194)
-------- ---------
Net cash used for investing activities (77,823) (355,194)
-------- ---------
Cash flows from financing activities:
Change in short-term borrowings (9,762) 33,029
Change in credit facilities 13,052 114,948
Repayment of long-term debt (111) (1,541)
Proceeds from long-term debt 195,814 400,822
Proceeds from exercise of stock options 7,195 11,394
Distribution to minority partners (15,075) (11,874)
Purchases of common stock (45,833) (83,276)
-------- ---------
Net cash provided by financing activities 145,280 463,502
-------- ---------
Effect of exchange rate changes on cash (3,231) (11,154)
-------- ---------
Net decrease in cash and short-term investments (32,997) (21,262)
Cash and short-term investments at beginning
of period 112,665 136,400
-------- ---------
Cash and short-term investments at end of period $ 79,668 $ 115,138
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 48,494 $ 56,146
Interest 42,435 17,421
See accompanying notes.
</TABLE>
<PAGE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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, 1997 and the notes thereto. The results of
operations for the interim periods are not necessarily indicative of results
for the full year.
Note B -- Long-term debt
- ------------------------
In May 1998, the company issued $200 million of 6 7/8% senior debentures due
2018. The net proceeds of the offering of $195,814,000 were used to
refinance a portion of the company's outstanding borrowings under its global
multi-currency credit facility. The terms of these debentures are
consistent with the terms of the company's 7% senior notes and 7 1/2% senior
debentures.
Note C -- Stock split
- ---------------------
All share and per share amounts for the second quarter and first six months
of 1997 have been restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend paid on October 15, 1997.
<PAGE>
Note D -- Earnings per share
- ----------------------------
The following table sets forth the calculation of basic and diluted earnings
per share (in thousands except per share data):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $77,935 $102,073 $35,990 $51,779
======= ======== ======= =======
Weighed average common
shares outstanding
for basic earnings
per share 96,189 98,964 96,173 98,698
Net effect of dilutive
stock options and
restricted stock
awards 1,995 1,660 1,872 1,622
------- ------- ------- -------
Weighted average common
shares outstanding
for diluted earnings
per share 98,184 100,624 98,045 100,320
======= ======== ======= ========
Basic earnings per share $.81 $1.03 $.37 $.52
==== ===== ==== ====
Diluted earnings per share $.79 $1.01 $.37 $.52
==== ===== ==== ====
Note E -- Comprehensive Income
- ------------------------------
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" which
requires disclosure of comprehensive income and its components.
Comprehensive income is defined as the aggregate change in shareholders'
equity excluding changes in ownership interests. For the company, it is the
foreign currency translation adjustments and net income. The components of
comprehensive income are as follows (in thousands):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $77,935 $102,073 $35,990 $51,799
Foreign currency
translation adjustments (a) (14,104) (34,866) (3,319) (10,245)
------- -------- ------- -------
Comprehensive income $63,831 $ 67,207 $32,671 $41,554
======= ======== ======= =======
(a) The company considers the unremitted earnings of its foreign
subsidiaries to be permanently reinvested and does not provide
deferred taxes thereon. Accordingly no deferred taxes have been
provided with respect to the related foreign currency translation
adjustments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
Sales
- -----
Consolidated sales for the six months and second quarter of 1998
increased 9.3 percent and 9.5 percent, respectively, compared with the
year-earlier periods. This sales growth was principally due to increased
activity levels in Gates/Arrow Distributing ("Gates/Arrow"), the
company's computer products business in North America, and the
acquisition of two mid-range computer product distributors, offset, in
part, by a stronger U.S. dollar and lower sales in the company's worldwide
component distribution businesses. The performance of the company's component
distribution businesses reflects the difficult market conditions
affecting the industry generally. Supply remains well ahead of demand and the
resultant pressure on both average selling prices and gross profit
margins, coupled with the impact of the financial crisis in Asia, is
negatively impacting the company's results.
Operating income
- ----------------
The company recorded operating income of $179.9 million and $87.9 million
in the first six months and second quarter of 1998, respectively,
compared with $212.4 million and $108.3 million, respectively, in the
year-earlier periods. The decrease in operating income in the first half
and second quarter of 1998 principally reflects the impact of lower sales
and gross profit margins in the worldwide component distribution
businesses, offset, in part, by increased sales and improved operating
performance at Gates/Arrow.
Interest expense
- ----------------
Interest expense of $39 million and $20.3 million in the first six months
and second quarter of 1998, respectively, increased from $30.0 million
during the first six months of 1997 and $16.1 million in the comparable
quarter of 1997. The increase from the first six months and second quarter
of 1997 is the result increased borrowings to fund acquisitions and
purchases of the company's common stock, offset, in part, by lower interest
rates.
Income taxes
- ------------
During the first six months and second quarter of 1998, the company recorded
a provision for taxes at an effective tax rate of 42 percent and 42.9
percent, respectively, compared with 41 percent during the first six months
of 1997 and 40.9 percent in the comparable quarter of 1997. The increase in
the provision is due to increased earnings in countries with higher marginal
tax rates.
Net income
- ----------
The company recorded net income of $77.9 million and $36 million in the
first six months and second quarter of 1998, respectively, compared with
$102.1 million in the first six months of 1997 and $51.8 million in the
second quarter of 1997. The decrease in net income is due to decreased
operating income as well as an increase in interest expense offset, in part,
by a decrease in minority interest.
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 percent at June 30, 1998 and 1997.
The net amount of cash used by the company's operating activities during the
first six months of 1998 was $97.2 million, principally due to the increase
in working capital requirements. The net amount of cash used for investing
activities was $77.8 million, including $55.9 million for various
acquisitions. The net amount of cash provided by financing activities was
$145.3 million, principally reflecting the $196 million of proceeds from the
issuance in May 1998 of the company's 6 7/8% senior debentures, offset by
purchases of the company's common stock.
The net amount of cash used by the company's operating activities during the
first six months of 1997 was $118.4 million, principally reflecting
increased working capital requirements supporting higher sales. The net
amount of cash used for investing activities was $355.2 million including
approximately $341.2 million for investments and acquisitions. The net
amount of cash provided by financing activities was $463.5 million,
principally 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 purchases
of the company's common stock.
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 computer and electronic
components markets; and changes in relationships with key suppliers.
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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) The company's Annual Meeting of Shareholders was held on May 14,
1998 (the "Annual Meeting").
(b) The matters voted upon at the Annual Meeting and the results
of the voting were as follows:
(i) The following individuals were elected by the shareholders
to serve as Directors:
Board Member In Favor Withheld
- ------------ ---------- --------
Daniel W. Duval 79,417,557 245,537
Carlo Giersch 78,707,247 955,847
John N. Hanson 79,420,497 242,597
Stephen P. Kaufman 78,703,592 959,502
Roger King 78,695,213 967,881
Robert E. Klatell 78,701,507 961,587
Karen Gordon Mills 79,421,657 241,437
Richard S. Rosenbloom 79,411,797 251,297
Robert S. Throop 78,705,937 957,157
John C. Waddell 78,706,265 956,829
(ii) The appointment of Ernst & Young LLP as auditors of the
company was voted upon as follows: 79,531,217 shares in favor;
74,601 shares against; and 57,276 shares abstaining.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K.
During the quarter ended June 30, 1998 the following Current
Reports on Form 8-K were filed:
Date of Report Item Reported
-------------- -------------
June 16, 1998 Arrow Electronics announced second
quarter earnings likely to be below
analysts' expectations.
<PAGE>
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: August 13, 1998 By:/s/ Gerald Luterman
------------------------- ----------------------
Gerald Luterman
Senior Vice President and
Chief Financial Officer
Date: August 13, 1998 By:/s/ Paul J. Reilly
-------------------------- ----------------------
Paul J. Reilly
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 1998 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-1-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 79,668
<SECURITIES> 0
<RECEIVABLES> 1,325,196
<ALLOWANCES> 47,547
<INVENTORY> 1,333,783
<CURRENT-ASSETS> 2,762,408
<PP&E> 242,455
<DEPRECIATION> 118,907
<TOTAL-ASSETS> 3,708,731
<CURRENT-LIABILITIES> 1,153,023
<BONDS> 1,022,372
0
0
<COMMON> 102,950
<OTHER-SE> 1,286,444
<TOTAL-LIABILITY-AND-EQUITY> 3,708,731
<SALES> 4,049,726
<TOTAL-REVENUES> 4,049,726
<CGS> 3,463,516
<TOTAL-COSTS> 3,869,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,161
<INTEREST-EXPENSE> 39,011
<INCOME-PRETAX> 140,992
<INCOME-TAX> 59,206
<INCOME-CONTINUING> 81,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,935
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.79
</TABLE>
