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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4482
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ARROW ELECTRONICS, INC.
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(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
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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: 96,930,094 shares outstanding at May 1, 1998.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Sales $2,025,760 $1,855,333
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Costs and expenses:
Cost of products sold 1,730,881 1,569,772
Selling, general and
administrative expenses 191,464 171,775
Depreciation and amortization 11,457 9,689
---------- ----------
1,933,802 1,751,236
---------- ----------
Operating income 91,958 104,097
Equity in earnings of
affiliated companies 901 298
Interest expense 18,677 13,945
---------- ----------
Earnings before income
taxes and minority interest 74,182 90,450
Provision for income taxes 30,563 37,192
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Earnings before minority interest 43,619 53,258
Minority interest 1,674 2,964
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Net income $ 41,945 $ 50,294
========== ==========
Net income per share:
Basic $.44 $.51
==== ====
Diluted $.43 $.50
==== ====
Average number of shares outstanding:
Basic 96,341 98,665
====== ======
Diluted 98,315 99,657
====== ======
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 63,233 $ 112,665
Accounts receivable, less allowance
for doubtful accounts ($43,621 in
1998 and $46,055 in 1997) 1,228,881 1,245,354
Inventories 1,342,306 1,230,053
Prepaid expenses and other assets 25,343 42,268
---------- ----------
Total current assets 2,659,763 2,630,340
Property, plant and equipment at cost:
Land 9,157 9,699
Buildings and improvements 75,542 75,431
Machinery and equipment 147,397 143,030
---------- ----------
232,096 228,160
Less accumulated depreciation and
amortization 116,997 113,923
---------- ----------
115,099 114,237
Investment in affiliated companies 56,200 54,914
Cost in excess of net assets of
companies acquired, net of amortization
($73,948 in 1998 and $69,899 in 1997) 662,535 645,152
Other assets 86,481 93,230
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$3,580,078 $3,537,873
========== ==========
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 720,375 $ 767,088
Accrued expenses 251,935 285,673
Short-term borrowings, including
current maturities of long-term debt 139,919 143,723
---------- ----------
Total current liabilities 1,112,229 1,196,484
Long-term debt 918,811 823,099
Deferred income taxes and other liabilities 87,514 87,254
Minority interest 65,445 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 505,113 506,656
Retained earnings 1,010,943 968,998
Foreign currency translation adjustment (46,666) (35,881)
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1,572,340 1,542,723
Less: Treasury stock (5,725,315 and 6,011,903
shares in 1998 and 1997), at cost 155,511 164,207
Unamortized employee stock awards 20,750 17,758
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1,396,079 1,360,758
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$3,580,078 $3,537,873
========== ==========
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,945 $ 50,294
Adjustments to reconcile net income to net
cash provided by operations:
Minority interest in earnings 1,674 2,964
Depreciation and amortization 12,388 10,650
Equity in undistributed earnings
of affiliated companies (901) (298)
Deferred income taxes 3,329 2,792
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable 7,083 (168,251)
Inventories (118,154) 21,544
Prepaid expenses and other assets 16,446 4,234
Accounts payable (42,586) (14,674)
Accrued expenses (52,820) 39,810
Other 10,171 (804)
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Net cash provided (used) by operating activities (121,425) (51,739)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (8,551) (4,755)
Cash consideration paid for acquired businesses (32,153) (322,226)
-------- --------
Net cash used for investing activities (40,704) (326,981)
-------- --------
Cash flows from financing activities:
Change in short-term borrowings (2,923) 27,957
Change in credit facilities 107,935 15,486
Repayment of long-term debt - (1,148)
Proceeds from long-term debt - 393,296
Proceeds from exercise of stock options 6,457 8,300
Distribution to minority partners (2,198) (12,079)
Purchases of common stock (3,809) (51,009)
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Net cash provided by financing activities 105,462 380,803
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Effect of exchange rate changes on cash 7,235 (9,710)
-------- --------
Net decrease in cash and short-term investments (49,432) (7,627)
Cash and short-term investments at beginning
of period 112,665 136,400
-------- --------
Cash and short-term investments at end of period $ 63,233 $128,773
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 23,420 $ 13,860
Interest 27,178 10,778
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 -- Stock repurchase program
- ----------------------------------
In February 1998, the company's Board of Directors authorized management to
purchase, from time to time, up to $50 million of the company's common
stock. Purchases are being made in the open market or in privately
negotiated transactions, as determined by management. The timing and amount
of the purchases depend, among other matters, on market conditions and
corporate requirements.
Note C -- Stock split
- ---------------------
All share and per share amounts for the first quarter 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 to shareholders of record on October
3, 1997.
Note D -- Earnings per share
- ----------------------------
The following table sets forth the calculation of basic and diluted earnings
per share for the three months ended March 31 (in thousands except per share
data):
1998 1997
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Net income $41,945 $50,294
======= =======
Weighted average common shares outstanding
for basic earnings per share 96,341 98,665
Net effect of dilutive stock options
of restricted stock awards 1,974 992
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Weighted average common shares outstanding
for diluted earnings per share 98,315 99,657
======= =======
Basic earnings per share $.44 $.51
==== ====
Diluted earnings per share $.43 $.50
==== ====
Note E -- Accounting Changes
- ----------------------------
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, net of tax, for the three month periods ended March
31, 1998 and 1997 are as follows (in thousands):
1998 1997
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Net income $41,945 $50,294
Foreign currency translation adjustments (6,342) (14,502)
------- -------
Comprehensive income $35,603 $35,792
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
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Sales
- -----
Consolidated sales for the first quarter of 1998 increased approximately
9 percent compared with the year-earlier period. This sales growth was
principally due to increased activity levels in Europe and the
Asia/Pacific region and acquisitions offset, in part, by a stronger U.S.
dollar and lower sales in the company's North American components
operations.
Operating income
- ----------------
The company recorded operating income of $92 million in the first quarter
of 1998, compared with $104.1 million in the first quarter of 1997. The
decrease in operating income reflects the impact of lower sales and gross
profit margins in North America offset, in part, by stronger performance
by the company's operations in Europe and the Asia/Pacific region. Gross
profit margins decreased principally as a result of competitive pricing
pressures in the North American components operations and a greater sales
mix of lower margin commercial computer products.
Interest expense
- ----------------
Interest expense of $18.7 million in the first quarter of 1998 increased
from $13.9 million during the comparable quarter of 1997, reflecting
increases in borrowings associated with acquisitions, purchases of the
company's common stock, and investments in working capital.
Income taxes
- ------------
During the first quarter of 1998, the company recorded a provision for taxes
at an effective tax rate of 41.2%, compared with 41.1% in the year-earlier
period.
Net income
- ----------
The company recorded net income of $41.9 million in the first quarter of
1998 compared with $50.3 million in the first quarter of 1997. The decrease
in net income from the year-earlier period is principally due to lower
operating income and higher 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 for the first quarter of 1998 and
1997.
During the first three months of 1998, the net amount of cash used by the
company's operating activities was $121.4 million, the principal element of
which was the increase in inventory. The net amount of cash used for
investing activities was $40.7 million, including $32.2 million for
acquisitions. The net amount of cash provided by the company's financing
activities was $105.5 million.
The net amount of cash used by the company's operating activities during the
first three months of 1997 was $51.7 million. The principal element of
which was the increase in accounts receivable resulting from the increase in
net sales over the fourth quarter of 1996. The net amount of cash used for
investing activities was $327 million, including approximately $300 million
for the acquisition of the volume electronic component distribution
businesses of Premier Farnell plc. The net amount of cash provided by
financing activities was $380.8 million, principally reflecting the $393.3
million of proceeds from the issuance of the company's senior notes and
senior debentures offset, in part, by purchases of the company's common
stock and distributions to minority partners.
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.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1998 the following Current
Reports on Form 8-K were filed:
Date of Report Item Reported
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March 18, 1998 Arrow Electronics announced first
quarter earnings likely to be below
analysts' expectations.
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 12, 1998 By:/s/ Gerald Luterman
-------------------
Gerald Luterman
Senior Vice President and
Chief Financial Officer
Date: May 12, 1998 By:/s/ Paul J. Reilly
------------------
Paul J. Reilly
Vice President and 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> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 63,233
<SECURITIES> 0
<RECEIVABLES> 1,228,881
<ALLOWANCES> 43,621
<INVENTORY> 1,342,306
<CURRENT-ASSETS> 2,659,763
<PP&E> 232,096
<DEPRECIATION> 116,997
<TOTAL-ASSETS> 3,580,078
<CURRENT-LIABILITIES> 1,112,229
<BONDS> 918,811
0
0
<COMMON> 102,950
<OTHER-SE> 1,293,129
<TOTAL-LIABILITY-AND-EQUITY> 3,580,078
<SALES> 2,025,760
<TOTAL-REVENUES> 2,025,760
<CGS> 1,730,881
<TOTAL-COSTS> 1,933,802
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,558
<INTEREST-EXPENSE> 18,677
<INCOME-PRETAX> 74,182
<INCOME-TAX> 30,563
<INCOME-CONTINUING> 43,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,945
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.43
</TABLE>
