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, 1999
--------------
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
--------- ----------
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: 94,816,507 shares outstanding at May 3, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except for share data)
Three Months Ended
March 31,
-----------------------------
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Sales $2,201,632 $2,025,760
---------- ----------
Costs and expenses:
Cost of products sold 1,893,350 1,730,881
Selling, general and
administrative expenses 215,749 191,464
Depreciation and amortization 17,720 11,457
---------- ----------
2,126,819 1,933,802
---------- ----------
Operating income 74,813 91,958
Equity in earnings of
affiliated companies 72 901
Interest expense 24,602 18,677
---------- ----------
Earnings before income
taxes and minority interest 50,283 74,182
Provision for income taxes 21,370 30,563
---------- ----------
Earnings before minority interest 28,913 43,619
Minority interest 572 1,674
---------- ----------
Net income $ 28,341 $ 41,945
========== ==========
Net income per share:
Basic $.30 $.44
==== ====
Diluted $.30 $.43
==== ====
Average number of shares outstanding:
Basic 95,019 96,341
====== ======
Diluted 95,862 98,315
====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 89,639 $ 158,924
Accounts receivable, less allowance
for doubtful accounts ($52,672 in
1999 and $48,423 in 1998) 1,452,008 1,354,351
Inventories 1,379,188 1,321,261
Prepaid expenses and other assets 33,801 26,279
---------- ----------
Total current assets 2,954,636 2,860,815
---------- ----------
Property, plant and equipment at cost:
Land 16,047 15,087
Buildings and improvements 94,351 90,851
Machinery and equipment 211,207 183,227
---------- ----------
321,605 289,165
Less accumulated depreciation and
amortization 141,448 134,359
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180,157 154,806
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Investment in affiliated companies 33,337 23,279
Cost in excess of net assets of
companies acquired, net of amortization
($95,571 in 1999 and $91,837 in 1998) 873,069 721,323
Other assets 86,073 79,648
---------- ----------
$4,127,272 $3,839,871
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 759,450 $ 785,596
Accrued expenses 217,772 211,438
Short-term borrowings, including
current maturities of long-term debt 200,070 168,066
---------- ----------
Total current liabilities 1,177,292 1,165,100
---------- ----------
Long-term debt 1,375,806 1,040,173
Other liabilities 66,722 77,587
Minority interest 14,896 69,692
Shareholders' equity:
Common stock, par value $1:
Authorized - 120,000,000 shares
Issued - 102,949,640 shares in 1999 and 1998 102,950 102,950
Capital in excess of par value 503,430 506,002
Retained earnings 1,143,167 1,114,826
Foreign currency translation adjustment (48,515) (23,648)
---------- ----------
1,701,032 1,700,130
Less: Treasury stock (7,128,655 and 7,321,540
shares in 1999 and 1998), at cost 192,897 198,281
Unamortized employee stock awards 15,579 14,530
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1,492,556 1,487,319
---------- ----------
$4,127,272 $3,839,871
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,341 $ 41,945
Adjustments to reconcile net income to net
cash provided by operations:
Minority interest in earnings 572 1,674
Depreciation and amortization 19,137 12,388
Equity in undistributed earnings
of affiliated companies (72) (901)
Deferred income taxes (2,133) 3,329
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (40,731) 7,083
Inventories 76,331 (118,154)
Prepaid expenses and other assets (2,539) 16,446
Accounts payable (59,054) (42,586)
Accrued expenses 6,983 (52,820)
Other (14,065) 10,171
-------- --------
Net cash provided (used) by operating activities 12,770 (121,425)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (19,708) (8,551)
Cash consideration paid for acquired businesses (327,006) (32,153)
-------- --------
Net cash used for investing activities (346,714) (40,704)
-------- --------
Cash flows from financing activities:
Change in short-term borrowings 45,948 (2,923)
Change in credit facilities 301,404 107,935
Repayment of long-term debt (38,419) -
Proceeds from exercise of stock options 105 6,457
Distribution to minority partners (37,852) (2,198)
Purchases of common stock - (3,809)
-------- --------
Net cash provided by financing activities 271,186 105,462
-------- --------
Effect of exchange rate changes on cash (6,527) 7,235
-------- -------
Net decrease in cash and short-term investments (69,285) (49,432)
Cash and short-term investments at beginning
of period 158,924 112,665
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Cash and short-term investments at end of period $ 89,639 $ 63,233
======== ========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ (2,212) $ 23,420
Interest 29,194 27,178
See accompanying notes.
</TABLE>
<PAGE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
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, 1998 and the notes thereto. The results of
operations for the interim periods are not necessarily indicative of results
for the full year.
Note B - Earnings per share
- ---------------------------
The following table sets forth the calculation of basic and diluted earnings
per share ("EPS") for the three months ended March 31, 1999 and 1998 (in
thousands except per share data):
1999 1998
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Net income for EPS $28,341 $41,945
======= =======
Weighted average common shares outstanding
for basic EPS 95,019 96,341
Net effect of dilutive stock options
and restricted stock awards 843 1,974
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Weighted average common shares outstanding
for diluted EPS 95,862 98,315
======= =======
Basic EPS $.30 $.44
======= =======
Diluted EPS $.30 $.43
======= =======
Note C - Comprehensive income
- -----------------------------
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 for the three months ended March 31, 1999 and 1998 are
as follows (in thousands):
1999 1998
------- -------
Net income $28,341 $41,945
Foreign currency translation adjustments(a) (24,867) (10,785)
------- -------
Comprehensive income $ 3,474 $31,160
======= =======
(a) The foreign currency translation adjustments have not been tax effected
as investments in foreign affiliates are deemed to be permanent.
Note D - Segment and geographic information
- -------------------------------------------
The company is engaged in the distribution of electronic components to
original equipment manufacturers and computer products to value-added
resellers (VARs). Revenue, operating income, and assets by segment as of
and for the three months ended March 31, 1999 and 1998 are as follows (in
thousands):
Electronic Computer
1999 Components Products Corporate Total
---------- -------- --------- ----------
Revenue from external customers $1,716,619 $485,013 $ - $2,201,632
Operating income (loss) 84,362 3,697 (13,246) 74,813
Total assets 3,357,934 573,487 195,851 4,127,272
1998
Revenue from external customers $1,620,796 404,964 - $2,025,760
Operating income (loss) 97,111 7,797 (12,950) 91,958
Total assets 2,882,253 492,426 205,399 3,580,078
As a result of the company's philosophy of maximizing operating efficiencies
through the centralization of certain functions, selected fixed assets and
related depreciation, borrowings, and goodwill amortization are not directly
attributable to the individual operating segments.
Revenues, by geographic area, are as follows (in thousands):
For the three
months ended
March 31,
-----------------------
1999 1998
---------- ----------
North America $1,440,981 $1,234,081
Europe 605,384 633,075
Asia/Pacific 155,267 158,604
---------- ----------
$2,201,632 $2,025,760
========== ==========
Total assets, by geographic area, as of March 31, 1999 and 1998 are as
follows (in thousands):
1999 1998
---------- ----------
North America $2,409,067 $1,987,057
Europe 1,428,850 1,384,771
Asia/Pacific 289,355 208,250
---------- ----------
$4,127,272 $3,580,078
========== ==========
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
The company acquired Richey Electronics, Inc. ("Richey") on January 7,
1999 and the electronics distribution group ("EDG") of Bell Industries,
Inc. on January 29, 1999. Both of these transactions have been accounted
for as purchases in accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations." Accordingly, the consolidated results
of the company in 1999 include both Richey and EDG from their respective
dates of acquisition.
Sales
- -----
Consolidated sales for the first quarter of 1999 increased approximately
9 percent over the year-earlier period. Excluding the impact of acquisitions,
sales declined almost 4 percent. This sales decline was principally due to
reduced sales of low margin microprocessors, lower sales in Europe, and a
weakening of European currencies offset, in part, by increased sales of
components in North America and commercial computer products by the
company's Gates/Arrow operation.
Operating income
- ----------------
The company recorded operating income of $75 million in the first quarter
of 1999, compared with $92 million in the first quarter of 1998. The
decrease in operating income is due to continued pressure on profit
margins in both the commercial computer products markets served by
Gates/Arrow and the North American components operations due to
competitive pricing pressures and to lower sales and competitive pricing
pressures in Europe.
Interest expense
- ----------------
Interest expense of $24.6 million in the first quarter of 1999 increased
from $18.7 million during the comparable quarter of 1998 principally
reflecting increases in borrowings associated with acquisitions.
Income taxes
- ------------
During the first quarter of 1999, the company recorded a provision for taxes
at an effective tax rate of 42.5 percent, compared with 41.2 percent in the
year-earlier period. The increase in the effective tax rate is due
principally to the impact of nondeductible goodwill amortization.
Net income
- ----------
The company recorded net income of $28.3 million in the first quarter of
1999, compared with $41.9 million in the first quarter of 1998. 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 72 percent and 75 percent for the first
quarter of 1999 and 1998, respectively.
During the first three months of 1999, the net amount of cash generated by
operating activities was $12.8 million. The net amount of cash used for
investing activities was $346.7 million, principally for the acquisitions of
Richey, EDG, and the remaining 10% of Spoerle Electronic not previously
owned by the company. The net amount of cash provided by financing
activities was $271.2 million, reflecting borrowings under the company's
credit facilities, offset, in part, by the repayment of Richey's 7.0%
Convertible Subordinated Notes and distributions to a former minority
partner.
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 various
acquisitions. The net amount of cash provided by company's financing
activities was $105.5 million.
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, completion; 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, 1999 the following Current
Reports on Form 8-K were filed:
Date of Report Item Reported
-------------- ---------------------------
January 12, 1999 Arrow Electronics announced
fourth quarter 1998 earnings
are 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 14, 1999 By: /s/ Sam R. Leno
-------------- -----------------------
Sam R. Leno
Senior Vice President and
Chief Financial Officer
Date: May 14, 1999 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 1999 FORM 10Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 89,639
<SECURITIES> 0
<RECEIVABLES> 1,452,008
<ALLOWANCES> 52,672
<INVENTORY> 1,379,188
<CURRENT-ASSETS> 2,954,636
<PP&E> 321,605
<DEPRECIATION> 141,448
<TOTAL-ASSETS> 4,127,272
<CURRENT-LIABILITIES> 1,177,292
<BONDS> 1,375,806
0
0
<COMMON> 102,950
<OTHER-SE> 1,389,606
<TOTAL-LIABILITY-AND-EQUITY> 4,127,272
<SALES> 2,201,632
<TOTAL-REVENUES> 2,201,632
<CGS> 1,893,350
<TOTAL-COSTS> 2,126,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,643
<INTEREST-EXPENSE> 24,602
<INCOME-PRETAX> 50,283
<INCOME-TAX> 21,370
<INCOME-CONTINUING> 28,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,341
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
