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, 2000
-------------
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: 97,882,032 shares outstanding at July 31, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Sales $5,931,094 $4,451,660 $3,161,670 $2,250,028
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 5,017,795 3,829,239 2,671,370 1,935,889
Selling, general and
administrative expenses 548,605 425,224 287,380 209,475
Depreciation and amortization 40,684 36,044 21,090 18,324
Integration charge - 24,560 - 24,560
---------- ---------- ---------- ----------
5,607,084 4,315,067 2,979,840 2,188,248
---------- ---------- ---------- ----------
Operating income 324,010 136,593 181,830 61,780
Equity in earnings (loss) of
affiliated companies (1,910) 38 (612) (34)
Interest expense 66,119 51,310 35,540 26,708
---------- ---------- ---------- ----------
Earnings before income
taxes and minority interest 255,981 85,321 145,678 35,038
Provision for income taxes 106,637 38,619 60,310 17,249
---------- ---------- ---------- ----------
Earnings before minority interest 149,344 46,702 85,368 17,789
Minority interest 2,315 3,339 1,398 2,767
---------- ---------- ---------- ----------
Net income $ 147,029 $ 43,363 $ 83,970 $ 15,022
========== ========== ========== ==========
Net income per share:
Basic $1.53 $.46 $.87 $.16
===== ==== ==== ====
Diluted $1.50 $.45 $.84 $.16
===== ==== ==== ====
Average number of shares
outstanding:
Basic 95,888 95,053 96,398 95,138
====== ====== ====== ======
Diluted 97,741 95,928 99,419 96,016
====== ====== ====== ======
See accompanying notes.
<PAGE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and short-term investments $ 46,928 $ 44,885
Accounts receivable, less allowance
for doubtful accounts ($39,368 in 2000
and $32,338 in 1999) 2,213,078 1,638,654
Inventories 1,862,207 1,444,929
Prepaid expenses and other assets 47,415 29,469
---------- ----------
Total current assets 4,169,628 3,157,937
Property, plant and equipment at cost:
Land 18,078 17,638
Buildings and improvements 121,317 114,158
Machinery and equipment 288,047 257,841
---------- ----------
427,442 389,637
Less accumulated depreciation and
amortization (183,281) (165,987)
---------- ----------
244,161 223,650
Investments in affiliated companies 44,305 52,233
Cost in excess of net assets of
companies acquired, net of amortization
($128,236 in 2000 and $113,762 in 1999) 1,033,575 960,770
Other assets 117,489 88,665
---------- ----------
$5,609,158 $4,483,255
========== ==========
See accompanying notes.
<PAGE>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,248,805 $ 805,468
Accrued expenses 395,048 263,216
Short-term borrowings, including current
maturities of long-term debt and capital
lease obligations 320,122 255,977
---------- ----------
Total current liabilities 1,963,975 1,324,661
Long-term debt and capital lease obligations 1,867,701 1,533,421
Deferred income taxes 33,882 39,474
Other liabilities 23,588 23,754
Minority interest 13,663 11,416
Shareholders' equity:
Common stock, par value $1:
Authorized - 120,000,000 shares
Issued - 103,743,269 shares in
2000 and 102,949,640 shares in 1999 103,743 102,950
Capital in excess of par value 524,972 501,379
Retained earnings 1,386,008 1,238,979
Foreign currency translation adjustment (139,886) (95,295)
---------- ----------
1,874,837 1,748,013
Less: Treasury stock (5,882,669 shares in 2000
and 7,004,349 shares in 1999), at cost 157,321 187,269
Unamortized employee stock awards 11,167 10,215
---------- ----------
1,706,349 1,550,529
---------- ----------
$5,609,158 $4,483,255
========== ==========
See accompanying notes.
<PAGE>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
------------------------
2000 1999
---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 147,029 $ 43,363
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 2,247 3,339
Depreciation and amortization 44,903 39,564
Equity in (earnings) loss
of affiliated companies 1,910 (38)
Integration charge - 24,560
Deferred income taxes (3,496) (9,146)
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (512,315) (81,926)
Inventories (375,801) 66,094
Prepaid expenses and other assets (17,392) 2,364
Accounts payable 405,655 (79,737)
Accrued expenses 103,924 11,418
Other (14,825) (20,636)
--------- --------
Net cash used for operating activities (218,161) (781)
--------- --------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (39,229) (40,202)
Cash consideration paid for acquired businesses (87,327) (338,935)
Investments (20,760) (9,986)
--------- --------
Net cash used for investing activities (147,316) (389,123)
--------- --------
Cash flows from financing activities:
Change in short-term borrowings 62,235 (1,641)
Change in credit facilities 96,198 362,231
Change in long-term debt 190,478 (38,560)
Proceeds from exercise of stock options 22,725 283
Purchases of common stock (321) -
Distribution to minority partners - (37,852)
--------- --------
Net cash provided by financing activities 371,315 284,461
--------- --------
Effect of exchange rate changes on cash (3,795) (14,246)
--------- --------
Net increase (decrease) in cash and
short-term investments 2,043 (119,689)
Cash and short-term investments at beginning
of period 44,885 158,924
--------- --------
Cash and short-term investments at end of period $ 46,928 $ 39,235
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 39,509 $ 8,785
Interest 63,939 53,077
See accompanying notes.
<PAGE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(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, 1999 and the notes thereto. The results of operations for the
interim periods are not necessarily indicative of results for the full year.
Note B -- Integration Charge
----------------------------
The 1999 consolidated statement of income includes a pre-tax integration charge
totaling $24.6 million related to the company's acquisition and integration of
the electronics distribution group of Bell Industries, Inc. ("EDG") and Richey
Electronics, Inc. ("Richey"). Of this amount, $15.2 million represents costs
associated with closing facilities and severance payments. The remaining $9.4
million principally represents costs associated with outside resources
associated with the conversion of systems, professional fees, and other costs
related to the integration of these businesses into Arrow. Excluding the
integration charge, net income and net income per share on a basic and diluted
basis were $31.5 million and $.33, respectively, for the three months ended
June 30, 1999 and $59.8 million, $.63, and $.62, respectively, for the six
months ended June 30, 1999.
Note C -- 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,
------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $147,029 $43,363 $83,970 $15,022
======== ======= ======= =======
Weighed average common
shares outstanding
for basic earnings
per share 95,888 95,053 96,398 95,138
Net effect of dilutive
stock options and
restricted stock
awards 1,853 875 3,021 878
-------- ------- ------- -------
Weighted average common
shares outstanding
for diluted earnings
per share 97,741 95,928 99,419 96,016
====== ====== ====== ======
Basic earnings per share $1.53 $.46 $.87 $.16
===== ==== ==== ====
Diluted earnings per share $1.50 $.45 $.84 $.16
===== ==== ==== ====
Note D -- Comprehensive Income
------------------------------
Comprehensive income is defined as the aggregate change in shareholders'
equity excluding changes in ownership interests. For the company, the
components of comprehensive income are as follows (in thousands):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $147,029 $43,363 $83,970 $15,022
Foreign currency
translation adjustments(a) (44,591) (48,527) (16,757) (23,660)
-------- ------- ------- -------
Comprehensive income (loss)(b) $102,438 $(5,164) $67,213 $(8,638)
======== ======= ======= =======
(a) The foreign currency translation adjustments have not been tax effected as
investments in foreign affiliates are deemed to be permanent.
(b) Excluding the integration charge of $24,560 ($16,480 after taxes),
comprehensive income was $11,316 for the six months ended June 30, 1999 and
$7,842 for the three months ended June 30, 1999.
Note E -- 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).
The company has redefined its reportable segments to present two distinct
worldwide businesses that have different economic cycles, structures, and
competitors. Computer products include North American Computer Products
Operations together with UK Microtronica, Nordic Microtronica, ATD (in Iberia),
and Arrow Computer Products (in France). The prior year has been restated for
comparative purposes. Revenue and operating income, by segment, are as follows
(in thousands):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
----------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
Electronic Components $4,426,441 $2,848,693 $2,393,226 $1,436,708
Computer Products 1,504,653 1,602,967 768,444 813,320
---------- ---------- ---------- ----------
Consolidated $5,931,094 $4,451,660 $3,161,670 $2,250,028
========== ========== ========== ==========
Operating income:
Electronic Components $ 371,185 $ 156,905 $ 213,844 $ 81,360
Computer Products 19,313 31,327 9,989 18,813
Corporate (66,488) (51,639) (42,003) (38,393)
---------- ---------- ---------- ----------
Consolidated $ 324,010 $ 136,593 $ 181,830 $ 61,780
========== ========== ========== ==========
Total assets, by segment, are as follows (in thousands):
June 30, December 31,
2000 1999
---------- -----------
Total assets:
Electronic Components $4,529,437 $3,317,253
Computer Products 906,182 991,785
Corporate 173,539 174,217
---------- ----------
Consolidated $5,609,158 $4,483,255
========== ==========
As a result of the company's philosophy of maximizing operating efficiencies
through the centralization of certain functions, selected fixed assets and
related depreciation, as well as borrowings and goodwill amortization are not
directly attributable to the individual operating segments.
Revenues, by geographic area, are as follows (in thousands):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Americas $3,638,808 $2,972,368 $1,921,599 $1,531,387
Europe 1,670,799 1,159,070 867,541 553,686
Asia/Pacific 621,487 320,222 372,530 164,955
---------- ---------- ---------- ----------
Consolidated $5,931,094 $4,451,660 $3,161,670 $2,250,028
========== ========== ========== ==========
Total assets, by geographic area, are as follows (in thousands):
June 30, December 31,
2000 1999
---------- -----------
Americas $2,945,960 $2,642,601
Europe 1,990,552 1,460,439
Asia/Pacific 672,646 380,215
---------- ----------
Consolidated $5,609,158 $4,483,255
========== ==========
Note F -- Subsequent Event
--------------------------
In August 2000, the company agreed to purchase Wyle Components and Wyle Systems,
which reported combined 1999 sales in North America of about $2 billion, for
approximately $840 million (including the assumption of debt), subject to
various adjustments at closing. The company plans to finance the purchase price
through a combination of debt, common equity, and equity-linked securities.
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 2000 increased 33
percent and 41 percent, respectively, compared with the year-earlier periods.
The sales growth was driven by a 55 percent and 67 percent increase in sales of
core components for the six months and second quarter of 2000, respectively,
from the comparable year-earlier periods. Sales of computer products decreased
by 6 percent for the six months and second quarter of 2000 when compared to the
year-earlier periods principally as a result of market conditions for mid-range
products, lower sales of low margin microprocessors (a product segment not
considered a part of the company's core business), and foreign exchange rate
differences.
Operating Income
----------------
The company recorded operating income of $324 million and $181.8 million in the
first six months and second quarter of 2000, respectively, compared with $136.6
million and $61.8 million, respectively, in the year-earlier periods. Excluding
the integration charge relating to EDG and Richey (see Note B), operating
income was $161.2 million and $86.3 million for the six months and second
quarter ended June 30, 1999, respectively. The increase in operating income is
due to increased sales and improving gross profit margins in the core components
businesses around the world. In addition, operating expenses as a percentage of
sales decreased to 9.9 percent and 9.8 percent for the six months and second
quarter ended June 30, 2000, respectively, from 10.4 percent and 10.1 percent,
respectively, in the year-earlier periods.
Interest Expense
----------------
Interest expense of $66.1 million and $35.5 million in the first six months and
second quarter of 2000, respectively, increased from $51.3 million and $26.7
million, respectively, in the year-earlier periods. The increase is the result
of additional debt incurred to fund acquisitions, joint ventures, capital
expenditures, and investments in working capital to support accelerated sales
growth.
Income Taxes
------------
The company recorded a provision for taxes at an effective rate of 41.7 percent
and 41.4 percent for the first six months and second quarter of 2000,
respectively, compared with 45.3 percent and 49.2 percent in the comparable
year-earlier periods. Excluding the impact of the aforementioned integration
charge, the effective rate was 42.5 percent for the six months and second
quarter of 1999. The company's effective tax rate is principally impacted by,
among other factors, the statutory tax rates in the countries it operates and
the related level of earnings generated by these operations and the
nondeductibility of goodwill amortization.
Net Income
----------
The company recorded net income of $147 million and $84 million in the first six
months and second quarter of 2000, respectively, compared with $43.4 and $15
million, respectively, in the year-earlier periods. Excluding the integration
charge of $24.6 million ($16.5 million after taxes), net income was $59.8
million and $31.5 million for the first six months and second quarter of 1999,
respectively. The increase in net income is due to increased sales and
improving gross profit margins, offset, in part, by higher levels of 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 74 percent at June 30, 2000 compared with 71
percent at June 30, 1999.
The net amount of cash used for the company's operating activities during the
first six months of 2000 was $218.2 million, principally reflecting investments
in working capital, offset, in part, by earnings for the six months. The net
amount of cash used for investing activities was $147.3 million, including $39.2
million for various capital expenditures, $87.3 million for the acquisitions of
Rapac Electronics Ltd., Tekelec Europe, and Jakob Hatteland AS, and $20.8
million for internet-related joint ventures. The net amount of cash provided by
financing activities was $371.3 million, primarily reflecting borrowings under
the company's commercial paper program and credit facilities, as well as various
short-term bank borrowings.
The net amount of cash used for the company's operating activities during the
first six months of 1999 was $.8 million, principally reflecting earnings plus
non-cash charges, offset, in part, by investments in working capital. The net
amount of cash used for investing activities was $389.1 million, including
$40.2 million for various capital expenditures and $348.9 million principally
for the acquisitions of EDG, Richey, and the remaining 10% of Spoerle
Electronic, as well as certain internet-related investments. The net amount of
cash provided by financing activities was $284.5 million, reflecting borrowings
under the company's credit facilities, offset, in part, by the repayment of
Richey's 7% convertible subordinated notes and debentures.
Year 2000 Update
----------------
The company has experienced no significant failures or disruptions of its
internal systems either on or after January 1, 2000. Additionally, to date,
there have been no material Year 2000 related failures or disruptions with
respect to principal third-party business partners.
The company continues to monitor its systems and the capabilities of its
customers and suppliers to ensure that any previously unidentified Year 2000
issues that may arise are addressed promptly. In the unlikely event that any
issues should occur, the company anticipates that they will be resolved through
implementation of its comprehensive contingency planning efforts.
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 electronic components and
commercial computer products 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 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
The company is exposed to market risk from changes in foreign currency exchange
rates and interest rates.
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material impact on the
company's financial results in the future. The company's primary exposure
relates to transactions in which the currency collected from customers is
different from the currency utilized to purchase the product sold in Europe, the
Asia/Pacific region, and South America. At the present time, the company hedges
only those currency exposures for which natural hedges do not exist.
Anticipated foreign currency cash flows and earnings and investments in
businesses in Europe, the Asia/Pacific region, and South America are not hedged
as in many instances there are natural offsetting positions. The translation
of the financial statements of the non-North American operations is impacted by
fluctuations in foreign currency exchange rates. Had the various average
foreign currency exchange rates remained the same during the first six months
of 2000 as compared with December 31, 1999, 2000 sales and operating income
would have been $62 million and $4 million higher, respectively, than the
reported results.
The company's interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. The
company manages its exposure to interest rate risk through the proportion of
fixed rate and variable rate debt in its total debt portfolio. At June 30,
2000, the company had approximately 40 percent of its debt as fixed rate
borrowings and 60 percent of its debt subject to variable rates. Interest
expense would fluctuate by approximately $4 million if average interest rates
had changed by one percentage point during the first six months of 2000. This
amount was determined by considering the impact of a hypothetical interest rate
on the company's borrowing cost. This analysis does not consider the effect of
the level of overall economic activity that could exist in such an environment.
Further, in the event of a change of such magnitude, management could likely
take actions to further mitigate any potential negative exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
company's financial structure.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
(a) The company's Annual Meeting of Shareholders was held on May 23, 2000
(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 86,459,441 558,553
Carlo Giersch 86,455,359 562,635
John N. Hanson 86,464,649 553,345
Stephen P. Kaufman 86,462,305 555,689
Roger King 86,460,099 557,895
Robert E. Klatell 86,464,985 553,009
Karen Gordon Mills 86,456,078 561,916
Barry W. Perry 86,464,359 553,635
Richard S. Rosenbloom 86,423,224 594,770
Francis M. Scricco 86,461,658 556,336
John C. Waddell 86,463,433 554,561
(ii) The ratification and approval of the amendment of the Chief
Executive Officer 1999 Performance Bonus Plan was voted upon as
follows: 82,178,758 shares in favor; 3,882,258 shares against;
and 956,978 shares abstaining.
(iii) The appointment of Ernst & Young LLP as auditors of the company
was voted upon as follows: 86,265,109 shares in favor; 254,460
shares against; and 498,425 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
(27) Financial Data Schedule
(99) Press Release - Acquisition of Wyle Components and Wyle
Systems
(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: August 11, 2000 By:/s/ Sam R. Leno
-------------------------
Sam R. Leno
Senior Vice President and
Chief Financial Officer
Date: August 11, 2000 By:/s/ Paul J. Reilly
-------------------------
Paul J. Reilly
Vice President-Finance
