Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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.................
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 offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-1300
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of February 25, 2000 was $2,777,610,197.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value: 96,066,665 shares outstanding at February 25,
2000.
The following documents are incorporated herein by reference:
1. Proxy Statement filed in connection with Annual Meeting of Shareholders to
be held May 23, 2000 (incorporated in Part III).
PART I
Item 1. Business.
--------
Arrow Electronics, Inc. (the "company"), incorporated in New York in 1946, is
the world's largest distributor of electronic components and computer products
to industrial and commercial customers. As the global electronics distribution
industry's leader in operating systems, employee productivity, value-added
programs, and total quality assurance, the company is the distributor of choice
for over 600 suppliers.
The company's global distribution network spans the world's three dominant
electronics markets - the Americas, Europe, and the Asia/Pacific region. The
company serves a diversified base of original equipment manufacturers (OEMs) and
commercial customers worldwide. OEMs include manufacturers of computer and
office products, industrial equipment (including machine tools, factory
automation, and robotic equipment), telecommunications products, aircraft and
aerospace equipment, and scientific and medical devices. Commercial customers
are mainly value-added resellers (VARs) of computer systems. The company
maintains over 225 sales facilities and 19 distribution centers in 37 countries.
Through this network, Arrow can offer the most powerful line card in the
industry and a wide range of value-added services to help customers reduce their
time to market, lower their total cost of ownership, and enhance their overall
competitiveness.
Arrow continues to lead the electronics distribution industry by forging
alliances around the world. In January 1999, the company acquired Richey
Electronics, Inc. a leading specialty distributor of interconnect,
electromechanical, and passive electronic components and a provider of related
value-added services to customers throughout North America. Also in January
1999, the company acquired the electronics distribution group of Bell
Industries, Inc., one of the ten largest distributors of electronic components
in North America. The company acquired a majority interest in Panamericana
Comercial Importadora, S.A., the largest distributor of electronic components in
Brazil in June 1999, and in October 1999 the company acquired a majority
interest in the Elko Group, the largest distributor of electronic components in
Argentina. The company also increased its holdings in Spoerle Electronic
Handelsgesellschaft mbH and Support Net, Inc. to 100 percent and acquired an
additional 4 percent interest in Scientific and Business Minicomputers, Inc.
Arrow has made strategic investments in selected Internet start-ups, in addition
to its own Internet venture, arrow.com, to tap into certain market segments not
reached today.
In 1999, Arrow acquired an interest in ChipCenter LLC, an on-line service for
electronic-component information and sourcing, VCE Virtual Chip Exchange, Inc.,
a leading Internet marketplace for buyers and sellers of excess components, and
QuestLink Technology, a technical design resource for engineers. In January
2000, the company acquire an interest in Viacore, Inc., a service provider of an
ebusiness hub for business processes between trading partners in the information
technology supply chain.
In February 2000, the company reached a definitive agreement in principal to
acquire Tekelec Europe, one of Europe's leading distributors of high-tech
components and systems.
The North American Components Operations ("NACO") is comprised of eight
segmented marketing groups. NACO offers one of the broadest line card in the
industry.
The North American Computer Products group ("NACP"), formerly Gates/Arrow
Distributing, Inc. ("Gates/Arrow"), is a full-line technical distributor of
computer systems, peripherals, and software to value-added resellers in the U.S.
and Canada.
Arrow is the largest pan-European electronics distributor as well as the largest
electronics distributor in Northern, Central and Southern Europe. In its
Northern European region, the company serves Ireland, the United Kingdom,
Denmark, Finland, Norway, and Sweden. In its Central European region, the
company serves Germany, Austria, Switzerland, Belgium, and the Netherlands, and
in its Southern European region it serves Italy, France, Spain, and Portugal.
Arrow is the largest electronics distributor in the Asia/Pacific region.
Components Agent Limited (C.A.L.), Strong Electronics, and the Melbourne-based
Veltek and Zatek companies in Australia are the region's leading multi-national
distributors. C.A.L., headquartered in Hong Kong, maintains additional
facilities in key cities in Singapore, Malaysia, the People's Republic of China,
India, and South Korea. Strong Electronics, headquartered in Taipei, serves
customers in Taiwan, South Korea, Singapore, and Malaysia. Arrow Ally also
serves customers in Taiwan and Arrow Components (NZ) services customers in New
Zealand.
The company distributes a broad range of electronic components, computer
products, and related equipment. About 56 percent of the company's consolidated
sales are comprised of semiconductor products; industrial and commercial
computer products, including microcomputer boards and systems, design systems,
desktop computer systems, terminals, printers, disk drives, controllers, and
communication control equipment account for about 32 percent; and the remaining
sales are of passive, electromechanical, and interconnect products, principally
capacitors, resistors, potentiometers, power supplies, relays, switches, and
connectors.
The financial information about the company's reportable segments and foreign
and domestic operations can be found in Note 13 to the Consolidated Financial
Statements.
Most manufacturers of electronic components and computer products rely on
independent authorized distributors, such as the company, to augment their sales
and marketing operations. As a stocking, marketing, and financial intermediary,
the distributor relieves manufacturers of a portion of the costs and personnel
associated with stocking and selling their products (including otherwise sizable
investments in finished goods inventories and accounts receivable), while
providing geographically dispersed selling, order processing, and delivery
capabilities. At the same time, the distributor offers a broad range of
customers the convenience of diverse inventories and rapid or scheduled
deliveries as well as other value-added services such as kitting and memory
programming capabilities. The growth of the electronics distribution industry
has been fostered by the many manufacturers who recognize their authorized
distributors as essential extensions of their marketing organizations.
The company and its affiliates serve over 175,000 industrial and commercial
customers. Industrial customers range from major original equipment
manufacturers to small engineering firms, while commercial customers include
value-added resellers.
Most of the company's customers require delivery of the products they have
ordered on schedules that are generally not available on direct purchases from
manufacturers, and frequently their orders are of insufficient size to be placed
directly with manufacturers. No single customer accounted for more than 4
percent of the company's 1999 sales.
The electronic components and other products offered by the company are sold by
field sales representatives, who regularly call on customers in assigned market
areas, and by telephone from the company's selling locations, from which inside
sales personnel with access to pricing and stocking data provided by computer
display terminals accept and process orders. Each of the company's North
American selling locations, warehouses, and primary distribution centers is
electronically linked to the business' central computer, which provides fully
integrated, on-line, real-time data with respect to nationwide inventory levels
and facilitates control of purchasing, shipping, and billing. The company's
international operations have similar on-line, real-time computer systems, and,
in addition, they can access Arrow's Worldwide Stock Check System, which
provides access to the company's on-line, real-time inventory system.
During the fourth quarter of 1999 Arrow introduced arrow.com PRO-Series, a suite
of on-line supply chain management tools. PRO-Series gives customers Internet-
based, 24 hour access to the company's inventory plus the ability to place,
modify, monitor, and manage every order on-line.
There are approximately 600 manufacturers whose products are sold by the
company. Intel Corporation accounted for approximately 12 percent and Hewlett-
Packard accounted for 10 percent of the business' purchases. No other supplier
accounted for more than 8 percent of 1999 purchases. The company does not regard
any one supplier of products to be essential to its operations and believes that
many of the products presently sold by the company are available from other
sources at competitive prices. Most of the company's purchases are pursuant to
authorized distributor agreements which are typically cancelable by either party
at any time or on short notice.
Approximately 65 percent of the company's inventory consists of semiconductors.
It is the policy of most manufacturers to protect authorized distributors, such
as the company, against the potential write-down of such inventories due to
technological change or manufacturers' price reductions. Under the terms of the
related distributor agreements, and assuming the distributor complies with
certain conditions, such suppliers are required to credit the distributor for
inventory losses incurred through reductions in manufacturers' list prices of
the items. In addition, under the terms of many such agreements, the
distributor has the right to return to the manufacturer for credit a defined
portion of those inventory items purchased within a designated period of time.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase, from the distributor, the total amount of its products
carried in inventory. While these industry practices do not wholly protect the
company from inventory losses, management believes that they currently provide
substantial protection from such losses.
The company's business is extremely competitive, particularly with respect to
prices, franchises, and, in certain instances, product availability. The
company competes with several other large multi-national, national, and numerous
regional and local distributors. As the world's largest electronics
distributor, the company's financial resources and sales are greater than those
of its competitors.
The company and its affiliates employ over 11,200 people worldwide.
Executive Officers
The following table sets forth the names and ages of, and the positions and
offices with the company held by, each of the executive officers of the
company.
Name Age Position or Office Held
- ---- --- -----------------------
Stephen P. Kaufman 58 Chairman and Chief Executive Officer
Francis M. Scricco 50 President and Chief Operating Officer
Robert E. Klatell 54 Executive Vice President, General Counsel,
and Secretary
Sam R. Leno 54 Senior Vice President and Chief Financial
Officer
Betty Jane Scheihing 51 Senior Vice President
Arthur H. Baer 53 Vice President and President of Arrow Europe
Michael J. Long 41 Vice President and President of the North
American Computer Operation
Jan M. Salsgiver 43 Vice President and President of the North
American Components Products Operation
Set forth below is a brief account of the business experience during the past
five years of each executive officer of the company.
Stephen P. Kaufman has been Chairman of the company since May 1994 and Chief
Executive Officer of the company for more than five years prior thereto.
Francis M. Scricco has been President since June 1999 and Chief Operating
Officer since September 1997. Prior thereto he was Executive Vice President
since August 1997. From March 1994 through August 1997 he was a Group President
at Fischer Scientific International, Inc.
Robert E. Klatell has been Executive Vice President since July 1995 and has
served as Senior Vice President, General Counsel, and Secretary of the company
for more than five years. He also served as Chief Financial Officer from
January 1992 to April 1996 and Treasurer from 1990 to April 1996.
Sam R. Leno has been Senior Vice President and Chief Financial Officer since
March 1999. From July 1995 through February 1999, he served as Executive Vice
President and Chief Financial Officer of Corporate Express, Inc. Prior thereto
he was Chief Financial Officer of Coram Healthcare.
Betty Jane Scheihing has been a Senior Vice President since May 1996 and served
as Vice President of the company for more than five years prior thereto.
Arthur H. Baer was named President of Arrow Europe and a Vice President of the
company in January 2000. Prior to joining Arrow, he was President of Hudson
Valley Publishing, Inc. from February 1998 through December 1999 and President
of Xyan, Inc. from April 1996 through February 1998. Prior thereto, he served
as Dean of the College of Business Administration at Drexel University from May
1993 through April 1996.
Michael J. Long has been President and Chief Operating Officer of North American
Computer Products since July 1999. In addition, he has been a Vice President of
the company for more than five years and President of Gates/Arrow Distributing
since November 1995. Prior thereto he was President of Capstone Electronics
since 1994.
Jan M. Salsgiver has been President of North American Components Operations
since July 1999. Prior thereto, she served as President of the Arrow Supplier
Services Group since its inception in January 1998. Prior thereto, she was
President of the Arrow/Schweber Electronics Group since November 1995 and
President of Zeus Electronics from July 1993 to November 1995. In addition, she
has been a Vice President of the company for more than five years.
Item 2. Properties.
----------
The company owns and leases sales offices, distribution centers and
administrative facilities worldwide. The company's executive office, a 132,000
square foot facility in Melville, New York, is owned by the company. Including
the executive office, fourteen locations are owned throughout North America,
Europe and Asia, and another facility has been sold and leased back in
connection with the financing thereof. The company occupies over 250 additional
locations under leases due to expire on various dates to 2053. The company
believes its facilities are well maintained and suitable for company
operations.
Item 3. Legal Proceedings.
-----------------
The environmental remediation of a "superfund site" the company owns (as the
result of the discontinued lead-refining operations of a subsidiary formerly
owned by the company) has been completed pursuant to the terms of a consent
decree with U.S. EPA and the State of Florida. Removal of the site from the
National Priorities List is expected shortly. Long-term monitoring activities
at the site for which the company remains responsible are not expected to have a
material adverse impact on the company's liquidity, resources, or results.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
PART II
Item 5. Market Price of the Registrant's Common Equity and Related
----------------------------------------------------------
Stockholder Matters.
-------------------
Market Information
The company's common stock is listed on the New York Stock Exchange (trading
symbol: "ARW"). The high and low sales prices during each quarter of 1999 and
1998 were as follows:
Year High Low
- ---- ---- ---
1999:
Fourth Quarter $26-1/2 $14-3/4
Third Quarter 23-1/8 16-5/8
Second Quarter 19-7/8 14-5/8
First Quarter 26-9/16 13-3/16
1998:
Fourth Quarter $26-7/8 $11-3/4
Third Quarter 22-5/8 12-1/2
Second Quarter 28-3/8 20-9/16
First Quarter 36-1/4 27
Holders
On February 25, 2000, there were approximately 4,000 shareholders of record of
the company's common stock.
Dividend History and Restrictions
The company has not paid cash dividends on its common stock during the past five
years. While the board of directors considers the payment of dividends on the
common stock from time to time, the declaration of future dividends will be
dependent upon the company's earnings, financial condition, and other relevant
factors.
The terms of the company's credit facilities, senior notes, and senior
debentures (see Note 4 of the Notes to Consolidated Financial Statements) limit,
among other things, the payment of cash dividends and the incurrence of
additional borrowings and require that working capital, net worth, and certain
other financial ratios be maintained at designated levels.
Item 6. Selected Financial Data.
-----------------------
The following table sets forth certain selected consolidated financial data and
should be read in conjunction with the company's consolidated financial
statements and related notes appearing elsewhere in this annual report.
SELECTED FINANCIAL DATA
(In thousands except per share data)
For the year ended: 1999(a) 1998 1997(b) 1996 1995
---------- ---------- ---------- ---------- ----------
Sales
Components $7,276,858 $6,343,890 $6,465,521 $5,520,202 $5,127,258
Computer Products 2,035,767 2,000,769 1,298,424 1,014,375 792,162
---------- ---------- ---------- ---------- ----------
Consolidated 9,312,625 8,344,659 7,763,945 6,534,577 5,919,420
========== ========== ========== ========== ==========
Operating income
Components 390,237 344,349 440,917 411,607 453,496
Computer Products 34,468 55,889 31,672 20,226 4,097
Corporate (86,044) (47,734) (97,868) (31,206) (34,384)
---------- ---------- ---------- ---------- ----------
Consolidated 338,661 352,504 374,721 400,627 423,209
---------- ---------- ---------- ---------- ----------
Net income $ 124,153 $ 145,828 $ 163,656 $ 202,709 $ 202,544
========== ========== ========== ========== ==========
Earnings per share (c)
Basic $ 1.31 $ 1.53 $ 1.67 $ 2.01 $ 2.15
========== ========== ========== ========== ==========
Diluted 1.29 1.50 1.64 1.98 2.03
========== ========== ========== ========== ==========
At year-end:
Accounts receivable
and inventories $3,083,583 $2,675,612 $2,475,407 $1,947,719 $1,979,160
Total assets 4,483,255 3,839,871 3,537,873 2,710,351 2,701,016
Total long-term debt
and capital lease
obligations 1,533,421 1,047,041 829,827 352,576 460,628
Shareholders' equity 1,550,529 1,487,319 1,360,758 1,358,482 1,195,881
(a) Operating and net income include a special charge of $24.6 million and $16.5
million after taxes, respectively, associated with the acquisition and
integration of Richey Electronics, Inc. and the electronics distribution group
of Bell Industries, Inc. Excluding this charge, operating income, net income,
and earnings per share on a basic and diluted basis were $363.2 million, $140.6
million, $1.48, and $1.46, respectively.
(b) Operating and net income include special charges totaling $59.5 million and
$40.4 million after taxes, respectively, associated with the realignment of
Arrow's North American Components Operations and the acquisition and integration
of the volume electronic component distribution businesses of Premier Farnell
plc. Excluding these charges, operating income, net income, and earnings per
share on a basic and diluted basis were $434.2 million, $204.1 million, $2.08,
and $2.05, respectively.
(c) Per share amounts in 1996 and 1995 have been restated to reflect the two-
for-one stock split effective October 15, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
For an understanding of the significant factors that influenced the company's
performance during the past three years, the following discussion should be read
in conjunction with the consolidated financial statements and other information
appearing elsewhere in this report.
Sales
In 1999, consolidated sales increased to $9.3 billion. This 12 percent sales
growth over 1998 was principally due to growth in the worldwide core components
operations and acquisitions offset, in part, by fewer sales of low margin
microprocessors, a product segment not considered a part of the company's core
business, and foreign exchange rate differences. Excluding the impact of the
Richey Electronics, Inc. ("Richey") and the electronics distribution group of
Bell Industries, Inc. ("EDG") acquisitions, foreign exchange rate differences,
and lower microprocessor sales, consolidated revenue increased by 8 percent over
the prior year and sales of core components increased by 10 percent. Sales of
commercial computer products increased marginally over 1998's level due
principally to softening demand and lower average selling prices, offset by
increasing unit shipments, as a result of market conditions.
Consolidated sales of $8.3 billion in 1998 were 7 percent higher than 1997 sales
of $7.8 billion. This sales growth was due to increased sales of commercial
computer products from $1.3 billion in 1997 to more than $2 billion in 1998.
Excluding the impact of acquisitions, 1998 sales of computer products increased
by 24 percent when compared to 1997. The worldwide market for electronic
components continued to be characterized by product availability well in excess
of demand and resultant pressure on average selling prices and gross profit
margins resulting in a decline in sales from $6.5 billion in 1997 to $6.3
billion in 1998.
In 1997, consolidated sales increased to $7.8 billion, an increase of 19 percent
over 1996 sales of $6.5 billion. This sales growth was due to increased
activity levels throughout the world and acquisitions, principally the volume
electronic component distribution businesses of Premier Farnell plc offset, in
part, by the impact of a stronger U.S. dollar. Sales of commercial computer
products increased by 21 percent, excluding the impact of acquisitions.
Operating Income
In 1999, the company's consolidated operating income decreased to $338.7 million
from $352.5 million in 1998, principally as a result of the special charge of
$24.6 million associated with the acquisition and integration of Richey and EDG.
Excluding this integration charge, operating income was $363.2 million.
Operating income, excluding the integration charge, increased as a result of
higher sales, improving gross profit margins in the core components operations
in the latter part of 1999, and improved operating efficiencies resulting from
the integration of Richey and EDG into the company's North American Components
Operations offset, in part, by lower gross profit margins in the computer
products operations, increased non-cash amortization expense associated with
goodwill, investments made in systems, including the Internet, and personnel to
support anticipated increases in business activities in 2000 and beyond.
The company's consolidated operating income decreased to $352.5 million in 1998,
compared with operating income of $374.7 million in 1997, including special
charges of $59.5 million. Excluding the special charges, operating income in
1997 was $434.2 million. The reduction in operating income reflected a decline
in the sales of the North American Components Operations, a further decline in
gross margins due to proportionately higher sales of lower margin commercial
computer products, and competitive pricing pressures throughout the world
offset, in part, by the impact of increased sales and the benefits of continuing
economies of scale. Operating expenses as a percent of sales remained
consistent with 1997 at 9.7 percent, the lowest in the company's history.
In 1997, the company's consolidated operating income decreased to $374.7
million, compared with operating income of $400.6 million in 1996, principally
as a result of special charges of $59.5 million associated with the realignment
of the North American Components Operations and the acquisition and integration
of the volume electronic component distribution businesses of Premier Farnell
plc. The improvement in operating income, excluding the special charges,
reflects the impact of increased sales, acquisitions, and continuing economies
of scale offset, in part, by lower gross profit margins caused by competitive
pricing pressures and a greater sales mix of commercial computer products.
Operating expenses, excluding the special charges, as a percent of sales
declined to 9.7 percent in 1997.
Interest Expense
In 1999, interest expense increased to $106.3 million from $81.1 million in
1998, reflecting both increases in borrowings to fund acquisitions and
investments in working capital.
Interest expense of $81.1 million in 1998 increased by $14 million from the 1997
level, reflecting increases in borrowings associated with acquisitions and
investments in working capital.
In 1997, interest expense increased to $67.1 million from $38 million in 1996,
reflecting increases in borrowings associated with acquisitions, the purchases
of the company's common stock, and investments in working capital.
Income Taxes
In 1999, the company recorded a provision for taxes at an effective tax rate of
43 percent, excluding the integration charge, compared with 42.2 percent in
1998. The increased rate for 1999 is due to the non-deductibility of goodwill
amortization.
The company recorded a provision for taxes at an effective tax rate of 42.2
percent in 1998 compared with 41 percent, excluding the special charges, in
1997. The higher effective rate in 1998 is due to the non-deductibility of
goodwill amortization.
In 1997, the company recorded a provision for taxes at an effective tax rate of
41 percent, excluding the special charges, compared with 39.9 percent in 1996.
The increased rate for 1997 is due to increased earnings in countries with
higher marginal tax rates and the non-deductibility of goodwill amortization.
Net Income
In 1999, the company's net income decreased to $124.2 million from $145.8
million in 1998. Excluding the integration charge, net income was $140.6
million. The decrease in net income, excluding the integration charge, was
primarily attributable to an increase in operating income and a decrease in
minority interest offset by an increase in interest expense.
Net income in 1998 was $145.8 million, a decrease from $204.1 million, before
the special charges of $59.5 million ($40.4 million after taxes), in 1997. The
decrease in net income is attributable to lower operating income and increases
in interest expense.
In 1997, the company's net income advanced to $204.1 million from $202.7 million
in 1996, before the special charges. The increase in net income was
attributable to higher operating income offset, in part, by an increase in
interest expense.
Liquidity and Capital Resources
The company maintains a significant investment in accounts receivable and
inventories. Consolidated current assets, as a percentage of total assets, were
approximately 70 percent and 75 percent in 1999 and 1998, respectively.
Working capital increased by $138 million, or 8 percent, in 1999 compared with
1998. This increase was due to increased sales, higher working capital
requirements, and acquisitions.
The net amount of cash used for the company's operating activities in 1999 was
$33.5 million, principally reflecting increased customer receivables due to
accelerated sales growth in the fourth quarter offset, in part, by earnings for
the year. The net amount of cash used for investing activities was $543.3
million, including $459.1 million for the acquisitions of Richey, EDG,
Industrade AG, interests in the Elko Group and Panamericana Comercial
Importadora, S.A., the remaining interests in Spoerle Electronic and Support
Net, Inc., and an additional interest in Scientific and Business Minicomputers,
Inc., as well as certain Internet-related investments, and $84.2 million for
various capital expenditures. The net amount of cash provided by financing
activities was $479.1 million, reflecting borrowings under the company's
commercial paper program, the issuance of the company's floating rate notes, and
credit facilities offset, in part, by the repayment of Richey's 7% convertible
subordinated notes and debentures, 8.29% senior debentures, and distributions to
partners.
In 1998, working capital increased by 18 percent, or $262 million, compared with
1997. This increase was due to higher working capital requirements and
acquisitions.
The net amount of cash provided by operations in 1998 was $43.6 million, the
principal element of which was the cash flow resulting from net earnings offset,
in part, by working capital usage. The net amount of cash used by the company
for investing purposes was $129.6 million, including $70.6 million for various
acquisitions. Cash flows provided by financing activities were $131.4 million,
principally reflecting the $445.7 million of proceeds from the issuance of the
company's 6 7/8% senior debentures and 6.45% senior notes offset, in part, by
the reduction in the company's credit facilities, purchases of common stock, and
distributions to partners.
Working capital increased by $160 million, or 13 percent, in 1997 compared with
1996, primarily as a result of increased sales and acquisitions. This
percentage increase was less than the percentage increase of sales as a result
of improvements in working capital usage.
The net amount of cash used for the company's operating activities in 1997 was
$14.2 million, principally reflecting earnings offset by increased working
capital requirements supporting higher sales. The net amount of cash used for
investing activities was $410.8 million, including $381.5 million for
acquisitions and investments. The net amount of cash provided by financing
activities was $422.1 million, principally reflecting the $392.8 million of
proceeds from the issuance 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.
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.
The company estimates that it has spent approximately $20 million to date
addressing Year 2000 issues and does not expect to incur any material Year 2000
related costs in the future.
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
forward-looking statements.
Item 7A. Market and Other Risks.
----------------------
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 1999 as compared with
1998, 1999 sales and operating income would have been $102 million and $5
million higher, respectively, than the actual results for 1999.
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 December 31,
1999, the company had approximately 48 percent of its debt as fixed rate
borrowings and 52 percent of its debt subject to variable rates. Interest
expense would fluctuate by approximately $7 million if average interest rates
had changed by one percentage point in 1999. 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.
Item 8. Financial Statements.
--------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Arrow Electronics, Inc.
We have audited the accompanying consolidated balance sheet of Arrow
Electronics, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, cash flows, and shareholders' equity for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and the schedule are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Arrow
Electronics, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 16, 2000
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Arrow Electronics, Inc. have been
prepared by management, which is responsible for their integrity and
objectivity. These statements, prepared in accordance with generally accepted
accounting principles, reflect our best use of judgment and estimates where
appropriate. Management also prepared the other information in the annual
report and is responsible for its accuracy and consistency with the consolidated
financial statements.
The company's system of internal controls is designed to provide reasonable
assurance that company assets are safeguarded from loss or unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and are properly recorded. In establishing the basis for
reasonable assurance, management balances the costs of the internal controls
with the benefits they provide. The system contains self-monitoring mechanisms,
and compliance is tested through an extensive program of site visits and audits
by the company's operating controls staff.
The audit committee of the board of directors, consisting entirely of outside
directors, meets regularly with the company's management, operating controls
staff, and independent auditors and reviews audit plans and results as well as
management's actions taken in discharging its responsibilities for accounting,
financial reporting, and internal controls. Members of management, the
operating controls staff, and the independent auditors have direct and
confidential access to the audit committee at all times.
The company's independent auditors, Ernst & Young LLP, were engaged to audit the
consolidated financial statements in accordance with generally accepted auditing
standards. These standards include a study and evaluation of internal controls
for the purpose of establishing a basis for reliance thereon relative to the
scope of their audit of the consolidated financial statements.
Stephen P. Kaufman
Chairman and Chief Executive Officer
Sam R. Leno
Senior Vice President and
Chief Financial Officer
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
Years Ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
Sales $9,312,625 $8,344,659 $7,763,945
---------- ---------- ----------
Costs and expenses:
Cost of products sold 8,011,419 7,183,413 6,574,415
Selling, general, and
administrative expenses 866,861 756,770 712,213
Depreciation and amortization 71,124 51,972 43,096
Integration charge 24,560 - 21,600
Realignment charge - - 37,900
---------- ---------- ----------
8,973,964 7,992,155 7,389,224
---------- ---------- ----------
Operating income 338,661 352,504 374,721
Equity in earnings (loss)
of affiliated companies (1,107) 937 781
Interest expense, net 106,349 81,126 67,117
---------- ---------- ----------
Earnings before income taxes
and minority interest 231,205 272,315 308,385
Provision for income taxes 101,788 115,018 131,617
---------- ---------- ----------
Earnings before minority interest 129,417 157,297 176,768
Minority interest 5,264 11,469 13,112
---------- ---------- ----------
Net income $ 124,153 $ 145,828 $ 163,656
========== ========== ==========
Per common share:
Basic $ 1.31 $ 1.53 $ 1.67
========== ========== ==========
Diluted 1.29 1.50 1.64
========== ========== ==========
Average number of common shares
outstanding:
Basic 95,123 95,397 98,006
====== ====== ======
Diluted 96,045 97,113 99,769
====== ====== ======
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
------------------------
1999 1998
---- -----
ASSETS
Current assets:
Cash and short-term investments $ 44,885 $ 158,924
Accounts receivable, less allowance for doubtful
accounts ($32,338 in 1999 and $48,423 in 1998) 1,638,654 1,354,351
Inventories 1,444,929 1,321,261
Prepaid expenses and other assets 29,469 26,279
---------- ----------
Total current assets 3,157,937 2,860,815
---------- ----------
Property, plant and equipment at cost
Land 17,638 15,087
Buildings and improvements 114,158 90,851
Machinery and equipment 257,841 183,227
---------- ----------
389,637 289,165
Less accumulated depreciation and amortization 165,987 134,359
---------- ----------
223,650 154,806
---------- ----------
Investments in affiliated companies 52,233 23,279
Cost in excess of net assets of companies acquired,
less accumulated amortization ($113,762 in 1999
and $91,837 in 1998) 960,770 721,323
Other assets 88,665 79,648
---------- ----------
$4,483,255 $3,839,871
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 805,468 $ 785,596
Accrued expenses 263,216 211,438
Short-term borrowings, including current maturities
Of long-term debt and capital lease obligations 255,977 168,066
---------- ----------
Total current liabilities 1,324,661 1,165,100
---------- ----------
Long-term debt and capital lease obligations 1,533,421 1,047,041
Deferred income taxes 39,474 41,120
Other liabilities 23,754 29,599
Minority interest 11,416 69,692
Shareholders' equity:
Common stock, par value $1:
Authorized--120,000,000 shares in 1999 and 1998
Issued--102,949,640 shares in 1999 and 1998 102,950 102,950
Capital in excess of par value 501,379 506,002
Retained earnings 1,238,979 1,114,826
Foreign currency translation adjustment (95,295) (23,648)
---------- ----------
1,748,013 1,700,130
Less: Treasury stock (7,004,349 and 7,321,540
Shares in 1999 and 1998), at cost 187,269 198,281
Unamortized employee stock awards 10,215 14,530
---------- ----------
Total shareholders' equity 1,550,529 1,487,319
---------- ----------
$4,483,255 $3,839,871
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
---------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 124,153 $ 145,828 $ 163,656
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 5,264 11,469 13,112
Depreciation and amortization 78,635 55,101 47,057
Equity in (earnings) loss of
affiliated companies 1,107 (937) (781)
Deferred income taxes (11,318) 19,661 (9,814)
Integration charge 24,560 - 21,600
Realignment charge - - 37,900
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (242,370) (38,792) (219,488)
Inventories (15,568) (33,490) (94,144)
Prepaid expenses and other assets (236) 10,785 (8,048)
Accounts payable (8,735) (17,049) 36,784
Accrued expenses 20,412 (88,808) (4,917)
Other (9,395) (20,164) 2,913
--------- --------- ---------
Net cash provided by (used for) operating
activities (33,491) 43,604 (14,170)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (84,249) (59,006) (29,335)
Cash consideration paid for acquired
businesses (428,969) (67,521) (364,499)
Investments in affiliates (30,127) (3,078) (16,973)
--------- --------- ---------
Net cash used for investing activities (543,345) (129,605) (410,807)
--------- --------- ---------
Cash flows from financing activities:
Change in short-term borrowings (29,010) (4,850) 55,018
Change in credit facilities 224,683 (223,127) 122,830
Proceeds from short-term debt 119,814 - -
Proceeds from long-term debt 298,103 445,665 392,844
Repayment of long-term debt (97,833) (25,411) (338)
Proceeds from exercise of stock options 1,282 7,504 20,209
Distributions to minority partners (37,852) (18,227) (17,464)
Purchases of common stock (100) (50,129) (151,010)
--------- --------- ---------
Net cash provided by financing activities 479,087 131,425 422,089
--------- --------- ---------
Effect of exchange rate changes on cash (16,290) (3,964) (20,847)
--------- --------- ---------
Net increase (decrease) in cash and
short-term investments (114,039) 41,460 (23,735)
Cash and short-term investments at
beginning of year 158,924 112,665 136,400
Cash and short-term investments of acquired
affiliate - 4,799 -
--------- --------- ---------
Cash and short-term investments at end of
year $ 44,885 $ 158,924 $ 112,665
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 47,145 $ 88,718 $ 121,251
Interest 105,239 81,500 52,265
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Foreign Unamortized
Stock Capital in Currency Employee
at Par Excess of Retained Translation Treasury Stock Awards
Value Par Value Earnings Adjustment Stock and Other Total
-------- ---------- -------- ----------- -------- ------------ -----
Balance at December
31, 1996 $102,392 $498,717 $805,342 $ 8,753 $(49,065) $ (7,657) $1,358,482
Net income - - 163,656 - - - 163,656
Translation
adjustments - - - (44,634) - - (44,634)
----------
Comprehensive
income 119,022
----------
Exercise of
stock options 198 (8,626) - - 28,637 - 20,209
Tax benefits
related to exercise
of stock options - 7,074 - - - - 7,074
Restricted stock
awards, net 360 9,491 - - 7,231 (17,082) -
Amortization of
Employee stock
awards - - - - - 6,981 6,981
Purchases of
common stock - - - - (151,010) - (151,010)
-------- -------- ---------- -------- --------- -------- ----------
Balance at December
31, 1997 102,950 506,656 968,998 (35,881) (164,207) (17,758) 1,360,758
Net income - - 145,828 - - - 145,828
Translation
adjustments - - - 12,233 - - 12,233
----------
Comprehensive
income 158,061
----------
Exercise of
stock options - (2,777) - - 10,281 - 7,504
Tax benefits
related to exercise
of stock options - 1,619 - - - - 1,619
Restricted stock
awards, net - 503 - - 5,766 (6,269) -
Amortization of
employee stock
awards - - - - - 9,497 9,497
Purchases of
common stock - - - - (50,129) - (50,129)
Other - 1 - - 8 - 9
-------- -------- ---------- -------- --------- -------- ----------
Balance at December
31, 1998 102,950 506,002 1,114,826 (23,648) (198,281) (14,530) 1,487,319
Net income - - 124,153 - - - 124,153
Translation
adjustments - - - (71,647) - - (71,647)
----------
Comprehensive
income 52,506
----------
Exercise of
stock options - (1,259) - - 2,541 - 1,282
Tax benefits
related to exercise
of stock options - 189 - - - - 189
Restricted stock
awards, net - (3,921) - - 8,571 (4,650) -
Amortization of
Employee stock
awards - - - - - 8,965 8,965
Other - 368 - - (100) - 268
-------- -------- ---------- -------- --------- -------- ----------
Balance at December
31, 1999 $102,950 $501,379 $1,238,979 $(95,295) $(187,269) $(10,215) $1,550,529
======== ======== ========== ======== ========= ======== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries. All significant intercompany transactions are
eliminated.
Use of Estimates
- ----------------
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.
Cash and Short-term Investments
- -------------------------------
Short-term investments which have a maturity of ninety days or less at time of
purchase are considered cash equivalents in the consolidated statement of cash
flows. The carrying amount reported in the consolidated balance sheet for short-
term investments approximates fair value.
Financial Instruments
- ---------------------
The company uses various financial instruments, including derivative financial
instruments, for purposes other than trading. The company does not use
derivative financial instruments for speculative purposes. Derivatives used as
part of the company's risk management strategy are designated at inception as
hedges and measured for effectiveness both at inception and on an ongoing basis.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is computed on
the straight-line method for financial reporting purposes and on accelerated
methods for tax reporting purposes. Leasehold improvements are amortized over
the shorter of the term of the related lease or the life of the improvement.
Cost in Excess of Net Assets of Companies Acquired
- --------------------------------------------------
The cost in excess of net assets of companies acquired is being amortized on a
straight-line basis, over a period of 20 to 40 years. Management reassesses the
carrying value and remaining life of the excess cost over fair value of net
assets of companies acquired on an ongoing basis. Whenever events indicate that
the carrying values are impaired, the excess cost over fair value of those
assets is adjusted appropriately. As of December 31, 1999, management believes
there is no impairment with respect to these assets.
Foreign Currency
- ----------------
The assets and liabilities of foreign operations are translated at the exchange
rates in effect at the balance sheet date, with the related translation gains or
losses reported as a separate component of shareholders' equity. The results of
foreign operations are translated at the monthly weighted average exchange
rates.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
- ------------
Income taxes are accounted for under the liability method. Deferred taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Stock Split
- -----------
The company's board of directors authorized a two-for-one stock split effected
in the form of a 100 percent stock dividend distributed on October 15, 1997 to
shareholders of record on October 3, 1997. Shareholders' equity has been
restated to give retroactive recognition to the stock split in 1997 by
reclassifying from capital in excess of par value to common stock the par value
of the additional shares arising from the split.
Net Income Per Share
- --------------------
Basic EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Comprehensive Income
- --------------------
Comprehensive income is defined as the aggregate change in shareholders' equity
excluding changes in ownership interests. The foreign currency translation
adjustments included in comprehensive income have not been tax effected as
investments in foreign affiliates are deemed to be permanent.
Segment and Geographic Information
- ----------------------------------
Operating segments are defined as components of an enterprise for which separate
financial information is available that is evaluated regularly by the chief
operating decision makers in deciding how to allocate resources and in assessing
performance. The company's operations are classified into two reportable
business segments, the distribution of electronic components to original
equipment manufacturers and the distribution of computer products to value-added
resellers (VARs).
Revenue Recognition
- -------------------
The company recognizes revenue when customers' orders are complete and shipped.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with current year
presentation.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" which principally defined those internal
costs that should be capitalized. The Statement was adopted by the company in
1998. The company capitalized $24,259,000 and $3,300,000 in 1999 and 1998,
respectively.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." As its
effective date was deferred, the company expects to adopt the new Statement in
2001. The Statement will require the company to recognize all derivatives on
the balance sheet at fair value. Gains and losses resulting from changes in the
value of the derivatives would be accounted for depending on the intended use of
the derivative and whether it qualifies for hedge accounting. Due to the
company's limited use of derivative financial instruments, adoption of Statement
No. 133 is not expected to have a significant effect on the company's
consolidated results of operations, financial position, or cash flows.
2. Acquisitions
During 1999, the company acquired Richey Electronics, Inc. ("Richey"), a leading
specialty distributor of interconnect, electromechanical, and passive electronic
components and provider of related value-added services to customers throughout
North America, and the electronics distribution group of Bell Industries, Inc.
("EDG"), one of the ten largest distributors of electronic components in North
America. In addition, during 1999 the company acquired a two-thirds interest in
Panamericana Comercial Importadora, S.A., the largest distributor of electronic
components in Brazil, and a 70 percent interest in the Elko Group, the largest
distributor of electronic components in Argentina. The company also increased
its holdings in Spoerle Electronic Handelsgesellschaft mbH ("Spoerle") and
Support Net, Inc. to 100 percent and acquired an additional 4 percent interest
in Scientific and Business Minicomputers, Inc. ("SBM"). Also during 1999
Spoerle acquired Industrade AG, one of Switzerland's leading distributors of
electronic components and related products. The aggregate cost of these
acquisitions was $428,969,000.
A summary of the allocation of the aggregate consideration paid for the
aforementioned acquisitions, excluding amounts paid for increases in majority
holdings, to the fair market value of assets acquired and liabilities assumed is
as follows (in thousands):
Current assets:
Accounts receivable $ 92,861
Inventory 144,061
Other 7,056 $243,978
--------
Property, plant and equipment 26,585
Cost in excess of net assets
of companies acquired 173,982
Other assets 6,680
--------
$451,225
--------
Current liabilities:
Accounts payable $ 53,204
Accrued expenses 22,762
Other 14,831 $ 90,797
--------
Long-term debt 73,207
Other 2,181
--------
$166,185
--------
Net consideration paid $285,040
========
In 1999, the company recorded a special charge of $24,560,000 ($16,480,000 after
taxes) in the second quarter and an additional $37,991,000 ($25,833,000 after
taxes), as cost in excess of net assets of companies acquired, to integrate
Richey and EDG into the company. Of the total amount recorded, $30,140,000 was
associated with the closing of various office facilities and distribution and
value-added centers with the remaining amounts associated with severance, the
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
termination of certain supplier relationships, and professional fees. Of the
total amount recorded, $27,610,000 has been spent. Approximately $24,495,000 of
the remaining amount relates to vacated facilities, leased with various
expiration dates through 2010, and an estimated $7,200,000 represents non-cash
items. It is not anticipated that these items will have a significant impact
upon cash flow in any one particular year.
During 1998, the company acquired Unitronics Componentes S.A. and a majority
interest in SBM. The company also increased its holdings in Spoerle to 90
percent and the Veltek/Zatek companies in Australia and Strong Electronics Co.,
Ltd. in Taiwan to 100 percent. The aggregate cost of these acquisitions was
$62,918,000.
The cost of each acquisition has been allocated among the net assets acquired on
the basis of the respective fair values of the assets acquired and liabilities
assumed. For financial reporting purposes, the acquisitions are accounted for
as purchase transactions in accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations." Accordingly, the consolidated results of the
company in 1999 include these companies from their respective dates of
acquisition. The aggregate consideration paid for all acquisitions exceeded the
net assets acquired by $303,326,000 and $46,591,000 in 1999 and 1998,
respectively.
In connection with certain acquisitions, the company may be required to make
additional payments that are contingent upon the acquired businesses achieving
certain operating goals. During 1998, the company made additional payments of
$2,942,000, which have been capitalized as cost in excess of net assets of
companies acquired.
3. Investments in Affiliated Companies
At December 31, 1999, the company had a 24.7 percent interest in ChipCenter LLC,
a comprehensive on-line service for electronic component information and
sourcing. During 1999, the company also acquired a 49 percent interest in VCE
Virtual Chip Exchange, Inc. ("VCE"), an Internet marketplace for electronic
components. VCE matches buyers with sellers and provides its members with
supporting services such as real-time market availability and pricing
information by device type or technology.
During 1998, the company acquired a 50 percent interest in Marubun/Arrow, a
joint venture with Marubun Corporation, Japan's largest independent components
distributor. This joint venture was formed to serve Japanese customers in the
Asia/Pacific region and North America. The company also has a 50 percent
interest in Altech Industries (Pty) Ltd., a joint venture with Allied
Technologies Limited, a South African electronics distributor.
These investments are accounted for using the equity method.
In addition, the company has a 13.38 percent interest in QuestLink Technology,
Inc., a technical design resource for engineers.
4. Debt
The company has short-term floating rate notes in the amount of $120,000,000
that are not redeemable prior to their maturity on November 24, 2000. The notes
bear interest at LIBOR plus .75% with interest payable on a quarterly basis.
Other short-term borrowings are principally utilized to support the working
capital requirements of certain foreign operations. The weighted average
interest rates of these borrowings at December 31, 1999 and 1998 were 5% and 7%,
respectively.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consisted of the following at December 31 (in thousands):
1999 1998
---- ----
Global multi-currency credit facility $ 381,726 $ 173,633
Commercial paper 298,123 -
7% senior notes, due 2007 198,227 197,976
7 1/2% senior debentures, due 2027 196,211 196,071
8.29% senior notes 25,000 50,000
6 7/8% senior debentures, due 2018 196,148 195,939
6.45% senior notes, due 2003 249,885 249,855
Other obligations with various
interest rates and due dates 13,101 8,567
1,558,421 1,072,041
---------- ----------
Less installments due within one year 25,000 25,000
---------- ----------
$1,533,421 $1,047,041
========== ==========
The company's revolving credit agreement (the "global multi-currency credit
facility"), as amended, provides up to $650,000,000 of available credit and has
a maturity date of September 2001. The interest rate for loans under this
facility is at the applicable eurocurrency rate (5.8225 percent for U.S. dollar
denominated loans at December 31, 1999) plus a margin of .225 percent. The
company pays the banks a facility fee of .125 percent per annum.
In March 1999, the company entered into a 364-day $350,000,000 credit facility
(the "364-day facility") which expires in March 2000. The company expects to
renew the 364-day facility for another 364-day period. There are no outstanding
borrowings under this facility.
In November 1999, the company established a commercial paper program, providing
for the issuance of up to $1,000,000,000 in aggregate maturity value of
commercial paper. Interest rates on outstanding commercial paper borrowings as
of December 31, 1999, ranged from 5.25% to 7.75% with an effective average rate
of 6.7224%. The amounts outstanding under the commercial paper program have
been classified as long-term debt, as such amounts are supported by the
company's credit facilities and will continue to be refinanced.
The 7% senior notes and the 7 1/2% senior debentures are not redeemable prior to
their maturity. The 8.29% senior notes are payable in 2000. The 6 7/8% senior
debentures and the 6.45% senior notes may be prepaid at the option of the
company on at least 30 days prior notice subject to a "make whole" clause.
The global multi-currency credit facility, the 364-day facility, the senior
notes, and the senior debentures limit, among other things, the payment of cash
dividends and the incurrence of additional borrowings, and require that working
capital, net worth, and certain other financial ratios be maintained at
designated levels.
Annual payments of borrowings during each of the years 2000 through 2004 are
$255,977,000, $681,598,000, $659,000, $250,579,000, and $598,000, respectively,
and $599,987,000 for all years thereafter.
At December 31, 1999, the estimated fair market value of the 7% senior notes was
93 percent of par, the 7 1/2% senior debentures was 89 percent of par, the 8.29%
senior notes was 109 percent of par, the 6 7/8% senior debentures was 85 percent
of par, and the 6.45% senior notes was 94 percent of par. The balance of the
company's borrowings approximate their fair value.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes
The provision for income taxes consists of the following (in thousands):
1999 1998 1997
---- ---- ----
Current
- -------
Federal $ 42,189 $ 46,449 $ 81,278
State 9,968 11,373 19,679
Foreign 40,014 35,796 31,096
-------- -------- --------
92,171 93,618 132,053
-------- -------- --------
Deferred
- --------
Federal 8,922 15,667 (9,321)
State 2,144 3,815 (2,130)
Foreign (1,449) 1,918 11,015
-------- -------- --------
9,617 21,400 (436)
-------- -------- --------
$101,788 $115,018 $131,617
======== ======== ========
The principal causes of the difference between the U.S. statutory and effective
income tax rates are as follows (in thousands):
1999 1998 1997
---- ---- ----
Provision at statutory rate $ 80,921 $ 95,311 $107,935
State taxes, net of federal
benefit 7,873 9,872 11,407
Foreign tax rate differential 2,860 858 2,499
Non-deductible goodwill 6,904 4,704 4,167
Other 3,230 4,273 5,609
-------- -------- --------
$101,788 $115,018 $131,617
======== ======== ========
For financial reporting purposes, income before income taxes attributable to the
United States was $131,007,000 in 1999, $183,048,000 in 1998, and $216,993,000
in 1997, and income before income taxes attributable to foreign operations was
$100,198,000 in 1999, $89,267,000 in 1998, and $91,392,000 in 1997.
The significant components of the company's deferred tax assets, which are
included in other assets, are as follows (in thousands):
1999 1998
---- ----
Inventory reserves $13,642 $11,148
Allowance for doubtful accounts 4,376 9,208
Accrued expenses 2,187 919
Realignment reserves 897 1,869
Integration reserves 27,101 19,116
Other (1,635) (3,912)
------- -------
$46,568 $38,348
======= =======
Deferred tax liabilities were $39,474,000 and $41,120,000 at December 31, 1999
and 1998, respectively. The deferred tax liabilities are principally the result
of the differences in the bases of the company's German assets and liabilities
for tax and financial reporting purposes.
6. Shareholders' Equity
The company has 2,000,000 authorized shares of serial preferred stock with a par
value of $1.
In 1988, the company paid a dividend of one preferred share purchase right on
each outstanding share of common stock. Each right, as amended, entitles a
shareholder to purchase one one-hundredth of a share of a new series of
preferred stock at an exercise price of $50 (the "exercise price"). The rights
are exercisable only if a person or group acquires 20 percent or more of the
company's common stock or announces a tender or exchange offer that will result
in such person or group acquiring 30 percent or more of the company's common
stock. Rights owned by the person acquiring such stock or transferees thereof
will automatically be void. Each other right will become a right to buy, at the
exercise price, that number of shares of common stock having a market value of
twice the exercise price. The rights, which do not have voting rights, may be
redeemed by the company at a price of $.01 per right at any time until ten days
after a 20 percent ownership position has been acquired. In the event that the
company merges with, or transfers 50 percent or more of its consolidated assets
or earning power to, any person or group after the rights become exercisable,
holders of the rights may purchase, at the exercise price, a number of shares of
common stock of the acquiring entity having a market value equal to twice the
exercise price. The rights, as amended, expire on March 1, 2008.
7. Realignment Charge
During 1997, the company announced the realignment of its North American
Components Operations into seven operating groups based upon customer needs.
The company recorded a special charge of $37,900,000 before taxes ($.24 per
share on a diluted basis) for costs associated with the realignment, including
real estate termination costs, severance and other expenses related to personnel
as well as costs of communicating the realignment to customers, suppliers, and
employees. During 1999, the company spent $2,442,000 principally for vacated
facilities. At December 31, 1999, $3,119,000 of the total amount recorded
remains unspent principally to cover the cost of vacated facilities. The costs
of these vacated facilities, leased through 2007, should not have a significant
impact upon cash flow in any particular year.
8. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per
share ("EPS") for the years ended December 31 (in thousands):
1999 1998 1997
---- ---- ----
Net income for EPS $124,153(a) $145,828 $163,656(b)
======== ======== ========
Weighted average common shares
outstanding for basic EPS 95,123 95,397 98,006
Net effect of dilutive stock
options and restricted stock awards 922 1,716 1,763
-------- -------- --------
Weighted average common shares
outstanding for diluted EPS 96,045 97,113 99,769
======== ======== ========
Basic EPS $ 1.31(a) $ 1.53 $ 1.67(b)
======== ======== ========
Diluted EPS 1.29(a) 1.50 1.64(b)
======== ======== ========
(a) Net income includes a special charge totaling $24,560,000 ($16,480,000 after
taxes) related to the company's acquisition and integration of Richey and EDG.
Excluding the integration charge, net income and net income per share on a basic
and diluted basis were $140,633,000, $1.48, and $1.46, respectively.
(b) Net income includes special charges totaling $59,500,000 ($40,435,000 after
taxes) associated with the realignment of the North American Components
Operations and the acquisition and integration of the volume electronic
component distribution businesses of Premier Farnell plc. Excluding these
charges, net income and net income per share on a basic and diluted basis were
$204,091,000, $2.08, and $2.05, respectively.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Employee Stock Plans
Restricted Stock Plan
- ---------------------
Under the terms of the Arrow Electronics, Inc. Restricted Stock Plan (the
"Plan"), a maximum of 3,960,000 shares of common stock may be awarded at the
discretion of the board of directors to key employees of the company.
Shares awarded under the Plan may not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, except as provided in the Plan. Shares
awarded become free of vesting restrictions generally over a four-year period.
The company awarded 205,000 shares of common stock to 125 key employees in early
2000, 325,750 shares of common stock to 114 key employees during 1999, 215,400
shares of common stock to 140 key employees during 1998, and 292,304 shares of
common stock to 209 key employees during 1997.
Forfeitures of shares awarded under the Plan were 10,335, 7,359, and 31,250
during 1999, 1998, and 1997, respectively. The aggregate market value of
outstanding awards under the Plan at the respective dates of award is being
amortized over the vesting period, and the unamortized balance is included in
shareholders' equity as unamortized employee stock awards.
Stock Option Plans
- ------------------
Under the terms of various Arrow Electronics, Inc. Stock Option Plans (the
"Option Plans"), both nonqualified and incentive stock options for an aggregate
of 21,500,000 shares of common stock were authorized for grant to directors and
key employees at prices determined by the board of directors at its discretion
or, in the case of incentive stock options, prices equal to the fair market
value of the shares at the dates of grant. Options granted under the plans
after May 1997 are exercisable in equal installments over a four-year period.
Previously, options became exercisable over a two- or three-year period.
Options currently outstanding have terms of ten years.
Included in the 1999 granted shares are the converted shares relating to the
January 1999 acquisition of Richey. The options converted on January 7, 1999
totaled 233,381 with a weighted average exercise price of $21.17 per share.
In October 1997, all employees of the North American operations below the level
of vice president were granted a special award of stock options totaling
1,255,320 at the then market price of the company's stock as an incentive
related to the realignment of the North American Components Operations. In
December 1998, the board of directors approved the repricing of the remaining
unforfeited options, totaling 1,050,760, reducing the exercise price from $27.50
to $22.5625.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following information relates to the Option Plans for the years ended
December 31:
Average Average Average
Exercise Exercise Exercise
1999 Price 1998 Price 1997 Price
--------- --------- ---------- ---------- -------- -------
Options outstanding at
beginning of year 7,562,149 $23.41 8,231,809 $24.00 7,107,042 $20.25
Granted 2,914,601 18.20 131,120 (a) 25.87 2,648,340 29.51
Exercised (93,956) 13.60 (375,501) 19.96 (1,316,962) 15.34
Forfeited (536,114) 24.51 (425,279)(a) 26.53 (206,611) 22.16
--------- --------- ----------
Options outstanding
at end of year 9,846,680 $21.90 7,562,149 $23.41 8,231,809 $24.00
========= ========= ==========
Prices per share of
options outstanding $1.81-34.00 $1.81-34.00 $1.81-32.25
Options available for future grant:
Beginning of year 7,255,214 6,962,805 432,700
End of year 5,533,128 7,255,214 6,962,805
(a) Excludes 1,050,760 options granted in October 1997 to all employees of the
North American operations below the level of vice president and repriced on
December 14, 1998 from $27.50 to $22.5625.
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------------- ----------------------
Weighted Weighted Weighted
Maximum Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
- -------- ----------- ---------------- --------- ----------- --------
$20.00 2,587,921 79 months $15.79 1,261,791 $15.99
25.00 4,416,426 89 months 21.27 2,519,969 21.51
30.00 1,731,851 83 months 26.20 1,583,512 26.12
35.00 1,110,482 95 months 31.94 553,303 31.93
--------- ------ --------- ------
All 9,846,680 86 months $21.90 5,918,575 $22.54
========= ====== ========= ======
The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for the
Option Plans.
Had stock-based compensation costs been determined as prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," net income would have been reduced by $4.1 million ($.03 per
share on a diluted basis) in 1999, $6.7 million ($.04 per share on a diluted
basis) in 1998 and $7.6 million ($.06 per share on a diluted basis) in 1997.
The estimated weighted average fair value, utilizing the Black-Scholes option-
pricing model, at the date of option grant during 1999, 1998, and 1997 was
$7.07, $8.35, and $9.41, per option, respectively. The weighted average fair
value was estimated using the following assumptions:
1999 1998 1997
---- ---- ----
Expected life (months) 48 48 47
Risk-free interest rate (percent) 5.8 5.4 5.8
Expected volatility (percent) 40 31 29
There is no expected dividend yield.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Ownership Plan
- --------------------
The company maintains a noncontributory employee stock ownership plan which
enables most North American employees to acquire shares of the company's common
stock. Contributions, which are determined by the board of directors, are in
the form of common stock or cash which is used to purchase the company's common
stock for the benefit of participating employees. Contributions to the plan for
1999, 1998, and 1997 amounted to $6,810,000, $5,531,000, and $5,147,000,
respectively.
10. Retirement Plans
The company has a defined contribution plan for eligible employees which
qualifies under Section 401(k) of the Internal Revenue Code. The company's
contribution to the plan, which is based on a specified percentage of employee
contributions, amounted to $5,801,000, $4,387,000, and $4,988,000 in 1999,
1998, and 1997, respectively. Certain domestic and foreign subsidiaries
maintain separate defined contribution plans for their employees and made
contributions thereunder, which amounted to $1,773,000, $1,813,000, and
$1,363,000, in 1999, 1998, and 1997, respectively.
The company maintains an unfunded supplemental retirement plan for certain
executives. The company's board of directors determines those employees
eligible to participate in the plan and their maximum annual benefit upon
retirement. Expense relating to the plan was $2,150,000, $2,367,000, and
$1,770,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
11. Lease Commitments
The company leases certain office, distribution, and other property under
noncancelable operating leases expiring at various dates through 2053. Rental
expense under noncancelable operating leases, net of sublease income of
$3,362,000, $2,469,000, and $2,529,000 in 1999, 1998, and 1997, respectively,
amounted to $40,382,000 in 1999, $29,231,000 in 1998, and $29,190,000 in 1997.
Aggregate minimum rental commitments under all noncancelable operating leases,
exclusive of real estate taxes, insurance, and leases related to facilities
closed in connection with the North American realignment and the integration of
the acquired businesses, are $38,852,000 in 2000, $31,124,000 in 2001,
$25,470,000 in 2002, $17,409,000 in 2003, $13,226,000 in 2004, and $46,450,000
thereafter.
12. Financial Instruments
The company enters into foreign exchange forward contracts (the "contracts") to
mitigate the impact of changes in foreign currency exchange rates, principally
French franc, German deutsche mark, Italian lira, and British pound sterling.
These contracts are executed to facilitate the netting of offsetting foreign
currency exposures resulting from inventory purchases and sales, and generally
have terms of no more than three months. Gains or losses on these contracts are
deferred and recognized when the underlying future purchase or sale is
recognized. The company does not enter into forward contracts for trading
purposes. The risk of loss on a contract is the risk of nonperformance by the
counterparties which the company minimizes by limiting its counterparties to
major financial institutions. The fair value of the contracts is estimated using
market quotes. The notional amount of the contracts at December 31, 1999 and
December 31, 1998, was $59,348,000 and $79,595,000, respectively. The carrying
amounts, which are nominal, approximated fair value at December 31, 1999 and
1998.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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).
Operating income for the electronic components and computer products segments
excludes the effects of special charges relating to the integration of acquired
businesses and the realignment of the North American Components Operations.
Revenue, operating income, and assets by segment are as follows (in thousands):
Electronic Computer
Components Products Corporate Total
---------- -------- --------- -----
1999
- ----
Revenue from external
customers $7,276,858 $2,035,767 $ - $9,312,625
Operating income (loss) 390,237 34,468 (86,044)(a) 338,661(a)
Total assets 3,551,043 757,995 174,217 4,483,255
1998
- ----
Revenue from external
customers $6,343,890 $2,000,769 $ - $8,344,659
Operating income (loss) 344,349 55,889 (47,734) 352,504
Total assets 3,014,100 640,786 184,985 3,839,871
1997
- ----
Revenue from external
customers $6,465,521 $1,298,424 $ - $7,763,945
Operating income (loss) 440,917 31,672 (97,868)(b) 374,721(b)
Total assets 2,777,625 545,872 214,376 3,537,873
(a) Includes a special charge totaling $24,560,000 associated with the
acquisition and integration of Richey and EDG.
(b) Includes special charges totaling $59,500,000 associated with the
realignment of the North American Components Operations and the acquisition and
integration of the volume electronic component distribution businesses of
Premier Farnell plc.
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. In its evaluation of its
operating groups performance, the company excludes the impact of unusual items
such as realignment and integration charges.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues, by geographic area, are as follows (in thousands):
1999 1998 1997
---- ---- ----
Americas $6,160,726 $5,351,061 $4,964,660
Europe 2,393,705 2,396,452 2,279,951
Asia/Pacific 758,194 597,146 519,334
---------- ---------- ----------
$9,312,625 $8,344,659 $7,763,945
========== ========== ==========
Total assets, by geographic area, are as follows (in thousands):
1999 1998 1997
---- ---- ----
Americas $2,642,601 $2,066,785 $1,952,348
Europe 1,460,439 1,473,857 1,386,976
Asia/Pacific 380,215 299,229 198,549
---------- ---------- ----------
$4,483,255 $3,839,871 $3,537,873
========== ========== ==========
14. Quarterly Financial Data (Unaudited)
A summary of the company's quarterly results of operations follows (in thousands
except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
- ----
Sales $2,201,632 $2,250,028 $2,375,797 $2,485,168
Gross profit 308,282 314,139 323,227 355,558
Net income 28,341 15,022(a) 36,753 44,037
Per share:
Basic .30 .16(a) .39 .46
Diluted .30 .16(a) .38 .46
1998
- ----
Sales $2,025,760 $2,023,966 $2,134,769 $2,160,164
Gross profit 294,879 291,331 285,282 289,754
Net income 41,945 35,990 35,563 32,330
Per share:
Basic .44 .37 .37 .34
Diluted .43 .37 .37 .34
(a) Net income includes a special charge totaling $24,560,000 ($16,480,000 after
taxes) associated with the acquisition and integration of Richey and EDG.
Excluding this charge, net income was $31,502,000 or $.33 per share on a basic
and diluted basis.
Item 9. Changes in and disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
See "Executive Officers" in Item 1 above. In addition, the information set
forth under the heading "Election of Directors" in the company's Proxy Statement
filed in connection with the Annual Meeting of Shareholders scheduled to be held
May 23, 2000 hereby is incorporated herein by reference.
Item 11. Executive Compensation.
----------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 23, 2000 hereby is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information is included in the company's Proxy Statement filed in connection
with the Annual Meeting of Shareholders scheduled to be held May 23, 2000 hereby
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 23, 2000 hereby is incorporated
herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
Page
----
1. Financial Statements.
Report of Ernst & Young LLP, Independent Auditors 14
Consolidated Statement of Income for the years
ended December 31, 1999, 1998, and 1997 16
Consolidated Balance Sheet at December 31, 1999
and 1998 17
Consolidated Statement of Cash Flows for the
years ended December 31, 1999, 1998, and 1997 18
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1999, 1998,
and 1997 19
Notes to Consolidated Financial Statements for
the years ended December 31, 1999, 1998, and 1997 21
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts 42
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
3. Exhibits.
See index of Exhibits included on pages 35 - 40.
(b) Reports on Form 8-K.
None.
(a)3. Exhibits.
--------
(2)(a)(i) Share Purchase Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Aquarius
Investments Ltd., Andromeda Investments Ltd., and the other persons named
therein (incorporated by reference to Exhibit 2.2 to the company's Registration
Statement on Form S-3, Registration No. 33-42176).
(ii) Standstill Agreement, dated as of October 10, 1991,
among Arrow Electronics, Inc., Aquarius Investments Ltd., Andromeda Investments
Ltd., and the other persons named therein (incorporated by reference to Exhibit
4.1 to the company's Registration Statement on Form S-3, Registration No. 33-
42176).
(iii) Shareholder's Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Giorgio Ghezzi,
Germano Fanelli, and Renzo Ghezzi (incorporated by reference to Exhibit
2(f)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(b) Agreement and Plan of Merger, dated as of June 24,
1994, by and among Arrow Electronics, Inc., AFG Acquisition Company and
Gates/FA Distributing, Inc. (incorporated by reference to Exhibit 2 to the
company's Registration Statement on Form S-4, Commission File No. 35-54413).
(c) Agreement and Plan of Merger, dated as of
September 21, 1994, by and among Arrow Electronics, Inc., MTA Acquisition
Company and Anthem Electronics, Inc. (incorporated by reference to Exhibit 2 to
the company's Registration Statement on Form S-4, Commission File No. 33-55645).
(d) Master Agreement, dated as of December 20, 1996,
among Premier Farnell plc and Arrow Electronics, Inc. relating to the sale and
purchase of the Farnell Volume Business (incorporated by reference to Exhibit
2(d) to the company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-4482).
(e)(i) Agreement and Plan of Merger, dated as of September
30, 1998, by and among Arrow Electronics, Inc., Lear Acquisition Corp. and
Richey Electronics, Inc. (incorporated by reference to Exhibit 2(e) to the
company's Annual Report on Form 10-K for the year ended December 31, 1998,
Commission File No. 1-4482).
(ii) Amendment to Agreement and Plan of Merger, dated as
of October 21, 1998 by and among Arrow Electronics, Inc., Lear Acquisition Corp.
and Richey Electronics, Inc. in 2(e)(i) above (incorporated by reference to
Exhibit 2(e)(i) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(f) Agreement of Purchase and Sale, dated as of October
1, 1998, by and between Bell Industries, Inc. and Arrow Electronics, Inc.
(incorporated by reference to Exhibit 2(f) to the company's Annual Report on
Form 10-K for the year ended December 31, 1998, Commission No. 1-4482).
(3)(a)(i) Restated Certificate of Incorporation of the
company, as amended (incorporated by reference to Exhibit 3(a) to the company's
Annual Report on Form 10-K for the year ended December 31, 1994 Commission File
No. 1-4482).
(ii) Certificate of Amendment of the Certificate of
Incorporation of Arrow Electronics, Inc., dated as of August 30, 1996
(incorporated by reference to Exhibit 3 to the company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, Commission File No. 1-4482).
(b) By-Laws of the company, as amended (incorporated by
reference to Exhibit 3(b) to the company's Annual Report on Form 10-K for the
year ended December 31, 1986, Commission File No. 1-4482).
(4)(a)(i) Rights Agreement dated as of March 2, 1988 between
Arrow Electronics, Inc. and Manufacturers Hanover Trust Company, as Rights
Agent, which includes as Exhibit A a Certificate of Amendment of the Restated
Certificate of Incorporation for Arrow Electronics, Inc. for the Participating
Preferred Stock, as Exhibit B a letter to shareholders describing the Rights and
a summary of the provisions of the Rights Agreement and as Exhibit C the forms
of Rights Certificate and Election to Exercise (incorporated by reference to
Exhibit 1 to the company's Current Report on Form 8-K dated March 3, 1988,
Commission File No. 1-4482).
(ii) First Amendment, dated June 30, 1989, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(b) to the
Company's Current Report on Form 8-K dated June 30, 1989, Commission File No. 1-
4482).
(iii) Second Amendment, dated June 8, 1991, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(i)(iii) to
the company's Annual Report on Form 10-K for the year ended December 31, 1991,
Commission File No. 1-4482).
(iv) Third Amendment, dated July 19, 1991, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(i)(iv) to
the company's Annual Report on Form 10-K for the year ended December 31, 1991,
Commission File No. 1-4482).
(v) Fourth Amendment, dated August 26, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(v) to the company's Annual Report on Form 10-K for the year ended December
31, 1991, Commission File No. 1-4482).
(vi) Fifth Amendment, dated February 25, 1998, to the
Rights Agreement in (4)(a)(i)above (incorporated by reference to Exhibit 7 to
the company's current report on Form 8 A/A dated March 2, 1998, Commission File
No. 1-4482).
(b)(i) Indenture, dated as of January 15, 1997, between the
company and the Bank of Montreal Trust Company, as Trustee (incorporated by
reference to Exhibit 4(b)(i) to the company's Annual Report on Form 10-K for the
year ended December 31, 1996, Commission File No. 1-4482).
(ii) Officers' Certificate, as defined by the Indenture in
4(b)(i) above, dated as of January 22, 1997, with respect to the company's
$200,000,000 7% Senior Notes due 2007 and $200,000,000 7 1/2% Senior Debentures
due 2027 (incorporated by reference to Exhibit 4 (b)(ii) to the company's Annual
Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-
4482).
(iii) Officers' Certificate, as defined by the indenture in
4(b)(i) above, dated as of January 15, 1997, with respect to the $200,000,000 6
7/8% Senior Debentures due 2018, dated as of May 29, 1998 (incoporated by
reference to Exhibit 4(b)(iii) to the company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 1-4482).
(iv) Officers' Certificate, as defined by the indenture in
4(b)(i) above, dated as of January 15, 1997, with respect to the $250,000,000
6.45% Senior Notes due 2003, dated October 21, 1998 (incorporated by reference
to Exhibit 4(b)(iv) to the company's Annual Report on Form 10-K for the year
ended December 31, 1998, Commission No. 1-4482).
(10)(a)(i) Arrow Electronics Savings Plan, as amended and
restated through December 28, 1994 (incorporated by reference to Exhibit
10(a)(iii) to the company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the Arrow
Electronics Savings Plan in (10)(b)(i) above (incorporated by reference to
Exhibit 10(a)(iv) to the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, Commission File No. 1-4482).
(iii) Second Amendment No. 1 to the Arrow Electronics
Savings Plan in (10)(a)(i) above (incorporated by reference to Exhibit
10(a)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(iv) Amendment No. 3 to the Arrow Electronics Savings Plan
in (10)(a)(i) above (incorporated by reference to Exhibit 10(a)(iv) to the
company's Annual Report on Form 10-K for the year ended December 31, 1998,
Commission No. 1-4482).
(v) Amendment No. 4 dated May 26, 1998 to the Arrow
Electronics Savings Plan in (10)(a)(i) above (incorporated by reference to
Exhibit 10(a)(v) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(b)(i) Arrow Electronics Stock Ownership Plan, as amended
and restated through December 28, 1994 (incorporated by reference to Exhibit
10(a)(i) to the company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the Arrow
Electronics Stock Ownership Plan in (10)(b)(i) above (incorporated by reference
to Exhibit 10(a)(ii) to the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 1-4482).
(iii) Second Amendment No. 1 to the Arrow Electronics Stock
Ownership Plan in 10(b)(i) above (incorporated by reference to Exhibit
10(a)(viii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(iv) Amendment No. 3 to the Arrow Electronics Stock
Ownership Plan in 10(b)(i) above (incorporated by reference to Exhibit 10(a)(ix)
to the company's Annual Report on Form 10-K for the year ended December 31,
1998, Commission No. 1-4482).
(v) Amendment No. 4 dated May 26, 1998, to the Arrow
Electronics Stock Ownership Plan in 10(b)(i) above (incorporated by reference to
Exhibit 10(a)(x) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(c)(i) Employment Agreement, dated as of February 22, 1995,
between the company and Stephen P. Kaufman (incorporated by reference to Exhibit
10(c)(ii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 1-4482).
(ii) Employment Agreement, dated as of January 1, 1998
between the company and Robert E. Klatell (incorporated by reference to Exhibit
10(c)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(iii) Form of agreement between the company and the
employees parties to the Employment Agreements listed in 10(c)(i)-(ii) above
providing extended separation benefits under certain circumstances (incorporated
by reference to Exhibit 10(c)(iv) to the company's Annual Report on Form 10-K
for the year ended December 31, 1988, Commission File No. 1-4482).
(iv) Employment Agreement, dated as of January 1, 2000,
between the company and Arthur H. Baer.
(v) Employment Agreement, dated as of March 1, 1999,
between the company and Sam R. Leno (incorporated by reference to Exhibit
10(b)(iv) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(vi) Employment Agreement, dated as of January 1, 1998,
between the company and Betty Jane Scheihing (incorporated by reference to
Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(vii) Employment Agreement, dated as of September 1, 1997,
between the company and Jan M. Salsgiver (incorporated by reference to Exhibit
10(c)(vi) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(viii) Employment Agreement, dated as of September 1, 1997,
between the company and Francis M. Scricco (incorporated by reference to Exhibit
10(c)(vi) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(ix) Employment Agreement, dated as of April 15, 1996,
between the company and Gerald Luterman (incorporated by reference to Exhibit
10(b)(vii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 1-4482).
(x) Employment Agreement, dated as of September 21,
1994, between the company and Robert S. Throop (incorporated by reference to
Exhibit 10(c)(x) to the company's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-4482).
(xi) Employment Agreement, dated as of September 1, 1994
between the company and Steven W. Menefee (incorporated by reference to Exhibit
10(c)(v) to the company's Annual Report on Form 10-K for the year ended December
31, 1994, Commission File No. 1-4482).
(xii) Form of agreement between the company and all
corporate Vice Presidents, including the employees parties to the Employment
Agreements listed in 10(c)(v)-(xi) above, providing extended separation benefits
under certain circumstances (incorporated by reference to Exhibit 10(c)(ix) to
the company's Annual Report on Form 10-K for the year ended December 31, 1988,
Commission File No. 1-4482).
(xiii) Form of agreement between the company and non-
corporate officers providing extended separation benefits under certain
circumstances (incorporated by reference to Exhibit 10(c)(x) to the company's
Annual Report on Form 10-K for the year ended December 31, 1988, Commission File
No. 1-4482).
(xiv) Unfunded Pension Plan for Selected Executives of
Arrow Electronics, Inc., as amended (incorporated by reference to Exhibit
10(c)(xiii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-4482).
(xv) Amendment, dated May 1998, to the Unfunded Pension
Plan for Selected Executives of Arrow Electronics, Inc. (incorporated by
reference to Exhibit 10(b)(xiv) to the company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission No. 1-4482).
(xvi) Grantor Trust Agreement, dated June 25, 1998, by and
between Arrow Electronics, Inc. and Wachovia Bank, N.A. (incorporated by
reference to Exhibit 10(b)(xv) to the company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission No. 1-4482).
(xvii) English translation of the Service Agreement, dated
January 19, 1993, between Spoerle Electronic and Carlo Giersch (incorporated by
reference to Exhibit 10(f)(v) to the company's Annual Report on Form 10-K for
the year ended December 31, 1992, Commission File No. 1-4482).
(d)(i) Senior Note Purchase Agreement, dated as of December
29, 1992, with respect to the company's 8.29 percent Senior Secured Notes due
2000 (incorporated by reference to Exhibit 10(d) to the company's Annual Report
on Form 10-K for the year ended December 31, 1992, Commission File No. 1-4482).
(ii) First Amendment, dated as of December 22, 1993, to
the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by reference
to Exhibit 10(d)(ii) to the company's Annual Report on form 10-K for the year
ended December 31, 1993, Commission File No. 1-4482).
(iii) Second Amendment, dated as of April 24, 1995, to the
Senior Note Purchase Agreement in 10(d)(i) above (incorporated by reference to
Exhibit 10(c)(iii) to the company's Annual Report on form 10-K for the year
ended December 31, 1996, Commission File No. 1-4482).
(iv) Third Amendment, dated as of December 23, 1996, to
the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by reference
to Exhibit 10(c)(iv) to the company's Annual Report on form 10-K for the year
ended December 31, 1996, Commission File No. 1-4482).
(v) Fourth Amendment, dated as of October 28, 1998, to
the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by reference
to Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year
ended December 31, 1998, Commission File No. 1-4482).
(vi) Fifth Amendment, dated as of March 25, 1999, to the
Senior Note Purchase Agreement in 10(d)(i) above.
(e)(i) Amended and Restated Credit Agreement, dated as of
August 16, 1995 among Arrow Electronics, Inc., the several Banks from time to
time parties hereto, Bankers Trust Company and Chemical Bank, as agents
(incorporated by reference to Exhibit 10(d) to the company's Annual Report on
form 10-K for the year ended December 31, 1995, Commission File No. 1-4482).
(ii) First Amendment, dated as of September 30, 1996, to
the Arrow Electronics, Inc. Second Amended and Restated Credit Agreement, dated
August 16, 1995 in (10)(e)(i) above (incorporated by reference to Exhibit 10 to
the company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, Commission File No. 1-4482).
(f) 364-Day Credit Agreement, dated as of March 30,
1999, among Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks
and other financial institutions from time to time parties hereto, Chase
Securities Inc., as arranger, and The Chase Manhattan Bank, as administrative
agent.
(g) Commercial Paper Private Placement Agreement, dated
as of November 9, 1999, among Arrow Electronics, Inc., as issuer, and Chase
Securities Inc., Bank of America Securities LLC, Goldman, Sachs & Co., and
Morgan Stanley & Co. Incorporated as placement agents.
(h) $120,000,000 Arrow Electronics, Inc. Floating Rate
Notes due November 24, 2000, dated as of November 19, 1999, among Arrow
Electronics, Inc. and Chase Securities Inc. and Bank of America Securities LLC
as underwriters (incorporated by reference to Exhibit 4.1 to the company's
Registration Statement on Form S-3, Registration No. 333-91387).
(i)(i) Arrow Electronics, Inc. Stock Option Plan, as
amended and restated, effective as of May 15, 1997 (incorporated by reference to
Exhibit 99(a) to the company's Registration Statement on Form S-8, Registration
No. 333-45631).
(ii) Form of Stock Option Agreement under 10(i)(i) above
(incorporated by reference to Exhibit 10(e)(ii) to the company's Annual Report
on form 10-K for the year ended December 31, 1997, Commission File No. 1-4482).
(iii) Form of Nonqualified Stock Option Agreement under
10(i)(i) above (incorporated by reference to Exhibit 10(k)(iv) to the company's
Registration Statement on Form S-4, Registration No. 33-17942).
(j)(i) Restricted Stock Plan of Arrow Electronics, Inc., as
amended and restated effective May 15, 1997 (incorporated by reference to
Exhibit 99(b) to the company's Registration Statement on Form S-8,
Registration No. 333-45631).
(ii) Form of Restricted Stock Award Agreement under
10(j)(i) above (incorporated by reference to Exhibit 10(f)(ii) to the company's
Annual Report on Form 10-K for the year ended December 31, 1997, Commission File
No. 1-4482).
(k)(i) Non-Employee Directors Stock Option Plan as of May
15, 1997 (incorporated by reference to Exhibit 99(c) to the company's
Registration Statement on Form S-8, Registration No.333-45631).
(ii) Form of Nonqualified Stock Option Agreement under
10(k)(i) above (incorporated by reference to Exhibit 10(g)(ii) to the company's
Annual Report on Form 10-K for the year ended December 31, 1997, Commission File
No. 1-4482).
(l) Non-Employee Directors Deferral Plan as of May 15,
1997 (incorporated by reference to Exhibit 99(d) to the Company's Registration
Statement on Form S-8, Registration No. 333-45631).
(m) Form of Indemnification Agreement between the
company and each director (incorporated by reference to Exhibit 10(m) to the
company's Annual Report on Form 10-K for the year ended December 31, 1986,
Commission File No. 1-4482).
(21) Subsidiary Listing.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule.
(28)(i) Record of Decision, issued by the EPA on September 28,
1990, with respect to environmental clean-up in Plant City, Florida
(incorporated by reference to Exhibit 28 to the company's Annual Report on Form
10-K for the year ended December 31, 1990, Commission File No. 1-4482).
(ii) Consent Decree lodged with the U.S. District Court for
the Middle District of Florida, Tampa Division, on December 18, 1991, with
respect to environmental clean-up in Plant City, Florida (incorporated by
reference to Exhibit 28(ii) to the company's Annual Report on Form 10-K for the
year ended December 31, 1991, Commission File No. 1-4482).
ARROW ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 1999
Additions
-----------------------
Balance at Balance
beginning Charged Charged to at end
of year to income other (1) Write-offs of year
----------- ----------- ---------- ----------- -----------
Allowance for
doubtful accounts
1999 $48,423,000 $26,151,000 $1,567,000 $43,803,000 $32,338,000
=========== =========== ========== =========== ===========
1998 $46,055,000 $31,643,000 $ 542,000 $29,817,000 $48,423,000
=========== =========== ========== =========== ===========
1997 $39,753,000 $20,360,000 $1,896,000 $15,954,000 $46,055,000
=========== =========== ========== =========== ===========
(1) Represents the allowance for doubtful accounts of the businesses acquired by
the company during each year.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
---------------------
Robert E. Klatell.
Executive Vice President
March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By: /s/ Stephen P. Kaufman March 30,2000
----------------------
Stephen P. Kaufman, Chairman, Principal
Executive Officer, and Director
By: /s/ Francis M. Scricco March 30, 2000
----------------------
Francis M. Scricco, President and Chief
Operating Officer, and Director
By: /s/ Robert E. Klatell March 30, 2000
---------------------
Robert E. Klatell, Executive Vice President,
Secretary, and Director
By: /s/ Sam R. Leno March 30, 2000
---------------
Sam R. Leno, Senior Vice President and Chief
Financial Officer
By: /s/ Paul J. Reilly March 30, 2000
------------------
Paul J. Reilly, Vice President-Finance
and Principal Accounting Officer
By: /s/ Daniel W. Duval March 30, 2000
-------------------
Daniel W. Duval, Director
By: /s/ Carlo Giersch March 30, 2000
-----------------
Carlo Giersch, Director
By: /s/ John N. Hanson March 30, 2000
------------------
John N. Hanson, Director
By: /s/ Roger King March 30, 2000
--------------
Roger King, Director
By: /s/ Karen Gordon Mills March 30, 2000
----------------------
Karen Gordon Mills, Director
By: /s/ Barry W. Perry March 30, 2000
------------------
Barry W. Perry, Director
By: /s/ Richard S. Rosenbloom March 30, 2000
-------------------------
Richard S. Rosenbloom, Director
By: /s/ Robert S. Throop March 30, 2000
--------------------
Robert S. Throop, Director
By: /s/ John C. Waddell March 30, 2000
-------------------
John C. Waddell, Director