UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-4482
ARROW ELECTRONICS, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-1806155
- -------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 Hub Drive, Melville, New York 11747
- -------------------------------- -------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (516) 391-1300
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, $1 par value: 96,852,749 shares outstanding at April 28,
2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
Three Months Ended
March 31,
-------------------------
2000 1999
---- ----
(Unaudited)
Sales $2,769,424 $2,201,632
---------- ----------
Costs and expenses:
Cost of products sold 2,346,425 1,893,350
Selling, general and
administrative expenses 261,225 215,749
Depreciation and amortization 19,594 17,720
---------- ----------
2,627,244 2,126,819
---------- ----------
Operating income 142,180 74,813
Equity in earnings (loss)
of affiliated companies (1,298) 72
Interest expense 30,579 24,602
---------- ----------
Earnings before income
taxes and minority interest 110,303 50,283
Provision for income taxes 46,327 21,370
---------- ----------
Earnings before minority interest 63,976 28,913
Minority interest 917 572
---------- ----------
Net income $ 63,059 $ 28,341
========== ==========
Net income per share:
Basic $.66 $.30
==== ====
Diluted $.65 $.30
==== ====
Average number of shares
outstanding:
Basic 95,387 95,019
====== ======
Diluted 96,922 95,862
====== ======
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
2000 1999
---------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 66,595 $ 44,885
Accounts receivable, less allowance
for doubtful accounts ($36,661 in 2000
and $32,338 in 1999) 1,785,361 1,638,654
Inventories 1,561,861 1,444,929
Prepaid expenses and other assets 29,388 29,469
---------- ----------
Total current assets 3,443,205 3,157,937
Property, plant and equipment at cost:
Land 18,296 17,638
Buildings and improvements 116,749 114,158
Machinery and equipment 269,336 257,841
---------- ----------
404,381 389,637
Less accumulated depreciation and
amortization (171,036) (165,987)
---------- ----------
233,345 223,650
Investments in affiliated companies 47,422 52,233
Cost in excess of net assets of
companies acquired, net of amortization
($121,000 in 2000 and $113,762 in 1999) 937,588 960,770
Other assets 93,359 88,665
---------- ----------
$4,754,919 $4,483,255
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
2000 1999
---------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 939,493 $ 805,468
Accrued expenses 309,880 263,216
Short-term borrowings, including current
maturities of long-term debt and capital
lease obligations 262,669 255,977
---------- ----------
Total current liabilities 1,512,042 1,324,661
Long-term debt and capital lease obligations 1,576,000 1,533,421
Deferred income taxes 34,126 39,474
Other liabilities 23,300 23,754
Minority interest 12,208 11,416
Shareholders' equity:
Common stock, par value $1:
Authorized - 120,000,000 shares
Issued - 102,949,640 shares in 2000 and 1999 102,950 102,950
Capital in excess of par value 499,416 501,379
Retained earnings 1,302,038 1,238,979
Foreign currency translation adjustment (123,129) (95,295)
---------- ----------
1,781,275 1,748,013
Less: Treasury stock (6,414,418 shares in 2000
and 7,004,349 shares in 1999), at cost 171,498 187,269
Unamortized employee stock awards 12,534 10,215
---------- ----------
1,597,243 1,550,529
---------- ----------
$4,754,919 $4,483,255
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 63,059 $ 28,341
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 917 572
Depreciation and amortization 22,077 19,137
Equity in (earnings) loss
of affiliated companies 1,298 (72)
Deferred income taxes 280 (2,133)
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (168,683) (40,731)
Inventories (130,053) 76,331
Prepaid expenses and other assets (612) (2,539)
Accounts payable 144,536 (59,054)
Accrued expenses 51,073 6,983
Other (7,638) (14,065)
--------- ---------
Net cash provided by (used for) operating
activities (23,746) 12,770
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (22,022) (19,708)
Cash consideration paid for acquired businesses - (317,020)
Investments in affiliates - (9,986)
--------- ---------
Net cash used for investing activities (22,022) (346,714)
--------- ---------
Cash flows from financing activities:
Change in short-term borrowings 11,389 45,948
Change in credit facilities (19,200) 301,404
Repayment of long-term debt - (38,419)
Proceeds from long-term debt 70,340 -
Proceeds from exercise of stock options 9,905 105
Distribution to minority partners - (37,852)
--------- ---------
Net cash provided by financing activities 72,434 271,186
--------- ---------
Effect of exchange rate changes on cash (4,956) (6,527)
--------- ---------
Net increase (decrease) in cash and short-term
investments 21,710 (69,285)
Cash and short-term investments at beginning
of period 44,885 158,924
--------- ---------
Cash and short-term investments at end of period $ 66,595 $ 89,639
========= =========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 3,046 $ (2,212)
Interest 31,298 29,194
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
Note A -- Basis of Presentation
- -------------------------------
The accompanying consolidated financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the consolidated financial
position and results of operations at and for the periods presented. Such
financial statements do not include all the information or footnotes necessary
for a complete presentation and, accordingly, should be read in conjunction with
the company's audited consolidated financial statements for the year ended
December 31, 1999 and the notes thereto. The results of operations for the
interim periods are not necessarily indicative of results for the full year.
Note B -- Earnings per Share
- ----------------------------
The following table sets forth the calculation of basic and diluted earnings per
share (in thousands except per share data):
For the Three
Months Ended
March 31,
---------------------
2000 1999
---- ----
Net income $63,059 $28,341
======= =======
Weighed average common shares outstanding
for basic earnings per share 95,387 95,019
Net effect of dilutive stock options and
restricted stock awards 1,535 843
------- -------
Weighted average common shares outstanding
for diluted earnings per share 96,922 95,862
======= =======
Basic earnings per share $.66 $.30
==== ====
Diluted earnings per share $.65 $.30
==== ====
Note C -- Comprehensive Income
- ------------------------------
Comprehensive income is defined as the aggregate change in shareholders' equity
excluding changes in ownership interests. For the company, the components of
comprehensive income are as follows (in thousands):
For the Three
Months Ended
March 31,
---------------------
2000 1999
---- ----
Net income $63,059 $28,341
Foreign currency translation adjustments (a) (27,834) (24,867)
------- -------
Comprehensive income $35,225 $ 3,474
======= =======
(a) The foreign currency translation adjustments have not been tax effected as
investments in foreign affiliates are deemed to be permanent.
Note D -- Segment and Geographic Information
- --------------------------------------------
The company is engaged in the distribution of electronic components to original
equipment manufacturers and computer products to value-added resellers (VARs).
The company has redefined its reportable segments to present two distinct
worldwide businesses that have different economic cycles, structures, and
competitors. Computer products include the North American Computer Products
Operations together with UK Microtronica, Nordic Microtronica, ATD (in Iberia),
and Arrow Computer Products (in France). The prior year has been restated for
comparative purposes. Revenue and operating income, by segment, are as follows
(in thousands):
For the Three
Months Ended
March 31,
------------------------
2000 1999
---- ----
Revenue:
Electronic components $2,033,214 $1,411,985
Computer products 736,210 789,647
---------- ----------
Consolidated $2,769,424 $2,201,632
========== ==========
Operating income:
Electronic components $ 157,341 $ 75,545
Computer products 9,324 12,514
Corporate (24,485) (13,246)
---------- ----------
Consolidated $ 142,180 $ 74,813
========== ==========
Total assets, by segment are as follows (in thousands):
March 31, December 31,
2000 1999
---------- -----------
Total assets:
Electronic components $3,652,062 $3,317,253
Computer products 907,073 991,785
Corporate 195,784 174,217
---------- ----------
Consolidated $4,754,919 $4,483,255
========== ==========
As a result of the company's philosophy of maximizing operating efficiencies
through the centralization of certain functions, selected fixed assets and
related depreciation, as well as borrowings and goodwill amortization are not
directly attributable to the individual operating segments.
Revenues, by geographic area, are as follows (in thousands):
For the Three
Months Ended
March 31,
------------------------
2000 1999
---- ----
Americas $1,716,915 $1,440,981
Europe 803,552 605,384
Asia/Pacific 248,957 155,267
---------- ----------
$2,769,424 $2,201,632
========== ==========
Total assets, by geographic area are as follows (in thousands):
March 31, December 31,
2000 1999
---------- -----------
Americas $2,764,531 $2,642,601
Europe 1,581,787 1,460,439
Asia/Pacific 408,601 380,215
---------- ----------
$4,754,919 $4,483,255
========== ==========
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Sales
- -----
Consolidated sales for the first quarter of 2000 were $2.8 billion, an increase
of 26 percent when compared with the year-earlier period. This increase was
driven by a 44 percent increase in sales of core components around the world as
market conditions continued to improve. Sales of computer products decreased by
7 percent as a result of continued weakness in this market.
Operating Income
- ----------------
The company recorded operating income of $142.2 million in the first quarter of
2000 compared with $74.8 million in the year-earlier period, an increase of 90
percent. The increase in operating income is due to increased sales and
improving gross profit margins in the core components business.
Interest Expense
- ----------------
Interest expense of $30.6 million in the first quarter of 2000 increased from
$24.6 million during the comparable quarter of 1999. The increase is the result
of financing costs associated with acquisitions made after March 1999 and
investments in working capital to support higher sales.
Income Taxes
- ------------
The company recorded a provision for taxes at an effective rate of 42 percent
during the first quarter of 2000 compared with 42.5 percent in the year-earlier
period. The company's effective tax rate is principally impacted by, among
other factors, the statutory tax rates in the countries in which it operates and
the related level of earnings generated by these operations and the
nondeductibility of certain expenses.
Net Income
- ----------
The company recorded net income of $63.1 million in the first quarter of 2000
compared with $28.3 million in the first quarter of 1999, an increase of 123
percent. The increase in net income from the year-earlier period is due to
increased sales and improving gross profit margins.
Liquidity and Capital Resources
- -------------------------------
The company maintains a high level of current assets, primarily accounts
receivable and inventories. Consolidated current assets as a percentage of
total assets were approximately 72 percent at March 31, 2000 and 1999.
The net amount of cash used for the company's operating activities during the
first quarter of 2000 was $23.7 million, principally reflecting increased
customer receivables, resulting from higher sales late in the first quarter,
offset, in part, by earnings for the quarter. The net amount of cash used for
investing activities was $22 million for various capital expenditures. The net
amount of cash provided by financing activities was $72.4 million, principally
reflecting borrowings under the company's commercial paper program.
During the first quarter of 1999, the net amount of cash generated by operating
activities was $12.8 million. The net amount of cash used for investing
activities was $346.7 million, principally for the acquisitions of Richey
Electronics, Inc. ("Richey"), the electronics distribution group of Bell
Industries, Inc., and the remaining 10 percent of Spoerle Electronic not
previously owned by the company. The net amount of cash provided by financing
activities was $271.2 million, reflecting borrowings under the company's credit
facilities offset, in part, by the repayment of Richey's 7.0% Convertible
Subordinated Notes and distributions to a former minority partner.
Year 2000 Update
- ----------------
The company has experienced no significant failures or disruptions of its
internal systems either on or after January 1, 2000. Additionally, to date,
there have been no material Year 2000 related failures or disruptions with
respect to principal third-party business partners.
The company continues to monitor its systems and the capabilities of its
customers and suppliers to ensure that any previously unidentified Year 2000
issues that may arise are addressed promptly. In the unlikely event that any
issues should occur, the company anticipates that they will be resolved through
implementation of its comprehensive contingency planning efforts.
Information Relating to Forward-Looking Statements
- --------------------------------------------------
This report includes forward-looking statements that are subject to certain
risks and uncertainties which could cause actual results or facts to differ
materially from such statements for a variety of reasons, including, but not
limited to: industry conditions, changes in product supply, pricing, and
customer demand, competition, other vagaries in the electronic components and
commercial computer products markets, and changes in relationships with key
suppliers. Shareholders and other readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. The company undertakes no obligation to update publicly or
revise any of the forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The company is exposed to market risk from changes in foreign currency exchange
rates and interest rates.
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material impact on the
company's financial results in the future. The company's primary exposure
relates to transactions in which the currency collected from customers is
different from the currency utilized to purchase the product sold in Europe, the
Asia/Pacific region, and South America. At the present time, the company hedges
only those currency exposures for which natural hedges do not exist. Anticipated
foreign currency cash flows and earnings and investments in businesses in
Europe, the Asia/Pacific region, and South America are not hedged as in many
instances there are natural offsetting positions. The translation of the
financial statements of the non-North American operations is impacted by
fluctuations in foreign currency exchange rates. Had the various average
foreign currency exchange rates remained the same during the first quarter of
2000 as compared with December 31, 1999, 2000 sales and operating income would
have been $27 million and $1 million higher, respectively, than the actual
results.
The company's interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. The
company manages its exposure to interest rate risk through the proportion of
fixed rate and variable rate debt in its total debt portfolio. At March 31,
2000, the company had approximately 47 percent of its debt as fixed rate
borrowings and 53 percent of its debt subject to variable rates. Interest
expense would fluctuate by approximately $2 million if average interest rates
had changed by one percentage point during the first quarter of 2000. This
amount was determined by considering the impact of a hypothetical interest rate
on the company's borrowing cost. This analysis does not consider the effect of
the level of overall economic activity that could exist in such an environment.
Further, in the event of a change of such magnitude, management could likely
take actions to further mitigate any potential negative exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
company's financial structure.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARROW ELECTRONICS, INC.
Date: May 11, 2000 By:/s/ Sam R. Leno
-------------------------
Sam R. Leno
Senior Vice President and
Chief Financial Officer
Date: May 11, 2000 By:/s/ Paul J. Reilly
-------------------------
Paul J. Reilly
Vice President-Finance