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, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4482
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ARROW ELECTRONICS, INC.
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(Exact name of Registrant as specified in its charter)
New York 11-1806155
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 Hub Drive, Melville, New York 11747
- -------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (516) 391-1300
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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: 98,702,122 shares outstanding at May 4, 2001.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
---- ----
Sales $3,275,747 $2,769,424
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Costs and expenses:
Cost of products sold 2,727,465 2,346,425
Selling, general and administrative expenses 326,463 261,225
Depreciation and amortization 28,584 19,594
Integration charge 9,375 -
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3,091,887 2,627,244
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Operating income 183,860 142,180
Equity in losses of affiliated companies (396) (1,298)
Interest expense 65,907 30,579
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Earnings before income taxes and
minority interest 117,557 110,303
Provision for income taxes 45,847 46,327
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Earnings before minority interest 71,710 63,976
Minority interest 31 917
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Net income $ 71,679 $ 63,059
========== ==========
Net income per share:
Basic $.73 $.66
==== ====
Diluted $.68 $.65
==== ====
Average number of shares outstanding:
Basic 97,888 95,387
======= ======
Diluted 107,491 96,922
======= ======
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
2001 2000
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(Unaudited)
ASSETS
- ------
Current assets:
Cash and short-term investments $ 67,176 $ 55,546
Accounts receivable, including retained
interest in securitized receivables, net 2,046,477 2,635,595
Inventories 2,737,985 2,972,661
Prepaid expenses and other assets 61,345 100,408
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Total current assets 4,912,983 5,764,210
Property, plant and equipment at cost:
Land 43,052 40,892
Buildings and improvements 156,758 167,194
Machinery and equipment 329,740 319,305
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529,550 527,391
Less accumulated depreciation and
amortization (216,419) (210,932)
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313,131 316,459
Investments in affiliated companies 48,562 35,885
Cost in excess of net assets of
companies acquired, net of amortization
($153,763 in 2001 and $145,014 in 2000) 1,197,086 1,237,099
Other assets 341,078 250,888
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$6,812,840 $7,604,541
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $1,071,830 $1,567,631
Accrued expenses 490,496 473,984
Short-term borrowings, including current
maturities of long-term debt 325,146 529,261
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Total current liabilities 1,887,472 2,570,876
Long-term debt 2,904,341 3,027,671
Other liabilities 88,454 92,246
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000,000 shares
Issued - 103,816,553 shares in 2001
and 103,816,792 shares in 2000 103,817 103,817
Capital in excess of par value 528,867 529,376
Retained earnings 1,668,589 1,596,910
Foreign currency translation adjustment (216,842) (160,914)
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2,084,431 2,069,189
Less: Treasury stock (5,127,277 shares in 2001
and 5,405,918 shares in 2000), at cost (137,117) (144,569)
Unamortized employee stock awards (14,741) (10,872)
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1,932,573 1,913,748
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$6,812,840 $7,604,541
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
------------------------
2001 2000
---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 71,679 $ 63,059
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 31 917
Depreciation and amortization 32,222 22,077
Accretion of discount on convertible
debentures 2,882 -
Equity in losses of affiliated companies 396 1,298
Deferred income taxes (38,386) 280
Change in assets and liabilities:
Accounts receivable 281,304 (168,683)
Inventories 191,948 (130,053)
Prepaid expenses and other assets (720) (612)
Accounts payable (472,012) 144,536
Accrued expenses 31,257 51,073
Other (7,311) (7,638)
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Net cash provided by (used for) operating
activities 93,290 (23,746)
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Cash flows from investing activities:
Acquisition of property, plant and
equipment, net (18,664) (22,022)
Investments (3,013) -
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Net cash used for investing activities (21,677) (22,022)
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Cash flows from financing activities:
Sale of accounts receivable under
securitization program 251,737 -
Change in short-term borrowings (525,247) 11,389
Change in credit facilities 293,158 (19,200)
Change in long-term debt (748,826) 70,340
Proceeds from convertible debentures 668,779 -
Proceeds from exercise of stock options 1,386 9,905
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Net cash provided by (used for) financing
activities (59,013) 72,434
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Effect of exchange rate changes on cash (970) (4,956)
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Net increase in cash and short-term investments 11,630 21,710
Cash and short-term investments at beginning
of period 55,546 44,885
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Cash and short-term investments at end of period $ 67,176 $ 66,595
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 17,260 $ 3,046
Interest 46,786 31,298
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Note A -- Basis of Presentation
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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, 2000 and the notes thereto. The results of operations for
the interim periods are not necessarily indicative of results for the full
year.
Note B -- Impact of Recently Issued Accounting Standards
- --------------------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, the FASB issued Statement No. 138, which deferred
the effective date of Statement No. 133. The Statement requires 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 are 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, effective January 1,
2001, did not have a significant effect on the company's consolidated results
of operations or financial position.
Note C -- Accounts Receivable
- -----------------------------
Accounts receivable consists of the following (in thousands):
March 31, December 31,
2001 2000
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Accounts receivable $1,173,798 $2,743,737
Retained interest in securitized
accounts receivable 964,668 -
Allowance for doubtful accounts (91,989) (108,142)
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$2,046,477 $2,635,595
========== ==========
During the current quarter, the company entered into a $750,000,000
accounts receivable securitization program with a group of financial
institutions under which it could sell, with recourse, its interest in
certain trade accounts receivable. As of March 31, 2001, the company sold
$251,737,000 of outstanding trade accounts receivable and had a
subordinated interest in the remaining outstanding receivables of
$964,668,000. The sale of these receivables is reflected as a reduction of
accounts receivable in the accompanying consolidated balance sheet and the
related discount from the sale is included in interest expense in the
consolidated statement of income.
Note D -- Special Integration Charge
- ------------------------------------
During the first quarter of 2001, the company recorded a special charge of
$9,375,000 ($5,719,000 after taxes) related to the acquisition and integration
of Wyle Electronics and Wyle Systems (collectively, "Wyle"). Of the total
amount recorded, $1,433,000 represented costs associated with the closing of
various office facilities and distribution and value-added centers, $4,052,000
represented costs associated with severance and other personnel costs,
$2,703,000 represented costs associated with outside services related to the
conversion of systems and certain other costs of the integration of Wyle into
the company, and $1,187,000 represented the write-down of property, plant and
equipment to estimated fair value. Of the expected $8,188,000 to be spent in
cash in connection with the acquisition and integration of Wyle, $4,631,000
has been spent to date. Approximately $1,340,000 of the remaining amount
relates to vacated facilities leased with various expiration dates through
2003, $245,000 relates to severance and other personnel costs to be paid in
2001, and the balance relates to costs associated with outside services
related to the conversion of systems and other costs associated with the
integration of Wyle into the company.
Note E -- 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,
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2001(a) 2000
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Net income used for basic earnings per share $ 71,679 $63,059
Interest on convertible debentures, net of tax 1,634 -
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Net income used for diluted earnings per share $ 73,313 $63,059
======== =======
Weighed average common shares outstanding
for basic earnings per share 97,888 95,387
Net effect of dilutive stock options and
restricted stock awards 2,041 1,535
Net effect of convertible debentures 7,562 -
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Weighted average common shares outstanding
for diluted earnings per share 107,491 96,922
======== =======
Basic earnings per share $.73 $.66
==== ====
Diluted earnings per share $.68 $.65
==== ====
(a) Excluding the integration charge, net income and net income per share on a
basic and diluted basis were $77,398,000, $.79, and $.74, respectively,
for the three months ended March 31, 2001.
Note F -- 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,
---------------------
2001 2000
---- ----
Net income $ 71,679 $ 63,059
Foreign currency
translation adjustments(a) (55,928) (27,834)
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Comprehensive income (b) $ 15,751 $ 35,225
======== ========
(a) The foreign currency translation adjustments have not been tax effected as
investments in foreign affiliates are deemed to be permanent.
(b) Excluding the integration charge of $9,375,000 net of the related tax
effect, comprehensive income was $21,470,000 for the three months ended
March 31, 2001.
Note G -- Segment and Geographic Information
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The company is engaged in the distribution of electronic components to
original equipment manufacturers and computer products to value-added
resellers (VARs). 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. Revenue and operating income, by segment, are as
follows (in thousands):
For the Three
Months Ended
March 31,
--------------------------
2001 2000
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Revenue:
Electronic Components $2,487,773 $2,033,214
Computer Products 787,974 736,210
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Consolidated $3,275,747 $2,769,424
========== ==========
Operating income:
Electronic Components $ 215,044 $ 157,341
Computer Products 7,926 9,324
Corporate (39,110) (24,485)
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Consolidated (a) $ 183,860 $ 142,180
========== ==========
Total assets, by segment, are as follows (in thousands):
March 31, December 31,
2001 2000
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Total assets:
Electronic Components $5,533,503 $5,954,527
Computer Products 1,263,672 1,394,157
Corporate (b) 15,665 255,857
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Consolidated $6,812,840 $7,604,541
========== ==========
Revenues, by geographic area, are as follows (in thousands):
For the Three
Months Ended
March 31,
--------------------------
2001 2000
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Americas $2,041,207 $1,716,915
Europe 979,824 803,552
Asia/Pacific 254,716 248,957
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Consolidated $3,275,747 $2,769,424
========== ==========
Total assets, by geographic area, are as follows (in thousands):
March 31, December 31,
2001 2000
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Americas (b) $4,139,011 $4,840,169
Europe 2,035,465 2,104,837
Asia/Pacific 638,364 659,535
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Consolidated $6,812,840 $7,604,541
========== ==========
(a) Excluding the integration charge of $9,375,000, operating income was
$193,235,000 for the quarter ended March 31, 2001.
(b) The balance at March 31, 2001 reflects a reduction of $251,737,000 related
to accounts receivable sold under the asset securitization program.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
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Sales
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Consolidated sales for the first quarter of 2001 increased 18 percent when
compared with the year-earlier period. The sales growth was driven by a 22
percent increase in sales of core components (net of foreign exchange rate
differences), principally as a result of acquisitions. During the quarter,
the North American components operation experienced a slowdown in business
activity with its large telecom and networking customers and the contract
manufacturers that serve them. Late in the quarter, weakening general
economic conditions produced a more widespread slowdown affecting a broader
segment of the company's North American customer base. Sales of computer
products increased by 7 percent for the first quarter of 2001 when compared
to the year-earlier period, principally as a result of acquisitions,
offset, in part, by market conditions for mid-range products and lower
sales of low margin microprocessors (a product segment not considered a
part of the company's core business).
Operating Income
- ----------------
The company recorded operating income of $183.9 million in the first
quarter of 2001 compared with $142.2 million in the year-earlier period.
Included in the results for the first quarter of 2001 is a pre-tax
integration charge of $9.4 million associated with the integration of Wyle.
Excluding this integration charge, operating income for the first quarter
of 2001 was $193.2 million. The increase in operating income is due to
increased sales and improving gross profit margins in the North American
components business and in the worldwide computer products business, as
well as a change in mix resulting in greater weighting of the core
components business.
Interest Expense
- ----------------
Interest expense of $65.9 million in the first quarter of 2001 increased from
$30.6 million in the year-earlier period. The increase is the result of
additional debt incurred to fund acquisitions during 2000, as well as
internet-related joint ventures, capital expenditures, and working capital
requirements.
Income Taxes
- ------------
The company recorded a provision for taxes at an effective rate of 39 percent
for the first quarter of 2001 compared with 42 percent in the comparable 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, the related level of earnings generated by these operations, and the
nondeductibility of goodwill amortization.
Net Income
- ----------
The company recorded net income of $71.7 million in the first quarter of 2001
compared with $63.1 million in the year-earlier period. Excluding the
aforementioned integration charge, net income for the first quarter of 2001
was $77.4 million. The increase in net income is due to increased sales and
improving gross profit margins, offset, in part, by higher levels of interest.
Liquidity and Capital Resources
- -------------------------------
The company maintains a high level of current assets, primarily accounts
receivable and inventories. Consolidated current assets as a percentage of
total assets were approximately 72 percent at March 31, 2001 and 2000.
The net amount of cash provided by the company's operating activities during
the first quarter of 2001 was $93.3 million, principally reflecting earnings
for the quarter. The net amount of cash used for investing activities was
$21.7 million, including $18.7 million for various capital expenditures and $3
million for internet-related joint ventures. The net amount of cash used for
financing activities was $59 million, primarily reflecting proceeds from the
sale of convertible debentures and accounts receivable under the company's
securitization program, as well as borrowings under the company's credit
facilities, offset, in part, by the repayment of short-term and long-term
debt.
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
accounts receivable, 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.
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 Latin 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 Latin 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 2001 as compared with December 31, 2000, 2001 sales and operating
income would have been $11 million and $1 million higher, respectively, than the
reported results.
The company's interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. The
company manages its exposure to interest rate risk through the proportion of
fixed rate and variable rate debt in its total debt portfolio. At March 31,
2001, approximately 75 percent of the company's debt was subject to fixed rates
and 25 percent of its debt was subject to variable rates. Interest expense
would fluctuate by approximately $3 million if average interest rates had
changed by one percentage point during the first quarter of 2001. This amount
was determined by considering the impact of a hypothetical interest rate on the
company's borrowing cost. This analysis does not consider the effect of the
level of overall economic activity that could exist in such an environment.
Further, in the event of a change of such magnitude, management could likely
take actions to further mitigate any potential negative exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
company's financial structure.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
None
(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 14, 2001 By:/s/ Sam R. Leno
-------------------------
Sam R. Leno
Senior Vice President and
Chief Financial Officer
Date: May 14, 2001 By:/s/ Paul J. Reilly
-------------------------
Paul J. Reilly
Vice President-Finance