UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 Identifi-
incorporation or organization) cation 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: 31,506,610 shares outstanding at
August 1, 1994.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Six Months Ended Three Months Ended
June 30 June 30
1994 1993 1994 1993
Sales $1,656,430 $1,135,460 $835,647 $584,069
Costs and expenses:
Cost of products sold 1,329,417 894,522 668,997 463,222
Selling, general and
administrative expenses 197,264 149,134 100,782 74,963
Depreciation and amortization 10,858 6,828 5,392 3,500
1,537,539 1,050,484 775,171 541,685
Operating income 118,891 84,976 60,476 42,384
Equity in earnings of
affiliated company - 613 - 313
Interest expense 18,393 13,327 9,372 6,399
Earnings before income taxes
and minority interest 100,498 72,262 51,104 36,298
Provision for income taxes 40,332 28,598 20,442 14,562
Earnings before minority interest 60,166 43,664 30,662 21,736
Minority interest 8,342 6,568 4,099 2,622
Net income $ 51,824 $ 37,096 $ 26,563 $ 19,114
Net income used in per common share
calculation (reflecting deduction
of preferred stock dividends) $ 51,824 $ 36,454 $ 26,563 $ 18,793
Net income per common share:
Primary $1.62 $1.21 $ .83 $ .62
Fully diluted $1.51 $1.12 $ .78 $ .58
Average number of common shares
and common share equivalents
outstanding:
Primary 31,903 30,147 31,895 30,306
Fully diluted 35,676 34,966 35,667 35,112
See accompanying notes
-2-
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
Current assets: $ 45,926 $ 60,730
Cash and short-term investments
Accounts receivable, less allowance
for doubtful accounts ($23,667 in
1994 and $16,491 in 1993) 498,413 363,084
Inventories 489,849 434,953
Prepaid expenses and other assets 14,965 10,841
Total current assets 1,049,153 869,608
Property, plant and equipment at cost:
Land 5,700 5,700
Buildings and improvements 37,414 33,709
Machinery and equipment 62,919 55,148
106,033 94,557
Less accumulated depreciation and
amortization 44,140 38,606
61,893 55,951
Investment in affiliated company - 13,371
Investments in net assets of
acquired businesses 44,842 -
Cost in excess of net assets of companies
acquired, less accumulated amortization
($16,984 in 1994 and $13,514 in 1993) 238,126 199,383
Other assets 42,126 52,991
$1,436,140 $1,191,304
See accompanying notes.
-3-
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
June 30, December 31,
1994 1993
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 265,454 $ 190,013
Accrued expenses 120,370 104,146
Accrued interest 6,353 5,421
Short-term borrowings, including
current maturities of long-term debt 93,626 40,965
Total current liabilities 485,803 340,545
Long-term debt 172,550 153,828
Deferred income taxes and other liabilities 49,106 43,457
Subordinated debentures 125,000 125,000
Minority interest 84,244 71,459
Shareholders' equity:
Common stock, par value $1:
Authorized - 60,000,000 shares
Issued - 31,510,957 shares in 1994
and 31,298,335 shares in 1993 31,511 31,298
Capital in excess of par value 315,906 310,203
Retained earnings 176,512 124,689
Foreign currency translation adjustment (1,596) (7,492)
522,333 458,698
Less: Treasury shares (11,247 in 1994
and 10,872 in 1993) at cost 13 12
Unamortized employee stock awards 2,883 1,671
519,437 457,015
$1,436,140 $1,191,304
See accompanying notes.
-4-
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(IN THOUSANDS)
(UNAUDITED)
1994 1993
Cash flows from operating activities:
Net income $51,824 $37,096
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Minority interest in earnings 8,342 6,568
Depreciation and amortization 11,996 7,827
Equity in undistributed earnings of
affiliated company - (613)
Deferred taxes 3,637 7,798
Change in assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (57,755) (53,791)
Inventories (21,400) (15,726)
Prepaid expenses and other assets 557 2,836
Accounts payable 48,886 17,414
Accrued expenses (3,432) 13,037
Accrued interest 771 3,959
Other (3,307) (2,843)
Net cash provided by operating activities 40,119 23,562
Cash flows from investing activities:
Acquisitions of property, plant and
equipment, net (6,630) (4,866)
Cash consideration paid for acquired businesses (80,623) (57,715)
Repayment by/(loan to) affiliate 7,730 (7,000)
Net cash (used for) investing activities (79,523) (69,581)
Cash flows from financing activities:
Change in notes payable to banks 12,330 2,784
Repayment of long-term debt (7,740) (242)
Proceeds from common stock offering - 17,746
Proceeds from exercise of stock options 2,443 1,464
Proceeds from long-term debt 24,351 38,652
Distribution to partners (7,696) (904)
Dividends paid - (642)
Financing fees paid (200) (1,032)
Net cash provided by financing activities 23,488 57,826
Net increase (decrease) in cash and
short-term investments (15,916) 11,807
Cash and short-term investments at beginning of
period 60,730 30,450
Cash and short-term investments from affiliate
at beginning of period 1,112 -
Cash and short-term investments at end of period $45,926 $42,257
Supplemental disclosures of cash flow information
Cash paid during the period:
Income taxes $21,630 $ 8,000
Interest $20,473 $ 7,351
See accompanying notes
-5-
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(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, 1993 and the notes thereto. The
results of operations for the interim periods are not necessarily indicative
of results for the full year.
Note B -- Net income per common share
Net income per common share for 1994 is based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding. For the six months ended June 30, 1994 and 1993, the average
number of common stock equivalents was 461,103 and 640,177 respectively.
For the quarter ended June 30, 1994 and 1993, the average number of common
stock equivalents was 409,705 and 628,324, respectively.
Net income per common share on a fully diluted basis for 1994
assumes that the 5-3/4% convertible subordinated debentures (the
"convertible subordinated debentures") were converted to common stock at the
beginning of the period and the related interest expense, net of taxes, was
eliminated.
Net income per common share for 1993 is based upon the weighted
average number of common stock and common stock equivalents outstanding
after deducting preferred stock dividends related to the series B $19.375
convertible exchangeable preferred stock (the "convertible exchangeable
preferred stock"), which was converted into common stock in September 1993.
Net income per common share on a fully diluted basis for 1993 assumes that
the convertible exchangeable preferred stock and the convertible
subordinated debentures were converted to common stock at the beginning of
the period. The dividends related to the convertible exchangeable preferred
stock and the interest expense on the convertible subordinated debentures,
net of taxes, were eliminated.
Note C -- Acquisition of electronics distribution businesses
In January 1994, the company acquired an additional 15% share, for
approximately $23,400,000, in Spoerle Handelsgesellschaft mbH and Co. and
its general partner, Spoerle GmbH (collectively, "Spoerle"), the largest
distributor of electronic components in Germany, increasing its holdings to
a 70% majority interest. During the first quarter of 1994, the company
acquired an additional 11% share in Silverstar Ltd. S.p.A. ("Silverstar"),
the largest distributor of electronic components in Italy, increasing its
holdings to a 61% majority interest. The acquisitions are being accounted
-6-
for as purchase transactions, and Silverstar is consolidated with the
company, effective January 1, 1994. Prior to 1994 the company's investment
in Silverstar was accounted for under the equity method.
In addition, in January 1994 the company acquired the electronic
component distribution business of Field Oy, the largest distributor of
electronic components in Finland, and in March 1994 the company acquired
TH:s Elektronik AB and its subsidiaries, a group of electronic distribution
companies serving Norway, Sweden, and Finland. In April 1994, the company
acquired Exatec A/S, one of the largest distributors of semiconductors in
Denmark. In May 1994, the company acquired Texny (Holdings) Limited, one of
Hong Kong's leading distributors of electronic components. The acquisitions
are being accounted for as purchase transactions beginning in their
respective month of acquisition.
In January 1993, the company acquired an additional 15% share in
Spoerle, increasing its holdings to a then 55% majority interest. In May
1993, the company acquired the high-reliability electronic component
distribution and value-added service businesses of Zeus Components, Inc.
("Zeus"). In June 1993, the company acquired Microprocessor & Memory
Distribution Limited ("MMD"), a U.K.-based electronics distributor which
focuses on the distribution of high-technology semiconductor products. In
August 1993, the company acquired Components Agent Limited ("CAL"), one of
the largest electronics distributors in Hong Kong. During the third quarter
of 1993 the company acquired a majority interest in Amitron S.A. and the ATD
Group, electronics distributors serving the Spanish and Portuguese markets.
In November 1993, the company augmented its French operations by acquiring
CCI Electronique.
Set forth below for comparative purposes is the pro forma combined
summary of operations for the six months ended June 30, 1993 as though the
acquisitions in 1993 had occurred on January 1, 1993.
Six Months Ended
June 30, 1993
(In thousands except per share data)
Sales $1,249,995
Operating income 87,970
Net income 38,020
Net income per common share:
Primary 1.23
Fully diluted 1.13
Average number of common shares and common
share equivalents outstanding:
Primary 30,656
Fully diluted 35,505
The unaudited pro forma combined summary of operations has been
prepared utilizing the historical financial statements of Arrow and the
acquired businesses. The unaudited pro forma combined summary of operations
includes the effect of the purchase price allocation adjustments and the
additional interest expense on debt incurred in connection with the
acquisitions as if the debt had been outstanding from the beginning of the
period. The purchase price allocation adjustments include the adjustment of
-7-
the net assets acquired to fair market value and the estimated costs
associated with the integration of the businesses. Such estimated costs
include professional fees as well as real estate lease termination costs,
costs associated with the elimination of certain redundant franchised lines,
and severance and other expenses related to personnel performing duplicative
functions, all of which are associated with facilities and personnel of the
acquired businesses. The unaudited pro forma combined summary of operations
does not purport to be indicative of the results which actually would have
been obtained if the acquisitions had been made at the beginning of 1993.
The unaudited pro forma combined summary of operations does not
reflect sales attrition which may result from the combination of Zeus and
MMD with Arrow's businesses. It also does not reflect the cost savings the
company achieved from the combination of the Zeus businesses with its own
and it expects to achieve when MMD is combined with the company's UK
businesses.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Included in 1994's consolidated results is Silverstar, which was
accounted for under the equity method prior to January 1994 when Arrow
increased its holdings to a majority interest.
Sales
Consolidated sales for the six months and second quarter of 1994
increased 45.9% and 43.1% compared with year-earlier periods. Excluding
Silverstar, sales for the first six months and second quarter of 1994 were
$1.5 billion and $777 million, respectively, an increase of 36.3% and 33%
over the comparable year-earlier periods.
Operating income
The company recorded operating income of $118.9 million and
$60.5 million in the first six months and second quarter of 1994,
respectively, compared with $85 million and $42.4 million, respectively, in
year-earlier periods. The improvement in operating income over the 1993
periods reflects the impact of increased sales, acquisitions, continued
economies of scale and expense containment efforts reducing operating
expenses as a percentage of sales, and the consolidation of Silverstar.
Excluding Silverstar, operating income was $107.5 million and $54 million in
the first six months and second quarter of 1994, respectively, and operating
expenses as a percentage of sales decreased from 13.7% in the first six
months of 1993 to 12.4% and from 13.4% in the second quarter of 1993 to
12.5%.
Interest expense
Interest expense of $18.4 million and $9.4 million in the first
six months and second quarter of 1994, respectively, increased from $13.3
million during the first six months of 1993 and $6.4 million in the
comparable quarter of 1993.
The increase from the first six months and second quarter of 1993
reflects the borrowings associated with the consolidation of Silverstar, the
acquisition of the incremental 15% of Spoerle in 1994, and the incremental
interest associated with businesses acquired subsequent to the second
quarter of 1993.
-8-
Income taxes
During the first six months and second quarter of 1994, the
company recorded a provision for taxes at an effective tax rate of 40.1% and
40% compared with 39.6% and 40.1%, respectively, in the earlier periods.
Net income
The company recorded net income of $51.8 and $26.6 million in the
first six months and second quarter of 1994, respectively, compared with
$37.1 million in the first six months of 1993 and $19.1 million in the
second quarter of 1993. The increase in net income over the year-earlier
periods is due to increased sales and lower operating expenses as a
percentage of sales offset in part by an increase in interest expense as
previously discussed.
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 75% and 74% at June 30, 1994
and 1993, respectively, excluding the effect of the investments in net
assets of acquired businesses.
The net amount of cash provided by the company's operating
activities during the first six months of 1994 was $40.1 million,
principally reflecting higher net earnings. The net amount of cash used for
investing activities was $79.5 million, including $80.6 million for various
acquisitions. The net amount of cash provided by financing activities was
$23.5 million, principally reflecting the company's U.S. credit agreements
and German bank borrowings, offset in part by the distribution to partners
and the net repayment of debts.
The net amount of cash provided by the company's operating activities
during the first six months of 1993 was $23.6 million, principally
reflecting increased earnings offset in part by increased working capital
requirements supporting higher sales. The net amount of cash used for
investing activities was $69.6 million, including approximately $57.7
million for the acquisition of Zeus, MMD, and an additional 15% interest in
Spoerle. The net amount of cash provided by financing activities was $57.8
million, principally reflecting the proceeds from the company's U.S. credit
agreement, German bank borrowings, and the company's May 1993 common stock
offering, offset in part by the payment of financing fees and preferred
stock dividends.
The company believes that its working capital, funds available
under its credit agreements, and additional funds generated from operations
will be sufficient to satisfy its cash requirements at least through 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The company's Annual Meeting of Shareholders was held on May 10,
1994 (the "Annual Meeting").
(c) The matters voted upon at the Annual Meeting and the results of the
voting were as follows:
-9-
(i) The shareholders voted 25,096,973 shares in favor, 578,707
shares against, and 922,029 shares in abstention with
respect to the adoption of the Chief Executive Officer
Performance Bonus Plan. There were no broker non-votes to
the adoption of this plan.
(ii) The shareholders voted 26,408,572 shares in favor, 144,762
shares against, and 44,375 shares in abstention with
respect to the appointment of Ernst & Young as auditors of
the company. There were no broker non-votes to this
appointment.
(iii) The following individuals were elected by the shareholders
to serve as Directors:
Shares
Broker
Non-
Board Member In Favor Against Abstention Votes
Daniel W. Duval 26,325,205 272,504 - -
Carlo Giersch 26,439,075 158,634 - -
J. Spencer Gould 26,432,409 165,300 - -
Stephen P. Kaufman 26,436,976 160,733 - -
Lawrence R. Kem 26,436,553 161,156 - -
Robert E. Klatell 26,439,605 158,104 - -
Steven W. Menefee 26,323,997 273,712 - -
Richard S. Rosenbloom 26,322,424 275,285 - -
John C. Waddell 26,326,889 270,820 - -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2 - 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,
Registration No. 33-54413).
11 - Statement Re: Computation of Earnings Per Share
(b) Reports on Form 8-K.
During the quarter ended June 30, 1994, the company filed
no Current Reports on Form 8-K.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ARROW ELECTRONICS, INC.
Date: August 11, 1994 By:/s/ Robert E. Klatell
Robert E. Klatell
Senior Vice President
and Chief Financial Officer
Date: August 11, 1994 By:/s/ Paul J. Reilly
Paul J. Reilly
Controller
-11-