Exhibit 99.1
Arrow Electronics Tops Wall Street Average;
Revenue and Earnings at Highest Level Since Early 2001
MELVILLE, NEW YORK, February 17, 2004 -- Arrow Electronics, Inc. (NYSE:ARW)
today reported fourth quarter 2003 net income of $26.0 million ($.26 per share)
on sales of $2.48 billion, compared with net income of $7.6 million ($.08 per
share) on sales of $1.89 billion in the fourth quarter of 2002. The company's
results for the fourth quarter of 2003 and 2002 include a number of items
outlined below that impact their comparability. A reconciliation of these items
is provided under the heading "Certain Non-GAAP Financial Information".
Excluding those items, net income for the quarter ended December 31, 2003 would
have been $32.6 million ($.33 and $.31 per share on a basic and diluted basis,
respectively) and net income for the quarter ended December 31, 2002 would have
been $8.9 million ($.09 per share).
Consolidated operating income, excluding the items impacting comparability, was
up 45% sequentially and up 83% over last year's fourth quarter, marking the
fifth consecutive sequential increase and the fourth year-on-year quarterly
increase. Operating income, excluding these items, as a percentage of sales
increased by 60 basis points sequentially and 90 basis points year-on-year,
marking the third consecutive increase for both.
"Growth in operating income significantly outpaced the growth in sales serving
as confirmation that our efficiency enhancement initiatives - our continuous
process improvement efforts - are paying off," stated William E. Mitchell,
President and Chief Executive Officer of Arrow.
In the fourth quarter, the company generated over $151 million in cash flow from
operations and took further steps to strengthen its balance sheet by once again
purchasing debt prior to maturity. During the quarter, the company paid $14.1
million to repurchase a portion of its zero coupon bonds and repaid $192.0
million of senior notes maturing in October 2003. Total cash flow from
operations generated since December 31, 2000 is $2.6 billion. During the same
time, the company reduced its net debt from $3.5 billion to $1.4 billion. "Our
ability to make improvements in how we manage working capital has paid off
nicely. As we move through the cyclical upturn and we begin to see product
availability tighten, we will begin to selectively invest in inventory," he
added.
Worldwide components sales of $1.78 billion were up 13% from $1.58 billion in
the September quarter and up 35% from $1.32 billion in last year's fourth
quarter. Operating income, as a percentage of sales was 4.0%, up 10 basis points
sequentially and 100 basis points from last year's fourth quarter.
"Our components businesses posted solid gains in sales and operating income
across all geographies and all segments," said Mr. Mitchell. "Sales in our North
American Components group were up 9% sequentially and up 43% over last year.
Both operating income dollars and operating income as a
percentage of sales were at the highest levels in ten quarters. Operating income
dollars were up 66% sequentially and were up more than five-fold from last
year's fourth quarter. Operating margin more than tripled from last year," he
added.
Arrow's European sales increased by 12% sequentially, with operating income
dollars up 9% from the September quarter. "We were encouraged that our European
business was able to post a strong sales advance in the midst of what is still a
challenged macroeconomic environment," stated Mr. Mitchell. "Because of the
generally weak macroeconomic environment in Europe we remain cautious with
regard to the March quarter," he added.
Sales in the Asia/Pacific region increased by 27% sequentially and by 43% from
last year. "We were pleased with the progress that we made in the Asia/Pacific
region both in this quarter and over the past 12 months. We are committed to
continuing our investments in this very rapidly growing market," added Mr.
Mitchell.
Worldwide computer products sales totaled $705 million, up 37% from the third
quarter and up 23% over last year. Operating income as a percentage of sales
increased by 170 basis points sequentially and was 20 basis points ahead of last
year's record level.
"Our North American Computer Products group had an exceptional quarter, with
sales up 42% sequentially and up 33% from last year," Mr. Mitchell said, "and
while we were expecting strong seasonal performance this was well in excess of
historical norms. Notably, operating income dollars were at their highest level
ever and experienced a year-over-year increase for the tenth consecutive
quarter," he added.
Over the past twelve months the company has announced a series of initiatives to
be more efficiently organized. This has resulted in a $75 million reduction to
the company's cost structure. Today, the company has announced a series of
additional steps to make its organizational structure even more efficient, the
net result of which the company estimates will reduce its cost structure by an
additional $15 million annually. Approximately 50% of this annual cost savings
begins in the first quarter, with the remaining 50% beginning late in the second
quarter of 2004. The company will record a related restructuring charge, spread
over several quarters in 2004, of $2 to $5 million before taxes.
"Managing a business successfully means that you engage in continuous process
improvements - - whether sales are moving up or down," commented Mr. Mitchell.
"We remain committed to a culture of continuous process improvement."
The company's results for the fourth quarter of 2003 and 2002 include a number
of items outlined below that impact their comparability:
- Throughout 2003, the company implemented actions to become
more effectively organized and to improve its operating
efficiencies, with annual savings of $75 million. The
estimated restructuring charges associated with these actions
total approximately $42.4 million, of which $30.3 million
($20.7 million net of taxes or $.20 per share) was recorded
through September 30, 2003 and $7.6 million ($6.4 million net
of taxes or $.07 and $.05 per share on a basic and diluted
basis, respectively) was recorded in the fourth quarter of
2003. It is anticipated that the remaining $4.5 million will
be recorded over the next several quarters.
- During the fourth quarter of 2003, the company paid $14.1
million to repurchase a portion of its zero coupon bonds
resulting in a charge of $.3 million ($.2 million net of
taxes). In the fourth quarter of 2002, the company repurchased
$79.0 million of its 8.2% senior notes due in October 2003.
The premium paid, along with the write-off of related deferred
issuance costs, resulted in a charge of $2.1 million ($1.3
million net of taxes or $.01 per share).
Arrow's net income in 2003 was $25.7 million ($.26 and $.25 per share
on a basic and diluted basis, respectively) on sales of $8.68 billion,
compared with a net loss of $610.5 million ($6.12 per share) on sales
of $7.39 billion in 2002.
Net income for 2003 includes $38.0 million ($27.1 million net of taxes
or $.27 per share) for the aforementioned restructuring charges, an
acquisition indemnification charge of $13.0 million ($.13 per share)
related to the acquisition of a French company in 2000, an integration
charge of $6.9 million ($4.8 million net of taxes or $.05 per share)
related to the acquisition and integration of Pioneer-Standard's IED
business, and a charge of $6.6 million ($3.9 million net of taxes or
$.04 per share) related to the repurchase of $253.8 million of the
company's debt. Excluding these items, net income would have been $74.6
million ($.75 and $.74 per share on a basic and diluted basis,
respectively) for 2003.
Effective January 1, 2002 the company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
As a result of this new rule, the company recorded an impairment charge
of $603.7 million ($6.05 per share) for 2002, which has been recorded
as a cumulative effect of a change in accounting principle. In the
second quarter of 2002, the company sold the Gates/Arrow commodity
computer products business, and in accordance with Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," accounted for the transaction as a
discontinued operation. The net loss of $5.9 million ($.06 per share),
including the loss on the sale of Gates/Arrow, was accounted for in a
single line item on the statement of operations. Net loss for 2002 also
includes a charge of $20.9 million ($12.9 million net of taxes or $.13
per share) related to the repurchase of $398.2 million of senior notes,
and a $5.4 million ($3.2 million net of taxes or $.03 per share)
severance charge associated with the resignation of the company's chief
executive officer.
Excluding the aforementioned loss from discontinued operations, loss on
the prepayment of debt, severance charge, and the cumulative effect of
change in accounting principle, net income for 2002 would have been
$15.3 million ($.15 per share).
"We've spent the last twelve months focusing on and restoring our
profitability and creating our business strategies for the future,"
said Mr. Mitchell. "In order to take advantage of senior management's
deep knowledge and experience today I announced the following new
organization and leadership assignments."
- Jan Salsgiver has taken on a newly-created role as Vice
President of Global Strategy and Operations. In this capacity
she will focus on business strategy and development, manage
corporate communications, and lead certain of our global
business operations including global customer and supplier
relationships, worldwide logistics, and supply
chain capabilities. Previously, Ms. Salsgiver served as
President, North American Components.
- Brian McNally has been named President, North American
Components. For the past four years, Mr. McNally has served as
the Managing Director of Arrow Northern Europe, where he has
been instrumental in strengthening this region's profitability
and market position.
- Harriet Green, who has most recently served as acting senior
VP of sales for Arrow Asia/Pac while filling her role as VP
for Worldwide Supplier Marketing, will assume the role of
President of Asia/Pac. John Tam, the founder of Arrow's
business in Asia/Pac will become Chairman of this business and
focus his efforts on maintaining the external relationships so
important in their region. Together, Ms. Green, Mr. Tam, and
Mr. Mitchell have worked closely in developing the company's
strategy in this important growth region.
- After more than thirty years with Arrow, Betty Jane (B.J.)
Scheihing, Arrow's Senior VP of Global Operations and Human
Resources, has announced her retirement, effective June 1,
2004. Ms. Scheihing has made many substantial and valuable
contributions to Arrow during her distinguished career and has
been instrumental in helping to shape Arrow into the
successful company it is today. "Collectively, the Arrow
management group, its employees, Board of Directors and I
thank her for her dedication and commitment to Arrow. And we
wish B.J. much happiness in her well-earned retirement," said
Mr. Mitchell.
- In the area of Human Resources, Susan Suver has been promoted
to the role of VP, Global Human Resources. Ms. Suver has been
an integral part of the HR function since she joined Arrow in
2001 and brings more than 20 years of experience to the
position.
- Eileen O'Connor, Vice President, Investor Relations, will now
report to Paul Reilly, Arrow's Chief Financial Officer. Ms.
O'Connor, with 15 years experience in Investor Relations,
joined Arrow in 2000, and will continue to work with Mr.
Reilly and Mr. Mitchell in communicating Arrow's vision to the
Wall Street Community.
"We've accomplished a great deal over the last year. We further strengthened and
grew our business. We invested in our future. We strengthened our balance sheet
with our strong cash flow and the repurchasing of our debt. We have a management
team that is aligned in each market with its own roadmap for success. Business
conditions seem to be turning. We continue to execute well in all markets and
all regions. We remain committed to meeting the needs of our suppliers and
customers, and to continuous process improvement to our structure, processes,
and procedures. And we remain committed to delivering value to our
shareholders," said Mr. Mitchell.
Arrow Electronics is one of the world's largest providers of products, services
and solutions to the electronic components and computer products industry.
Headquartered in Melville, New York, Arrow serves as a supply channel partner
for more than 600 suppliers and 150,000 original equipment manufacturers,
contract manufacturers and value-added resellers through 200 sales facilities
and 18 distribution centers in 41 countries and territories. Detailed
information about Arrow's operations can be found at www.arrow.com.
# # #
Contact: Eileen M. O'Connor
Vice President, Investor Relations
631-847-5740
Certain Non-GAAP Financial Information
In addition to disclosing results that are determined in accordance
with Generally Accepted Accounting Principles (GAAP), the company
provides certain non-GAAP financial information relating to operating
income, net income and net income per basic and diluted share, each as
adjusted for certain charges and losses that the company believes
impact the comparability of its results of operations. These charges
and losses arise out of the company's acquisitions of other companies,
the company's efficiency enhancement initiatives, the severance of a
former chief executive officer, the prepayment of debt, the operations
of discontinued businesses, and required changes in accounting
principles. Reconciliations of the company's non-GAAP financial
information to GAAP are set forth in the table below.
The company believes that such non-GAAP financial information is useful
to investors to assist in assessing and understanding the company's
operating performance and underlying trends in the company's business
because management considers the charges and losses referred to above
to be outside the company's core operating results. This non-GAAP
financial information is among the primary indicators management uses
as a basis for evaluating the company's financial and operating
performance. In addition, the company's Board of Directors uses this
non-GAAP financial information in evaluating management performance and
setting management compensation.
The presentation of this additional non-GAAP financial information is
not meant to be considered in isolation or as a substitute for, or
alternative to, operating income, net income (loss) and net income
(loss) per basic and diluted share determined in accordance with GAAP.
Analysis of results and outlook on a non-GAAP basis should be used as a
complement to, and in conjunction with, data presented in accordance
with GAAP.
ARROW ELECTRONICS, INC.
EARNINGS RECONCILIATION
(In thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------ --------------------
2003 2002 2003 2002
---- ---- ---- ----
Operating income, as reported $74,231 $44,621 $184,045 $ 167,530
Restructuring charges 7,623 - 37,965 -
Acquisition indemnification
charge - - 13,002 -
Integration charge - - 6,904 -
Severance charge - - - 5,375
------- ------- -------- ---------
Operating income, as adjusted $81,854 $44,621 $241,916 $ 172,905
======= ======= ======== =========
Net income (loss), as reported $26,012 $ 7,594 $ 25,700 $(610,482)
Restructuring charges 6,412 - 27,144 -
Acquisition indemnification
charge - - 13,002 -
Integration charge - - 4,822 -
Severance charge - - - 3,214
Loss on prepayment of debt 202 1,308 3,930 12,949
Loss from discontinued
operations - - - 5,911
Cumulative effect of change
in accounting principle - - - 603,709
------- ------- -------- ---------
Net income, as adjusted $32,626 $ 8,902 $ 74,598 $ 15,301
======= ======= ======== =========
Net income (loss) per basic
share, as reported $ .26 $ .08 $ .26 $ (6.12)
Restructuring charges .07 - .27 -
Acquisition indemnification
charge - - .13 -
Integration charge - - .05 -
Severance charge - - - .03
Loss on prepayment of debt - .01 .04 .13
Loss from discontinued
operations - - - .06
Cumulative effect of change
in accounting principle - - - 6.05
------- ------- -------- ---------
Net income per basic share,
as adjusted $ .33 $ .09 $ .75 $ .15
======= ======= ======== =========
Net income (loss) per diluted
share, as reported $ .26 $ .08 $ .25 $ (6.12)
Restructuring charges .05 - .27 -
Acquisition indemnification
charge - - .13 -
Integration charge - - .05 -
Severance charge - - - .03
Loss on prepayment of debt - .01 .04 .13
Loss from discontinued
operations - - - .06
Cumulative effect of change
in accounting principle - - - 6.05
------- ------- -------- ---------
Net income per diluted share,
as adjusted* $ .31 $ .09 $ .74 $ .15
======= ======= ======== =========
* Earnings per share on a diluted basis for the three months ended December 31,
2003 is calculated based on 115,839 shares outstanding.
Safe Harbor
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This press release contains 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
computer and electronic components markets, changes in relationships with key
suppliers and the other risks described from time to time in the company's
reports to the Securities and Exchange Commission (including the company's
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q). 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.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
---- ---- ---- -------
Sales $2,480,824 $1,890,959 $8,679,313 $7,390,154
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 2,093,596 1,574,128 7,258,360 6,130,581
Selling, general and
administrative expenses 288,998 256,569 1,112,192 1,020,527
Depreciation and amortization 16,376 15,641 66,845 66,141
Restructuring charges 7,623 - 37,965 -
Acquisition indemnification
charge - - 13,002 -
Integration charge - - 6,904 -
Severance charge - - - 5,375
---------- ---------- ---------- ----------
2,406,593 1,846,338 8,495,268 7,222,624
---------- ---------- ---------- ----------
Operating income 74,231 44,621 184,045 167,530
Equity in earnings of
affiliated companies 1,661 641 4,797 2,607
Loss on prepayment of debt (A) 337 2,111 6,571 20,887
Interest expense, net 33,620 32,145 134,987 152,590
---------- ---------- ---------- ----------
Income (loss) before income taxes
and minority interest 41,935 11,006 47,284 (3,340)
Provision for (benefit from)
income taxes 15,620 3,788 21,206 (1,772)
---------- ---------- ---------- ----------
Income (loss) before minority
interest 26,315 7,218 26,078 (1,568)
Minority interest 303 (376) 378 (706)
---------- ---------- ---------- ----------
Income (loss) from continuing
operations 26,012 7,594 25,700 (862)
Loss from discontinued operations,
net of taxes (including loss from
disposal of $6,120, net of tax
benefit of $4,114, in 2002) (B) - - - (5,911)
---------- ---------- ---------- ----------
Income (loss) before cumulative
effect of change in accounting
principle 26,012 7,594 25,700 (6,773)
Cumulative effect of change in
accounting principle (C) - - - (603,709)
---------- ---------- ---------- ----------
Net income (loss) $ 26,012 $ 7,594 $ 25,700 $ (610,482)
========== ========== ========== ==========
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------ -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) per basic share:
Income (loss) from continuing operations $ .26 $ .08 $ .26 $ (.01)
Loss from discontinued operations (B) - - - (.06)
Cumulative effect of change in
accounting principle (C) - - - (6.05)
-------- -------- -------- -------
Net income (loss) per basic share $ .26 $ .08 $ .26 $ (6.12)
======== ======== ======== =======
Net income (loss) per diluted share:
Income (loss) from continuing operations $ .26 $ .08 $ .25 $ (.01)
Loss from discontinued operations (B) - - - (.06)
Cumulative effect of change in
accounting principle (C) - - - (6.05)
-------- -------- -------- -------
Net income (loss) per diluted share $ .26 $ .08 $ .25 $ (6.12)
======== ======== ======== =======
Average number of shares outstanding:
Basic 100,329 99,921 100,142 99,786
Diluted 101,587 100,441 100,917 99,786
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES
(A) As required by Statement of Financial Accounting Standards No. 145,
"Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," the company has recorded
any loss on the early retirement of debt as a component of continuing
operations. In prior periods such losses were recorded as an
extraordinary item, net of taxes, as required by Statement of Financial
Accounting Standards No. 4. Accordingly, all prior periods have been
restated to present the losses on the early retirement of debt as
required by Statement of Financial Accounting Standards No. 145.
(B) In May 2002, the company sold substantially all of the assets of
Gates/Arrow Distributing, a business unit within the company's North
American Computer Products group that sold commodity computer products
such as printers, monitors, other peripherals, and software to
value-added resellers in North America. This business is accounted for
as a discontinued operation in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, its results have been
included in the consolidated statement of operations as a single line
item and all prior period information has been restated to reflect this
presentation.
(C) The company adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets," as of January 1, 2002. As
a result of the evaluation process, the company recorded an impairment
charge of $603.7 million ($6.05 per share on a basic and diluted basis
for the year ended December 31, 2002). In accordance with the
transitional rules, the company has recorded the impairment charge as a
cumulative effect of change in accounting principle effective with the
first quarter of 2002.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31, December 31,
2003 2002
------------ ------------
Assets
Current assets:
Cash and short-term investments $ 612,404 $ 694,092
Accounts receivable, net 1,770,690 1,378,562
Inventories 1,327,523 1,201,271
Other 59,030 59,810
---------- ----------
Total current assets 3,769,647 3,333,735
Property, plant and equipment, net 288,129 299,518
Investments in affiliated companies 36,738 32,527
Cost in excess of net assets of
companies acquired 923,256 748,368
Other assets 315,218 253,457
---------- ----------
$5,332,988 $4,667,605
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,211,724 $ 917,271
Accrued expenses 414,551 258,774
Short-term borrowings, including current
portion of long-term debt 14,349 286,348
---------- ----------
Total current liabilities 1,640,624 1,462,393
Long-term debt 2,016,627 1,807,113
Other 170,406 162,850
Shareholders' equity 1,505,331 1,235,249
---------- ----------
$5,332,988 $4,667,605
========== ==========
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
---------------------- -----------------------
2003(A) 2002 2003(B) 2002(C)
------- ---- ------- -------
Sales:
Components $1,776,111 $1,317,213 $6,419,537 $5,322,196
Computer products 704,713 573,746 2,259,776 2,067,958
---------- ---------- ---------- ----------
Consolidated $2,480,824 $1,890,959 $8,679,313 $7,390,154
========== ========== ========== ==========
Operating income:
Components $ 71,379 $ 40,004 $ 237,930 $ 183,680
Computer products 30,540 23,514 78,180 58,501
Corporate (27,688) (18,897) (132,065) (74,651)
---------- ---------- ---------- ----------
Consolidated $ 74,231 $ 44,621 $ 184,045 $ 167,530
========== ========== ========== ==========
(A) Includes a restructuring charge of $7.6 million.
(B) Includes restructuring charges totaling $38.0 million, an acquisition
indemnification charge of $13.0 million, and an integration charge of
$6.9 million.
(C) Includes a severance charge of $5.4 million.