Exhibit 99.1
Arrow Electronics Posts Second Quarter Results; Continues Focus On
Operating Efficiencies
MELVILLE, N.Y.--(BUSINESS WIRE)--July 24, 2003--Arrow Electronics,
Inc. (NYSE:ARW) today reported second quarter 2003 net income of $6.8
million ($.07 per share) on sales of $2.12 billion, compared with a
net loss of $6 million ($.06 per share) on sales of $1.84 billion in
last year's second quarter.
The company's results for the second quarter of 2003 and 2002
include a number of items outlined below that impact their
comparability. Excluding those items, net income for the quarter ended
June 30, 2003 would have been $16.8 million ($.17 per share) and net
income and net income per share from continuing operations in the
second quarter of 2002 would have been $3.8 million and $.04 per
share.
-- During the first quarter of 2003, the company implemented
actions to become more effectively organized in North America
and to improve its operating efficiencies, with annualized
savings of $40 million. The restructuring charge associated
with these actions totaled $11.7 million, with $6.7 million
($4.7 million net of taxes or $.05 per share) recorded in the
first quarter. The remaining $5 million ($3.4 million net of
taxes or $.03 per share) was recorded in the second quarter.
-- On May 28, 2003, the company announced a series of measures
that further enhance efficiencies, with estimated annualized
savings of $25 million. The restructuring charge associated
with these actions is estimated to total $15 million, of which
$9.6 million ($6.4 million net of taxes or $.06 per share) was
recorded in the second quarter, with the balance to be
recorded in the third quarter.
-- During the second quarter of this year, the company
repurchased $15 million of its 8.2% senior notes that mature
in the fourth quarter of 2003. The premium paid, along with
the write-off of related deferred issuance costs, resulted in
a pre-tax charge of $.4 million. Under newly-effective
accounting rules, the premium paid to repurchase a company's
debt is no longer recorded as an extraordinary charge.
-- In last year's second quarter, the company sold the
Gates/Arrow commodity computer products business and, in
accordance with Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," accounted for the transaction as a
discontinued operation. Its results were accounted for in a
single line item on the income statement. In connection with
the sale of Gates/Arrow, the company recorded a net loss of
$6.1 million. The loss consists of costs related to personnel,
surplus facilities, professional fees, and the write-down of
the asset carrying value.
-- Also included in last year's second quarter was 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.
Worldwide components revenue of $1.57 billion increased 6%
sequentially and 17% over last year's second quarter. Excluding
foreign exchange and the estimated impact of the February 2003
acquisition of Pioneer-Standard's IED business, components revenue
decreased 3.6% from the first quarter. Operating income as a
percentage of sales was 3.5%, up 10 basis points sequentially but down
20 basis points from last year's second quarter.
"Sales in our North American Components group were basically in
line with our first quarter, when restated for the IED acquisition,
which we integrated at the end of February," said William E. Mitchell,
President and Chief Executive Officer of Arrow. "The operating margin
for the group improved by over 100 basis points sequentially. We see
this as confirmation that we have a cost structure that can be
leveraged so that even modest sales growth will drive substantially
improved operating performance," he added.
Worldwide computer products sales totaled $549 million, up 12%
from the first quarter and 9% over last year's second quarter.
Operating income was 3.4% of sales, a 20 basis point sequential
improvement and 80 basis points over last year's second quarter.
"Our North American Computer Products business had another solid
quarter, with both sales and operating margin increasing," Mr.
Mitchell said. "Sales in our Enterprise Computing Solutions group were
up 22% sequentially, and each line showed increases over last year's
second quarter," he added.
As part of on-going evaluations designed to enhance the company's
operating efficiencies, several additional initiatives are being taken
that will result in a more effective and productive logistics network.
Over the next nine months, two primary distribution centers in England
will be closed, and their operations will be centralized in the newer,
state-of-the-art, pan-European facility in Venlo, the Netherlands. The
primary distribution center in Brookhaven, New York will also be
closed, and customers and suppliers will be served out of the newer,
more efficient distribution center in Reno, Nevada. The anticipated
annualized savings from these closures is approximately $5 million.
The costs associated with the closures are estimated to total $5
million and will be recorded over several quarters.
The company also announced that it will exit its PC component
distribution business serving hardware integrators and resellers in
Norway, Sweden, Denmark, and Finland. These businesses had quarterly
sales of approximately $30 million and were running at an estimated
annualized loss of $4 million. The anticipated costs associated with
the closure of these businesses is estimated to be $5 million.
"We must continue to identify opportunities to be more efficient,
and we will continue to do so," stated Mr. Mitchell. "This is
management's on-going responsibility, whether sales are increasing or
decreasing," he added.
"Though visibility remains very limited, we continue to believe
that we are bouncing along the bottom of a very extended industry-wide
downturn," said Mr. Mitchell. "While we cannot predict future
financial performance with any degree of confidence, the realities are
that our components businesses around the world continue to report a
high level of 'turns' business and relatively flat demand and both our
computer products and European businesses are entering a seasonally
weak third quarter. We will continue to manage the business as
efficiently as we can, but the fact is that we do not yet see any
evidence of a sustained upturn in our industry," he added.
Six-Month Results
Arrow's net income for the first six months of 2003 was $5.9
million ($.06 per share) on sales of $4.1 billion, compared with a net
loss of $607 million ($6.09 and $5.99 per share on a basic and diluted
basis, respectively) on sales of $3.7 billion in the first six months
of 2002.
Net income for the first six months of 2003 includes the
aforementioned restructuring charges as well as 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 $2.9 million ($1.8 million net of taxes or $.02 per
share) related to the repurchase of $85 million of the company's 8.2%
senior notes. Excluding these items, net income was $27 million ($.27
per share).
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 ($6.06 and $5.96 per share on a
basic and diluted basis, respectively), which has been recorded as a
cumulative effect of a change in accounting principle. Excluding the
aforementioned loss from discontinued operations ($5.9 million net of
taxes or $.06 per share), severance charges, and cumulative effect of
the change in accounting principle, net income from continuing
operations for the first six months of 2002 was $5.9 million ($.06 per
share).
Arrow Electronics is one of the world's largest distributors of
electronic components and computer products and a leading provider of
services to the electronics industry. Headquartered in Melville, New
York, Arrow serves as a supply channel partner for more than 600
suppliers and over 150,000 original equipment manufacturers, contract
manufacturers, and commercial customers through more than 190 sales
facilities and 21 distribution centers in 40 countries. Detailed
information about Arrow's operations can be found at www.arrow.com.
Pro Forma Results
In addition to disclosing results that are determined in
accordance with Generally Accepted Accounting Principles (GAAP), Arrow
also discloses pro forma or non-GAAP results of operations that
exclude certain items. Arrow discloses such pro forma information in
order to reflect underlying operating performance and to permit
shareholders and other readers to better assess the company's
operating results. Such information is provided as a complement to
results provided in accordance with GAAP.
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 Six Months Ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- -----
Sales $2,123,139 $ 1,843,317 $4,103,244 $3,687,856
----------- ----------- ---------- -----------
Costs and expenses:
Cost of products sold 1,768,036 1,523,729 3,413,084 3,053,736
Selling, general and
administrative
expenses 281,651 257,158 551,427 509,348
Depreciation and
amortization 18,045 16,639 34,957 34,310
Restructuring charges 14,552 - 21,242 -
Integration charge - - 6,904 -
Severance charge - 5,375 - 5,375
----------- ----------- ---------- -----------
2,082,284 1,802,901 4,027,614 3,602,769
----------- ----------- ---------- -----------
Operating income 40,855 40,416 75,630 85,087
Equity in earnings of
affiliated companies 1,070 813 1,385 966
Loss on prepayment of debt 390 - 2,942 -
Interest expense 31,869 40,830 65,165 82,072
----------- ----------- ---------- -----------
Income before income
taxes and minority interest 9,666 399 8,908 3,981
Provision for income taxes 2,653 33 2,698 1,404
----------- ----------- ---------- -----------
Income before minority
interest 7,013 366 6,210 2,577
Minority interest 186 (210) 288 (84)
----------- ----------- ---------- -----------
Income from continuing
operations 6,827 576 5,922 2,661
Loss from discontinued
operations, net of taxes
(including loss from
disposal of $6,120, net
of tax benefit of $4,114)(A) - (6,610) - (5,911)
----------- ----------- ---------- -----------
Income (loss) before
cumulative effect of
change in accounting
principle 6,827 (6,034) 5,922 (3,250)
Cumulative effect of
change in accounting
principle (B) - - - (603,709)
----------- ----------- ---------- -----------
Net income (loss) $ 6,827 $ (6,034) $ 5,922 $ (606,959)
=========== ============ ========= ===========
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) per basic
share:
Income from continuing
operations $ .07 $ .01 $ .06 $ .03
Loss from discontinued
operations (A) - (.07) - (.06)
Cumulative effect of change
in accounting principle (B) - - - (6.06)
------ --------- --------- ----------
Net income (loss) per basic
share $ .07 $ (.06) $ .06 $ (6.09)
======= ========== ========= ==========
Net income (loss) per
diluted share:
Income from continuing
operations $ .07 $ .01 $ .06 $ .03
Loss from discontinued
operations (A) - (.07) - (.06)
Cumulative effect of change
in accounting principle (B) - - - (5.96)
------ --------- --------- ----------
Net income (loss) per
diluted share $ .07 $ (.06) $ .06 $ (5.99)
======= ========== ========= ==========
Average number of shares
outstanding:
Basic 100,127 99,813 100,036 99,667
Diluted 100,980 101,019 100,744 101,283
See accompanying notes.
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
NOTES
(A) 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.
(B) 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 ($6.06 and $5.96 per share on a
basic and diluted basis, respectively) for the six months ended June
30, 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)
June 30, December 31,
2003 2002
--------- ------------
Assets
Current assets:
Cash and short-term investments $ 725,582 $ 694,092
Accounts receivable, net 1,593,751 1,378,562
Inventories 1,386,687 1,201,271
Other 53,956 59,810
----------- ------------
Total current assets 3,759,976 3,333,735
Property, plant and equipment, net 290,523 299,518
Investments in affiliated companies 35,420 32,527
Cost in excess of net assets of companies
acquired, net of amortization 865,581 748,368
Other assets 276,980 253,457
----------- ------------
$5,228,480 $4,667,605
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,009,345 $ 917,271
Accrued expenses 328,099 258,774
Short-term borrowings, including
current portion of long-term debt 202,819 286,348
----------- ------------
Total current liabilities 1,540,263 1,462,393
Long-term debt 2,174,621 1,807,113
Other 166,579 162,850
Shareholders' equity 1,347,017 1,235,249
----------- ------------
$5,228,480 $4,667,605
=========== ============
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
2003(A) 2002(B) 2003(C) 2002(B)
-------- -------- ------- -------
Sales:
Components $ 1,574,148 $1,340,379 $3,064,439 $2,689,646
Computer products 548,991 502,938 1,038,805 998,210
----------- ---------- ---------- -----------
Consolidated $ 2,123,139 $1,843,317 $4,103,244 $3,687,856
=========== ========== ========== ===========
Operating income:
Components $ 55,214 $49,534 $ 104,749 $99,385
Computer products 18,675 12,898 34,291 24,654
Corporate (33,034) (22,016) (63,410) (38,952)
----------- ---------- ---------- -----------
Consolidated $ 40,855 $40,416 $ 75,630 $85,087
=========== ========== ========= ===========
(A) Includes a restructuring charge of $14.6 million for the three
months ended June 30, 2003.
(B) Includes a severance charge of $5.4 million for the three and
six months ended June 30, 2002.
(C) Includes restructuring charges of $21.2 million and an integration
charge of $6.9 million related to the acquisition and integration
of the Industrial Electronics Distribution business of
Pioneer-Standard Electronics, Inc. for the six months ended June
30, 2003.
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
EARNINGS RECONCILIATION
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
Net income (loss),
as reported $6,827 $(6,034) $5,922 $(606,959)
Restructuring charges, net
of taxes 9,734 - 14,407 -
Integration charge,
net of taxes - - 4,822 -
Severance charge,
net of taxes - 3,214 - 3,214
Loss on prepayment of debt,
net of taxes 233 - 1,759 -
Loss from discontinued
operations, net of taxes - 6,610 - 5,911
Cumulative effect of change
in accounting principle - - - 603,709
-------- --------- --------- ----------
Net income, as adjusted $16,794 $3,790 $ 26,910 $ 5,875
======== ========= ========= ==========
Net income (loss) per diluted
share, as reported $ .07 $(.06) $ .06 $(5.99)
Restructuring charges,
net of taxes .10 - .14 -
Integration charge, net
of taxes - - .05 -
Severance charge, net of
taxes - .03 - .03
Loss on prepayment of
debt, net of taxes - - .02 -
Loss from discontinued
operations, net of taxes - .07 - .06
Cumulative effect of change
in accounting principle - - - 5.96
-------- --------- --------- ----------
Net income per diluted share,
as adjusted $ .17 $.04 $ .27 $.06
======== ========= ========= ==========
CONTACT: Arrow Electronics
Robert E. Klatell
Executive Vice President
631-847-1830
or
Eileen M. O'Connor
Vice President, Investor Relations
631-847-5740