Exhibit 99.1
Arrow Electronics Posts Strong Third Quarter Operating Results;
Operating Efficiencies Evident in Results
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 23, 2003--Arrow Electronics,
Inc. (NYSE:ARW) today reported a third quarter 2003 net loss of $6.2
million ($.06 per share) on sales of $2.10 billion, compared with a
net loss of $11.1 million ($.11 per share) on sales of $1.81 billion
in last year's third quarter. The company's results for the third
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 September 30, 2003 would have been $15.1 million ($.15
per share) and net income in the third quarter of 2002 would have been
$.5 million ($.01 per share).
The company noted that, as had been previously disclosed, third
quarter profit was reduced by $4.7 million ($2.9 million net of taxes
or $.03 per share) as a result of the issuance in June 2003 of $350
million of 6.875% 10 year senior notes, the proceeds of which were
used to repay $192.0 million of 8.2% senior notes maturing on October
1, 2003 and to pay, prior to maturity, $154.4 million for the zero
coupon bonds as discussed below.
"We are encouraged by our solid operating performance in what is
traditionally a seasonally weak quarter," said William E. Mitchell,
President and Chief Executive Officer of Arrow, "as we continue to
execute on our initiatives focused on enhancing operating
efficiencies. Operating income as a percentage of sales increased
sequentially for the second straight quarter. Additionally, we
generated over $105 million in free cash flow and took further steps
to strengthen our balance sheet by once again purchasing debt prior to
maturity," he added.
Worldwide components revenue of $1.58 billion were at the same
level as the second quarter and increased 20% over last year's third
quarter. Operating income as a percentage of sales was 3.9%, up 40
basis points sequentially and 50 basis points from last year's third
quarter.
"Sales in our North American Components group were up 6%
sequentially, offsetting the seasonal decline in Europe as a result of
the extended summer holidays and up 26% over last year," said Mr.
Mitchell. "Both operating income dollars and operating income as a
percentage of sales were the highest we've seen in nine quarters,
serving as affirmation that the strategic initiatives we have launched
have been successful and that we have a cost structure in place that
can be leveraged to provide substantially improved operating
performance even on modest sales growth," he added.
Worldwide computer products sales totaled $516.3 million, down 6%
from the seasonally strong second quarter, but up 4% over last year.
Excluding the impact of the computer related business divested in
Northern Europe, sales declined by 3% from the June quarter. Operating
income as a percentage of sales decreased by 80 basis points
sequentially, but increased by 50 basis points from last year.
"Our North American Computer Products group experienced
year-over-year sales growth for the third sequential quarter," Mr.
Mitchell said, "though they were impacted by the traditional seasonal
sales decline from the second quarter. Notably, the group experienced
year-over-year growth in operating income dollars as well as margin
for the ninth sequential quarter," he added.
"We remain committed to continuously identifying and evaluating
opportunities to be more efficient while ensuring that we are well
positioned to benefit from the inevitable cyclical upturn," said Mr.
Mitchell. "Looking forward, visibility remains limited, customer
ordering patterns remain fairly consistent with prior quarters, and
product, in general, remains readily available."
The company's results for the third quarter of 2003 and 2002
include a number of items outlined below that impact their
comparability:
-- Throughout 2003, the company has implemented actions to become
more effectively organized and to improve its operating
efficiencies, with targeted annual savings of $75 million. The
estimated restructuring charges associated with these actions
total $38.5 million, of which $21.2 million ($14.4 million net
of taxes or $.14 per share) was recorded through June 30, 2003
and $9.1 million ($6.3 million net of taxes or $.06 per share)
was recorded in the third quarter of 2003. It is anticipated
that the remaining $8.2 million will be recorded over the next
several quarters.
-- During the third quarter of 2003, the company paid $154.4
million to repurchase zero coupon bonds that may initially be
put to the company in February 2006. The repurchase of these
bonds resulted in a charge of $3.3 million ($2.0 million net
of taxes or $.02 per share). In last year's third quarter, the
company repurchased $250.0 million of its 6.45% senior notes
due in November 2003 and $57.5 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 $18.8 million ($11.6 million net of taxes or $.11
per share). Under newly-effective accounting rules, the
premium paid to repurchase a company's debt is no longer
recorded as an extraordinary charge, and as such, all prior
periods have been restated.
-- In April 2000, the company purchased Tekelec Europe SA
("Tekelec"), a French company, from Tekelec Airtronic SA
("Airtronic") and certain other selling shareholders. Pursuant
to the share purchase agreement, Airtronic agreed to indemnify
the company against certain liabilities. Since the closing of
the acquisition, Tekelec has received (i) claims by the French
tax authorities relating to alleged fraudulent activities
intended to avoid the payment of value-added tax in respect of
periods prior to closing in the amount of EUR 11.3 million
($13.0 million at the current exchange rate), including
penalties and interest (the "VAT Matter"); (ii) a product
liability claim in the amount of EUR 11.3 million ($13.0
million); and (iii) claims for damages from certain former
employees of Tekelec for wrongful dismissal or additional
compensation in the amount of EUR .5 million ($.5 million).
Tekelec has notified Airtronic of these claims and invoked its
right to indemnification under the purchase agreement.
The VAT Matter is currently the subject of administrative
proceedings in France, and Airtronic has elected to assume the defense
of this claim, in accordance with the terms of the purchase agreement,
and has asserted certain defenses to the claim. In September 2003, the
French courts confirmed the criminal conviction of the son of the
former president of Airtronic, who was an employee of Tekelec prior to
the acquisition, for tax fraud involving conduct similar in part to
that alleged in connection with the tax claim against Tekelec.
The product liability claim is subject to French legal proceedings
under which separate determinations are made as to whether the
products were defective and the amount of damages sustained by the
purchaser. The manufacturer of the product is also a party to these
proceedings. Arrow believes that it has valid defenses to this claim
and intends to vigorously defend these proceedings.
During 2003, judgments were rendered in favor of the former
employees and Tekelec, while appealing, has been ordered to pay
damages in the amount of EUR .4 million ($.4 million). This amount has
previously been accrued by the company in connection with the
accounting for the acquisition of Tekelec. Tekelec has demanded
payment of this amount from Airtronic and received in response a
letter, dated October 8, 2003, asserting that the indemnification
provisions of the purchase agreement are not enforceable. The company
has been advised by counsel that the indemnification provisions are
enforceable and intends to pursue its rights for indemnification
vigorously.
Airtronic, a privately held French company, has recently obtained
an extension until December 31, 2003 to file its 2002 financial
statements. Consequently, no current financial information about
Airtronic is available. In light of the company's current inability to
assess Airtronic's ability to fulfill its obligations under the
indemnity with respect to the VAT Matter, an acquisition
indemnification charge of $13.0 million ($.13 per share) has been
recognized.
Nine Month Results
Arrow's net loss for the first nine months of 2003 was $.3 million
on sales of $6.20 billion, compared with a net loss of $618.1 million
($6.20 and $6.11 per share on a basic and diluted basis, respectively)
on sales of $5.50 billion in the first nine months of 2002.
Net income for the first nine months of 2003 includes the
aforementioned restructuring charges and acquisition indemnification
charge, 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 $6.2 million ($3.7
million net of taxes or $.03 per share) related to the repurchase of
$239.9 million of the company's debt. Excluding these items, net
income would have been $42.0 million ($.42 per share) for the nine
months ended September 30, 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 and $5.97 per share on a
basic and diluted basis, respectively) for the nine months ended
September 30, 2002, which has been recorded as a cumulative effect of
a change in accounting principle. In last year's second quarter, 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, including the loss on the sale of Gates/Arrow,
was accounted for in a single line item on the income statement. Also
included in last year's results 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.
Excluding the aforementioned loss from discontinued operations,
severance charge, loss on the prepayment of debt, and the cumulative
effect of change in accounting principle, net income for the first
nine months of 2002 would have been $6.4 million ($.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.
CONTACT: Arrow Electronics, Inc.
Robert E. Klatell, 631-847-1830
Executive Vice President
or
Eileen M. O'Connor, 631-847-5740
Vice President, Investor Relations
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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Sales $2,095,245 $1,811,339 $6,198,489 $5,499,195
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 1,751,680 1,502,717 5,164,764 4,556,453
Selling, general and
administrative
expenses 271,767 254,610 823,194 763,958
Depreciation and
amortization 15,512 16,190 50,469 50,500
Acquisition
indemnification
charge 13,002 - 13,002 -
Restructuring charges 9,100 - 30,342 -
Integration charge - - 6,904 -
Severance charge - - - 5,375
---------- ---------- ---------- ----------
2,061,061 1,773,517 6,088,675 5,376,286
---------- ---------- ---------- ----------
Operating income 34,184 37,822 109,814 122,909
Equity in earnings of
affiliated companies 1,751 1,000 3,136 1,966
Loss on prepayment of
debt (A) 3,292 18,776 6,234 18,776
Interest expense, net 36,202 38,373 101,367 120,445
---------- ---------- ---------- ----------
Income (loss) before
income taxes and
minority interest (3,559) (18,327) 5,349 (14,346)
Provision for (benefit
from) income taxes 2,888 (6,964) 5,586 (5,560)
---------- ---------- ---------- ----------
Loss before minority
interest (6,447) (11,363) (237) (8,786)
Minority interest (213) (246) 75 (330)
---------- ---------- ---------- ----------
Loss from continuing
operations (6,234) (11,117) (312) (8,456)
Loss from discontinued
operations, net of taxes
(including loss from
disposal of $6,120, net
of tax benefit of
$4,114)(B) - - - (5,911)
---------- ---------- ---------- ----------
Loss before cumulative
effect of change in
accounting principle (6,234) (11,117) (312) (14,367)
Cumulative effect of
change in accounting
principle (C) - - - (603,709)
---------- ---------- ---------- ----------
Net loss $ (6,234) $ (11,117) $ (312) $ (618,076)
========== ========== ========== ==========
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss per basic share:
Loss from continuing
operations $ (.06) $ (.11) $ - $ (.09)
Loss from discontinued
operations (B) - - - (.06)
Cumulative effect of change
in accounting principle (C) - - - (6.05)
-------- -------- ------- --------
Net loss per basic share $ (.06) $ (.11) $ - $ (6.20)
======== ======== ======= ========
Net loss per diluted share:
Loss from continuing
operations $ (.06) $ (.11) $ - $ (.08)
Loss from discontinued
operations (B) - - - (.06)
Cumulative effect of change
in accounting principle (C) - - - (5.97)
-------- -------- ------- --------
Net loss per diluted share $ (.06) $ (.11) $ - $ (6.11)
======== ======== ======= ========
Average number of shares
outstanding:
Basic 100,142 99,874 100,073 99,737
Diluted 100,142 100,504 100,073 101,185
See accompanying notes.
This interim report is subject to independent audit at year-end.
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 and $5.97 per share
on a basic and diluted basis, respectively, for the nine months
ended September 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)
September 30, December 31,
2003 2002
------------- ------------
Assets
Current assets:
Cash and short-term investments $ 677,948 $ 694,092
Accounts receivable, net 1,561,315 1,378,562
Inventories 1,296,705 1,201,271
Other 56,739 59,810
------------- ------------
Total current assets 3,592,707 3,333,735
Property, plant and equipment, net 284,352 299,518
Investments in affiliated companies 35,081 32,527
Cost in excess of net assets of
companies acquired 872,277 748,368
Other assets 251,938 253,457
------------- ------------
$ 5,036,355 $ 4,667,605
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 951,776 $ 917,271
Accrued expenses 330,747 258,774
Short-term borrowings, including current
portion of long-term debt 203,210 286,348
------------- ------------
Total current liabilities 1,485,733 1,462,393
Long-term debt 2,026,335 1,807,113
Other 170,609 162,850
Shareholders' equity 1,353,678 1,235,249
------------- ------------
$ 5,036,355 $ 4,667,605
============= ============
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2003(A) 2002 2003(B) 2002(C)
----------- ----------- ----------- -----------
Sales:
Components $1,578,987 $1,315,337 $4,643,426 $4,004,983
Computer products 516,258 496,002 1,555,063 1,494,212
----------- ----------- ----------- -----------
Consolidated $2,095,245 $1,811,339 $6,198,489 $5,499,195
=========== =========== =========== ===========
Operating income:
Components $ 61,940 $ 44,291 $ 166,551 $ 143,676
Computer products 13,349 10,333 47,640 34,987
Corporate (41,105) (16,802) (104,377) (55,754)
----------- ----------- ----------- -----------
Consolidated $ 34,184 $ 37,822 $ 109,814 $ 122,909
=========== =========== =========== ===========
(A) Includes a restructuring charge of $9.1 million and an acquisition
indemnification charge of $13.0 million for the three months ended
September 30, 2003.
(B) Includes restructuring charges totaling $30.3 million, an
acquisition indemnification charge of $13.0 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 nine months ended
September 30, 2003.
(C) Includes a severance charge of $5.4 million for the nine months
ended September 30, 2002.
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 Nine Months Ended
September 30, September 30,
------------------ -------------------
2003 2002 2003 2002
-------- --------- -------- ----------
Net loss, as reported $(6,234) $(11,117) $ (312) $(618,076)
Acquisition
indemnification charge 13,002 - 13,002 -
Restructuring charges,
net of taxes 6,325 - 20,732 -
Integration charge, net
of taxes - - 4,822 -
Severance charge, net
of taxes - - - 3,214
Loss on prepayment of
debt, net of taxes 1,969 11,641 3,728 11,641
Loss from discontinued
operations, net of taxes - - - 5,911
Cumulative effect of change
in accounting principle - - - 603,709
-------- --------- -------- ----------
Net income, as adjusted $15,062 $ 524 $41,972 $ 6,399
======== ========= ======== ==========
Net loss per diluted share,
as reported $ (.06) $ (.11) $ - $ (6.11)
Acquisition
indemnification charge .l3 - .13 -
Restructuring charges,
net of taxes .06 - .21 -
Integration charge, net
of taxes - - .05 -
Severance charge, net
of taxes - - - .03
Loss on prepayment of
debt, net of taxes .02 .12 .03 .11
Loss from discontinued
operations, net of taxes - - - .06
Cumulative effect of change
in accounting principle - - - 5.97
-------- --------- -------- ----------
Net income per diluted share,
as adjusted $ .15 $ .01 $ .42 $ .06
======== ========= ======== ==========