Exhibit 99.1
Arrow Electronics Announces Sales Advance 27% Over Prior Year
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 21, 2004--Arrow Electronics,
Inc. (NYSE:ARW) today reported third quarter 2004 net income of $63.4
million ($.55 and $.52 per share on a basic and diluted basis,
respectively) on sales of $2.67 billion, compared with a net loss of
$6.2 million ($.06 per share) on sales of $2.10 billion in the third
quarter of 2003. The company's results 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
September 30, 2004 would have been $55.8 million ($.48 and $.46 per
share on a basic and diluted basis, respectively) and net income for
the quarter ended September 30, 2003 would have been $15.1 million
($.15 per share).
Consolidated third quarter 2004 operating income of $105.8
million, excluding the items impacting comparability, was up 88% over
last year's third quarter, marking the seventh consecutive quarterly
year-on-year increase. Operating income as a percentage of sales,
excluding the previously mentioned items, increased 130 basis points
year-on-year, marking the sixth consecutive year-on-year increase.
Sequentially, operating income was down 17% and operating income as a
percentage of sales decreased by 60 basis points.
"Our continued focus on operational excellence and de-levering our
balance sheet drove an almost fourfold increase in net income over
last year's third quarter and generated cash flow from operations of
$52 million," said William E. Mitchell, President and Chief Executive
Officer of Arrow, "with component sales advancing by 17% in North
America, 54% in Asia/Pacific and, after excluding the impact of
acquisitions and divestitures, 18% in Europe in local currencies. Our
worldwide computer products business grew by 31% on a reported basis
and 23% when you exclude the impact of the change in the business
model with one of our suppliers."
Worldwide components sales of $1.99 billion were up 26% from $1.58
billion in last year's third quarter and operating income as a
percentage of sales was 4.9%, up 100 basis points from last year's
third quarter. Sequentially, worldwide component sales were down 2.5%
and operating income as a percentage of sales was down 100 basis
points.
"We delivered very solid results in a choppy market resulting from
not only the traditional seasonal slowdown but also because of an
element of cautiousness and uncertainty in the components-related
supply chain," said Mr. Mitchell. "Our North American and European
component businesses posted strong levels of operating income despite
sequential sales declines of 3.8% and 5.5% in local currencies,
respectively," he added.
Sales in the Asia/Pacific region increased 4% over the second
quarter, and 54% from last year. "We have clearly stated that the
Asia/Pacific region is a priority for us, and our execution of our
customized strategies is enabling us to continue to grow at a
significant pace," said Mr. Mitchell.
Worldwide computer products sales totaled $677 million and
operating income as a percentage of sales was 4.6%, up 200 basis
points over last year's third quarter. Sequentially, worldwide
computer products sales were down 4% but operating income as a
percentage of sales was up 10 basis points.
"Our North American Computer Products business continued to excel,
posting their 13th consecutive quarter of year-over-year earnings
growth," added Mr. Mitchell.
The company's results for the third quarter of 2004 and 2003
include the items outlined below that impact their comparability:
-- As disclosed earlier in the third quarter of 2004 the company
has settled a claim against its French subsidiary Tekelec SA
("Tekelec") in respect of French value-added tax relating to
periods before Arrow owned Tekelec. Such claim was fully
reserved during the third quarter of 2003 in the amount of EUR
11.3 million ($13.0 million at the exchange rate prevailing at
the end of the third quarter of 2003 or $.13 per share).
Accordingly, the company has recorded an acquisition
indemnification credit of EUR 7.9 million ($9.7 million at the
exchange rate prevailing on August 12, 2004 or $.09 and $.08
per share on a basic and diluted basis, respectively). This
amount represents the difference between the amount previously
reserved for this claim and the settlement amount of EUR 3.4
million ($4.3 million at the exchange rate prevailing at the
end of the third quarter of 2004).
-- During the third quarter of 2004, the company repurchased an
additional $19.8 million accreted value of its zero coupon
convertible debentures due in 2021, which could have been
initially put to the company in February 2006. The related
loss on the repurchase, including the premium paid and the
write-off of related deferred financing costs, aggregated $.9
million ($.5 million net of related taxes or $.01 per share).
-- During the third quarter of 2004 a company in which Arrow has
a 5.6% ownership interest decided to raise additional capital
in order to sustain its business model. Arrow chose not to
participate in this round of financing and, as a result, the
company's ownership interests will be diluted and subordinated
to the new investment. Arrow has written down its investment
in this company as it is unlikely to be able to recover its
current net investment of $1.3 million ($.01 per share).
-- During the third quarter of 2004, in connection with its
previously announced restructurings, the company recorded
additional restructuring charges of $.4 million ($.2 million
net of related taxes).
-- During the third quarter of 2003, the company recorded
restructuring charges of $9.1 million ($6.3 million net of
related taxes or $.06 per share).
-- During the third quarter of 2003, the company paid $154.4
million to repurchase zero coupon convertible debentures due
in 2021 which could have been initially put to the company in
February 2006. The premium paid, along with the write-off of
related deferred financing costs, resulted in a charge of $3.3
million ($2.0 million net of related taxes or $.02 per share).
"I am very pleased with the performance of each of our operating
groups. Our relentless focus on operational efficiencies and customer
focused strategies continue to drive strong results," said Mr.
Mitchell. "Looking to the fourth quarter we fully expect our computer
products businesses to experience a combination of continued organic
growth and traditional seasonality. We expect the components markets
to be cautious at best."
"Based upon the information known to us today we expect fourth
quarter revenues to be between $2.75 billion and $2.85 billion.
Earnings per share on a diluted basis, excluding charges, if any, are
estimated to be in the range of $.48 to $.53," added Mr. Mitchell.
Nine-Month Results
Arrow's net income for the first nine months of 2004 was $159.8
million ($1.42 and $1.36 per share on a basic and diluted basis,
respectively) on sales of $8.09 billion, compared with a net loss of
$.3 million on sales of $6.20 billion in the first nine months of
2003.
Net income for the first nine months of 2004 includes the
aforementioned acquisition indemnification credit and the loss related
to the write down of an investment. Additionally, during the first
nine months of 2004 net income includes restructuring charges totaling
$8.0 million ($4.8 million net of related taxes or $.05 and $.04 per
share on a basic and diluted basis, respectively). Also, the company
repurchased, through a series of transactions, $250.0 million
principal amount of its 8.7% senior notes due in October 2005 and
$253.4 million accreted value of its zero coupon convertible
debentures due in 2021. As a result of these repurchases, a loss on
prepayment of debt of $31.7 million ($19.0 million net of related
taxes or $.17 and $.15 per share on a basic and diluted basis,
respectively) was recorded. Excluding these items, net income would
have been $175.1 million ($1.56 and $1.48 per share on a basic and
diluted basis, respectively) for the nine months ended September 30,
2004.
Net income for the first nine months of 2003 includes the
aforementioned acquisition indemnification charge, an integration
charge of $6.9 million ($4.8 million net of related taxes or $.05 per
share) related to the acquisition and integration of
Pioneer-Standard's IED business, restructuring charges of $30.3
million ($20.7 million net of related taxes or $.21 per share), and a
charge of $6.2 million ($3.7 million net of related taxes or $.03 per
share) related to the repurchase of $239.9 million of the company's
8.2% senior notes. Excluding these items, net income would have been
$42.0 million ($.42 per share).
Arrow Electronics is a major global provider of products,
services, and solutions to industrial and commercial users of
electronic components and computer products. 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 commercial customers through a global
network of more than 200 locations in 41 countries and territories.
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, credits, and losses that
the company believes impact the comparability of its results of
operations. These charges, credits, and losses arise out of the
company's acquisitions of other companies, the sale of property,
impairment of an investment, the company's efficiency enhancement
initiatives, and the prepayment of debt. 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, credits, 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 and net income 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 Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
--------- -------- --------- ---------
Operating income, as reported $115,047 $34,184 $340,743 $109,814
Acquisition indemnification
charge (credit) (9,676) 13,002 (9,676) 13,002
Restructuring charges 407 9,100 7,984 30,342
Integration charge - - - 6,904
--------- -------- --------- ---------
Operating income, as adjusted $105,778 $56,286 $339,051 $160,062
========= ======== ========= =========
Net income (loss), as reported $ 63,397 $(6,234) $159,781 $ (312)
Acquisition indemnification
charge (credit) (9,676) 13,002 (9,676) 13,002
Restructuring charges 175 6,325 4,756 20,732
Integration charge - - - 4,822
Loss on prepayment of debt 545 1,969 18,952 3,728
Loss on investment 1,318 - 1,318 -
--------- -------- --------- ---------
Net income, as adjusted $ 55,759 $15,062 $175,131 $ 41,972
========= ======== ========= =========
Net income (loss) per basic
share, as reported $ .55 $ (.06) $ 1.42 $ -
Acquisition indemnification
charge (credit) (.09) .13 (.09) .13
Restructuring charges - .06 .05 .21
Integration charge - - - .05
Loss on prepayment of debt .01 .02 .17 .03
Loss on investment .01 - .01 -
--------- -------- --------- ---------
Net income per basic share,
as adjusted $ .48 $ .15 $ 1.56 $ .42
========= ======== ========= =========
Net income (loss) per diluted
share, as reported* $ .52 $ (.06) $ 1.36 $ -
Acquisition indemnification
charge (credit) (.08) .13 (.08) .13
Restructuring charges - .06 .04 .21
Integration charge - - - .05
Loss on prepayment of debt .01 .02 .15 .03
Loss on investment .01 - .01 -
--------- -------- --------- ---------
Net income per diluted share,
as adjusted $ .46 $ .15 $ 1.48 $ .42
========= ======== ========= =========
* In computing net income (loss) per diluted share for the three and
nine months ended September 30, 2004, net income was increased by
$2,143 and $9,085, respectively, for interest (net of taxes)
related to the zero coupon convertible debentures which are
dilutive common stock equivalents. In addition, the diluted
weighted average number of shares outstanding for the three and
nine months ended September 30, 2004 includes 8,331 shares and
10,558 shares, respectively, related to the zero coupon
convertible debentures.
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, including statements addressing
future financial results, 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 computer products markets, changes in
relationships with key suppliers, the effects of additional actions
taken to lower costs, the ability of the company to generate
additional cash flow 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). Forward-looking statements are those
statements, which are not statements of historical fact. You can
identify these forward-looking statements by forward-looking words
such as "expects," "anticipates," "intends," "plans," "may," "will,"
"believes," "seeks," "estimates," and similar expressions.
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,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Sales $2,668,701 $2,095,245 $8,094,395 $6,198,489
----------- ----------- ----------- -----------
Costs and expenses:
Cost of products sold 2,248,538 1,751,680 6,799,978 5,164,764
Selling, general and
administrative
expenses 301,315 271,767 907,271 823,194
Depreciation and
amortization 13,070 15,512 48,095 50,469
Acquisition
indemnification
charge (credit) (9,676) 13,002 (9,676) 13,002
Restructuring charges 407 9,100 7,984 30,342
Integration charge - - - 6,904
----------- ----------- ----------- -----------
2,553,654 2,061,061 7,753,652 6,088,675
----------- ----------- ----------- -----------
Operating income 115,047 34,184 340,743 109,814
Equity in earnings of
affiliated companies 1,566 1,751 2,912 3,136
Loss on prepayment of
debt 911 3,292 31,692 6,234
Loss on investment 1,318 - 1,318 -
Interest expense, net 24,350 36,202 79,563 101,367
----------- ----------- ----------- -----------
Income (loss) before
income taxes and
minority interest 90,034 (3,559) 231,082 5,349
Provision for income
taxes 26,392 2,888 70,474 5,586
----------- ----------- ----------- -----------
Income (loss) before
minority interest 63,642 (6,447) 160,608 (237)
Minority interest 245 (213) 827 75
----------- ----------- ----------- -----------
Net income (loss) $ 63,397 $ (6,234) $ 159,781 $ (312)
=========== =========== =========== ===========
Net income (loss) per
share:
Basic $ .55 $ (.06) $ 1.42 $ -
=========== =========== =========== ===========
Diluted $ .52 $ (.06) $ 1.36 $ -
=========== =========== =========== ===========
Average number of
shares
outstanding:
Basic 115,175 100,142 112,217 100,073
Diluted 124,862 100,142 124,500 100,073
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
September December
30, 2004 31, 2003
----------- -----------
Assets
- ------
Current assets:
Cash and short-term investments $ 237,558 $ 612,404
Accounts receivable, net 1,970,624 1,770,690
Inventories 1,551,633 1,327,523
Prepaid expenses and other assets 60,126 59,030
----------- -----------
Total current assets 3,819,941 3,769,647
Property, plant and equipment, net 257,510 288,129
Investments in affiliated companies 39,523 36,738
Cost in excess of net assets of
companies acquired 945,182 923,256
Other assets 271,116 315,218
----------- -----------
Total assets $5,333,272 $5,332,988
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $1,201,462 $1,211,724
Accrued expenses 414,323 414,551
Short-term borrowings 18,961 14,349
----------- -----------
Total current liabilities 1,634,746 1,640,624
Long-term debt 1,529,585 2,016,627
Other liabilities 159,652 170,406
Shareholders' equity 2,009,289 1,505,331
----------- -----------
Total liabilities and shareholders'
equity $5,333,272 $5,332,988
=========== ===========
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,
----------------------- -----------------------
2004(A) 2003(B) 2004(C) 2003(D)
----------- ----------- ----------- -----------
Sales:
Components $1,991,625 $1,578,987 $6,068,807 $4,643,426
Computer products 677,076 516,258 2,025,588 1,555,063
----------- ----------- ----------- -----------
Consolidated $2,668,701 $2,095,245 $8,094,395 $6,198,489
=========== =========== =========== ===========
Operating income:
Components $ 98,418 $ 61,940 $ 328,740 $ 166,551
Computer products 30,918 13,349 83,230 47,640
Corporate (14,289) (41,105) (71,227) (104,377)
----------- ----------- ----------- -----------
Consolidated $ 115,047 $ 34,184 $ 340,743 $ 109,814
=========== =========== =========== ===========
(A) Includes an acquisition indemnification credit of $9.7 million and
a restructuring charge of $.4 million.
(B) Includes an acquisition indemnification charge of $13.0 million
and a restructuring charge of $9.1 million.
(C) Includes an acquisition indemnification credit of $9.7 million and
net restructuring charges of $8.0 million.
(D) Includes an acquisition indemnification charge of $13.0 million,
restructuring charges of $30.3 million, and an integration charge
of $6.9 million.
This interim report is subject to independent audit at year-end.
CONTACT: Arrow Electronics, Inc.
Ira M. Birns
Vice President and Treasurer
631-847-1657
or
Paul J. Reilly
Vice President and Chief Financial Officer
631-847-1872