Exhibit 99.1
Arrow Electronics Year-over-Year Net
Income Grows 43%; First Quarter EPS 13% Ahead of Consensus
MELVILLE, N.Y.--(BUSINESS WIRE)--April 20, 2006--Arrow
Electronics, Inc. (NYSE:ARW) today reported first quarter 2006 net
income of $81.6 million ($.68 and $.66 per share on a basic and
diluted basis, respectively) on sales of $3.19 billion, compared with
net income of $57.2 million ($.49 and $.47 per share on a basic and
diluted basis, respectively) on sales of $2.73 billion in the first
quarter of 2005. The company's results for the first quarters of 2006
and 2005 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 March 31, 2006 would have been
$84.1 million ($.70 and $.68 per share on a basic and diluted basis,
respectively) and net income for the quarter ended April 1, 2005 would
have been $58.7 million ($.50 and $.49 per share on a basic and
diluted basis, respectively). Included in the results for 2006 is $2.5
million ($1.8 million net of related taxes or $.01 per share) related
to the expensing of stock options in accordance with the provisions of
Financial Accounting Standards Board Statement No. 123 (revised 2004),
"Share Based Payment" ("FASB Statement No. 123(R)"). No such charge
was recorded in 2005. Wall Street consensus, as reported by First
Call, was $.60 on a diluted basis.
Operating income in the first quarter of 2006 and 2005 was $149.2
million and $108.5 million, respectively. Excluding the items
impacting comparability included in the reconciliation provided under
the heading "Certain Non-GAAP Financial Information," first quarter
2006 operating income would have been $150.8 million, up 36% over last
year's $110.9 million. Operating income as a percentage of sales,
excluding the previously mentioned items, increased by 60 basis points
year-over-year.
"Our performance this quarter was outstanding, further
demonstrating our consistent record of executing on the fundamentals
of our business strategy - growth, operational excellence, financial
stability, and shared leadership. We posted our 13th consecutive
quarter of year-over-year sales growth as we continued to take
advantage of opportunities in the marketplaces we serve around the
world," said William E. Mitchell, President and Chief Executive
Officer. "Operating income, excluding recent acquisitions, grew four
times faster than sales; our ability to generate additional revenue
with minimal incremental cost drove operating expenses as a percentage
of sales to a first quarter 6-year low; and return on invested capital
was at its highest level since 2000."
Worldwide components sales of $2.61 billion increased 13%
sequentially and 19% over last year, while operating income increased
18% sequentially and 43% over last year. Excluding the Ultra Source
acquisition completed in December 2005, sales increased 9%
sequentially and 13% year-over-year. "North America reached a level of
sales not seen since the first quarter of 2001; Europe posted the
highest level of sales in its history while achieving impressive
year-over-year operating income growth; and our business in
Asia/Pacific achieved record sales for a first quarter with a solid
contribution from recently acquired Ultra Source," stated Mr.
Mitchell. The company noted that as of the first quarter of this year,
the OEM Computing Solutions business, which was previously included in
its computer products segment, became a part of North American
Components given that these two businesses have overlap in their
customer bases which creates greater opportunities for selling
synergies. Prior period segment information has been adjusted to
reflect this change.
Worldwide computer products sales decreased 11% sequentially in
this seasonally weak quarter, yet increased 8% year-over-year.
Excluding the DNS acquisition completed in the fourth quarter of 2005,
sales for the Enterprise Computing Solutions business in North America
decreased 12% year-over-year. "Our computer products business in North
America posted solid earnings and returns despite some weakness in the
proprietary server market," added Mr. Mitchell. "DNS grew sales by
more than 50% when compared with their first quarter of 2005."
The company's results for the first quarter of 2006 and 2005
include the items outlined below that impact their comparability:
-- During the first quarter of 2006, the company recorded $1.5
million ($.9 million net of related taxes or $.01 per share)
of restructuring charges. Included in the restructuring
charges is approximately $900 thousand related to additional
actions the company will be taking to continue improving its
operating efficiencies. These actions are expected to generate
annual cost savings of approximately $6 million beginning in
2007 for which the company expects to incur total
restructuring charges of approximately $6 million.
-- During the first quarter of 2006, the company redeemed the
total amount outstanding of $283.2 million principal amount
($156.4 million accreted value) of its zero coupon convertible
debentures due in 2021 ("convertible debentures") and
repurchased $4.1 million principal amount of its 7% senior
notes due in January 2007. The related loss on the redemption
and repurchase, including any related premium paid, write-off
of deferred financing costs, and cost of terminating a portion
of related interest rate swaps, aggregated $2.6 million ($1.6
million net of related taxes or $.01 per share) and is
recognized as a loss on prepayment of debt.
-- During the first quarter of 2005, the company received EUR 1.5
million ($2.0 million) in full settlement of claims for
indemnification under the purchase agreement relating to the
acquisition of a French company in 2000. The net amount of the
settlement of $1.7 million ($1.3 million net of related taxes
or $.01 per share on a basic basis) was recorded as an
acquisition indemnification credit.
-- During the first quarter of 2005, the company recorded $4.0
million ($2.5 million net of related taxes or $.02 per share)
of restructuring charges primarily related to actions taken to
optimize the use of its mainframe, reduce real estate costs,
be more efficient in its distribution centers, and to be more
productive.
-- During the first quarter of 2005, the company repurchased
$13.2 million accreted value of its convertible debentures,
which could have been 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
$355 thousand ($212 thousand net of related taxes).
"Based upon the information known to us today, we believe that
sales in the upcoming quarter will be between $3.35 and $3.45
billion," said Paul J. Reilly, Senior Vice President and Chief
Financial Officer. "We anticipate continued stability in our
components businesses throughout the world will result in worldwide
components sales between $2.6 and $2.65 billion. We expect traditional
seasonal growth in our Enterprise Computing Solutions business,
resulting in worldwide computer products sales between $750 and $800
million. We anticipate earnings per share on a diluted basis,
including the impact of expensing stock options in accordance with
FASB Statement No. 123(R) estimated at approximately $.02 per share,
to be in the range of $.70 to $.74, excluding any charges. Excluding
the impact of expensing stock options, diluted earnings per share for
the second quarter are expected to increase 33% to 41% from last
year's second quarter," added Mr. Reilly. "In the second quarter of
2006, the company expects to incur pre-tax restructuring charges of
approximately $5 million."
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 nearly 600 suppliers and
more than 130,000 original equipment manufacturers,
contract manufacturers and commercial customers through a global
network of over 270 locations in 53 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 company's efficiency
enhancement initiatives and the prepayment of debt. A reconciliation
of the company's non-GAAP financial information to GAAP is 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
may use 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
----------------------
March 31, April 1,
2006 2005
---------- ----------
Operating income, as reported $ 149,233 $ 108,493
Acquisition indemnification credit - (1,672)
Restructuring charges 1,521 4,038
---------- ----------
Operating income, as adjusted $ 150,754 $ 110,859
---------- ----------
Net income, as reported $ 81,579 $ 57,191
Acquisition indemnification credit - (1,267)
Restructuring charges 920 2,533
Loss on prepayment of debt 1,558 212
---------- ----------
Net income, as adjusted $ 84,057 $ 58,669
---------- ----------
Net income per basic share, as reported $ .68 $ .49
Acquisition indemnification credit - (.01)
Restructuring charges .01 .02
Loss on prepayment of debt .01 -
---------- ----------
Net income per basic share, as adjusted $ .70 $ .50
---------- ----------
Net income per diluted share, as reported* $ .66 $ .47
Restructuring charges .01 .02
Loss on prepayment of debt .01 -
---------- ----------
Net income per diluted share, as adjusted $ .68 $ .49
---------- ----------
Effective January 1, 2006, the company adopted the provisions of
Financial Accounting Standards Board Statement No. 123 (revised 2004),
"Share Based Payment" ("FASB Statement No. 123(R)"). The company
adopted the modified prospective transition method provided for under
FASB Statement No. 123(R) and, accordingly, has not restated prior
period amounts. As a result of adopting FASB Statement No. 123(R), the
company recorded a charge of $2,460 ($1,805 net of related taxes or
$.01 per share) for the three months ended March 31, 2006 related to
the expensing of stock options. The pre- tax compensation expense is
included in selling, general and administrative expenses.
* In computing net income per diluted share for the three months
ended March 31, 2006 and April 1, 2005, net income was increased
by $524 and $1,673, respectively, for interest (net of taxes)
related to the zero coupon convertible debentures ("convertible
debentures") which are dilutive common stock equivalents. In
addition, the diluted average number of shares outstanding for the
three months ended March 31, 2006 and April 1, 2005 includes 1,883
shares and 6,508 shares, respectively, related to the convertible
debentures.
Information Relating to Forward-Looking Statements
- ---------------------------------------------------
This report includes forward-looking statements that are subject
to numerous assumptions, 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,
increased profit margin pressure, the effects of additional actions
taken to become more efficient or lower costs, and the company's
ability to generate additional cash flow. 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 of the forward-looking statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Ended
------------------------
March 31, April 1,
2006 2005
----------- -----------
Sales $3,192,463 $2,726,871
----------- -----------
Costs and expenses:
Cost of products sold 2,704,920 2,294,642
Selling, general and administrative expenses 325,828 308,843
Depreciation and amortization 10,961 12,527
Acquisition indemnification credit - (1,672)
Restructuring charges 1,521 4,038
----------- -----------
3,043,230 2,618,378
----------- -----------
Operating income 149,233 108,493
Equity in earnings of affiliated companies 945 1,078
Loss on prepayment of debt 2,605 355
Interest expense, net 23,969 24,100
----------- -----------
Income before income taxes and minority
interest 123,604 85,116
Provision for income taxes 41,653 27,744
----------- -----------
Income before minority interest 81,951 57,372
Minority interest 372 181
----------- -----------
Net income $ 81,579 $ 57,191
----------- -----------
Net income per share:
Basic $ .68 $ .49
----------- -----------
Diluted $ .66 $ .47
----------- -----------
Average number of shares outstanding:
Basic 120,609 116,212
Diluted 123,513 124,027
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 380,176 $ 580,661
Accounts receivable, net 2,392,874 2,316,932
Inventories 1,650,407 1,494,982
Prepaid expenses and other assets 149,556 124,899
------------ ------------
Total current assets 4,573,013 4,517,474
------------ ------------
Property, plant and equipment at cost:
Land 41,897 41,855
Buildings and improvements 161,241 160,012
Machinery and equipment 437,904 426,239
------------ ------------
641,042 628,106
Less: accumulated depreciation and
amortization (401,553) (392,641)
------------ ------------
Property, plant and equipment, net 239,489 235,465
------------ ------------
Investments in affiliated companies 40,227 38,959
Cost in excess of net assets of companies
acquired 1,078,980 1,053,266
Other assets 199,743 199,753
------------ ------------
Total assets $ 6,131,452 $ 6,044,917
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,713,371 $ 1,628,568
Accrued expenses 457,141 434,644
Short-term borrowings, including current
portion of long-term debt 283,288 268,666
------------ ------------
Total current liabilities 2,453,800 2,331,878
------------ ------------
Long-term debt 952,514 1,138,981
Other liabilities 204,082 201,172
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in 2006 and
2005
Issued - 121,482 and 120,286 shares in
2006 and 2005, respectively 121,482 120,286
Capital in excess of par value 897,430 861,880
Retained earnings 1,480,994 1,399,415
Foreign currency translation adjustment 36,560 13,308
------------ ------------
2,536,466 2,394,889
Less: Treasury stock (251 and 272 shares in
2006 and 2005, respectively), at
cost (6,714) (7,278)
Unamortized employee stock awards - (2,395)
Other (8,696) (12,330)
------------ ------------
Total shareholders' equity 2,521,056 2,372,886
------------ ------------
Total liabilities and shareholders' equity $ 6,131,452 $ 6,044,917
------------ ------------
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
----------------------
March 31, April 1,
2006 2005
---------- ----------
Cash flows from operating activities:
Net income $ 81,579 $ 57,191
---------- ----------
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 10,961 12,527
Accretion of discount on zero coupon
convertible debentures 876 2,797
Amortization of deferred financing costs and
discount on notes 898 972
Amortization of restricted stock and
performance awards 1,632 2,045
Amortization of employee stock options 2,460 -
Excess tax benefits from stock-based
compensation arrangements (4,053) -
Equity in earnings of affiliated companies (945) (1,078)
Deferred income taxes (915) (985)
Acquisition indemnification credit - (1,267)
Restructuring charges 920 2,533
Loss on prepayment of debt 1,558 212
Minority interest 372 181
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (56,954) (52,515)
Inventories (146,608) 56,721
Prepaid expenses and other assets (21,971) (14,749)
Accounts payable 70,646 88,898
Accrued expenses 25,552 (4,214)
Other 1,583 3,784
---------- ----------
Net cash provided by (used for) operating
activities (32,409) 153,053
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (13,086) (5,058)
Cash consideration paid for acquired
businesses (18,143) -
Purchase of short-term investments - (230,456)
Proceeds from sale of short-term investments - 389,056
Other 925 -
---------- ----------
Net cash provided by (used for) investing
activities (30,304) 153,542
---------- ----------
Cash flows from financing activities:
Change in short-term borrowings 3,844 4,495
Change in long-term debt (15,510) (486)
Repurchase of senior notes (4,268) -
Repurchase of zero coupon convertible
debentures (156,330) (13,328)
Proceeds from exercise of stock options 30,097 11,945
Excess tax benefits from stock-based
compensation arrangements 4,053 -
---------- ----------
Net cash provided by (used for) financing
activities (138,114) 2,626
---------- ----------
Effect of exchange rate changes on cash 342 (1,527)
---------- ----------
Net increase (decrease) in cash and cash
equivalents (200,485) 307,694
Cash and cash equivalents at beginning of
period 580,661 305,294
---------- ----------
Cash and cash equivalents at end of period $ 380,176 $ 612,988
---------- ----------
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
Three Months Ended
------------------------
March 31, April 1,
2006 2005
----------- -----------
Sales:
Components $2,608,909 $2,186,377
Computer products 583,554 540,494
----------- -----------
Consolidated $3,192,463 $2,726,871
----------- -----------
Operating income:
Components $ 147,183 $ 102,579
Computer products 24,006 28,852
Corporate (a) (21,956) (22,938)
----------- -----------
Consolidated $ 149,233 $ 108,493
----------- -----------
Effective January 1, 2006, the OEM Computing Solutions business,
which was previously included in the worldwide computer products
business, has been transitioned into the company's worldwide
components business to further leverage customer overlap and to take
advantage of greater opportunities for selling synergies. Prior period
segment data has been adjusted to conform with the current period
presentation.
(a) Includes restructuring charges of $1.5 million and $4.0 million
for the three months ended March 31, 2006 and April 1, 2005,
respectively. Also included is an acquisition indemnification
credit of $1.7 million for the three months ended April 1, 2005.
This interim report is subject to independent audit at year-end.
CONTACT: Arrow Electronics, Inc.
Ira M. Birns
Vice President & Treasurer
631-847-1657
or
Paul J. Reilly
Senior Vice President & Chief Financial Officer
631-847-1872
or
Media:
Jacqueline F. Strayer
Vice President, Corporate Communications
631-847-2101