Exhibit 99.1
Arrow Electronics' Net Income Soars 35% on Strong Growth
-- Revenues Advance 27% to Record Third Quarter Level --
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 25, 2006--Arrow Electronics,
Inc. (NYSE:ARW) today reported third quarter 2006 net income of $85.9
million ($.70 per share on both a basic and diluted basis) on sales of
$3.45 billion, compared with net income of $63.5 million ($.54 and
$.52 per share on a basic and diluted basis, respectively) on sales of
$2.71 billion in the third quarter of 2005. Consolidated sales grew
27% over the third quarter of 2005 or 17% on a pro forma basis,
including Ultra Source Technology Corp. and DNSint.com AG in the third
quarter of 2005. The company's results for the third 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 September 30, 2006 would have
been $87.0 million ($.71 per share on both a basic and diluted basis)
and net income for the quarter ended September 30, 2005 would have
been $63.8 million ($.54 and $.52 per share on a basic and diluted
basis, respectively). Included in the results for the third quarter of
2006 is $3.4 million ($2.2 million net of related taxes or $.02 per
share on both a basic and diluted basis) 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.
Operating income in the third quarter of 2006 and 2005 was $152.5
million and $118.2 million, respectively. Excluding the items
impacting comparability included in the reconciliation provided under
the heading "Certain Non-GAAP Financial Information," third quarter
2006 operating income would have been $154.3 million, up 30% over last
year's $118.4 million. Operating income as a percentage of sales,
excluding the previously mentioned items and the impact of
acquisitions, increased by 50 basis points year-over-year.
"We again delivered strong results across all of our businesses,
further demonstrating our consistent record of executing on the
fundamentals of our business strategy," said William E. Mitchell,
Chairman, President and Chief Executive Officer. "Sales reached a
record third quarter level and operating income, earnings per share,
and return on invested capital showed strong year-over-year
improvement for the fifth consecutive quarter."
Worldwide components sales and operating income both increased 29%
over last year. Sales on a pro forma basis, including Ultra Source
Technology Corp. in the third quarter of 2005, increased 20%
year-over-year. "Each of our components businesses around the world
achieved good year-over-year increases in sales and operating income,"
stated Mr. Mitchell. "Sales in North America and Europe were at record
third quarter levels, and Asia/Pacific sales broke records again with
significant improvements in profitability," added Mr. Mitchell.
Worldwide computer products sales increased 22% year-over-year,
while operating income increased 8% over last year. Sales for the
Enterprise Computing Solutions business on a pro forma basis,
including DNSint.com AG in the third quarter of 2005, increased 7%
year-over-year. "Our enterprise computing business continued to
demonstrate strong profitability and returns. Growth was driven by
strong performance in storage and industry standard servers in North
America, and software in our European enterprise business," said
Mr. Mitchell.
The company's results for the third quarter of 2006 and 2005
include the items outlined below that impact their comparability:
-- During the third quarter of 2006, the company recorded $1.8
million ($1.1 million net of related taxes or $.01 per share
on both a basic and diluted basis) of restructuring charges
related to actions the company has committed to take in an
ongoing effort to improve its operating efficiencies, which
include $.4 million related to previously announced actions.
These actions, in the aggregate, are expected to generate
annual cost savings of approximately $10 million beginning in
2007. The estimated restructuring charges to be recorded over
the next several quarters associated with these actions total
approximately $1 to $3 million.
-- During the third quarter of 2005, in connection with
previously-announced restructuring initiatives, the company
recorded a net charge of $.1 million (a gain of $.4 million
net of related taxes or $.01 per share on both a basic and
diluted basis). Included in the restructuring charge is a gain
on the sale of a property that, because of existing capital
tax loss carry-forwards, will not be taxed.
-- During the third quarter of 2005, the company repurchased,
through a series of transactions, $57.8 million accreted value
of its zero coupon convertible debentures due in 2021, which
could have been put to the company in February 2006
("convertible debentures"). The related loss on the
repurchases, including the premium paid and the write-off of
related deferred financing costs, aggregated $1.1 million ($.7
million net of related taxes or $.01 per share on both a basic
and diluted basis).
"Based upon the information known to us today, we believe that
sales in the fourth quarter will be between $3.425 and $3.625
billion," said Paul J. Reilly, Senior Vice President and Chief
Financial Officer. "We expect continued stability in our worldwide
components businesses, driven by our core small and mid-sized customer
base. Due to elevated inventory levels in our large customer segment,
growth is expected to be somewhat slower than the accelerated rates we
experienced in North America and Europe during the first half of 2006,
resulting in worldwide components sales between $2.675 and $2.8
billion. We anticipate continued growth in storage, security and
infrastructure software, and industry standard servers while we expect
the traditional seasonal growth in our enterprise business to be
tempered by the continued weakness in the proprietary server market,
resulting in worldwide computer products sales between $750 and $825
million. 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, are expected to be
in the range of $.71 to $.75, excluding any charges. Excluding the
impact of restructuring and other charges, and the expensing of stock
options, diluted earnings per share for the fourth quarter are
expected to increase 16% to 22% from last year's fourth quarter,"
added Mr. Reilly.
NINE MONTH RESULTS
Arrow's net income for the first nine months of 2006 was $260.3
million ($2.14 and $2.12 per share on a basic and diluted basis,
respectively) on sales of $10.08 billion, compared with net income of
$179.2 million ($1.53 and $1.48 per share on a basic and diluted
basis, respectively) on sales of $8.20 billion in the first nine
months of 2005. Included in the results for the first nine months of
2006 is $9.6 million ($6.2 million net of related taxes or $.05 per
share on both a basic and diluted basis) related to the expensing of
stock options in accordance with the provisions of FASB Statement
No. 123(R).
Net income for the first nine months of 2006 includes
restructuring charges of $6.4 million ($3.9 million net of related
taxes or $.03 per share on both a basic and diluted basis) related to
the aforementioned actions to continue improving its operating
efficiencies and a loss on prepayment of debt of $2.6 million ($1.6
million net of related taxes or $.01 per share on both a basic and
diluted basis) on the redemption of the total amount outstanding of
$283.2 million principal amount ($156.4 million accreted value) of its
convertible debentures and on the repurchase of $4.1 million principal
amount of its 7% Senior Notes due in January 2007. Excluding these
items, net income would have been $265.7 million ($2.19 and $2.16 per
share on a basic and diluted basis, respectively) for the first nine
months of 2006.
Net income for the first nine months of 2005 includes
restructuring charges of $9.0 million ($5.0 million net of related
taxes or $.03 per share on both a basic and diluted basis), an
acquisition indemnification credit of $1.7 million ($1.3 million net
of related taxes or $.01 per share on a basic basis), a loss on the
prepayment of debt of $3.2 million ($1.9 million net of related taxes
or $.02 and $.01 per share on a basic and diluted basis, respectively)
and a write-down of an investment of $3.0 million ($.03 per share on
both a basic and diluted basis) related to an other-than-temporary
decline in the fair value of an investment in accordance with
Financial Accounting Standards Board Statement No. 115 and Emerging
Issues Task Force No. 03-1. Excluding these items, net income would
have been $187.9 million ($1.60 and $1.55 per share on a basic and
diluted basis, respectively) for the first nine months of 2005.
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 efficiency enhancement initiatives, the company's
acquisitions of other companies, the prepayment of debt, and the
write-down of an investment. 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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Operating income, as
reported $152,472 $118,238 $464,846 $345,489
Restructuring charges 1,779 112 6,418 8,997
Acquisition
indemnification credit - - - (1,672)
--------- --------- --------- ---------
Operating income, as
adjusted $154,251 $118,350 $471,264 $352,814
--------- --------- --------- ---------
Net income, as reported $ 85,918 $ 63,523 $260,260 $179,163
Restructuring charges
(gain) 1,101 (442) 3,915 5,016
Acquisition
indemnification credit - - - (1,267)
Loss on prepayment of
debt - 672 1,558 1,919
Write-down of investment - - - 3,019
--------- --------- --------- ---------
Net income, as adjusted $ 87,019 $ 63,753 $265,733 $187,850
--------- --------- --------- ---------
Net income per basic share,
as reported $ .70 $ .54 $ 2.14 $ 1.53
Restructuring charges
(gain) .01 (.01) .03 .03
Acquisition
indemnification credit - - - (.01)
Loss on prepayment of
debt - .01 .01 .02
Write-down of investment - - - .03
--------- --------- --------- ---------
Net income per basic share,
as adjusted $ .71 $ .54 $ 2.19 $ 1.60
--------- --------- --------- ---------
Net income per diluted
share, as reported* $ .70 $ .52 $ 2.12 $ 1.48
Restructuring charges
(gain) .01 (.01) .03 .03
Loss on prepayment of
debt - .01 .01 .01
Write-down of investment - - - .03
--------- --------- --------- ---------
Net income per diluted
share, as adjusted $ .71 $ .52 $ 2.16 $ 1.55
--------- --------- --------- ---------
The sum of the components for basic and diluted net income per share,
as adjusted, may not agree to totals, as presented due to rounding.
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 $3,403
($2,239 net of related taxes or $.02 per share on both a basic and
diluted basis) and $9,559 ($6,175 net of related taxes or $.05 per
share on both a basic and diluted basis) for the third quarter and
first nine months of 2006, respectively, 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 first nine months
of 2006, net income was increased by $524 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
first nine months of 2006 includes 623 shares related to the
convertible debentures.
In computing net income per diluted share for the third quarter and
first nine months of 2005, net income was increased by $1,059 and
$4,285, respectively, for interest (net of taxes) related to the
convertible debentures which are dilutive common stock equivalents.
In addition, the diluted average number of shares outstanding for
the third quarter and first nine months of 2005 includes 3,844
shares and 5,412 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, the company's ongoing planned implementation of its new
global financial system and new enterprise resource planning system,
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 Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2006 2005 2006 2005
----------- ----------- ------------ -----------
Sales $3,454,297 $2,710,168 $10,083,792 $8,204,586
----------- ----------- ------------ -----------
Costs and
expenses:
Cost of products
sold 2,946,214 2,290,912 8,563,742 6,911,768
Selling, general
and
administrative
expenses 342,951 290,376 1,015,607 903,454
Depreciation and
amortization 10,881 10,530 33,179 36,550
Restructuring
charges 1,779 112 6,418 8,997
Acquisition
indemnification
credit - - - (1,672)
----------- ----------- ------------ -----------
3,301,825 2,591,930 9,618,946 7,859,097
----------- ----------- ------------ -----------
Operating income 152,472 118,238 464,846 345,489
Equity in earnings
of affiliated
companies 1,550 1,373 3,540 3,013
Loss on prepayment
of debt - 1,123 2,605 3,209
Write-down of
investment - - - 3,019
Interest expense,
net 25,869 22,291 73,831 70,766
----------- ----------- ------------ -----------
Income before
income taxes and
minority interest 128,153 96,197 391,950 271,508
Provision for
income taxes 42,097 32,399 130,834 91,770
----------- ----------- ------------ -----------
Income before
minority interest 86,056 63,798 261,116 179,738
Minority interest 138 275 856 575
----------- ----------- ------------ -----------
Net income $ 85,918 $ 63,523 $ 260,260 $ 179,163
----------- ----------- ------------ -----------
Net income per
share:
Basic $ .70 $ .54 $ 2.14 $ 1.53
----------- ----------- ------------ -----------
Diluted $ .70 $ .52 $ 2.12 $ 1.48
----------- ----------- ------------ -----------
Average number of
shares
outstanding:
Basic 122,053 118,594 121,493 117,265
Diluted 122,850 124,162 123,179 124,010
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
September 30, December 31,
2006 2005
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 252,851 $ 580,661
Accounts receivable, net 2,637,248 2,316,932
Inventories 1,628,486 1,494,982
Prepaid expenses and other assets 141,234 124,899
------------- ------------
Total current assets 4,659,819 4,517,474
------------- ------------
Property, plant and equipment, at cost:
Land 41,867 41,855
Buildings and improvements 163,529 160,012
Machinery and equipment 462,455 426,239
------------- ------------
667,851 628,106
Less:Accumulated depreciation and
amortization (417,405) (392,641)
------------- ------------
Property, plant and equipment, net 250,446 235,465
------------- ------------
Investments in affiliated companies 39,035 38,959
Cost in excess of net assets of companies
acquired 1,117,130 1,053,266
Other assets 216,596 199,753
------------- ------------
Total assets $ 6,283,026 $ 6,044,917
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,537,704 $ 1,628,568
Accrued expenses 500,405 434,644
Short-term borrowings, including current
portion of long-term debt 292,376 268,666
------------- ------------
Total current liabilities 2,330,485 2,331,878
------------- ------------
Long-term debt 964,993 1,138,981
------------- ------------
Other liabilities 196,850 201,172
------------- ------------
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in 2006 and
2005
Issued - 122,358 and 120,286 shares in
2006 and 2005, respectively 122,386 120,286
Capital in excess of par value 933,846 861,880
Retained earnings 1,659,675 1,399,415
Foreign currency translation adjustment 92,649 13,308
------------- ------------
2,808,556 2,394,889
Less: Treasury stock (226 and 272 shares
in 2006 and 2005, respectively),
at cost (6,039) (7,278)
Unamortized employee stock awards - (2,395)
Other (11,819) (12,330)
------------- ------------
Total shareholders' equity 2,790,698 2,372,886
------------- ------------
Total liabilities and shareholders'
equity $ 6,283,026 $ 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
September 30,
---------------------
2006 2005
---------- ---------
Cash flows from operating activities:
Net income $ 85,918 $ 63,523
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation and amortization 10,881 10,530
Accretion of discount on zero coupon
convertible debentures - 1,771
Amortization of deferred financing costs and
discount on notes 520 911
Amortization of restricted stock and
performance awards 2,617 2,199
Amortization of employee stock options 3,403 -
Excess tax benefits from stock-based
compensation arrangements (55) -
Equity in earnings of affiliated companies (1,550) (1,373)
Deferred income taxes (17,640) (611)
Restructuring charges 1,101 (442)
Loss on prepayment of debt - 672
Minority interest 138 275
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (20,929) 55,183
Inventories 199,811 (22,236)
Prepaid expenses and other assets 12,423 1,051
Accounts payable (342,457) (64,574)
Accrued expenses 29,319 32,490
Other 385 571
---------- ---------
Net cash provided by (used for) operating
activities (36,115) 79,940
---------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (14,130) (15,225)
Proceeds from sale of facilities - 18,353
Cash consideration paid for acquired
businesses - (22,163)
Other 510 1,113
---------- ---------
Net cash used for investing activities (13,620) (17,922)
---------- ---------
Cash flows from financing activities:
Change in short-term borrowings (29,087) (457)
Change in long-term debt 92 (101)
Repurchase of zero coupon convertible
debentures - (57,948)
Proceeds from exercise of stock options 587 33,792
Excess tax benefits from stock-based
compensation arrangements 55 -
---------- ---------
Net cash used for financing activities (28,353) (24,714)
---------- ---------
Effect of exchange rate changes on cash 1,090 150
---------- ---------
Net increase (decrease) in cash and cash
equivalents (76,998) 37,454
Cash and cash equivalents at beginning of period 329,849 616,213
---------- ---------
Cash and cash equivalents at end of period $ 252,851 $653,667
---------- ---------
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
----------------------
2006 2005
---------- ----------
Cash flows from operating activities:
Net income $ 260,260 $ 179,163
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 33,179 36,550
Accretion of discount on zero coupon
convertible debentures 876 7,166
Amortization of deferred financing costs
and discount on notes 2,152 2,796
Amortization of restricted stock and
performance awards 6,743 5,209
Amortization of employee stock options 9,559 -
Excess tax benefits from stock-based
compensation arrangements (6,486) -
Equity in earnings of affiliated companies (3,540) (3,013)
Deferred income taxes (20,235) 94
Restructuring charges 3,915 5,016
Loss on prepayment of debt 1,558 1,919
Minority interest 856 575
Acquisition indemnification credit - (1,267)
Write-down of investment - 3,019
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (267,820) (152,656)
Inventories (102,568) 57,221
Prepaid expenses and other assets (10,739) (5,072)
Accounts payable (122,696) 156,910
Accrued expenses 43,572 1,977
Other 4,453 447
---------- ----------
Net cash provided by (used for) operating
activities (166,961) 296,054
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (41,670) (19,789)
Proceeds from sale of facilities - 18,353
Cash consideration paid for acquired
businesses (19,460) (24,624)
Purchase of short-term investments - (230,456)
Proceeds from sale of short-term investments - 389,056
Other 3,593 4,824
---------- ----------
Net cash provided by (used for) investing
activities (57,537) 137,364
---------- ----------
Cash flows from financing activities:
Change in short-term borrowings 9,449 9,036
Change in long-term debt (15,632) (2,037)
Repurchase of senior notes (4,268) -
Repurchase of zero coupon convertible
debentures (156,330) (152,449)
Proceeds from exercise of stock options 53,705 69,355
Excess tax benefits from stock-based
compensation arrangements 6,486 -
---------- ----------
Net cash used for financing activities (106,590) (76,095)
---------- ----------
Effect of exchange rate changes on cash 3,278 (8,950)
---------- ----------
Net increase (decrease) in cash and cash
equivalents (327,810) 348,373
Cash and cash equivalents at beginning of
period 580,661 305,294
---------- ----------
Cash and cash equivalents at end of period $ 252,851 $ 653,667
---------- ----------
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,
------------------------ -------------------------
2006 2005 2006 2005
----------- ----------- ------------ -----------
Sales:
Electronic
Components $2,793,436 $2,167,284 $ 8,159,403 $6,523,175
Computer
Products 660,861 542,884 1,924,389 1,681,411
----------- ----------- ------------ -----------
Consolidated $3,454,297 $2,710,168 $10,083,792 $8,204,586
----------- ----------- ------------ -----------
Operating income:
Electronic
Components $ 148,896 $ 115,046 $ 459,845 $ 333,290
Computer
Products 28,965 26,780 82,804 86,190
Corporate (a) (25,389) (23,588) (77,803) (73,991)
----------- ----------- ------------ -----------
Consolidated $ 152,472 $ 118,238 $ 464,846 $ 345,489
----------- ----------- ------------ -----------
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 $1.8 million and $6.4 million for the
third quarter and first nine months of 2006, respectively. Includes
restructuring charges of $.1 million and $9.0 million for the third quarter
and first nine months of 2005, respectively, as well as an acquisition
indemnification credit of $1.7 million for the first nine months of 2005.
This interim report is subject to independent audit at year-end.
CONTACT: Arrow Electronics, Inc.
Ira M. Birns, 631-847-1657
Vice President & Treasurer
or
Paul J. Reilly, 631-847-1872
Senior Vice President & Chief Financial Officer
or
Media:
Jacqueline F. Strayer, 631-847-2101
Vice President, Corporate Communications