Exhibit 99.1
Arrow Electronics Announces Record Sales and Excellent Cash Flow
Record Level Working Capital to Sales
MELVILLE, N.Y.--(BUSINESS WIRE)--July 25, 2007--Arrow Electronics,
Inc. (NYSE:ARW) today reported second quarter 2007 net income of $99.2
million ($.80 and $.79 per share on a basic and diluted basis,
respectively) on sales of $4.04 billion, compared with net income of
$92.8 million ($.76 per share on both a basic and diluted basis) on
sales of $3.44 billion in the second quarter of 2006. Sales increased
17 percent year over year. On a pro forma basis, sales increased five
percent year over year as acquisitions also benefited sales growth.
The company's results for the second quarters of 2007 and 2006 include
a number of items outlined below that impact their comparability. A
complete reconciliation of these items is provided under the heading
"Certain Non-GAAP Financial Information." Excluding those items, on a
non-GAAP basis, net income for the quarter ended June 30, 2007 would
have been $101.5 million ($.82 and $.81 per share on a basic and
diluted basis, respectively) and net income for the quarter ended June
30, 2006, would have been $94.7 million ($.78 and $.77 per share on a
basic and diluted basis, respectively).
"We continue to execute well on our strategic initiatives as
evidenced by our record results. We achieved record sales, generated
an impressive level of cash flow, and managed our asset base to a
record low level of working capital to sales," said William E.
Mitchell, chairman, president and chief executive officer. "We have
made strong strategic moves over the last 18 months that have resulted
in a more diverse revenue stream, a broader geographic footprint, and
increased opportunities in fast-growing product segments."
Global enterprise computing solutions ("ECS") sales of $1.27
billion increased 78 percent sequentially and 103 percent year over
year on strong growth in industry standard servers, storage, software,
and services. Growth was aided by the impact of the acquisitions of
KeyLink Systems Group, Alternative Technology, Inc. and the storage
and security distribution business of InTechnology plc. On a pro forma
basis, sales increased 22 percent year over year. "Our strategic
transformation in global ECS is producing impressive results as we
grew sales at almost four times the rate at which the market is
expected to grow. Global ECS now represents approximately one-third of
our business, further diversifying and reducing the volatility of our
revenue stream. By further executing on significant cross-selling
opportunities, pursuing our strategic focus on the mid-market and
leveraging our unique software capabilities, we expect to continue to
outgrow the market. With increased scale, scope and flexibility, our
strategy is proving out every day with our customers and vendors,"
said Mitchell.
Global components sales of $2.77 billion were essentially flat
with the first quarter on fewer shipping days. Sales decreased two
percent year over year as the well-publicized weakness within the
large EMS customer base continued in North America and Asia Pacific.
"We continue to execute well in the midst of cautious market
conditions. In our Asia Pacific business, operating income increased
by 74 percent sequentially, generating more operating income dollars
than any other second quarter since 2000. In Europe and North America
we achieved our highest and second highest level of operating income,
respectively, for a second quarter in six years. Despite pockets of
market weakness, we continue to improve our financial performance and
deliver excellent results," Mitchell said.
The company's results for the second quarter of 2007 and 2006
include the items outlined below that impact their comparability:
-- During the second quarter of 2007, the company recorded a
net restructuring charge of $2.9 million ($2.0 million net of
related taxes or $.02 per share on both a basic and diluted
basis) primarily related to initiatives taken by the company
in the period to improve operating efficiencies.
-- During the second quarter of 2007, the company recorded an
integration charge of $.5 million ($.3 million net of related
taxes), primarily related to the acquisition of KeyLink.
-- During the second quarter of 2006, the company recorded a $3.1
million ($1.9 million net of related taxes or $.02 per share
on both a basic and diluted basis) restructuring charge.
"Based upon the information known to us today, we expect normal
seasonality in both of our businesses in the third quarter. In global
components, we expect to see an uptick in demand in Asia Pacific in
preparation for the usual holiday build, normal seasonal softness in
Europe due to its extended holiday period, and in North America,
typical seasonality of flat to slightly down sales. In global
enterprise computing solutions, we expect to see a moderate decrease
in activity levels due to typical third quarter seasonality. We
believe that total third quarter sales will be between $3.75 and $4.00
billion, with global component sales between $2.65 and $2.80 billion
and global enterprise computing solutions sales between $1.10 and
$1.20 billion. Earnings per share, on a diluted basis, excluding any
charges and including estimated amortization of intangible assets of
$.02, are expected to be in the range of $.76 to $.82, an increase of
seven percent to 15 percent from last year's third quarter," said Paul
J. Reilly, senior vice president and chief financial officer.
SIX MONTH RESULTS
Arrow's net income for the first six months of 2007 was $195.5
million ($1.58 and $1.57 per share on a basic and diluted basis,
respectively) on sales of $7.54 billion, compared with net income of
$174.3 million ($1.44 and $1.42 per share on a basic and diluted
basis, respectively) on sales of $6.63 billion in the first six months
of 2006.
Net income for the first six months of 2007 includes a net
restructuring credit of $5.3 million ($3.8 million net of related
taxes or $.03 per share on both a basic and diluted basis) primarily
related to the sale of facilities offset, in part, by the
aforementioned restructuring initiatives. Also included is an
integration charge of $2.6 million ($1.6 million net of related taxes
or $.01 per share or both a basic and diluted basis), primarily
related to the acquisition of Keylink. Excluding these items, net
income would have been $193.3 million ($1.57 and $1.55 per share on a
basic and diluted basis, respectively) for the first six months of
2007.
Net income for the first six months of 2006 includes restructuring
charges of $4.6 million ($2.8 million net of related taxes or $.02 per
share on both a basic and diluted basis) 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 zero coupon convertible debentures due
in 2021 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 $178.7 million ($1.47 and $1.46 per share on a basic
and diluted basis, respectively) for the first six months of 2006.
Arrow Electronics (www.arrow.com) is a 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 140,000 original equipment manufacturers,
contract manufacturers and commercial customers through a global
network of 260 locations in 55 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, 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 Six Months Ended
June 30, June 30,
----------------- ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Operating income, as reported $173,154 $163,141 $335,813 $312,374
Restructuring charge (credit) 2,931 3,118 (5,333) 4,639
Integration charge 494 - 2,611 -
-------- -------- -------- --------
Operating income, as adjusted $176,579 $166,259 $333,091 $317,013
-------- -------- -------- --------
Net income, as reported $ 99,211 $ 92,763 $195,505 $174,342
Restructuring charge (credit) 1,990 1,894 (3,798) 2,814
Integration charge 296 - 1,562 -
Loss on prepayment of debt - - - 1,558
-------- -------- -------- --------
Net income, as adjusted $101,497 $ 94,657 $193,269 $178,714
-------- -------- -------- --------
Net income per basic share, as
reported $ .80 $ .76 $ 1.58 $ 1.44
Restructuring charge (credit) .02 .02 (.03) .02
Integration charge - - .01 -
Loss on prepayment of debt - - - .01
-------- -------- -------- --------
Net income per basic share, as
adjusted $ .82 $ .78 $ 1.57 $ 1.47
-------- -------- -------- --------
Net income per diluted share, as
reported* $ .79 $ .76 $ 1.57 $ 1.42
Restructuring charge (credit) .02 .02 (.03) .02
Integration charge - - .01 -
Loss on prepayment of debt - - - .01
-------- -------- -------- --------
Net income per diluted share, as
adjusted $ .81 $ .77 $ 1.55 $ 1.46
-------- -------- -------- --------
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.
* In computing net income per diluted share for the six months ended
June 30, 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 six months ended June 30, 2006 includes 937
shares related to the convertible debentures.
Information Relating to Forward-Looking Statements
This press release 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 implementation of its new global
financial system and the company's planned implementation of its new
enterprise resource planning system, changes in product supply,
pricing and customer demand, competition, other vagaries in the global
components and enterprise computing solutions 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. Forward-looking statements are those statements, which are not
statements of historical fact. These forward-looking statements can be
identified 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 of the
forward-looking statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Sales $4,038,083 $3,437,032 $7,535,647 $6,629,495
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 3,459,113 2,912,608 6,417,046 5,617,528
Selling, general and
administrative
expenses 383,936 346,828 754,162 672,656
Depreciation and
amortization 18,455 11,337 31,348 22,298
Restructuring charge
(credit) 2,931 3,118 (5,333) 4,639
Integration charge 494 - 2,611 -
---------- ---------- ---------- ----------
3,864,929 3,273,891 7,199,834 6,317,121
---------- ---------- ---------- ----------
Operating income 173,154 163,141 335,813 312,374
Equity in earnings of
affiliated companies 1,685 1,045 3,670 1,990
Loss on prepayment of
debt - - - 2,605
Interest expense, net 28,035 23,993 51,103 47,962
---------- ---------- ---------- ----------
Income before income
taxes and minority
interest 146,804 140,193 288,380 263,797
Provision for income
taxes 46,483 47,084 91,039 88,737
---------- ---------- ---------- ----------
Income before minority
interest 100,321 93,109 197,341 175,060
Minority interest 1,110 346 1,836 718
---------- ---------- ---------- ----------
Net income $ 99,211 $ 92,763 $ 195,505 $ 174,342
---------- ---------- ---------- ----------
Net income per share:
Basic $ .80 $ .76 $ 1.58 $ 1.44
---------- ---------- ---------- ----------
Diluted $ .79 $ .76 $ 1.57 $ 1.42
---------- ---------- ---------- ----------
Average number of shares
outstanding:
Basic 123,808 121,820 123,401 121,213
Diluted 124,959 122,551 124,690 123,020
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
June 30, December 31,
2007 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 278,997 $ 337,730
Accounts receivable, net 3,037,082 2,710,321
Inventories 1,577,843 1,691,536
Prepaid expenses and other assets 158,503 156,034
------------ ------------
Total current assets 5,052,425 4,895,621
------------ ------------
Property, plant and equipment, at cost:
Land 41,201 41,810
Buildings and improvements 172,387 167,157
Machinery and equipment 522,542 481,689
------------ ------------
736,130 690,656
Less: Accumulated depreciation and
amortization (415,341) (428,283)
------------ ------------
Property, plant and equipment, net 320,789 262,373
------------ ------------
Investments in affiliated companies 45,153 41,960
Cost in excess of net assets of companies
acquired 1,718,870 1,231,281
Other assets 245,035 238,337
------------ ------------
Total assets $ 7,382,272 $ 6,669,572
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,147,980 $ 1,795,089
Accrued expenses 446,945 402,536
Short-term borrowings, including current
portion of long-term debt 69,463 262,783
------------ ------------
Total current liabilities 2,664,388 2,460,408
------------ ------------
Long-term debt 1,182,686 976,774
Other liabilities 286,485 235,831
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in 2007
and 2006
Issued - 124,702 and 122,626 shares in
2007 and 2006, respectively 124,702 122,626
Capital in excess of par value 1,004,900 943,958
Retained earnings 1,972,457 1,787,746
Foreign currency translation adjustment 191,272 155,166
Other (7,878) (7,407)
------------ ------------
3,285,453 3,002,089
Less: Treasury stock (953 and 207 shares
in 2007 and 2006, respectively),
at cost (36,740) (5,530)
------------ ------------
Total shareholders' equity 3,248,713 2,996,559
------------ ------------
Total liabilities and shareholders'
equity $ 7,382,272 $ 6,669,572
------------ ------------
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
June 30,
---------------------
2007 2006
--------- ----------
Cash flows from operating activities:
Net income $ 99,211 $ 92,763
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 18,455 11,337
Amortization of deferred financing costs and
discount on notes 523 734
Amortization of stock-based compensation 5,330 6,190
Excess tax benefits from stock-based
compensation arrangements (1,687) (2,378)
Deferred income taxes 616 (1,680)
Restructuring charge 1,990 1,894
Integration charge 296 -
Equity in earnings of affiliated companies (1,685) (1,045)
Minority interest 1,110 346
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (181,101) (189,937)
Inventories 103,564 (155,771)
Prepaid expenses and other assets 1,345 (1,191)
Accounts payable 270,649 149,115
Accrued expenses 23,363 (17,325)
Other 3,354 8,511
--------- ---------
Net cash provided by (used for) operating
activities 345,333 (98,437)
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (39,383) (14,454)
Cash consideration paid for acquired
businesses (4,592) (1,317)
Proceeds from sale of facilities 4,186 -
Other (117) 2,158
--------- ---------
Net cash used for investing activities (39,906) (13,613)
--------- ---------
Cash flows from financing activities:
Change in short-term borrowings (7,757) 34,692
Repayment of long-term borrowings (902,605) (214)
Proceeds from long-term borrowings 757,500 -
Proceeds from exercise of stock options 13,668 23,021
Excess tax benefits from stock-based
compensation arrangements 1,687 2,378
Repurchases of common stock (32,759) -
--------- ---------
Net cash provided by (used for) financing
activities (170,266) 59,877
--------- ---------
Effect of exchange rate changes on cash 2,423 1,846
--------- ---------
Net decrease in cash and cash equivalents 137,584 (50,327)
Cash and cash equivalents at beginning of period 141,413 380,176
--------- ---------
Cash and cash equivalents at end of period $ 278,997 $ 329,849
--------- ---------
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
----------------------
2007 2006
---------- ----------
Cash flows from operating activities:
Net income $ 195,505 $ 174,342
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 31,348 22,298
Amortization of deferred financing costs and
discount on notes 1,078 1,632
Amortization of stock-based compensation 11,772 10,282
Accretion of discount on zero coupon
convertible debentures - 876
Excess tax benefits from stock-based
compensation arrangements (6,693) (6,431)
Deferred income taxes 2,068 (2,595)
Restructuring (credit) charge (3,798) 2,814
Integration charge 1,562 -
Equity in earnings of affiliated companies (3,670) (1,990)
Loss on prepayment of debt - 1,558
Minority interest 1,836 718
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (131,491) (246,891)
Inventories 176,664 (302,379)
Prepaid expenses and other assets 1,761 (23,162)
Accounts payable 144,579 219,761
Accrued expenses 31,906 4,290
Other 4,443 14,031
---------- ---------
Net cash provided by (used for) operating
activities 458,870 (130,846)
---------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (61,367) (27,540)
Cash consideration paid for acquired
businesses (496,067) (19,460)
Proceeds from sale of facilities 12,996 -
Other 218 3,083
---------- ---------
Net cash used for investing activities (544,220) (43,917)
---------- ---------
Cash flows from financing activities:
Change in short-term borrowings (25,364) 38,536
Repayment of long-term borrowings (903,917) (15,724)
Proceeds from long-term borrowings 1,102,500 -
Repurchase/repayment of senior notes (169,136) (4,268)
Redemption of zero coupon convertible
debentures - (156,330)
Proceeds from exercise of stock options 46,427 53,118
Excess tax benefits from stock-based
compensation arrangements 6,693 6,431
Repurchases of common stock (32,759) -
---------- ---------
Net cash provided by (used for) financing
activities 24,444 (78,237)
---------- ---------
Effect of exchange rate changes on cash 2,173 2,188
---------- ---------
Net decrease in cash and cash equivalents (58,733) (250,812)
Cash and cash equivalents at beginning of period 337,730 580,661
---------- ---------
Cash and cash equivalents at end of period $ 278,997 $ 329,849
---------- ---------
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,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Sales:
Global components $2,768,670 $2,812,146 $5,553,927 $5,493,350
Global ECS 1,269,413 624,886 1,981,720 1,136,145
---------- ---------- ---------- ----------
Consolidated $4,038,083 $3,437,032 $7,535,647 $6,629,495
---------- ---------- ---------- ----------
Operating income:
Global components $ 152,144 $ 160,097 $ 306,725 $ 304,587
Global ECS 50,529 30,172 80,009 52,955
Corporate (a) (29,519) (27,128) (50,921) (45,168)
---------- ---------- ---------- ----------
Consolidated $ 173,154 $ 163,141 $ 335,813 $ 312,374
---------- ---------- ---------- ----------
Effective April 1, 2007, the company's business segments were
realigned as part of the company's continued efforts to strengthen its
market leadership position, streamline the business, and further
leverage cost synergies globally. The company's global components
business was formed to bring a single, global organization to leverage
the collective enterprise to speed services and solutions to customers
and suppliers. The company's global ECS business was formed to bring a
single organization with an expanded geographic reach, increased
exposure in faster growing product segments, and a more robust
customer and supplier base. As a result, the UK Microtronica, ATD (in
Spain), and Arrow Computer Products (in France) businesses, previously
included in the computer products business segment, were transitioned
into the company's global components business segment. As a result of
this realignment, global components and global ECS are the business
segments upon which management primarily evaluates the operations of
the company and upon which it bases its operating decisions. Prior
period segment data was adjusted to conform to the current period
presentation.
Effective January 1, 2007, stock option expense, which was
previously included in corporate, has been allocated to global
components, global ECS, and corporate. Prior period segment data was
adjusted to conform with the current period presentation.
(a) Includes a restructuring charge of $2.9 million and a net
restructuring credit of $5.3 million for the three and six months
ended June 30, 2007, respectively, and restructuring charges of
$3.1 million and $4.6 million for the three and six months ended
June 30, 2006, respectively. Also includes integration charges of
$.5 million and $2.6 million for the three and six months ended
June 30, 2007, respectively.
This interim report is subject to independent audit at year-end.
CONTACT: Arrow Electronics, Inc.
Sabrina N. Weaver, 631-847-5359
Director, Investor Relations
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