Exhibit 99.1
Arrow Electronics Reports Strong Sales Growth of 17% Year over Year
Strong Cash Flow Generation
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 23, 2007--Arrow Electronics, Inc.
(NYSE:ARW) today reported third quarter 2007 net income of $98.3 million ($.80
and $.79 per share on a basic and diluted basis, respectively) on sales of $4.03
billion, compared with net income of $85.9 million ($.70 per share on both a
basic and diluted basis) on sales of $3.45 billion in the third quarter of 2006.
Sales increased 17 percent year over year. On a pro forma basis, sales increased
4 percent year over year as acquisitions also benefited sales growth. The
company's results for the third 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 September 30, 2007 would have been $95.0 million ($.77 and $.76
per share on a basic and diluted basis, respectively) and 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).
"We performed well in a market that was challenging. Our level of sales, as
well as working capital to sales, remained near record levels and we generated
the highest level of cash flow for a third quarter in six years and the highest
return on working capital for a third quarter in seven years, all while we
continued to invest in the long-term future of Arrow," said William E. Mitchell,
chairman, president and chief executive officer of Arrow Electronics, Inc.
Global enterprise computing solutions ("ECS") sales of $1.17 billion
increased 97 percent year over year and decreased 8 percent sequentially in the
seasonally soft third quarter. Year-over-year 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 15 percent year over year. "We again outgrew the market
with strong double-digit performance in industry standard servers, storage,
software, and services, as well as modest growth in proprietary servers. While
we achieved strong top-line performance with revenue near the high end of our
guidance, our mix of products and investments in the business to accelerate
future growth had an unfavorable impact on profitability this quarter. We expect
to continue to outgrow the market and return to more normal levels of
profitability in the fourth quarter," said Mr. Mitchell.
Global components sales of $2.86 billion increased 3 percent compared with
the second quarter and were flat year over year as the well-publicized weakness
within the large EMS customer base continued. "We again gained market share on a
worldwide basis and added to our industry leading position in the face of an
increasingly more competitive market in all regions this quarter. We were
particularly pleased with our success in Asia Pacific, where we generated record
operating income dollars for a third quarter as earnings increased 173 percent
year over year. We had good success with efficiency initiatives to drive down
our operating expenses worldwide going forward, and we will continue to invest
in strategic opportunities to build for the future," Mr. Mitchell said.
The company's results for the third quarter of 2007 and 2006 include the
items outlined below that impact their comparability:
-- During the third quarter of 2007, the company recorded restructuring
and integration charges of $4.5 million ($2.7 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 third quarter of 2007, the company
took a series of additional steps to make its organizational structure
more efficient. These actions are expected to reduce costs by
approximately $30 million per annum in North America, of which
approximately $3 million was realized in the third quarter of 2007 and
approximately $7 million is expected to be realized in the fourth
quarter of 2007. The estimated restructuring charges to be recorded
over the next several quarters associated with these actions total
approximately $8 million.
-- During the third quarter of 2007, the company recorded an income tax
benefit of $6.0 million, net, ($.05 per share on both a basic and
diluted basis) principally due to a reduction in deferred income taxes
as a result of the reduction in the statutory tax rate in Germany.
-- During the third quarter of 2006, the company recorded restructuring
and integration charges of $1.8 million ($1.1 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 generally expect normal
seasonality in both of our businesses. We believe that total fourth quarter
sales will be between $4.15 and $4.45 billion, with global component sales
between $2.65 and $2.85 billion and global enterprise computing solutions sales
between $1.50 and $1.60 billion. Earnings per share, on a diluted basis,
excluding any charges and including estimated amortization of intangible assets
of $.02 to $.03, are expected to be in the range of $.90 to $.95, an increase of
25 percent to 32 percent from last year's fourth quarter," said Paul J. Reilly,
senior vice president and chief financial officer.
NINE-MONTH RESULTS
Arrow's net income for the first nine months of 2007 was $293.8 million
($2.38 and $2.36 per share on a basic and diluted basis, respectively) on sales
of $11.57 billion, compared with net income of $260.3 million ($2.14 and $2.12
per share on a basic and diluted basis, respectively) on sales of $10.08 billion
in the first nine months of 2006.
Net income for the first nine months of 2007 includes restructuring and
integration charges of $1.8 million ($0.4 million net of related taxes),
primarily related to initiatives taken by the company in the period to improve
operating efficiencies and the acquisition of KeyLink, and an income tax benefit
of $6.0 million, net, ($.05 per share on both a basic and diluted basis)
principally due to a decrease in deferred income taxes as a result of a
reduction in the statutory tax rate in Germany. Excluding these items, net
income would have been $288.2 million ($2.34 and $2.31 per share on a basic and
diluted basis, respectively) for the first nine months of 2007.
Net income for the first nine months of 2006 includes restructuring and
integration charges of $6.4 million ($3.9 million net of related taxes or $.03
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 $265.7 million ($2.19 and $2.16 per share on a
basic and diluted basis, respectively) for the first nine 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, deferred tax adjustments, 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 Nine Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Operating income, as reported $157,509 $152,472 $493,322 $464,846
Restructuring and integration
charges 4,512 1,779 1,790 6,418
-------- -------- -------- --------
Operating income, as adjusted $162,021 $154,251 $495,112 $471,264
-------- -------- -------- --------
Net income, as reported $ 98,324 $ 85,918 $293,829 $260,260
Restructuring and integration
charges 2,674 1,101 438 3,915
Deferred tax adjustment* (6,024) - (6,024) -
Loss on prepayment of debt - - - 1,558
-------- -------- -------- --------
Net income, as adjusted $ 94,974 $ 87,019 $288,243 $265,733
-------- -------- -------- --------
Net income per basic share, as
reported $ .80 $ .70 $ 2.38 $ 2.14
Restructuring and integration
charges .02 .01 - .03
Deferred tax adjustment* (.05) - (.05) -
Loss on prepayment of debt - - - .01
-------- -------- -------- --------
Net income per basic share, as
adjusted $ .77 $ .71 $ 2.34 $ 2.19
-------- -------- -------- --------
Net income per diluted share,
as reported** $ .79 $ .70 $ 2.36 $ 2.12
Restructuring and integration
charges .02 .01 - .03
Deferred tax adjustment* (.05) - (.05) -
Loss on prepayment of debt - - - .01
-------- -------- -------- --------
Net income per diluted share,
as adjusted $ .76 $ .71 $ 2.31 $ 2.16
-------- -------- -------- --------
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.
* During the third quarter and first nine months of 2007, the company
recorded an income tax benefit of $6.0 million, net ($.05 per share
on both a basic and diluted basis) principally due to a reduction
in deferred income taxes as a result of the statutory tax rate
change in Germany. These deferred income taxes primarily related to
the amortization of intangible assets for income tax purposes,
which are not amortized for accounting purposes.
**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.
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
global 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 Nine Months Ended
September 30, September 30,
---------------------- ------------------------
2007 2006 2007 2006
---------- ---------- ----------- -----------
Sales $4,030,363 $3,454,297 $11,566,010 $10,083,792
---------- ---------- ----------- -----------
Costs and expenses:
Cost of products
sold 3,477,806 2,946,214 9,894,852 8,563,742
Selling, general and
administrative
expenses 373,796 342,951 1,127,958 1,015,607
Depreciation and
amortization 16,740 10,881 48,088 33,179
Restructuring and
integration charges 4,512 1,779 1,790 6,418
---------- ---------- ----------- -----------
3,872,854 3,301,825 11,072,688 9,618,946
---------- ---------- ----------- -----------
Operating income 157,509 152,472 493,322 464,846
Equity in earnings of
affiliated companies 2,172 1,550 5,842 3,540
Loss on prepayment of
debt - - - 2,605
Interest expense, net 24,273 25,869 75,376 73,831
---------- ---------- ----------- -----------
Income before income
taxes and minority
interest 135,408 128,153 423,788 391,950
Provision for income
taxes 36,554 42,097 127,593 130,834
---------- ---------- ----------- -----------
Income before minority
interest 98,854 86,056 296,195 261,116
Minority interest 530 138 2,366 856
---------- ---------- ----------- -----------
Net income $ 98,324 $ 85,918 $ 293,829 $ 260,260
---------- ---------- ----------- -----------
Net income per share:
Basic $ .80 $ .70 $ 2.38 $ 2.14
---------- ---------- ----------- -----------
Diluted $ .79 $ .70 $ 2.36 $ 2.12
---------- ---------- ----------- -----------
Average number of
shares outstanding:
Basic 123,161 122,053 123,321 121,493
Diluted 124,292 122,850 124,598 123,179
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,
2007 2006
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 317,607 $ 337,730
Accounts receivable, net 3,101,272 2,710,321
Inventories 1,624,958 1,691,536
Prepaid expenses and other assets 170,293 156,034
------------- -------------
Total current assets 5,214,130 4,895,621
------------- -------------
Property, plant and equipment, at cost:
Land 41,378 41,810
Buildings and improvements 175,133 167,157
Machinery and equipment 554,089 481,689
------------- -------------
770,600 690,656
Less: Accumulated depreciation and
amortization (434,345) (428,283)
------------- -------------
Property, plant and equipment, net 336,255 262,373
------------- -------------
Investments in affiliated companies 47,009 41,960
Cost in excess of net assets of
companies acquired 1,787,128 1,231,281
Other assets 269,454 238,337
------------- -------------
Total assets $7,653,976 $ 6,669,572
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,245,026 $ 1,795,089
Accrued expenses 462,741 402,536
Short-term borrowings, including
current portion of long-term debt 57,746 262,783
------------- -------------
Total current liabilities 2,765,513 2,460,408
------------- -------------
Long-term debt 1,208,403 976,774
Other liabilities 256,279 235,831
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in 2007
and 2006
Issued - 124,900 and 122,626 shares
in 2007 and 2006, respectively 124,900 122,626
Capital in excess of par value 1,017,668 943,958
Retained earnings 2,070,781 1,787,746
Foreign currency translation
adjustment 285,465 155,166
Other 4,641 (7,407)
------------- -------------
3,503,455 3,002,089
Less: Treasury stock (2,031 and 207
shares in 2007 and 2006,
respectively), at cost (79,674) (5,530)
------------- -------------
Total shareholders' equity 3,423,781 2,996,559
------------- -------------
Total liabilities and shareholders'
equity $7,653,976 $ 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
September 30,
---------------------
2007 2006
--------- ----------
Cash flows from operating activities:
Net income $ 98,324 $ 85,918
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation and amortization 16,740 10,881
Amortization of deferred financing costs and
discount on notes 531 520
Amortization of stock-based compensation 5,440 6,020
Excess tax benefits from stock-based
compensation arrangements (622) (55)
Deferred income taxes (2,533) (17,640)
Restructuring and integration charges 2,674 1,101
Equity in earnings of affiliated companies (2,172) (1,550)
Minority interest 530 138
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable 16,728 (20,929)
Inventories (17,055) 199,811
Prepaid expenses and other assets (14,140) 12,423
Accounts payable 56,036 (342,457)
Accrued expenses 19,159 34,362
Other (8,248) (4,658)
--------- ---------
Net cash provided by (used for) operating
activities 171,392 (36,115)
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (41,527) (14,130)
Cash consideration paid for acquired
businesses (43,248) -
Other (40) 510
--------- ---------
Net cash used for investing activities (84,815) (13,620)
--------- ---------
Cash flows from financing activities:
Change in short-term borrowings (15,299) (29,087)
Repayment of long-term borrowings (887,434) 92
Proceeds from long-term borrowings 887,400 -
Proceeds from exercise of stock options 4,691 587
Excess tax benefits from stock-based
compensation arrangements 622 55
Repurchases of common stock (42,925) -
--------- ---------
Net cash used for financing activities (52,945) (28,353)
--------- ---------
Effect of exchange rate changes on cash 4,978 1,090
--------- ---------
Net decrease in cash and cash equivalents 38,610 (76,998)
Cash and cash equivalents at beginning of period 278,997 329,849
--------- ---------
Cash and cash equivalents at end of period $ 317,607 $ 252,851
--------- ---------
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,
-----------------------
2007 2006
----------- ----------
Cash flows from operating activities:
Net income $ 293,829 $ 260,260
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 48,088 33,179
Amortization of deferred financing costs and
discount on notes 1,609 2,152
Amortization of stock-based compensation 17,212 16,302
Accretion of discount on zero coupon
convertible debentures - 876
Excess tax benefits from stock-based
compensation arrangements (7,315) (6,486)
Deferred income taxes (465) (20,235)
Restructuring and integration charges 438 3,915
Equity in earnings of affiliated companies (5,842) (3,540)
Loss on prepayment of debt - 1,558
Minority interest 2,366 856
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (114,763) (267,820)
Inventories 159,609 (102,568)
Prepaid expenses and other assets (12,379) (10,739)
Accounts payable 200,615 (122,696)
Accrued expenses 51,065 38,652
Other (3,805) 9,373
----------- ---------
Net cash provided by (used for) operating
activities 630,262 (166,961)
----------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (102,894) (41,670)
Cash consideration paid for acquired
businesses (539,315) (19,460)
Proceeds from sale of facilities 12,996 -
Other 178 3,593
----------- ---------
Net cash used for investing activities (629,035) (57,537)
----------- ---------
Cash flows from financing activities:
Change in short-term borrowings (40,663) 9,449
Repayment of long-term borrowings (1,791,351) (15,632)
Proceeds from long-term borrowings 1,989,900 -
Repurchase/repayment of senior notes (169,136) (4,268)
Redemption of zero coupon convertible
debentures - (156,330)
Proceeds from exercise of stock options 51,118 53,705
Excess tax benefits from stock-based
compensation arrangements 7,315 6,486
Repurchases of common stock (75,684) -
----------- ---------
Net cash used for financing activities (28,501) (106,590)
----------- ---------
Effect of exchange rate changes on cash 7,151 3,278
----------- ---------
Net decrease in cash and cash equivalents (20,123) (327,810)
Cash and cash equivalents at beginning of
period 337,730 580,661
----------- ---------
Cash and cash equivalents at end of period $ 317,607 $ 252,851
----------- ---------
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,
---------------------- ------------------------
2007 2006 2007 2006
---------- ---------- ----------- -----------
Sales:
Global components $2,859,264 $2,860,258 $ 8,413,191 $ 8,353,608
Global ECS 1,171,099 594,039 3,152,819 1,730,184
---------- ---------- ----------- -----------
Consolidated $4,030,363 $3,454,297 $11,566,010 $10,083,792
---------- ---------- ----------- -----------
Operating income:
Global components $ 151,663 $ 146,781 $ 458,388 $ 451,368
Global ECS 38,338 27,664 118,347 80,619
Corporate (a) (32,492) (21,973) (83,413) (67,141)
---------- ---------- ----------- -----------
Consolidated $ 157,509 $ 152,472 $ 493,322 $ 464,846
---------- ---------- ----------- -----------
(a) Includes restructuring and integration charges of $4.5 million and
$1.8 million for the three and nine months ended September 30,
2007, respectively, and restructuring and integration charges of
$1.8 million and $6.4 million for the three and nine months ended
September 30, 2006, respectively.
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, is allocated to global components, global ECS, and
corporate. Prior period segment data was adjusted to conform with the current
period presentation.
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