ARROW ELECTRONICS, INC. — Interim / Quarterly Report 1995

Nov 13, 1995

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4482 ARROW ELECTRONICS, INC. (Exact name of Registrant as specified in its charter) New York 11-1806155 (State or other jurisdiction of (I.R.S. Employer Identifi- incorporation or organization) cation Number) 25 Hub Drive, Melville, New York 11747 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (516) 391-1300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $1 par value: 50,602,844 shares outstanding at November 3, 1995. PART I. FINANCIAL INFORMATION Item 1. Financial Statements.

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-5- ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (Unaudited) Note A -- Basis of presentation The accompanying consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's audited consolidated financial statements for the year ended December 31, 1994 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. In November 1994, the company completed the acquisition of Anthem Electronics, Inc. ("Anthem") in a transaction accounted for as a pooling of interests. Accordingly, the 1994 consolidated statements of income and cash flows have been restated to include the operations of Anthem. Note B -- Net income per common share Net income per common share on a primary basis is based upon the weighted average number of shares of common stock and common stock equivalents outstanding. For the nine months ended September 30, 1995 and 1994, the average number of common stock equivalents was 754,083 and 608,456, respectively. For the quarter ended September 30, 1995 and 1994, the average number of common stock equivalents was 1,006,711 and 541,712 respectively. Net income per common share on a fully diluted basis assumes that the 5-3/4% convertible subordinated debentures (the "debentures") were converted to common stock at the beginning of the period and the related interest expense, net of taxes, was eliminated. Note C -- Credit agreement In August 1995, the company's credit agreement with a group of banks was amended to increase the amount of borrowings available to $500,000,000 from $175,000,000, to reduce the borrowing rate, and to extend the maturity date to August 2000. The amended facility allows for up to $250,000,000 of the borrowings to be denominated in foreign currencies. Note D - Subsequent event On October 5, 1995, the company called for redemption its 5-3/4% debentures due 2002. The conversion resulted in the issuance of 3,772,254 shares of common stock on October 25, 1995. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Sales Consolidated sales for the nine months and third quarter of 1995 increased 28.4% and 25.7% compared with year-earlier periods. This sales growth was principally due to increased activity levels in each of the company's distribution groups throughout the world and, to a lesser extent, acquisitions in Europe and the Pacific Rim. Operating income The company recorded operating income of $314.7 million and $108.1 million in the first nine months and third quarter of 1995, respectively, compared with $195.9 million and $51.6 million, respectively, in the year- earlier periods. Excluding the special charge of $21.9 million associated with the integration of Gates, operating income was $217.8 million and $73.5 million for the nine months and three months ended September 30, 1994, respectively. The improvement in operating income reflects the impact of increased sales, acquisitions, and the benefits of economies of scale resulting from the integration of Anthem and Gates with Arrow. Interest expense Interest expense of $34.6 million and $12.5 million in the first nine months and third quarter of 1995, respectively, increased from $27.7 million during the first nine months of 1994 and $8.7 million in the comparable quarter of 1994. The increase from the first nine months and third quarter of 1994 reflects increased company borrowings to finance working capital requirements necessary to support higher sales. Income taxes During the first nine months and third quarter of 1995 the company recorded a provision for taxes at an effective tax rate of 40.7% and 40.0% compared with 40.1% and 39.2%, respectively, in the year-earlier periods. The increase in the provision from the comparable year-earlier periods is due to increased earnings in countries with higher marginal tax rates. Net income The company recorded net income of $147.6 million and $51.0 million in the first nine months and third quarter of 1995, respectively, compared with $88.1 million in the first nine months of 1994 and $21.8 million in the third quarter of 1994. Excluding the special charge of $21.9 million ($13.1 million after taxes) associated with the integration of Gates, net income was $101.2 million ($2.17 per share on a primary basis) and $34.9 million ($.75 per share on a primary basis) for the nine months and three months ended September 30, 1994, respectively. The increase in net income over the year- earlier periods is due to increased sales and lower operating expenses as a percentage of sales offset in part by an increase in interest expense as previously discussed. -7- Liquidity and capital resources The company maintains a high level of current assets, primarily accounts receivable and inventories. Consolidated current assets as a percentage of total assets were approximately 77% and 79% at September 30, 1995 and 1994, respectively, excluding in 1994, the effect of the investments in net assets of acquired businesses. The net amount of cash used for the company's operating activities during the first nine months of 1995 was $115.4 million, principally reflecting increased working capital requirements supporting higher sales. The net amount of cash used for investing activities was $130.3 million, including $95.7 million for various acquisitions. The net amount of cash provided by financing activities was $210.1 million, principally reflecting the company's U.S. credit agreements and European bank borrowings, offset in part by distributions to partners and the net repayment of debt. The net amount of cash provided by the company's operating activities during the first nine months of 1994 was $81.9 million, principally reflecting earnings. The net amount of cash used for investing activities was $84.3 million, including approximately $80.8 million for various acquisitions. The net amount of cash provided by financing activities was $23.8 million, principally reflecting the company's U.S. credit agreements and European bank borrowings, offset in part by the net payment of debt. In October 1995, the company called for redemption its 5-3/4% convertible subordinated debentures, due 2002, which resulted in the issuance of 3,772,254 shares of common stock and eliminated approximately $125,000,000 in long term debt. The company believes that its working capital, funds available under its credit agreements, and additional funds generated from operations will be sufficient to satisfy its cash requirements at least through 1997. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 11 - Statement Re: Computation of Earnings Per Share (b) Reports on Form 8-K. None -8- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARROW ELECTRONICS, INC. Date: November 13, 1995 By:/s/ Robert E. Klatell Robert E. Klatell Executive Vice President and Chief Financial Officer Date: November 13, 1995 By:/s/ Paul J. Reilly Paul J. Reilly Controller -9-