ARROW ELECTRONICS, INC. — Interim / Quarterly Report 1996

Aug 9, 1996

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 June 30, 1996 ------------- 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 incorporation or organization) Identification 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: 51,022,842 shares outstanding at August 2, 1996. ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 2 - ------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements.

ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 4 - -------------------------------------------------------------------------

ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 5 - -------------------------------------------------------------------------

ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 6 - -------------------------------------------------------------------------

ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 8 - -------------------------------------------------------------------------- ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 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, 1995 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. Note B -- Authorized shares and net income per common share - ----------------------------------------------------------- In May 1996, the shareholders approved an amendment to increase the number of authorized shares from 80,000,000 to 120,000,000 shares of common stock. Net income per common share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding. For the six months ended June 30, 1996 and 1995, the average number of common stock equivalents was 634,767 and 660,324, respectively. For the quarter ended June 30, 1996 and 1995, the average number of common stock equivalents was 723,752 and 748,823, respectively. In October 1995, the company's 5-3/4% convertible subordinated debentures (the debentures) were converted into common stock. Net income per common share for 1995, on a fully diluted basis, assumes that the debentures we converted to common stock at the beginning of the period and the related interest expense, net of taxes, was eliminated. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. - -------------------- Sales - ----- Consolidated sales for the six months and second quarter of 1996 increased 14 percent and 10 percent, respectively, compared with the year-earlier periods. This sales growth was principally due to increased activity levels in each of the company's distribution groups throughout the world. ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 9 - -------------------------------------------------------------------------------- Operating income - ---------------- The company recorded operating income of $221.6 million and $104.9 million in the first six months and second quarter of 1996, respectively, compared with $206.6 million and $108.7 million, respectively, in the year-earlier periods. The improvement in operating income in the first half of 1996, compared with the year-earlier period, reflects the impact of increased sales and the benefits of continuing economies of scale offset, in part, by a decline in gross profit margins. The reduction in operating income in the second quarter of 1996, compared with the year-earlier period, is primarily due to the decrease in gross profits in Europe due to competitive pricing pressures, offset, in part, by continued operating efficiencies. Interest expense - ---------------- Interest expense of $21.2 million and $9.8 million in the first six months and second quarter of 1996, respectively, decreased from $22.2 million during the first six months of 1995 and $11.1 million in the comparable quarter of 1995. The decrease from the first six months and second quarter of 1995 reflects the conversion of the debentures in October 1995, and lower borrowings resulting from improved working capital usage offset, in part, by an increase in interest rates. Income taxes - ------------ During the first six months and second quarter of 1996, the company recorded a provision for taxes at an effective tax rate of 39.5 percent and 39.3 percent, respectively, compared with 41 percent in the year-earlier periods. The decrease in the provision is due to increased earnings in countries with lower marginal tax rates. Net income - ---------- The company recorded net income of $110.9 million and $54.1 million in the first six months and second quarter of 1996, respectively, compared with $96.6 million in the first six months of 1995 and $51.8 million in the second quarter of 1995. The increase in net income for the first six months is due to increased operating income as well as a decrease in interest expense, the provision for the income taxes, and minority interests. The increase in net income for second quarter is attributable to lower operating income offset by decreases in interest expense, the provision for income taxes, and minority interest. 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 78.1 percent and 75.6 percent at June 30, 1996 and 1995, respectively. ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 10 - -------------------------------------------------------------------------------- The net amount of cash provided by the company's operating activities during the first six months of 1996 was $55.4 million, principally reflecting increased earnings offset, in part, by an increase in working capital requirements. The net amount of cash used for investing activities was $29.7 million, including $17.3 million for various capital expenditures. The net amount of cash used for financing activities was $53.5 million, principally reflecting the reduction in the company's borrowings. The net amount of cash used for the company's operating activities during the first six months of 1995 was $51.9 million, principally reflecting increased working capital requirements supporting higher sales. The net amount of cash used for investing activities was $112 million, including $85.9 million for various investments and acquisitions. The net amount of cash provided by financing activities was $124.9 million, principally reflecting the company's borrowings to finance investments, acquisitions, distributions to partners, and the net repayment of 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. The company announced that its Board of Directors has authorized management to implement a stock repurchase program under which Arrow may purchase, from time to time, at least $100 million of the company's common stock. The purchases will be made in the open market or in privately negotiated transactions, as determined by management. The timing and amount of the purchases will depend, among other matters, on market conditions and corporate requirements. ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 11 - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- (a) The company's Annual Meeting of Shareholders was held on May 14, 1996 (the Annual Meeting). (b) The matters voted upon at the Annual Meeting and the results of the voting were as follows: (i) The following individuals were elected by the shareholders to serve as directors: Board Member In Favor Withheld - --------------- ---------- ------- Daniel W. Duval 43,313,967 309,555 Carlo Giersch 43,213,673 409,849 Stephen P. Kaufman 43,222,616 400,906 Roger King 42,878,839 744,683 Robert E. Klatell 43,228,348 395,174 Karen Gordon Mills 43,289,380 334,142 Richard S. Rosenbloom 43,312,343 311,179 Robert S. Throop 43,228,658 394,864 John C. Waddell 43,329,188 294,334 (ii) The amendment to increase the number of authorized shares from 80,000,000 to 120,000,000 shares of common stock was voted upon as follows: 42,222,613 shares in favor; 1,230,110 shares against; and 170,799 shares abstaining. (iii) The appointment of Ernst & Young LLP as auditors of the company was voted upon as follows: The shareholders voted 43,559,839; shares in favor; 30,490 shares against; and 33,193 shares abstaining. There were no broker non-votes regarding any of the above matters. 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. ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 12 - -------------------------------------------------------------------------------- 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: August 7, 1996 By:/s/ Gerald Luterman ---------------------- Gerald Luterman Senior Vice President and Chief Financial Officer Date: August 7, 1996 By:/s/ Paul J. Reilly ---------------------- Paul J. Reilly Vice President and Corporate Controller ARROW ELECTRONICS, INC. June 30, 1996 FORM 10Q Page 13 - --------------------------------------------------------------------------------