ARROW ELECTRONICS, INC. — Interim / Quarterly Report 1998

May 12, 1998

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 March 31, 1998 -------------- 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: 96,930,094 shares outstanding at May 1, 1998. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. --------------------

ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 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, 1997 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. Note B -- Stock repurchase program - ---------------------------------- In February 1998, the company's Board of Directors authorized management to purchase, from time to time, up to $50 million of the company's common stock. Purchases are being made in the open market or in privately negotiated transactions, as determined by management. The timing and amount of the purchases depend, among other matters, on market conditions and corporate requirements. Note C -- Stock split - --------------------- All share and per share amounts for the first quarter of 1997 have been restated to reflect a two-for-one stock split in the form of a 100 percent stock dividend paid on October 15, 1997 to shareholders of record on October 3, 1997. Note D -- Earnings per share - ---------------------------- The following table sets forth the calculation of basic and diluted earnings per share for the three months ended March 31 (in thousands except per share data): 1998 1997 ------- ------- Net income $41,945 $50,294 ======= ======= Weighted average common shares outstanding for basic earnings per share 96,341 98,665 Net effect of dilutive stock options of restricted stock awards 1,974 992 ------- ------- Weighted average common shares outstanding for diluted earnings per share 98,315 99,657 ======= ======= Basic earnings per share $.44 $.51 ==== ==== Diluted earnings per share $.43 $.50 ==== ==== Note E -- Accounting Changes - ---------------------------- Effective January 1, 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income"; which requires disclosure of comprehensive income and its components. Comprehensive income is defined as the aggregate change in shareholders' equity excluding changes in ownership interests. For the company, it is the foreign currency translation adjustments and net income. The components of comprehensive income, net of tax, for the three month periods ended March 31, 1998 and 1997 are as follows (in thousands): 1998 1997 ------- ------- Net income $41,945 $50,294 Foreign currency translation adjustments (6,342) (14,502) ------- ------- Comprehensive income $35,603 $35,792 ======= ======= Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- Sales - ----- Consolidated sales for the first quarter of 1998 increased approximately 9 percent compared with the year-earlier period. This sales growth was principally due to increased activity levels in Europe and the Asia/Pacific region and acquisitions offset, in part, by a stronger U.S. dollar and lower sales in the company's North American components operations. Operating income - ---------------- The company recorded operating income of $92 million in the first quarter of 1998, compared with $104.1 million in the first quarter of 1997. The decrease in operating income reflects the impact of lower sales and gross profit margins in North America offset, in part, by stronger performance by the company's operations in Europe and the Asia/Pacific region. Gross profit margins decreased principally as a result of competitive pricing pressures in the North American components operations and a greater sales mix of lower margin commercial computer products. Interest expense - ---------------- Interest expense of $18.7 million in the first quarter of 1998 increased from $13.9 million during the comparable quarter of 1997, reflecting increases in borrowings associated with acquisitions, purchases of the company's common stock, and investments in working capital. Income taxes - ------------ During the first quarter of 1998, the company recorded a provision for taxes at an effective tax rate of 41.2%, compared with 41.1% in the year-earlier period. Net income - ---------- The company recorded net income of $41.9 million in the first quarter of 1998 compared with $50.3 million in the first quarter of 1997. The decrease in net income from the year-earlier period is principally due to lower operating income and higher interest expense offset, in part, by a decrease in 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 75 percent for the first quarter of 1998 and 1997. During the first three months of 1998, the net amount of cash used by the company's operating activities was $121.4 million, the principal element of which was the increase in inventory. The net amount of cash used for investing activities was $40.7 million, including $32.2 million for acquisitions. The net amount of cash provided by the company's financing activities was $105.5 million. The net amount of cash used by the company's operating activities during the first three months of 1997 was $51.7 million. The principal element of which was the increase in accounts receivable resulting from the increase in net sales over the fourth quarter of 1996. The net amount of cash used for investing activities was $327 million, including approximately $300 million for the acquisition of the volume electronic component distribution businesses of Premier Farnell plc. The net amount of cash provided by financing activities was $380.8 million, principally reflecting the $393.3 million of proceeds from the issuance of the company's senior notes and senior debentures offset, in part, by purchases of the company's common stock and distributions to minority partners. Information Relating to Forward-Looking Statements - -------------------------------------------------- This report includes forward-looking statements that are subject to certain 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; changes in product supply, pricing, and customer demand; competition; other vagaries in the computer and electronic components markets; and changes in relationships with key suppliers. 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. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. (b) Reports on Form 8-K. During the quarter ended March 31, 1998 the following Current Reports on Form 8-K were filed: Date of Report Item Reported -------------- ------------- March 18, 1998 Arrow Electronics announced first quarter earnings likely to be below analysts' expectations. 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: May 12, 1998 By:/s/ Gerald Luterman ------------------- Gerald Luterman Senior Vice President and Chief Financial Officer Date: May 12, 1998 By:/s/ Paul J. Reilly ------------------ Paul J. Reilly Vice President and Controller