Arrow Electronics Posts Second Quarter Results; Continues Focus On Operating Efficiencies.Business Editors MELVILLE, N.Y.--(BUSINESS WIRE)--July 24, 2003 Arrow Electronics Arrow Electronics NYSE: ARW is a Fortune 500 company headquartered in Melville, New York. This company specializes in products and services of electronic components and computer products. , Inc. (NYSE NYSE See: New York Stock Exchange :ARW ARW Air Refueling Wing ARW Advanced Research Workshop ARW Associated Resume Writers ARW Army Ranger Wing (Irish Special Forces) ARW American Revolutionary War ARW Angle Random Walk ARW Aeroelastic Research Wing ) today reported second quarter 2003 net income of $6.8 million ($.07 per share) on sales of $2.12 billion, compared with a net loss of $6 million ($.06 per share) on sales of $1.84 billion in last year's second quarter. The company's results for the second quarter of 2003 and 2002 include a number of items outlined below that impact their comparability. Excluding those items, net income for the quarter ended June June: see month. 30, 2003 would have been $16.8 million ($.17 per share) and net income and net income per share from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the in the second quarter of 2002 would have been $3.8 million and $.04 per share. -- During the first quarter of 2003, the company implemented actions to become more effectively organized in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and to improve its operating efficiencies, with annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. savings of $40 million. The restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. associated with these actions totaled $11.7 million, with $6.7 million ($4.7 million net of taxes or $.05 per share) recorded in the first quarter. The remaining $5 million ($3.4 million net of taxes or $.03 per share) was recorded in the second quarter. -- On May 28, 2003, the company announced a series of measures that further enhance efficiencies, with estimated annualized savings of $25 million. The restructuring charge associated with these actions is estimated to total $15 million, of which $9.6 million ($6.4 million net of taxes or $.06 per share) was recorded in the second quarter, with the balance to be recorded in the third quarter. -- During the second quarter of this year, the company repurchased $15 million of its 8.2% senior notes that mature in the fourth quarter of 2003. The premium paid, along with the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of related deferred issuance costs, resulted in a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $.4 million. Under newly-effective accounting rules, the premium paid to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. a company's debt is no longer recorded as an extraordinary charge. -- In last year's second quarter, the company sold the Gates/Arrow commodity computer products business and, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. or Disposal of Long-Lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. Assets," accounted for the transaction as a discontinued operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. . Its results were accounted for in a single line item on the income statement. In connection with the sale of Gates/Arrow, the company recorded a net loss of $6.1 million. The loss consists of costs related to personnel, surplus facilities, professional fees, and the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of the asset carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. . -- Also included in last year's second quarter was a $5.4 million ($3.2 million net of taxes or $.03 per share) severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when charge associated with the resignation of the company's chief executive officer. Worldwide components revenue of $1.57 billion increased 6% sequentially and 17% over last year's second quarter. Excluding foreign exchange and the estimated impact of the February February: see month. 2003 acquisition of Pioneer-Standard's IED Noun 1. IED - an explosive device that is improvised I.E.D., improvised explosive device explosive device - device that bursts with sudden violence from internal energy business, components revenue decreased 3.6% from the first quarter. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. as a percentage of sales was 3.5%, up 10 basis points sequentially but down 20 basis points from last year's second quarter. "Sales in our North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. Components group were basically in line with our first quarter, when restated for the IED acquisition, which we integrated at the end of February," said William William, crown prince of Germany William or Frederick William, 1882–1951, crown prince of Germany, son of William II. In World War I he commanded (1914) an army on the Western Front and was nominal commander in the German attack E. Mitchell Mitchell, city (1990 pop. 13,798), seat of Davison co., SE S.Dak.; inc. 1881. Mitchell is a trade, distribution, and shipping center for a dairy and livestock area. , President and Chief Executive Officer of Arrow. "The operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: for the group improved by over 100 basis points sequentially. We see this as confirmation that we have a cost structure that can be leveraged so that even modest sales growth will drive substantially improved operating performance," he added. Worldwide computer products sales totaled $549 million, up 12% from the first quarter and 9% over last year's second quarter. Operating income was 3.4% of sales, a 20 basis point sequential improvement and 80 basis points over last year's second quarter. "Our North American Computer Products business had another solid quarter, with both sales and operating margin increasing," Mr. Mitchell said. "Sales in our Enterprise Computing Refers to information technology in the larger company. See enterprise data and enterprise networking. Solutions group were up 22% sequentially, and each line showed increases over last year's second quarter," he added. As part of on-going Adj. 1. on-going - currently happening; "an ongoing economic crisis" ongoing current - occurring in or belonging to the present time; "current events"; "the current topic"; "current negotiations"; "current psychoanalytic theories"; "the ship's current position" evaluations designed to enhance the company's operating efficiencies, several additional initiatives are being taken that will result in a more effective and productive logistics network. Over the next nine months, two primary distribution centers in England England, the largest and most populous portion of the United Kingdom of Great Britain and Northern Ireland (1991 pop. 46,382,050), 50,334 sq mi (130,365 sq km). It is bounded by Wales and the Irish Sea on the west and Scotland on the north. will be closed, and their operations will be centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. in the newer, state-of-the-art, pan-European facility in Venlo Venlo (vĕn`lō), city (1994 pop. 65,367), Limburg prov., SE Netherlands, on the Maas (Meuse) River, near the German border. It is a trade center for fruit and vegetables. Manufactures include lumber and chemicals. , the Netherlands Netherlands (nĕth`ərləndz), Du. Nederland or Koninkrijk der Nederlanden, officially Kingdom of the Netherlands, constitutional monarchy (2005 est. pop. 16,407,000), 15,963 sq mi (41,344 sq km), NW Europe. . The primary distribution center in Brookhaven, New York
The Town of Brookhaven is located in central Suffolk County, New York, USA, and stretches from the North Shore to the South Shore of Long Island. will also be closed, and customers and suppliers will be served out of the newer, more efficient distribution center in Reno Reno (rē`nō), city (1990 pop. 133,850), seat of Washoe co., W Nev., on the Truckee River; inc. 1903. Tourism has been the major industry since gambling was legalized in Nevada in 1931. , Nevada Nevada (nəvăd`ə, –vä–), far western state of the United States. It is bordered by Utah (E), Arizona (SE), California (SW, W), and Oregon and Idaho (N). . The anticipated annualized savings from these closures is approximately $5 million. The costs associated with the closures are estimated to total $5 million and will be recorded over several quarters. The company also announced that it will exit its PC component distribution business serving hardware integrators and resellers in Norway, Sweden, Denmark, and Finland. These businesses had quarterly sales of approximately $30 million and were running at an estimated annualized loss of $4 million. The anticipated costs associated with the closure of these businesses is estimated to be $5 million. "We must continue to identify opportunities to be more efficient, and we will continue to do so," stated Mr. Mitchell. "This is management's on-going responsibility, whether sales are increasing or decreasing," he added. "Though visibility remains very limited, we continue to believe that we are bouncing along the bottom of a very extended industry-wide downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. ," said Mr. Mitchell. "While we cannot predict future financial performance with any degree of confidence, the realities are that our components businesses around the world continue to report a high level of 'turns' business and relatively flat demand and both our computer products and European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. businesses are entering a seasonally weak third quarter. We will continue to manage the business as efficiently as we can, but the fact is that we do not yet see any evidence of a sustained upturn in our industry," he added. Six-Month Results Arrow's net income for the first six months of 2003 was $5.9 million ($.06 per share) on sales of $4.1 billion, compared with a net loss of $607 million ($6.09 and $5.99 per share on a basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, respectively) on sales of $3.7 billion in the first six months of 2002. Net income for the first six months of 2003 includes the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. restructuring charges as well as an integration charge of $6.9 million ($4.8 million net of taxes or $.05 per share) related to the acquisition and integration of Pioneer-Standard's IED business and a charge of $2.9 million ($1.8 million net of taxes or $.02 per share) related to the repurchase of $85 million of the company's 8.2% senior notes. Excluding these items, net income was $27 million ($.27 per share). Effective January 1, 2002 the company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. ." As a result of this new rule the company recorded an impairment charge of $603.7 million ($6.06 and $5.96 per share on a basic and diluted basis, respectively), which has been recorded as a cumulative effect of a change in accounting principle. Excluding the aforementioned loss from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. ($5.9 million net of taxes or $.06 per share), severance charges, and cumulative effect of the change in accounting principle, net income from continuing operations for the first six months of 2002 was $5.9 million ($.06 per share). Arrow Electronics is one of the world's largest distributors of electronic components and computer products and a leading provider of services to the electronics industry. Headquartered in Melville, New York Melville is a hamlet and census-designated place in the town of Huntington in Suffolk County on Long Island, New York, in the United States. As of the 2000 census, 14,533 people resided there. , Arrow serves as a supply channel partner for more than 600 suppliers and over 150,000 original equipment manufacturers, contract manufacturers, and commercial customers through more than 190 sales facilities and 21 distribution centers in 40 countries. Detailed information about Arrow's operations can be found at www.arrow.com. Pro Forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma Results In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ), Arrow also discloses pro forma or non-GAAP results of operations that exclude certain items. Arrow discloses such pro forma information in order to reflect underlying operating performance and to permit shareholders and other readers to better assess the company's operating results. Such information is provided as a complement to results provided in accordance with GAAP. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 provides a "safe harbor" for forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . This press release contains 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, changes in relationships with key suppliers and the other risks described from time to time in the company's reports to the Securities and Exchange Commission (including the company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and Quarterly Reports on Form 10-Q Form 10-Q See 10-Q. ). 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 forward-looking statements.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- -----
Sales $2,123,139 $ 1,843,317 $4,103,244 $3,687,856
----------- ----------- ---------- -----------
Costs and expenses:
Cost of products sold 1,768,036 1,523,729 3,413,084 3,053,736
Selling, general and
administrative
expenses 281,651 257,158 551,427 509,348
Depreciation and
amortization 18,045 16,639 34,957 34,310
Restructuring charges 14,552 - 21,242 -
Integration charge - - 6,904 -
Severance charge - 5,375 - 5,375
----------- ----------- ---------- -----------
2,082,284 1,802,901 4,027,614 3,602,769
----------- ----------- ---------- -----------
Operating income 40,855 40,416 75,630 85,087
Equity in earnings of
affiliated companies 1,070 813 1,385 966
Loss on prepayment of debt 390 - 2,942 -
Interest expense 31,869 40,830 65,165 82,072
----------- ----------- ---------- -----------
Income before income
taxes and minority interest 9,666 399 8,908 3,981
Provision for income taxes 2,653 33 2,698 1,404
----------- ----------- ---------- -----------
Income before minority
interest 7,013 366 6,210 2,577
Minority interest 186 (210) 288 (84)
----------- ----------- ---------- -----------
Income from continuing
operations 6,827 576 5,922 2,661
Loss from discontinued
operations, net of taxes
(including loss from
disposal of $6,120, net
of tax benefit of $4,114)(A) - (6,610) - (5,911)
----------- ----------- ---------- -----------
Income (loss) before
cumulative effect of
change in accounting
principle 6,827 (6,034) 5,922 (3,250)
Cumulative effect of
change in accounting
principle (B) - - - (603,709)
----------- ----------- ---------- -----------
Net income (loss) $ 6,827 $ (6,034) $ 5,922 $ (606,959)
=========== ============ ========= ===========
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) per basic
share:
Income from continuing
operations $ .07 $ .01 $ .06 $ .03
Loss from discontinued
operations (A) - (.07) - (.06)
Cumulative effect of change
in accounting principle (B) - - - (6.06)
------ --------- --------- ----------
Net income (loss) per basic
share $ .07 $ (.06) $ .06 $ (6.09)
======= ========== ========= ==========
Net income (loss) per
diluted share:
Income from continuing
operations $ .07 $ .01 $ .06 $ .03
Loss from discontinued
operations (A) - (.07) - (.06)
Cumulative effect of change
in accounting principle (B) - - - (5.96)
------ --------- --------- ----------
Net income (loss) per
diluted share $ .07 $ (.06) $ .06 $ (5.99)
======= ========== ========= ==========
Average number of shares
outstanding:
Basic 100,127 99,813 100,036 99,667
Diluted 100,980 101,019 100,744 101,283
See accompanying notes.
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
NOTES
(A) In May 2002, the company sold substantially all of the assets of
Gates/Arrow Distributing, a business unit within the company's North
American Computer Products group that sold commodity computer products
such as printers, monitors, other peripherals, and software to
value-added resellers in North America. This business is accounted
for as a discontinued operation in accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." Accordingly, its results have been
included in the consolidated statement of operations as a single line
item and all prior period information has been restated to reflect
this presentation.
(B) The company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," as of January 1,
2002. As a result of the evaluation process, the company recorded an
impairment charge of $603.7 million ($6.06 and $5.96 per share on a
basic and diluted basis, respectively) for the six months ended June
30, 2002. In accordance with the transitional rules, the company has
recorded the impairment charge as a cumulative effect of change in
accounting principle effective with the first quarter of 2002.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
June 30, December 31,
2003 2002
--------- ------------
Assets
Current assets:
Cash and short-term investments $ 725,582 $ 694,092
Accounts receivable, net 1,593,751 1,378,562
Inventories 1,386,687 1,201,271
Other 53,956 59,810
----------- ------------
Total current assets 3,759,976 3,333,735
Property, plant and equipment, net 290,523 299,518
Investments in affiliated companies 35,420 32,527
Cost in excess of net assets of companies
acquired, net of amortization 865,581 748,368
Other assets 276,980 253,457
----------- ------------
$5,228,480 $4,667,605
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,009,345 $ 917,271
Accrued expenses 328,099 258,774
Short-term borrowings, including
current portion of long-term debt 202,819 286,348
----------- ------------
Total current liabilities 1,540,263 1,462,393
Long-term debt 2,174,621 1,807,113
Other 166,579 162,850
Shareholders' equity 1,347,017 1,235,249
----------- ------------
$5,228,480 $4,667,605
=========== ============
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,
--------------------- ----------------------
2003(A) 2002(B) 2003(C) 2002(B)
-------- -------- ------- -------
Sales:
Components $ 1,574,148 $1,340,379 $3,064,439 $2,689,646
Computer products 548,991 502,938 1,038,805 998,210
----------- ---------- ---------- -----------
Consolidated $ 2,123,139 $1,843,317 $4,103,244 $3,687,856
=========== ========== ========== ===========
Operating income:
Components $ 55,214 $49,534 $ 104,749 $99,385
Computer products 18,675 12,898 34,291 24,654
Corporate (33,034) (22,016) (63,410) (38,952)
----------- ---------- ---------- -----------
Consolidated $ 40,855 $40,416 $ 75,630 $85,087
=========== ========== ========= ===========
(A) Includes a restructuring charge of $14.6 million for the three
months ended June 30, 2003.
(B) Includes a severance charge of $5.4 million for the three and
six months ended June 30, 2002.
(C) Includes restructuring charges of $21.2 million and an integration
charge of $6.9 million related to the acquisition and integration
of the Industrial Electronics Distribution business of
Pioneer-Standard Electronics, Inc. for the six months ended June
30, 2003.
This interim report is subject to independent audit at year-end.
ARROW ELECTRONICS, INC.
EARNINGS RECONCILIATION
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
Net income (loss),
as reported $6,827 $(6,034) $5,922 $(606,959)
Restructuring charges, net
of taxes 9,734 - 14,407 -
Integration charge,
net of taxes - - 4,822 -
Severance charge,
net of taxes - 3,214 - 3,214
Loss on prepayment of debt,
net of taxes 233 - 1,759 -
Loss from discontinued
operations, net of taxes - 6,610 - 5,911
Cumulative effect of change
in accounting principle - - - 603,709
-------- --------- --------- ----------
Net income, as adjusted $16,794 $3,790 $ 26,910 $ 5,875
======== ========= ========= ==========
Net income (loss) per diluted
share, as reported $ .07 $(.06) $ .06 $(5.99)
Restructuring charges,
net of taxes .10 - .14 -
Integration charge, net
of taxes - - .05 -
Severance charge, net of
taxes - .03 - .03
Loss on prepayment of
debt, net of taxes - - .02 -
Loss from discontinued
operations, net of taxes - .07 - .06
Cumulative effect of change
in accounting principle - - - 5.96
-------- --------- --------- ----------
Net income per diluted share,
as adjusted $ .17 $.04 $ .27 $.06
======== ========= ========= ==========
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