Arrow Electronics Reports Record Annual Revenue.

-- Fourth Quarter Sales Advance 18% Year-over-Year --

-- Cash Flow from Operations of $288 Million in the Current Quarter --

MELVILLE, N.Y. -- Arrow Electronics, Inc. (NYSE:ARW) today reported fourth quarter 2006 net income of $128.1 million ($1.05 and $1.04 per share on a basic and diluted basis, respectively) on sales of $3.49 billion, compared with net income of $74.4 million ($.62 and $.60 per share on a basic and diluted basis, respectively) on sales of $2.96 billion in the fourth quarter of 2005. Consolidated sales grew 18% over the fourth quarter of 2005, or 8% on a pro forma basis including the impact of acquisitions.

Results for the fourth quarter of 2006 include a number of items that were not included in the company's guidance and impact their comparability:

* The company settled certain tax matters covering multiple years during the fourth quarter of 2006. As such, the company recorded a reduction in the provision for income taxes of $46.2 million and related interest expense of $6.9 million ($4.2 million net of related taxes) in the fourth quarter. The impact on net income was an increase of $50.4 million, of which $1.9 million related to the fourth quarter of 2006.

* During the fourth quarter of 2006, the company made the decision to expand and accelerate a strategic initiative that includes the introduction of a worldwide ERP system. The impact on net income was a decrease of $3.6 million. The company expects that future costs of this initiative will be offset by further cost efficiencies within its business and, as such, does not expect this initiative to be dilutive to future earnings.

* During the fourth quarter of 2006, the company completed the valuation of identifiable intangibles associated with acquisitions completed in the fourth quarter of 2005. Accordingly, the company recorded the related amortization expense for the full year in the fourth quarter of 2006. The impact on net income was a decrease of $1.6 million, of which $.4 million related to the fourth quarter of 2006.

* The company recorded restructuring charges and costs associated with pre-acquisition warranty and environmental claims. The impact of these various items was a decrease of $7.8 million in net income.

Excluding the aforementioned items net income for the quarter ended December 31, 2006 would have been $92.2 million ($.75 per share on both a basic and diluted basis). Included in the fourth quarter of 2005 were restructuring charges and a loss on the prepayment of debt. The impact on net income was a decrease of $3.0 million. Excluding these items, net income for the quarter ended December 31, 2005 would have been $77.4 million ($.65 and $.63 per share on a basic and diluted basis).

"We ended an exceptional year with another very strong quarter, again posting impressive financial results and industry-leading levels of profitability. Sales and operating income grew to their highest fourth quarter levels since 2000. Outstanding working capital management drove operating cash flow of $288 million with return on invested capital greater than our cost of capital for the 12th consecutive quarter," said William E. Mitchell, chairman, president and chief executive officer, Arrow Electronics, Inc.

"We saw sales at record levels in 2006 with market share gains in all of our businesses. Our continued pursuit of operational excellence enabled us to grow earnings at a faster pace than sales for the fourth consecutive year. We achieved our highest return on working capital since 2000 and generated a return on invested capital in excess of our cost of capital for the third consecutive year. In the past four years annual net income, excluding items impacting comparability, has advanced from $15 million to $362 million, earnings per share have grown at a compound annual growth rate of 110%, our return on invested capital has more than tripled and cash flow from operations has totaled over $1 billion, all while investing in growing our business. We continue to create value for our shareholders, employees, customers and suppliers," he added.

Worldwide components sales increased 15%, or 10% on a pro forma basis including the impact of acquisitions, over the fourth quarter of 2005. "We gained market share in global components on a year-over-year basis. Sales in Europe and Asia Pacific reached record fourth quarter levels, while strong working capital management and progress on efficiency initiatives resulted in Europe's highest fourth quarter return on working capital in five years and a record low level of working capital to sales for a fourth quarter in Asia Pacific. In North America, our core business serving small and medium sized customers performed well and we reached our second highest level of profits since 2000, all in the face of the well-publicized broad market weakness in the large customer base," stated Mr. Mitchell.

Worldwide computer products sales increased 27%, while sales for our enterprise computing solutions business increased 5% on a pro forma basis including the impact of acquisitions, over the fourth quarter of 2005. "Strong performance in all product segments led us to our 12th consecutive quarter of year-over-year growth, and continued industry leading levels of profitability and returns. As we enter 2007, execution of our strategic initiatives in this very important business segment have resulted in a much stronger organization. Organically and through acquisitions, we have significantly expanded our geographic reach with a leadership position now in 17 countries. We have strengthened our relationships with industry leading suppliers, gained market share in the fastest growing segments of the markets, and expanded our product offerings into the rapidly growing and increasingly important security and networking software arena, all creating value for our employees and our business partners," said Mr. Mitchell.

The company has made the decision to expand and accelerate an important strategic initiative to be more efficient and effective. In connection with this initiative, the company will introduce a worldwide ERP system in order to provide its employees with a single common infrastructure to best serve its customers and suppliers. "We are laying the foundation for increasing globalization in our business thereby creating greater value for our business partners, as well as our shareholders. This strategic initiative is expected to facilitate the most efficient processes around the world and empower our employees with the right tools to be more productive while providing superior levels of service. This initiative will have a significant positive impact on our long-term performance, resulting in improved cash flow and a more efficient, effective and profitable organization," said Mr. Mitchell. Implementation will occur in phases and is expected to be completed in four years. In 2007, the cash flow impact of this initiative is expected to be $70 to $80 million. The company will finance this initiative with cash flow from operations and does not expect these activities to be dilutive to earnings going forward.

Also included in the results for the fourth quarter of 2006 is $3.4 million ($2.4 million net of related taxes or $.02 per share on both a basic and diluted basis) related to the expensing of stock options in accordance with the provisions of Financial Accounting Standards Board Statement No. 123 (revised 2004), "Share Based Payment" ("FASB Statement No. 123R"). No such charge was recorded in 2005.

"Based upon the information known to us today, we believe that sales in the first quarter will be between $3.525 and $3.725 billion," said Paul J. Reilly, senior vice president and chief financial officer. "In our worldwide components business we expect continued strength in our small and medium sized customer base while our large customers continue to work down their inventory positions, resulting in worldwide components sales between $2.775 and $2.875 billion. We anticipate traditional seasonality in our computer products business to be offset, in part, by the impact of the Alternative Technology, Inc. and InTechnology plc acquisitions, resulting in worldwide computer products sales between $750 and $850 million. Earnings per share, on a diluted basis, are expected to be in the range of $.72 to $.76. This represents an increase of 6% to 12% year-over-year," added Mr. Reilly.

FULL YEAR RESULTS

Arrow's net income for 2006 was $388.3 million ($3.19 and $3.16 per share on a basic and diluted basis, respectively) on sales of $13.58 billion, compared with net income of $253.6 million ($2.15 and $2.09 per share on a basic and diluted basis, respectively) on sales of $11.16 billion for 2005.

Net income for 2006 includes a number of items that were not included in the company's guidance and impact their comparability:

* The company settled certain tax matters covering multiple years during the fourth quarter of 2006. As such, the company recorded a reduction in the provision for income taxes and related interest expense in the fourth quarter. The impact on net income was an increase of $50.4 million, of which $7.5 million related to the full year 2006. Going forward, the company expects an annual reduction in income taxes of $5.8 million and a reduction in related interest expense of $2.6 million ($1.5 million net of related taxes).

* During the fourth quarter of 2006, the company made the decision to expand and accelerate a strategic initiative that includes the introduction of a worldwide ERP system. The impact on net income was a decrease of $3.6 million.

* The company recorded restructuring charges and costs associated with pre-acquisition warranty and environmental claims. The impact of these various items was a decrease of $11.7 million in net income.

* The company recorded a loss on prepayment of debt related to the redemption of certain of its zero coupon convertible debentures due in 2021 and on the repurchase of certain of its 7% Senior Notes due in January 2007, which have since been fully repaid. The impact on net income was a decrease of $1.6 million.

Excluding these items, net income would have been $362.4 million ($2.98 and $2.95 per share on a basic and diluted basis, respectively) for 2006. Included in the results for 2006 is $13.0 million ($8.5 million net of related taxes or $.07 per share on both a basic and diluted basis) related to the expensing of stock options in accordance with the provisions of FASB Statement No. 123R. No such charge was recorded in 2005.

Net income for 2005 includes restructuring charges totaling $12.7 million ($7.3 million net of related taxes or $.06 and $.05 per share on a basic and diluted basis, respectively), a loss of $4.3 million ($2.6 million net of related taxes or $.02 and $.01 per share on a basic and diluted basis, respectively) associated with the prepayment of approximately $179 million of the company's debt, a write-down of an investment of $3.0 million ($.03 per share on both a basic and diluted basis), and an acquisition indemnification credit of $1.7 million ($1.3 million net of related taxes or $.01 per share on a basic basis). Excluding these items, net income would have been $265.3 million ($2.25 and $2.18 per share on a basic and diluted basis, respectively) for 2005.

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 over 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 settlement of certain tax matters, the company's efficiency enhancement initiatives, the company's acquisitions of other companies, the prepayment of debt, and the write-down of an investment. 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)

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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 fourth quarter of 2006, the company initiated a global ERP effort to standardize processes worldwide and adopt best-in-class capabilities. During 2006, the company recorded, as a component of selling, general and administrative expenses, expenses of $6.0 million ($3.6 million net of related taxes or $.03 per share on both a basic and diluted basis) for incremental costs related to the implementation of the global ERP system. Excluding the impact of such expenses, earnings per share for the fourth quarter would have been $.75 on both a basic and diluted basis and earnings per share for the year ended December 31, 2006 would have been $2.98 and $2.95 per share on a basic and diluted basis, respectively.

Effective January 1, 2006, the company adopted the provisions of Financial Accounting Standards Board Statement No. 123 (revised 2004), "Share Based Payment" ("FASB Statement No. 123R"). The company adopted the modified prospective transition method provided for under FASB Statement No. 123R and, accordingly, has not restated prior period amounts. As a result of adopting FASB Statement No. 123R, the company recorded a charge of $3.4 million ($2.4 million net of related taxes or $.02 per share on both a basic and diluted basis) and $13.0 million ($8.5 million net of related taxes or $.07 per share on both a basic and diluted basis) for the three months and year ended December 31, 2006, respectively, related to the expensing of stock options. The pre-tax compensation expense is included in selling, general and administrative expenses.

In computing net income per diluted share for the year ended December 31, 2006, net income was increased by $524 thousand 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 year ended December 31, 2006 includes 467,000 shares related to the convertible debentures.

In computing net income per diluted share for the three months and year ended December 31, 2005, net income was increased by $916 thousand and $5.2 million, respectively, for interest (net of taxes) related to the convertible debentures which are dilutive common stock equivalents. In addition, the diluted average number of shares outstanding for the three months and year ended December 31, 2005 includes 3,390,000 shares and 4,906,000 shares, respectively, 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 ongoing planned implementation of its new global financial system and new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the electronic components and computer products markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, the company's ability to generate additional cash flow 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 and Quarterly Reports on Form 10-Q). Forward-looking statements are those statements, which are not statements of historical fact. You can identify these forward-looking statements 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.

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ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS 

(In thousands except par value)

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Effective January 1, 2006, the OEM Computing Solutions business, which was previously included in the worldwide computer products business, was transitioned into the company's worldwide components business to further leverage customer overlap and to take advantage of greater opportunities for selling synergies. Prior period segment data was adjusted to conform with the current period presentation.

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