Unassociated Document
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 April 3, 2010
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)
|
|
|
50
Marcus Drive, Melville, New York
|
11747
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(631)
847-2000
(Registrant's
telephone number, including area code)
No
Changes
(Former
name, former address and former fiscal year, if changed since last
report)
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
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act:
Large accelerated filer x
|
Accelerated filer ¨
|
Non-accelerated filer ¨ (do not check if a smaller reporting company)
|
Smaller reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No
x
There
were 120,432,961 shares of Common Stock outstanding as of April 28,
2010.
ARROW
ELECTRONICS, INC.
INDEX
|
|
|
Page
|
Part
I.
|
Financial
Information
|
|
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
Consolidated Statements of
Operations
|
|
3
|
|
|
Consolidated Balance
Sheets
|
|
4
|
|
|
Consolidated Statements of Cash
Flows
|
|
5
|
|
|
Notes to Consolidated Financial
Statements
|
|
6
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
23
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
30
|
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
32
|
|
|
|
|
|
Part
II.
|
Other
Information
|
|
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
|
33
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
33
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
34
|
|
|
|
|
|
Signature
|
|
|
35
|
PART
I. FINANCIAL INFORMATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands except per share data)
(Unaudited)
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
4,235,366
|
|
|
$
|
3,417,428
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,697,433
|
|
|
|
2,986,432
|
|
Selling,
general and administrative expenses
|
|
|
366,749
|
|
|
|
329,114
|
|
Depreciation
and amortization
|
|
|
18,477
|
|
|
|
16,627
|
|
Restructuring,
integration, and other charges
|
|
|
7,437
|
|
|
|
24,018
|
|
|
|
|
4,090,096
|
|
|
|
3,356,191
|
|
Operating
income
|
|
|
145,270
|
|
|
|
61,237
|
|
Equity
in earnings of affiliated companies
|
|
|
1,148
|
|
|
|
323
|
|
Interest
and other financing expense, net
|
|
|
19,086
|
|
|
|
23,035
|
|
Income
before income taxes
|
|
|
127,332
|
|
|
|
38,525
|
|
Provision
for income taxes
|
|
|
40,291
|
|
|
|
11,789
|
|
Consolidated
net income
|
|
|
87,041
|
|
|
|
26,736
|
|
Noncontrolling
interests
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Net
income attributable to shareholders
|
|
$
|
87,046
|
|
|
$
|
26,741
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.72
|
|
|
$
|
.22
|
|
Diluted
|
|
$
|
.71
|
|
|
$
|
.22
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,223
|
|
|
|
119,570
|
|
Diluted
|
|
|
121,906
|
|
|
|
120,133
|
|
See
accompanying notes.
CONSOLIDATED
BALANCE SHEETS
(In
thousands except par value)
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
810,051 |
|
|
$ |
1,137,007 |
|
Accounts
receivable, net
|
|
|
3,081,692 |
|
|
|
3,136,141 |
|
Inventories
|
|
|
1,476,648 |
|
|
|
1,397,668 |
|
Other
current assets
|
|
|
182,836 |
|
|
|
168,812 |
|
Total
current assets
|
|
|
5,551,227 |
|
|
|
5,839,628 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
23,494 |
|
|
|
23,584 |
|
Buildings
and improvements
|
|
|
133,264 |
|
|
|
137,539 |
|
Machinery
and equipment
|
|
|
794,509 |
|
|
|
779,105 |
|
|
|
|
951,267 |
|
|
|
940,228 |
|
Less:
Accumulated depreciation and amortization
|
|
|
(484,801 |
) |
|
|
(479,522
|
) |
Property,
plant and equipment, net
|
|
|
466,466 |
|
|
|
460,706 |
|
|
|
|
|
|
|
|
|
|
Investments
in affiliated companies
|
|
|
54,298 |
|
|
|
53,010 |
|
Cost
in excess of net assets of companies acquired
|
|
|
915,555 |
|
|
|
926,296 |
|
Other
assets
|
|
|
466,986 |
|
|
|
482,726 |
|
Total
assets
|
|
$ |
7,454,532 |
|
|
$ |
7,762,366 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
2,460,494 |
|
|
$ |
2,763,237 |
|
Accrued
expenses
|
|
|
425,853 |
|
|
|
445,914 |
|
Short-term
borrowings, including current portion of long-term debt
|
|
|
129,159 |
|
|
|
123,095 |
|
Total
current liabilities
|
|
|
3,015,506 |
|
|
|
3,332,246 |
|
Long-term
debt
|
|
|
1,262,840 |
|
|
|
1,276,138 |
|
Other
liabilities
|
|
|
234,290 |
|
|
|
236,685 |
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $1:
|
|
|
|
|
|
|
|
|
Authorized
– 160,000 shares in 2010 and 2009
|
|
|
|
|
|
|
|
|
Issued
– 125,337 and 125,287 shares in 2010 and 2009,
respectively
|
|
|
125,337 |
|
|
|
125,287 |
|
Capital
in excess of par value
|
|
|
1,040,958 |
|
|
|
1,056,704 |
|
Treasury
stock (4,931 and 5,459 shares in 2010 and 2009, respectively), at
cost
|
|
|
(160,824 |
) |
|
|
(179,152
|
) |
Retained
earnings
|
|
|
1,781,563 |
|
|
|
1,694,517 |
|
Foreign
currency translation adjustment
|
|
|
164,705 |
|
|
|
229,019 |
|
Other
|
|
|
(9,843 |
) |
|
|
(9,415
|
) |
Total
shareholders' equity
|
|
|
2,941,896 |
|
|
|
2,916,960 |
|
Noncontrolling
interests
|
|
|
- |
|
|
|
337 |
|
Total
equity
|
|
|
2,941,896 |
|
|
|
2,917,297 |
|
Total
liabilities and equity
|
|
$ |
7,454,532 |
|
|
$ |
7,762,366 |
|
See
accompanying notes.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Consolidated
net income
|
|
$
|
87,041
|
|
|
$
|
26,736
|
|
Adjustments
to reconcile consolidated net income to net cash provided by (used for)
operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
18,477
|
|
|
|
16,627
|
|
Amortization
of stock-based compensation
|
|
|
8,467
|
|
|
|
5,357
|
|
Amortization
of deferred financing costs and discount on notes
|
|
|
558
|
|
|
|
547
|
|
Equity
in earnings of affiliated companies
|
|
|
(1,148
|
)
|
|
|
(323
|
)
|
Deferred
income taxes
|
|
|
15,091
|
|
|
|
10,508
|
|
Restructuring,
integration, and other charges
|
|
|
5,545
|
|
|
|
16,069
|
|
Excess
tax benefits from stock-based compensation arrangements
|
|
|
(1,762
|
)
|
|
|
2,158
|
|
Change
in assets and liabilities, net of effects of acquired
businesses:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
8,094
|
|
|
|
603,992
|
|
Inventories
|
|
|
(99,247
|
)
|
|
|
161,195
|
|
Accounts
payable
|
|
|
(272,909
|
)
|
|
|
(448,384
|
)
|
Accrued
expenses
|
|
|
(26,951
|
)
|
|
|
(145,855
|
)
|
Other
|
|
|
(23,473
|
)
|
|
|
(17,976
|
)
|
Net
cash provided by (used for) operating activities
|
|
|
(282,217
|
)
|
|
|
230,651
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment
|
|
|
(27,514
|
)
|
|
|
(36,812
|
)
|
Cash
consideration paid for acquired businesses
|
|
|
(3,060
|
)
|
|
|
-
|
|
Proceeds
from sale of facilities
|
|
|
6,806
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
(89
|
)
|
Net
cash used for investing activities
|
|
|
(23,768
|
)
|
|
|
(36,901
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Change
in short-term borrowings
|
|
|
14,160
|
|
|
|
(12,322
|
)
|
Repayment
of long-term bank borrowings
|
|
|
-
|
|
|
|
(29,400
|
)
|
Proceeds
from long-term bank borrowings
|
|
|
-
|
|
|
|
29,400
|
|
Proceeds
from exercise of stock options
|
|
|
1,579
|
|
|
|
554
|
|
Excess
tax benefits from stock-based compensation arrangements
|
|
|
1,762
|
|
|
|
(2,158
|
)
|
Repurchases
of common stock
|
|
|
(6,185
|
)
|
|
|
(2,073
|
)
|
Net
cash provided by (used for) financing activities
|
|
|
11,316
|
|
|
|
(15,999
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(32,287
|
)
|
|
|
(10,518
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(326,956
|
)
|
|
|
167,233
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,137,007
|
|
|
|
451,272
|
|
Cash
and cash equivalents at end of period
|
|
$
|
810,051
|
|
|
$
|
618,505
|
|
See
accompanying notes.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note A – Basis of
Presentation
The
accompanying consolidated financial statements of Arrow Electronics, Inc. (the
"company" or "Arrow") were prepared in accordance with accounting principles
generally accepted in the United States and reflect all adjustments of a normal
recurring nature, 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. The consolidated results of operations
for the interim periods are not necessarily indicative of results for the full
year.
These
consolidated financial statements do not include all of the information or notes
necessary for a complete presentation and, accordingly, should be read in
conjunction with the company's audited consolidated financial statements and
accompanying notes for the year ended December 31, 2009, as filed in the
company's Annual Report on Form 10-K.
Quarter
End
The
company operates on a quarterly reporting calendar that closes on the Saturday
following the end of the calendar quarter.
Reclassification
Certain
prior period amounts were reclassified to conform to the current period
presentation.
Note B – Impact of Recently
Issued Accounting Standards
In
October 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2009-13, "Multiple-Deliverable Revenue
Arrangements" ("ASU No. 2009-13").
ASU No. 2009-13 amends guidance included within Accounting Standards
Codification ("ASC") Topic 605-25 to require an entity to
use an estimated selling price when vendor specific objective evidence or
acceptable third party evidence does not exist for any products or services
included in a multiple element arrangement. The arrangement consideration should
be allocated among the products and services based upon their relative selling
prices, thus eliminating the use of the residual method of allocation. ASU No.
2009-13 also requires expanded qualitative and quantitative disclosures
regarding significant judgments made and changes in applying this guidance. ASU
No. 2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15,
2010. Early adoption and retrospective application are also
permitted. The company is currently evaluating the impact of adopting
the provisions of ASU No. 2009-13.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-14,
"Certain Revenue Arrangements That Include Software Elements" ("ASU No. 2009-14").
ASU No. 2009-14 amends guidance included within ASC Topic 985-605 to exclude
tangible products containing software components and non-software components
that function together to deliver the product’s essential
functionality. Entities that sell joint hardware and software
products that meet this scope exception will be required to follow the guidance
of ASU No. 2009-13. ASU No. 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption and
retrospective application are also permitted. The company is
currently evaluating the impact of adopting the provisions of ASU No.
2009-14.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note C –
Acquisitions
The
results of operations of the below acquisitions were included in the company's
consolidated results from their respective dates of acquisition.
2010
On April
5, 2010, the company announced that it acquired Verical, Inc., an ecommerce
business geared towards meeting the end-of-life components and parts shortage
needs of customers.
In April
2010, the company announced an agreement to acquire Converge, a leading provider
of reverse logistics services, headquartered in Peabody,
Massachusetts. Converge, with approximately 350 employees, also has
offices in Singapore and Amsterdam, with support centers throughout Europe,
Asia, and the Americas. This transaction is subject to regulatory
approvals and is expected to be completed in the second quarter of
2010.
2009
On
December 20, 2009, the company acquired A.E. Petsche Company, Inc. ("Petsche"),
a leading provider of interconnect products, including specialty wire, cable,
and harness management solutions, to the aerospace and defense markets. Petsche
provides value-added distribution services to over 3,500 customers in the United
States, Canada, Mexico, the United Kingdom, France, and
Belgium. Total Petsche sales for 2009 were approximately
$190,000.
The
following table summarizes the company's unaudited consolidated results of
operations for the first quarter of 2009, as well as the unaudited pro forma
consolidated results of operations of the company, as though the Petsche
acquisition occurred on January 1, 2009:
|
|
Quarter Ended
April 4, 2009
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
3,417,428 |
|
|
$ |
3,468,935 |
|
Net
income attributable to shareholders
|
|
|
26,741 |
|
|
|
30,245 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.22 |
|
|
$ |
.25 |
|
Diluted
|
|
$ |
.22 |
|
|
$ |
.25 |
|
The
unaudited pro forma consolidated results of operations does not purport to be
indicative of the results obtained had the Petsche acquisition occurred as of
the beginning of 2009, or of those results that may be obtained in the
future. Additionally, the above table does not reflect any
anticipated cost savings or cross-selling opportunities expected to result from
this acquisition.
Other
Amortization
expense related to identifiable intangible assets was $4,644 and $3,824 for the
first quarters of 2010 and 2009, respectively.
In March
2010, the company made a payment of $3,060 to increase its ownership in a
majority-owned subsidiary. The payment was recorded as a reduction to
capital in excess of par value, partially offset by the carrying value of the
noncontrolling interest.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note D – Cost in Excess of
Net Assets of Companies Acquired
Cost in
excess of net assets of companies acquired, allocated to the company's business
segments, is as follows:
|
|
Global
Components
|
|
|
Global ECS
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$ |
473,421 |
|
|
$ |
452,875 |
|
|
$ |
926,296 |
|
Foreign
currency translation
|
|
|
(5
|
) |
|
|
(10,736
|
) |
|
|
(10,741
|
) |
April
3, 2010
|
|
$ |
473,416 |
|
|
$ |
442,139 |
|
|
$ |
915,555 |
|
Goodwill
represents the excess of the cost of an acquisition over the fair value of the
assets acquired. The company tests goodwill for impairment annually
as of the first day of the fourth quarter, or more frequently if indicators of
potential impairment exist.
Note E – Investments in
Affiliated Companies
The
company owns a 50% interest in several joint ventures with Marubun Corporation
(collectively "Marubun/Arrow") and a 50% interest in Altech Industries (Pty.)
Ltd. ("Altech Industries"), a joint venture with Allied Technologies
Limited. These investments are accounted for using the equity
method.
The
following table presents the company's investment in Marubun/Arrow and the
company's investment and long-term note receivable in Altech
Industries:
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Marubun/Arrow
|
|
$ |
38,588 |
|
|
$ |
37,649 |
|
Altech
Industries
|
|
|
15,710 |
|
|
|
15,361 |
|
|
|
$ |
54,298 |
|
|
$ |
53,010 |
|
The
equity in earnings (loss) of affiliated companies consists of the
following:
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Marubun/Arrow
|
|
$ |
915 |
|
|
$ |
113 |
|
Altech
Industries
|
|
|
233 |
|
|
|
221 |
|
Other
|
|
|
- |
|
|
|
(11
|
) |
|
|
$ |
1,148 |
|
|
$ |
323 |
|
Under the
terms of various joint venture agreements, the company is required to pay its
pro-rata share of the third party debt of the joint ventures in the event that
the joint ventures are unable to meet their obligations. At April 3,
2010, the company's pro-rata share of this debt was approximately $6,800. The
company believes that there is sufficient equity in the joint ventures to meet
their obligations.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note F – Accounts
Receivable
Accounts
receivable, net, consists of the following:
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
3,118,697 |
|
|
$ |
3,175,815 |
|
Allowances
for doubtful accounts
|
|
|
(37,005
|
) |
|
|
(39,674
|
) |
Accounts
receivable, net
|
|
$ |
3,081,692 |
|
|
$ |
3,136,141 |
|
The
company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments. The allowances for doubtful accounts are determined using a
combination of factors, including the length of time the receivables are
outstanding, the current business environment, and historical
experience.
Note G –
Debt
Short-term
borrowings, including current portion of long-term debt, consist of the
following:
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
9.15%
senior notes, due 2010
|
|
$ |
69,544 |
|
|
$ |
69,544 |
|
Cross-currency
swap, due 2010
|
|
|
27,917 |
|
|
|
41,943 |
|
Interest
rate swaps designated as fair value hedges
|
|
|
1,405 |
|
|
|
2,036 |
|
Short-term
borrowings in various countries
|
|
|
30,293 |
|
|
|
9,572 |
|
|
|
$ |
129,159 |
|
|
$ |
123,095 |
|
Short-term
borrowings in various countries are primarily utilized to support the working
capital requirements of certain international operations. The
weighted average interest rates on these borrowings at April 3, 2010 and
December 31, 2009 were 2.1% and 3.5%, respectively.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Long-term
debt consists of the following:
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Bank
term loan, due 2012
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
6.875%
senior notes, due 2013
|
|
|
349,783 |
|
|
|
349,765 |
|
6.875%
senior debentures, due 2018
|
|
|
198,293 |
|
|
|
198,241 |
|
6.00%
notes, due 2020
|
|
|
299,911 |
|
|
|
299,909 |
|
7.5%
senior debentures, due 2027
|
|
|
197,645 |
|
|
|
197,610 |
|
Cross-currency
swap, due 2011
|
|
|
6,177 |
|
|
|
12,497 |
|
Interest
rate swaps designated as fair value hedges
|
|
|
10,086 |
|
|
|
9,556 |
|
Other
obligations with various interest rates and due dates
|
|
|
945 |
|
|
|
8,560 |
|
|
|
$ |
1,262,840 |
|
|
$ |
1,276,138 |
|
The 7.5%
senior debentures are not redeemable prior to their maturity. The
9.15% senior notes, 6.875% senior notes, 6.875% senior debentures, and 6.00%
notes may be called at the option of the company subject to "make whole"
clauses.
The
estimated fair market value is as follows:
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
9.15%
senior notes, due 2010
|
|
$ |
72,000 |
|
|
$ |
73,000 |
|
6.875%
senior notes, due 2013
|
|
|
385,000 |
|
|
|
378,000 |
|
6.875%
senior debentures, due 2018
|
|
|
214,000 |
|
|
|
214,000 |
|
6.00%
notes, due 2020
|
|
|
303,000 |
|
|
|
300,000 |
|
7.5%
senior debentures, due 2027
|
|
|
208,000 |
|
|
|
208,000 |
|
The
carrying amount of the company's short-term borrowings, bank term loan, and
other obligations approximate their fair value.
The
company has an $800,000 revolving credit facility with a group of banks that
matures in January 2012. Interest on borrowings under the revolving
credit facility is calculated using a base rate or a euro currency rate plus a
spread based on the company's credit ratings (.425% at April 3, 2010). The
facility fee related to the credit facility is .125%.
The
company has a $300,000 asset securitization program collateralized by accounts
receivables of certain of its North American subsidiaries which expires in March
2011. The asset securitization program is conducted through Arrow
Electronics Funding Corporation, a wholly-owned, bankruptcy remote subsidiary.
The asset securitization program does not qualify for sale
treatment. Accordingly, the accounts receivable and related debt
obligation remain on the company's consolidated balance
sheet. Interest on borrowings is calculated using a base rate or
commercial paper rate plus a spread, which is based on the company's credit
ratings (.60% at April 3, 2010). The facility fee is
..50%.
The
company had no outstanding borrowings under its revolving credit facility or
asset securitization program at April 3, 2010 and December 31,
2009. Both programs include terms and conditions that limit the
incurrence of additional borrowings, limit the company's ability to pay cash
dividends or repurchase stock, and require that certain financial ratios be
maintained at designated levels. The company was in
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
compliance
with all covenants as of April 3, 2010 and is currently not aware of any events
that would cause non-compliance with any covenants in the future.
Interest
and other financing expense, net, includes interest income of $339 and $1,631
for the first quarters of 2010 and 2009, respectively.
Note H –
Financial Instruments Measured at Fair Value
Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The company utilizes a
fair value hierarchy, which maximizes the use of observable inputs and minimizes
the use of unobservable inputs when measuring fair value. The fair
value hierarchy has three levels of inputs that may be used to measure fair
value:
Level 1
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities.
|
|
Quoted
prices in markets that are not active; or other inputs that are
observable, either directly or indirectly, for substantially the full term
of the asset or liability.
|
|
Prices
or valuation techniques that require inputs that are both significant to
the fair value measurement and
unobservable.
|
The
following table presents assets/(liabilities) measured at fair value on a
recurring basis at April 3, 2010:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
$ |
- |
|
|
$ |
566,701 |
|
|
$ |
- |
|
|
$ |
566,701 |
|
Available-for-sale
securities
|
|
|
55,301 |
|
|
|
- |
|
|
|
- |
|
|
|
55,301 |
|
Interest
rate swaps
|
|
|
- |
|
|
|
11,491 |
|
|
|
- |
|
|
|
11,491 |
|
Cross-currency
swaps
|
|
|
- |
|
|
|
(34,094
|
) |
|
|
- |
|
|
|
(34,094
|
) |
|
|
$ |
55,301 |
|
|
$ |
544,098 |
|
|
$ |
- |
|
|
$ |
599,399 |
|
The
following table presents assets/(liabilities) measured at fair value on a
recurring basis at December 31, 2009:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
$ |
- |
|
|
$ |
744,125 |
|
|
$ |
- |
|
|
$ |
744,125 |
|
Available-for-sale
securities
|
|
|
56,464 |
|
|
|
- |
|
|
|
- |
|
|
|
56,464 |
|
Interest
rate swaps
|
|
|
- |
|
|
|
11,592 |
|
|
|
- |
|
|
|
11,592 |
|
Cross-currency
swaps
|
|
|
- |
|
|
|
(54,440
|
) |
|
|
- |
|
|
|
(54,440
|
) |
|
|
$ |
56,464 |
|
|
$ |
701,277 |
|
|
$ |
- |
|
|
$ |
757,741 |
|
Available-For-Sale
Securities
The
company has a 2.7% equity ownership interest in WPG Holdings Co., Ltd. ("WPG")
and an 8.4% equity ownership interest in Marubun Corporation ("Marubun"), which
are accounted for as available-for-sale securities.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
The fair
value of the company's available-for-sale securities is as follows:
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
Marubun
|
|
|
WPG
|
|
|
Marubun
|
|
|
WPG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
basis
|
|
$ |
10,016 |
|
|
$ |
10,798 |
|
|
$ |
10,016 |
|
|
$ |
10,798 |
|
Unrealized
holding gain
|
|
|
4,148 |
|
|
|
30,339 |
|
|
|
4,408 |
|
|
|
31,242 |
|
Fair
value
|
|
$ |
14,164 |
|
|
$ |
41,137 |
|
|
$ |
14,424 |
|
|
$ |
42,040 |
|
The fair
value of these investments are included in "Other assets" in the accompanying
consolidated balance sheets, and the related unrealized holding gains or losses
are included in "Other" in the shareholders' equity section in the accompanying
consolidated balance sheets.
Derivative
Instruments
The
company uses various financial instruments, including derivative financial
instruments, for purposes other than trading. Derivatives used as
part of the company's risk management strategy are designated at inception as
hedges and measured for effectiveness both at inception and on an ongoing
basis.
The fair
values of derivative instruments in the consolidated balance sheets are as
follows:
|
|
Asset/(Liability) Derivatives
|
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
|
|
|
April 3,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments designated as hedges:
|
|
|
|
|
|
|
|
|
Interest
rate swaps designated as fair value hedges
|
|
Prepaid
expenses
|
|
$ |
1,405 |
|
|
$ |
2,036 |
|
Interest
rate swaps designated as fair value hedges
|
|
Other
assets
|
|
|
10,086 |
|
|
|
9,556 |
|
Cross-currency
swaps designated as net investment hedges
|
|
Short-term
borrowings
|
|
|
(27,917
|
) |
|
|
(41,943
|
) |
Cross-currency
swaps designated as net investment hedges
|
|
Long-term
debt
|
|
|
(6,177
|
) |
|
|
(12,497
|
) |
Foreign
exchange contracts designated as cash flow hedges
|
|
Prepaid
expenses
|
|
|
118 |
|
|
|
406 |
|
Foreign
exchange contracts designated as cash flow hedges
|
|
Accrued
expenses
|
|
|
(235
|
) |
|
|
(272
|
) |
Total
derivative instruments designated as hedging instruments
|
|
|
|
|
(22,720
|
) |
|
|
(42,714
|
) |
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Prepaid
expenses
|
|
|
1,582 |
|
|
|
2,362 |
|
Foreign
exchange contracts
|
|
Accrued
expenses
|
|
|
(2,910
|
) |
|
|
(1,952
|
) |
Total
derivative instruments not designated as hedging
instruments
|
|
|
|
|
(1,328
|
) |
|
|
410 |
|
Total
|
|
|
|
$ |
(24,048 |
) |
|
$ |
(42,304 |
) |
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
The
effect of derivative instruments on the consolidated statement of operations is
as follows:
|
|
Gain/(Loss)
Recognized in Income
|
|
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Fair
value hedges:
|
|
|
|
|
|
|
Interest
rate swaps (a)
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Derivative
instruments not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (b)
|
|
$ |
2,029 |
|
|
$ |
(3,934 |
) |
Total
|
|
$ |
2,029 |
|
|
$ |
(3,934 |
) |
|
|
Quarter Ended April 3, 2010
|
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized in
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (d)
|
|
$
|
(154
|
)
|
|
$
|
(92
|
)
|
|
$
|
-
|
|
Total
|
|
$
|
(154
|
)
|
|
$
|
(92
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency
swaps (c)
|
|
$
|
20,346
|
|
|
$
|
-
|
|
|
$
|
86
|
|
Total
|
|
$
|
20,346
|
|
|
$
|
-
|
|
|
$
|
86
|
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
|
|
Quarter Ended April 4, 2009
|
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized in
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps (c)
|
|
$
|
743
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
exchange contracts (d)
|
|
|
(1,359
|
)
|
|
|
(49
|
)
|
|
|
-
|
|
Total
|
|
$
|
(616
|
)
|
|
$
|
(49
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency
swaps (c)
|
|
$
|
11,966
|
|
|
$
|
-
|
|
|
$
|
(84
|
)
|
Total
|
|
$
|
11,966
|
|
|
$
|
-
|
|
|
$
|
(84
|
)
|
(a)
|
The
amount of gain/(loss) recognized in income on derivatives is recorded in
"Interest and other financing expense, net" in the accompanying
consolidated statements of
operations.
|
|
The
amount of gain/(loss) recognized in income on derivatives is recorded in
"Cost of sales" in the accompanying consolidated statements of
operations.
|
|
Both
the effective and ineffective portions of any gain/(loss) reclassified or
recognized in income is recorded in "Interest and other financing expense,
net" in the accompanying consolidated statements of
operations.
|
|
Both
the effective and ineffective portions of any gain/(loss) reclassified or
recognized in income is recorded in "Cost of sales" in the accompanying
consolidated statements of
operations.
|
Interest Rate
Swaps
The
company enters into interest rate swap transactions that convert certain
fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt
in order to manage its targeted mix of fixed- and floating-rate
debt. The effective portion of the change in the fair value of
interest rate swaps designated as fair value hedges are recorded as a change to
the carrying value of the related hedged debt, and the effective portion of the
change in fair value of interest rate swaps designated as cash flow hedges are
recorded in the shareholders' equity section in the accompanying consolidated
balance sheets in "Other." The ineffective portion of the interest
rate swap, if any, is recorded in "Interest and other financing expense, net" in
the accompanying consolidated statements of operations.
In June
2004, the company entered into interest rate swaps, with an aggregate notional
amount of $200,000, of which $130,455 was terminated in 2009 upon the repayment
of a portion of the underlying debt. The swaps modify the company's
interest rate exposure by effectively converting the fixed 9.15% senior notes to
a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an
effective rate of 4.75% and 4.94% at April 3, 2010 and December 31, 2009,
respectively), through its maturity. The swaps are classified as fair
value hedges and had a fair value of $1,405 and $2,036 at April 3, 2010 and
December 31, 2009, respectively.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
In June
2004 and November 2009, the company entered into interest rate swaps, with an
aggregate notional amount of $275,000. The swaps modify the company's
interest rate exposure by effectively converting a portion of the fixed 6.875%
senior notes to a floating rate, based on the six-month U.S. dollar LIBOR plus a
spread (an effective rate of 4.04% and 4.18% at April 3, 2010 and December 31,
2009, respectively), through its maturity. The swaps are classified
as fair value hedges and had a fair value of $10,086 and $9,556 at April 3, 2010
and December 31, 2009, respectively.
Cross-Currency
Swaps
The
company enters into cross-currency swaps to hedge a portion of its net
investment in euro-denominated net assets. The company’s cross-currency swaps
are derivatives designated as net investment hedges. The effective
portion of the change in the fair value of derivatives designated as net
investment hedges is recorded in "Foreign currency translation adjustment"
included in the accompanying consolidated balance sheets and any ineffective
portion is recorded in "Interest and other financing expense, net" in the
accompanying consolidated statements of operations. As the notional
amounts of the company’s cross-currency swaps are expected to equal a comparable
amount of hedged net assets, no material ineffectiveness is
expected. The company uses the hypothetical derivative method to
assess the effectiveness of its net investment hedges on a quarterly
basis.
In May
2006, the company entered into a cross-currency swap, with a maturity date of
July 2011, for approximately $100,000 or €78,281 (the "2006 cross-currency
swap") to hedge a portion of its net investment in euro-denominated net
assets. The 2006 cross-currency swap effectively converts the
interest expense on $100,000 of long-term debt from U.S. dollars to
euros. The 2006 cross-currency swap had a negative fair value of
$6,177 and $12,497 at April 3, 2010 and December 31, 2009,
respectively.
In
October 2005, the company entered into a cross-currency swap, with a maturity
date of October 2010, for approximately $200,000 or €168,384 (the "2005
cross-currency swap") to hedge a portion of its net investment in
euro-denominated net assets. The 2005 cross-currency swap effectively
converts the interest expense on $200,000 of long-term debt from U.S. dollars to
euros. The 2005 cross-currency swap had a negative fair value
of $27,917 and $41,943 at April 3, 2010 and December 31, 2009,
respectively.
Foreign Exchange
Contracts
The
company enters into foreign exchange forward, option, or swap contracts
(collectively, the "foreign exchange contracts") to mitigate the impact of
changes in foreign currency exchange rates. These contracts are
executed to facilitate the hedging of foreign currency exposures resulting from
inventory purchases and sales and generally have terms of no more than six
months. Gains or losses on these contracts are deferred and recognized when the
underlying future purchase or sale is recognized or when the corresponding asset
or liability is revalued. The company does not enter into foreign exchange
contracts for trading purposes. The risk of loss on a foreign exchange contract
is the risk of nonperformance by the counterparties, which the company minimizes
by limiting its counterparties to major financial institutions. The
fair value of the foreign exchange contracts, which are nominal, are estimated
using market quotes. The notional amount of the foreign exchange
contracts at April 3, 2010 and December 31, 2009 was $322,997 and $294,928,
respectively.
Other
The
carrying amount of cash and cash equivalents, accounts receivable, net, and
accounts payable approximate their fair value due to the short maturities of
these financial instruments.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Cash
equivalents consist primarily of overnight time deposits and institutional money
market funds with quality financial institutions. These financial
institutions are located in many different geographical regions, and the
company's policy is designed to limit exposure with any one
institution. As part of its cash and risk management processes, the
company performs periodic evaluations of the relative credit standing of these
financial institutions.
Note I –
Restructuring, Integration, and Other Charges
During
the first quarters of 2010 and 2009, the company recorded restructuring,
integration, and other charges of $7,437 ($5,545 net of related taxes or $.05
per share on both a basic and diluted basis) and $24,018 ($16,069 net of related
taxes or $.13 per share on both a basic and diluted basis),
respectively.
The
following table presents the components of the restructuring, integration, and
other charges:
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Restructuring
charges – 2010 actions
|
|
$ |
5,189 |
|
|
$ |
23,472 |
|
Restructuring
and integration charges – 2009 and prior actions
|
|
|
2,149 |
|
|
|
546 |
|
Acquisition-related
expenses
|
|
|
99 |
|
|
|
- |
|
|
|
$ |
7,437 |
|
|
$ |
24,018 |
|
2010 Restructuring
Charge
The
following table presents the components of the 2010 restructuring charge of
$5,189 and activity in the restructuring accrual for the first quarter of
2010:
|
Personnel
Costs
|
|
|
Facilities
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charge
|
$
|
4,844
|
|
|
$
|
201
|
|
|
$
|
144
|
|
|
$
|
5,189
|
|
Payments
|
|
(2,613
|
)
|
|
|
(114
|
)
|
|
|
-
|
|
|
|
(2,727
|
)
|
Non-cash
usage
|
|
-
|
|
|
|
-
|
|
|
|
(144
|
)
|
|
|
(144
|
)
|
Foreign
currency translation
|
|
108
|
|
|
|
12
|
|
|
|
-
|
|
|
|
120
|
|
April
3, 2010
|
$
|
2,339
|
|
|
$
|
99
|
|
|
$
|
-
|
|
|
$
|
2,438
|
|
The
restructuring charge of $5,189 for the first quarter of 2010 primarily includes
personnel costs of $4,844 and facilities costs of $201. The personnel
costs are related to the elimination of approximately 55 positions within the
global components business segment and approximately 10 positions within the
global ECS business segment. The facilities costs are related to exit
activities for 4 vacated facilities in Europe due to the company's continued
efforts to streamline its operations and reduce real estate costs. These
initiatives are due to the company's continued efforts to lower cost and drive
operational efficiency.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
2009 Restructuring
Charge
The
following table presents the activity in the restructuring accrual for the first
quarter of 2010 related to the 2009 restructuring:
|
|
Personnel
Costs
|
|
|
Facilities
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$ |
25,380 |
|
|
$ |
6,287 |
|
|
$ |
224 |
|
|
$ |
31,891 |
|
Restructuring
charge
|
|
|
1,450 |
|
|
|
146 |
|
|
|
- |
|
|
|
1,596 |
|
Payments
|
|
|
(16,552
|
) |
|
|
(722
|
) |
|
|
- |
|
|
|
(17,274
|
) |
Foreign
currency translation
|
|
|
(1,031
|
) |
|
|
(364
|
) |
|
|
(10
|
) |
|
|
(1,405
|
) |
April
3, 2010
|
|
$ |
9,247 |
|
|
$ |
5,347 |
|
|
$ |
214 |
|
|
$ |
14,808 |
|
Restructuring and
Integration Accruals Related to Actions Taken Prior to 2009
The
following table presents the activity in the restructuring and integration
accruals for the first quarter of 2010 related to restructuring and integration
actions taken prior to 2009:
|
|
Personnel
Costs
|
|
|
Facilities
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$ |
1,728 |
|
|
$ |
6,676 |
|
|
$ |
1,822 |
|
|
$ |
10,226 |
|
Restructuring
and integration charges
|
|
|
15 |
|
|
|
556 |
|
|
|
(18
|
) |
|
|
553 |
|
Payments
|
|
|
(508
|
) |
|
|
(672
|
) |
|
|
- |
|
|
|
(1,180
|
) |
Non-cash
usage
|
|
|
- |
|
|
|
(582
|
) |
|
|
- |
|
|
|
(582
|
) |
Foreign
currency translation
|
|
|
(12
|
) |
|
|
(271
|
) |
|
|
(12
|
) |
|
|
(295
|
) |
April
3, 2010
|
|
$ |
1,223 |
|
|
$ |
5,707 |
|
|
$ |
1,792 |
|
|
$ |
8,722 |
|
Restructuring and
Integration Accrual Summary
In
summary, the restructuring and integration accruals aggregate $25,968 at April
3, 2010, of which $25,558 is expected to be spent in cash, and are expected to
be utilized as follows:
·
|
The
accruals for personnel costs of $12,809 to cover the termination of
personnel are primarily expected to be spent within one year.
|
·
|
The
accruals for facilities totaling $11,153 relate to vacated leased
properties that have scheduled payments of $4,364 in 2010, $2,835 in 2011,
$1,589 in 2012, $1,270 in 2013, $614 in 2014, and $481
thereafter.
|
·
|
Other
accruals of $2,006 are expected to be utilized over several
years.
|
Acquisition-Related
Expenses
Included
in restructuring, integration, and other charges is $99 of other
acquisition-related expenses for the first quarter of 2010 primarily consisting
of professional fees directly related to recent acquisition
activity.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note J – Net Income per
Share
The
following table sets forth the computation of net income per share on a basic
and diluted basis (shares in thousands):
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Net
income attributable to shareholders
|
|
$ |
87,046 |
|
|
$ |
26,741 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
120,223 |
|
|
|
119,570 |
|
Net
effect of various dilutive stock-based compensation awards
|
|
|
1,683 |
|
|
|
563 |
|
Weighted
average shares outstanding - diluted
|
|
|
121,906 |
|
|
|
120,133 |
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.72 |
|
|
$ |
.22 |
|
Diluted
(a)
|
|
$ |
.71 |
|
|
$ |
.22 |
|
(a)
|
Stock-based
compensation awards for the issuance of 2,776 and 3,967 shares for the
first quarters of 2010 and 2009, respectively, were excluded from the
computation of net income per share on a diluted basis as their effect was
anti-dilutive.
|
Note K – Shareholders'
Equity
Comprehensive Income
(Loss)
The
components of comprehensive income (loss) are as follows:
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Consolidated
net income
|
|
$ |
87,041 |
|
|
$ |
26,736 |
|
Foreign
currency translation adjustments (a)
|
|
|
(64,314
|
) |
|
|
(40,142
|
) |
Other
(b)
|
|
|
(428
|
) |
|
|
1,456 |
|
Comprehensive
income (loss)
|
|
|
22,299 |
|
|
|
(11,950
|
) |
Comprehensive
income (loss) attributable to noncontrolling interests
|
|
|
- |
|
|
|
(3
|
) |
Comprehensive
income (loss) attributable to shareholders
|
|
$ |
22,299 |
|
|
$ |
(11,947 |
) |
(a)
|
Except
for unrealized gains or losses resulting from the company's cross-currency
swaps, foreign currency translation adjustments were not tax effected as
investments in international affiliates are deemed to be
permanent.
|
|
Other
includes unrealized gains or losses on securities, unrealized gains or
losses on interest rate swaps designated as cash flow hedges, and other
employee benefit plan items. Each of these items is net of
related taxes.
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Share-Repurchase
Program
In March
2010, the company announced its Board of Directors approved the repurchase of up
to $100,000 of the company's common stock in such amounts as to offset the
dilution from the granting of equity-based compensation awards. As of
April 3, 2010, the company has not repurchased any common stock under the
plan.
Note L – Employee Benefit
Plans
The
company maintains supplemental executive retirement plans and a defined benefit
plan. The components of the net periodic benefit costs for these
plans are as follows:
|
|
Quarter Ended
|
|
|
|
April 3,
2010
|
|
|
April 4,
2009
|
|
|
|
|
|
|
|
|
Components
of net periodic benefit costs:
|
|
|
|
|
|
|
Service
cost
|
|
$ |
411 |
|
|
$ |
442 |
|
Interest
cost
|
|
|
2,248 |
|
|
|
2,244 |
|
Expected
return on plan assets
|
|
|
(1,498
|
) |
|
|
(1,266
|
) |
Amortization
of unrecognized net loss
|
|
|
967 |
|
|
|
876 |
|
Amortization
of prior service cost
|
|
|
20 |
|
|
|
137 |
|
Amortization
of transition obligation
|
|
|
7 |
|
|
|
103 |
|
Net
periodic benefit costs
|
|
$ |
2,155 |
|
|
$ |
2,536 |
|
Note M –
Contingencies
Environmental and Related
Matters
In 2000,
the company assumed certain of the then outstanding obligations of Wyle
Electronics ("Wyle"), including Wyle's obligation to indemnify the purchasers of
its Laboratories division for environmental clean-up costs associated with
pre-1995 contamination or violation of environmental
regulations. Under the terms of the company's purchase of Wyle from
the VEBA Group ("VEBA"), VEBA agreed to indemnify the company for, among other
things, costs related to environmental pollution associated with Wyle, including
those associated with Wyle's sale of its Laboratories division. The
company is currently engaged in clean up and/or investigative activities at the
Wyle sites in Huntsville, Alabama and Norco, California.
Characterization
of the extent of contaminated soil and groundwater continues at the site in
Huntsville, and approximately $3,000 was spent to date. The company
currently estimates additional investigative and related expenditures at the
site of approximately $500 to $1,000, depending on the results of which the cost
of subsequent remediation is estimated to be between $2,500 and
$4,000.
At the
Norco site, approximately $29,000 was expended to date on project management,
regulatory oversight, and investigative and feasibility study activities,
providing the technical basis for a final Remedial Investigation Report that was
submitted to California oversight authorities during the first quarter of
2008.
Remedial
activities underway include the remediation of contaminated groundwater at
certain areas on the Norco site and of soil gas in a limited area immediately
adjacent to the site, and a hydraulic containment system that captures and
treats groundwater before it moves into the adjacent offsite
area. Approximately $8,000 was spent on these activities to date, and
it is anticipated that these activities, along with the initial
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
phases of
the treatment of contaminated groundwater offsite and remaining Remedial Action
Work Plan costs, will cost an additional $9,650 to $19,250.
The
company currently estimates that the additional cost of project management and
regulatory oversight on the Norco site will range from $500 to
$750. Ongoing remedial investigations (including costs related to
soil and groundwater investigations), and the preparation of a final remedial
investigation report are projected to cost between $400 to $700.
Despite
the amount of work undertaken and planned to date, the complete scope of work in
connection with the Norco site is not yet known, and, accordingly, the
associated costs not yet determined.
In
October 2005, the company filed suit against E.ON AG in the Frankfurt am Main
Regional Court in Germany. The suit seeks indemnification,
contribution, and a declaration of the parties’ respective rights and
obligations in connection with the related litigation and other costs associated
with the Norco site. In its answer to the company’s claim filed in
March 2009 in the German proceedings, E.ON AG filed a counterclaim against the
company for approximately $16,000. The litigation is currently suspended while
the company engages in a court-facilitated mediation with E.ON AG. The mediation
commenced in December 2009 and will continue well into 2010. The
company believes it has reasonable defenses to the counterclaim and plans to
defend its position vigorously. The company believes that the ultimate
resolution of the counterclaim will not have a material adverse impact on the
company’s consolidated financial position, liquidity, or results of
operations.
During
the second quarter of 2009, the company entered into binding settlement
agreements resolving several of the lawsuits associated with the above-mentioned
environmental liabilities (Gloria Austin, et al. v. Wyle Laboratories,
Inc. et al., the other claims of plaintiff Norco landowners and residents which
were consolidated with it, and an action by Wyle Laboratories, Inc. for defense
and indemnification in connection with the Austin and related
cases). Arrow's actions against E.ON AG, successor to VEBA, for the
judicial enforcement of the various indemnification provisions; and Arrow's
claim against a number of insurers on policies relevant to the Wyle sites are
ongoing and unresolved. The litigation is described more fully in Note 15 and
Item 3 of Part I of the company's Annual Report on Form 10-K for the year ended
December 31, 2009.
The
company believes that the recovery of costs incurred to date associated with the
environmental clean-up costs related to the Norco and Huntsville sites is
probable. Accordingly, the company increased the receivable for
indemnified amounts due from E.ON AG by $902 during the first quarter of 2010 to
$41,814. The company’s net costs for such indemnified matters may
vary from period to period as estimates of recoveries are not always recognized
in the same period as the accrual of estimated expenses.
Other
From time
to time, in the normal course of business, the company may become liable with
respect to other pending and threatened litigation, environmental, regulatory,
labor, product, and tax matters. While such matters are subject to
inherent uncertainties, it is not currently anticipated that any such matters
will have a material impact on the company's consolidated financial position,
liquidity, or results of operations.
The
company is a global provider of products, services, and solutions to industrial
and commercial users of electronic components and enterprise computing
solutions. The company distributes electronic components to original
equipment manufacturers and contract manufacturers through its global components
business segment and provides enterprise computing solutions to value-added
resellers through its global ECS business segment. As a result of the
company's philosophy of maximizing operating efficiencies through the
centralization of certain functions, selected fixed assets and related
depreciation, as well as borrowings, are not directly attributable to the
individual operating segments and
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
are
included in the corporate business segment.
Sales and
operating income (loss), by segment, are as follows:
|
|
Quarter
Ended
|
|
|
|
April
3,
2010
|
|
|
April
4,
2009
|
|
Sales:
|
|
|
|
|
|
|
Global
components
|
|
$ |
3,128,022 |
|
|
$ |
2,345,012 |
|
Global
ECS
|
|
|
1,107,344 |
|
|
|
1,072,416 |
|
Consolidated
|
|
$ |
4,235,366 |
|
|
$ |
3,417,428 |
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
154,108 |
|
|
$ |
76,098 |
|
Global
ECS
|
|
|
23,913 |
|
|
|
32,026 |
|
Corporate
(a)
|
|
|
(32,751
|
) |
|
|
(46,887 |
) |
Consolidated
|
|
$ |
145,270 |
|
|
$ |
61,237 |
|
(a)
|
Includes
restructuring, integration, and other charges of $7,437 and $24,018 for
the first quarters of 2010 and 2009,
respectively.
|
Total
assets, by segment, are as follows:
|
|
April
3,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
4,840,555 |
|
|
$ |
4,512,141 |
|
Global
ECS
|
|
|
1,765,831 |
|
|
|
2,258,803 |
|
Corporate
|
|
|
848,146 |
|
|
|
991,422 |
|
Consolidated
|
|
$ |
7,454,532 |
|
|
$ |
7,762,366 |
|
Sales, by
geographic area, are as follows:
|
|
Quarter
Ended
|
|
|
|
April
3,
2010
|
|
|
April
4,
2009
|
|
|
|
|
|
|
|
|
Americas
(b)
|
|
$ |
1,891,756 |
|
|
$ |
1,582,173 |
|
EMEA
|
|
|
1,317,354 |
|
|
|
1,094,603 |
|
Asia/Pacific
|
|
|
1,026,256 |
|
|
|
740,652 |
|
Consolidated
|
|
$ |
4,235,366 |
|
|
$ |
3,417,428 |
|
(b)
|
Includes
sales related to the United States of $1,681,573 and $1,423,665 for the
first quarters of 2010 and 2009,
respectively.
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Net
property, plant and equipment, by geographic area, is as follows:
|
|
April
3,
2010
|
|
|
December
31,
2009
|
|
|
|
|
|
|
|
|
Americas
(c)
|
|
$ |
392,819 |
|
|
$ |
381,827 |
|
EMEA
|
|
|
56,815 |
|
|
|
61,960 |
|
Asia/Pacific
|
|
|
16,832 |
|
|
|
16,919 |
|
Consolidated
|
|
$ |
466,466 |
|
|
$ |
460,706 |
|
(c)
|
Includes
net property, plant and equipment related to the United States of $391,553
and $380,576 at April 3, 2010 and December 31, 2009,
respectively.
|
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
Arrow
Electronics, Inc. (the "company") is a global provider of products, services,
and solutions to industrial and commercial users of electronic components and
enterprise computing solutions. The company provides one of the
broadest product offerings in the electronic components and enterprise computing
solutions distribution industries and a wide range of value-added services to
help customers reduce time to market, lower their total cost of ownership,
introduce innovative products through demand creation opportunities, and enhance
their overall competitiveness. The company has two business segments, the global
components business segment and the global enterprise computing solutions
("ECS") business segment. The company distributes electronic
components to original equipment manufacturers ("OEMs") and contract
manufacturers ("CMs") through its global components business segment and
provides enterprise computing solutions to value-added resellers ("VARs")
through its global ECS business segment. For the first quarter
of 2010, approximately 74% of the company's sales were from the global
components business segment, and approximately 26% of the company's sales were
from the global ECS business segment.
Operating
efficiency and working capital management remain a key focus of the company's
business initiatives to grow sales faster than the market, grow profits faster
than sales, and increase return on invested capital. To achieve its
financial objectives, the company seeks to capture significant opportunities to
grow across products, markets, and geographies. To supplement its
organic growth strategy, the company continually evaluates strategic
acquisitions to broaden its product offerings, increase its market penetration,
and/or expand its geographic reach. Cash flow needed to fund this
growth is primarily expected to be generated through continuous corporate-wide
initiatives to improve profitability and increase effective asset
utilization.
On
December 20, 2009, the company acquired A.E. Petsche Company, Inc.
("Petsche"). Results of operations of Petsche were included in the
company's consolidated results from the date of acquisition within the company's
global components business segment.
Consolidated
sales for the first quarter of 2010 increased by 23.9%, compared with the
year-earlier period, due to a 33.4% increase in the global components business
segment sales and a 3.3% increase in the global ECS business segment
sales. On a proforma basis, which includes Petsche as though this
acquisition occurred on January 1, 2009, consolidated sales increased
22.1%. The translation of the company's international financial
statements into U.S. dollars resulted in increased consolidated sales of $75.4
million for the first quarter of 2010, compared with the year-earlier period,
due to a weaker U.S. dollar. Excluding the impact of foreign
currency, the company's consolidated sales increased by 21.3% for the first
quarter of 2010.
Net
income attributable to shareholders increased to $87.0 million in the first
quarter of 2010, compared with net income attributable to shareholders of $26.7
million in the year-earlier period. The following items impacted the
comparability of the company's results for the first quarters of 2010 and
2009:
|
·
|
restructuring,
integration, and other charges of $7.4 million ($5.5 million net of
related taxes) in 2010 and $24.0 million ($16.1 million net of related
taxes) in 2009.
|
Excluding
the above-mentioned items, the increase in net income attributable to
shareholders for the first quarter of 2010 was primarily the result of the sales
increases in both the global components business segment and the global ECS
business segment, increased gross profit margins, reduced selling, general and
administrative expenses as a percentage of sales due to the company's continuing
efforts to streamline and simplify processes, as well as decreased net interest
and other financing expense.
Substantially
all of the company's sales are made on an order-by-order basis, rather than
through long-term sales contracts. As such, the nature of the
company's business does not provide for the visibility of material
forward-looking information from its customers and suppliers beyond a few
months. In connection
with
Oracle Corporation's recently completed acquisition of Sun Microsystems, Inc.,
Oracle has publicly announced that it intends to transition Sun's indirect sales
model to a mixed direct and indirect sales model. The company is
currently evaluating the potential effects of this change and is prepared to
take the necessary steps to align its operating structure and costs in the event
there is a meaningful change in business.
Sales
Following
is an analysis of net sales by reportable segment (in millions):
|
|
Quarter
Ended
|
|
|
|
|
|
|
April
3,
2010
|
|
|
April
4,
2009
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
3,128 |
|
|
$ |
2,345 |
|
|
|
33.4
|
% |
Global
ECS
|
|
|
1,107 |
|
|
|
1,072 |
|
|
|
3.3
|
% |
Consolidated
|
|
$ |
4,235 |
|
|
$ |
3,417 |
|
|
|
23.9
|
% |
Consolidated
sales for the first quarter of 2010 increased by $817.9 million, or 23.9%,
compared with the year-earlier period. The increase was driven by an
increase in the global components business segment sales of $783.0 million, or
33.4%, and an increase in the global ECS business segment sales of $34.9
million, or 3.3%. On a proforma basis, which includes Petsche as
though this acquisition occurred on January 1, 2009, consolidated sales for the
first quarter of 2010 increased 22.1%. The translation of the
company's international financial statements into U.S. dollars resulted in
increased consolidated sales of $75.4 million for the first quarter of 2010,
compared with the year-earlier period, due to a weaker U.S.
dollar. Excluding the impact of foreign currency, the company's
consolidated sales increased by 21.3% for the first quarter of
2010.
In the
global components business segment, sales for the first quarter of 2010
increased primarily due to strength in all three of the company's regional
businesses as a result of strengthening in the world's economies and, to a
lesser extent, the impact of a weaker U.S. dollar on the translation of the
company's international financial statements. On a proforma basis,
which includes Petsche as though this acquisition occurred on January 1, 2009,
global components business segment sales for the first quarter of 2010 increased
30.5%. The growth in the global components business segment for the
first quarter of 2010 was primarily driven by the sales increase in the Americas
of 29.0%, the sales increase in EMEA of 27.0%, the sales increase in
Asia/Pacific of 38.6%, and, to a lesser extent, the acquisition of
Petsche. Excluding the impact of foreign currency, the company's
global components business segment sales increased by 30.2% for the first
quarter of 2010.
In the
global ECS business segment, the sales for the first quarter of 2010 increased
primarily due to higher demand for products and the impact of a weaker U.S.
dollar on the translation of the company's international financial
statements. The increase in sales for the first quarter of 2010 was
due to growth in storage, software, and services, offset, in part, by declines
in proprietary servers. Excluding the impact of foreign
currency, the company's global ECS business segment sales increased by 1.6% for
the first quarter of 2010.
Gross
Profit
The
company recorded gross profit of $537.9 million in the first quarter of 2010,
compared with $431.0 million in the year-earlier period. The increase
in gross profit was primary due to the 23.9% increase in sales during the first
quarter of 2010. The gross profit margin for the first quarter of
2010 increased by approximately 10 basis points, compared with the year-earlier
period. The increase in gross profit as a percent of sales was
primarily due to increasing gross profit in the global components business
offset, in part, by lower gross profit in the global ECS business, compared with
the year-earlier period. The gross
profit
margins of products sold in the global components business segment are typically
higher than the profit margins of products in the global ECS business
segment.
Restructuring,
Integration, and Other Charges
2010
Charges
The
company recorded restructuring, integration, and other charges of $7.4 million
($5.5 million net of related taxes or $.05 per share on both a basic and diluted
basis) for the first quarter of 2010. Included in the restructuring,
integration, and other charges for the first quarter of 2010 are restructuring
charges of $5.2 million related to initiatives taken by the company to improve
operating efficiencies. Also included in the restructuring, integration, and
other charges for the first quarter of 2010 is a charge of $2.1 million related
to restructuring and integration actions taken in prior periods and
acquisition-related expenses of $.1 million.
The
restructuring charge of $5.2 million for the first quarter of 2010 primarily
includes personnel costs of $4.8 million and facilities costs of $.2
million. The personnel costs are related to the elimination of
approximately 55 positions within the global components business segment and
approximately 10 positions within the global ECS business
segment. The facilities costs are related to exit activities for 4
vacated facilities in Europe due to the company's continued efforts to
streamline its operations and reduce real estate costs. These initiatives are
due to the company's continued efforts to lower cost and drive operational
efficiency.
2009
Charges
The
company recorded restructuring, integration, and other charges of $24.0 million
($16.1 million net of related taxes or $.13 per share on both a basic and
diluted basis) for the first quarter of 2009. Included in the restructuring,
integration, and other charges for the first quarter of 2009 are restructuring
charges of $23.5 million related to initiatives taken by the company to improve
operating efficiencies. Also included in the restructuring,
integration, and other charges for the first quarter of 2009 is a charge of $.5
million related to restructuring and integration actions taken in prior
periods.
The
restructuring charge of $23.5 for the first quarter of 2009 primarily includes
personnel costs of $21.6 million and facilities costs of $1.8
million. The personnel costs are related to the elimination of
approximately 465 positions within the global components business segment and
approximately 115 positions within global ECS business segment. The
facilities costs are related to exit activities for three vacated facilities in
Europe due to the company's continued efforts to streamline its operations and
reduce real estate costs. These initiatives are due to the company's
continued efforts to lower cost and drive operational efficiency.
Operating
Income
The
company recorded operating income of $145.3 million in the first quarter of
2010, as compared with operating income of $61.2 million in the year-earlier
period. Included in operating income for the first quarters of 2010
and 2009 were the previously discussed restructuring, integration, and other
charges of $7.4 million and $24.0 million, respectively.
Selling,
general and administrative expenses increased $37.6 million, or 11.4%, in the
first quarter of 2010 on a sales increase of 23.9% compared with the first
quarter of 2009. The dollar increase in selling, general and
administrative expenses was primarily due to higher selling, general and
administrative expenses to support the increased sales, the impact of foreign
exchange rates, and selling, general and administrative expenses incurred by
Petsche, which was acquired in December 2009. Selling, general and
administrative expenses as a percentage of sales for the first quarter of 2010
decreased to 8.7% from 9.6% in the year-earlier period, primarily due to the
company's continuing efforts to streamline and simplify
processes.
Interest
and Other Financing Expense
Net
interest and other financing expense decreased by 17.1% in the first quarter of
2010 to $19.1 million compared with $23.0 million in the first quarter of 2009,
primarily due to lower interest rates on the company’s variable rate debt.
Income
Taxes
The
company recorded a provision for income taxes of $40.3 million (an effective tax
rate of 31.6%) for the first quarter of 2010. The company's provision
for income taxes and effective tax rate for the first quarter of 2010 was
impacted by the previously discussed restructuring, integration, and other
charges. Excluding the impact of the previously discussed
restructuring, integration, and other charges the company's effective tax rate
for the first quarter of 2010 was 31.3%.
The
company recorded a provision for income taxes of $11.8 million (an effective tax
rate of 30.6%) for the first quarter of 2009. The company's provision
for income taxes and effective tax rate for the first quarter of 2009 was
impacted by the previously discussed restructuring, integration, and other
charges. Excluding the impact of the previously discussed
restructuring, integration, and other charges the company's effective tax rate
for the first quarter of 2009 was 31.6%.
The
company's provision for income taxes and effective tax rate are impacted by,
among other factors, the statutory tax rates in the countries in which it
operates and the related level of income generated by these
operations.
Net
Income Attributable to Shareholders
The
company recorded net income attributable to shareholders of $87.0 million in the
first quarter of 2010, compared with net income attributable to shareholders of
$26.7 million in the year-earlier period. Included in net income
attributable to shareholders for the first quarters of 2010 and 2009 were the
previously discussed restructuring, integration, and other charges of $5.5
million and $16.1 million, respectively. Excluding the
above-mentioned items, the increase in net income attributable to shareholders
for the first quarter of 2010 was primarily the result of the sales increases in
both the global components business segment and the global ECS business segment,
increased gross profit margins, reduced selling, general and administrative
expenses as a percentage of sales due to the company's continuing efforts to
streamline and simplify processes, as well as decreased net interest and other
financing expense.
Liquidity
and Capital Resources
At April
3, 2010 and December 31, 2009, the company had cash and cash equivalents of
$810.1 million and $1.14 billion, respectively.
During
the first quarter of 2010, the net amount of cash used for the company's
operating activities was $282.2 million, the net amount of cash used for
investing activities was $23.8 million, and the net amount of cash provided by
financing activities was $11.3 million. The effect of exchange rate
changes on cash was a decrease of $32.3 million.
During
the first quarter of 2009, the net amount of cash provided by the company's
operating activities was $230.7 million, the net amount of cash used for
investing activities was $36.9 million, and the net amount of cash used for
financing activities was $16.0 million. The effect of exchange rate
changes on cash was a decrease of $10.5 million.
Cash Flows from Operating
Activities
The
company maintains a significant investment in accounts receivable and
inventories. As a percentage of total assets, accounts receivable and
inventories were approximately 61.1% and 58.4% at April 3, 2010 and December 31,
2009, respectively.
The net
amount of cash used for the company's operating activities during the first
quarter of 2010 was $282.2 million and was primarily due to an increase in
inventory and a reduction in accounts payable and accrued expenses offset, in
part, by earnings from operations, adjusted for non-cash items.
The net
amount of cash provided by the company's operating activities during the first
quarter of 2009 was $230.7 million primarily due to earnings from operations,
adjusted for non-cash items, and a reduction in accounts receivable and
inventory, offset, in part, by a decrease in accounts payable and accrued
expenses.
Working
capital as a percentage of sales was 12.4% in the first quarter of 2010 compared
with 14.0% in the first quarter of 2009.
Cash Flows from Investing
Activities
The net
amount of cash used for investing activities during the first quarter of 2010
was $23.8 million, primarily reflecting $3.1 million of cash consideration paid
for acquired businesses and $27.5 million for capital expenditures, offset, in
part, by proceeds from the sale of facilities of $6.8
million. Included in capital expenditures is $16.8 million related to
the company's global enterprise resource planning ("ERP")
initiative.
The net
amount of cash used for investing activities during the first quarter of 2009
was $36.9 million, primarily reflecting $36.8 million for capital expenditures,
which includes $26.1 million of capital expenditures related to the company's
global ERP initiative.
During
2006, the company initiated a global ERP effort to standardize processes
worldwide and adopt best-in-class capabilities. Implementation is
expected to be phased-in over the next several years. For the full
year 2010, the estimated cash flow impact of this initiative is expected to be
in the $40 to $60 million range with the impact decreasing by approximately $10
million in 2011. The company expects to finance these costs with cash
flows from operations.
Cash Flows from Financing
Activities
The net
amount of cash provided by financing activities during the first quarter of 2010
was $11.3 million. The primary sources of cash from financing activities during
the first quarter of 2010 were $1.6 million of proceeds from the exercise of
stock options, a $14.2 million increase in short-term borrowings, and $1.8
million related to excess tax benefits from stock-based compensation
arrangements. The primary use of cash for financing activities
included $6.2 million of repurchases of common stock.
The net
amount of cash used for financing activities during the first quarter of 2009
was $16.0 million. The primary use of cash for financing activities during the
first quarter of 2009 included an $12.3 million decrease in short-term
borrowings, a $2.1 million shortfall in tax benefits from stock-based
compensation arrangements, and $2.1 million of repurchases of common
stock. The primary source of cash from financing activities was $.6
million of proceeds from the exercise of stock options.
The
company has an $800.0 million revolving credit facility with a group of banks
that matures in January 2012. Interest on borrowings under the
revolving credit facility is calculated using a base rate or a euro currency
rate plus a spread based on the company's credit ratings (.425% at April 3,
2010). The facility fee related to the credit facility is .125%.
The
company has a $300.0 million asset securitization program collateralized by
accounts receivable of certain of its North American subsidiaries which expires
in March 2011. Interest on borrowings is calculated using a base rate or a
commercial paper rate plus a spread, which is based on the company's credit
ratings (.60% at April 3, 2010). The facility fee is .50%.
The
company had no outstanding borrowings under its revolving credit facility or
asset securitization program at April 3, 2010 and December 31,
2009. Both programs include terms and conditions that
limit
the
incurrence of additional borrowings, limit the company's ability to pay cash
dividends or repurchase stock, and require that certain financial ratios be
maintained at designated levels. The company was in compliance with all
covenants as of April 3, 2010 and is currently not aware of any events that
would cause non-compliance with any covenants in the future.
Management
believes that company's current cash availability, its current borrowing
capacity under its revolving credit facility and asset securitization program,
its expected ability to generate future operating cash flows, and the company's
access to capital markets are sufficient to meet its projected cash flow needs
for the foreseeable future.
Contractual
Obligations
The
company has contractual obligations for long-term debt, interest on long-term
debt, capital leases, operating leases, purchase obligations, and certain other
long-term liabilities that were summarized in a table of Contractual Obligations
in the company's Annual Report on Form 10-K for the year ended December 31,
2009. Since December 31, 2009, there were no material changes to
the contractual obligations of the company, outside the ordinary course of the
company’s business.
Share-Repurchase
Program
In March
2010, the company announced its Board of Directors approved the repurchase of up
to $100 million of the company's common stock in such amounts as to offset the
dilution from the granting of equity-based compensation awards. As of
April 3, 2010, the company has not repurchased any common stock under the
plan.
Off-Balance
Sheet Arrangements
The
company has no off-balance sheet financing or unconsolidated special purpose
entities.
Critical
Accounting Policies and Estimates
The
company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of these financial statements requires the company to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosure of contingent assets
and liabilities. The company evaluates its estimates on an ongoing
basis. The company bases its estimates on historical experience and
on various other assumptions that are believed reasonable under the
circumstances; the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
There
were no significant changes during the first quarter of 2010 to the items
disclosed as Critical Accounting Policies and Estimates in Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
company's Annual Report on Form 10-K for the year ended December 31,
2009.
Impact of Recently Issued
Accounting Standards
See Note
B of the Notes to Consolidated Financial Statements for a full description of
recent accounting pronouncements, including the anticipated dates of adoption
and the effects on the company's consolidated financial position and results of
operations.
Information
Relating to Forward-Looking Statements
This
report 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
implementation of its new enterprise resource planning system, changes in
product supply, pricing and customer demand, competition, other vagaries in the
global components and global ECS markets, changes in relationships with key
suppliers, increased profit margin pressure, the effects of additional actions
taken to become more efficient or lower costs, and the company’s ability to
generate additional cash flow. Forward-looking statements are those
statements, which are not statements of historical fact. These
forward-looking statements can be identified 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.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk.
There
were no material changes in market risk for changes in foreign currency exchange
rates and interest rates from the information provided in Item 7A – Quantitative
and Qualitative Disclosures About Market Risk in the company's Annual Report on
Form 10-K for the year ended December 31, 2009, except as follows:
Foreign Currency Exchange
Rate Risk
The
notional amount of the foreign exchange contracts at April 3, 2010 and December
31, 2009 was $323.0 million and $294.9 million, respectively. The fair values of
foreign exchange contracts, which are nominal, are estimated using market
quotes. The translation of the financial statements of the non-United
States operations is impacted by fluctuations in foreign currency exchange
rates. The change in consolidated sales and operating income was
impacted by the translation of the company's international financial statements
into U.S. dollars. This resulted in increased sales and operating
income of $75.4 million and $1.5 million, respectively, for the first quarter of
2010, compared with the year-earlier period, based on 2009 sales and operating
income at the average rate for 2010. Sales and operating income would
decrease by approximately $132.0 million and $5.3 million, respectively, if
average foreign exchange rates declined by 10% against the U.S. dollar in the
first quarter of 2010. These amounts were determined by considering
the impact of a hypothetical foreign exchange rate on the sales and operating
income of the company's international operations.
In May
2006, the company entered into a cross-currency swap, with a maturity date of
July 2011, for approximately $100.0 million or €78.3 million (the "2006
cross-currency swap") to hedge a portion of its net investment in
euro-denominated net assets. The 2006 cross-currency swap is
designated as a net investment hedge and effectively converts the interest
expense on $100.0 million of long-term debt from U.S. dollars to
euros. As the notional amount of the 2006 cross-currency swap is
expected to equal a comparable amount of hedged net assets, no material
ineffectiveness is expected. The 2006 cross-currency swap had a
negative fair value of $6.2 million and $12.5 million at April 3, 2010 and
December 31, 2009, respectively.
In
October 2005, the company entered into a cross-currency swap, with a maturity
date of October 2010, for approximately $200.0 million or €168.4 million (the
"2005 cross-currency swap") to hedge a portion of its net investment in
euro-denominated net assets. The 2005 cross-currency swap is
designated as a net investment hedge and effectively converts the interest
expense on $200.0 million of long-term debt from U.S. dollars to
euros. As the notional amount of the 2005 cross-currency swap is
expected to equal a comparable amount of hedged net assets, no material
ineffectiveness is expected. The 2005 cross-currency swap had a
negative fair value of $27.9 million and $41.9 million at April 3, 2010 and
December 31, 2009, respectively.
Interest Rate
Risk
At April
3, 2010, approximately 56% of the company's debt was subject to fixed rates, and
44% of its debt was subject to floating rates. A one percentage point
change in average interest rates would not materially impact net interest and
other financing expense in the first quarter of 2010. This was
determined by considering the impact of a hypothetical interest rate on the
company's average floating rate on investments and outstanding
debt. This analysis does not consider the effect of the level of
overall economic activity that could exist. In the event of a change
in the level of economic activity, which may adversely impact interest rates,
the company could likely take actions to further mitigate any potential negative
exposure to the change. However, due to the uncertainty of the
specific actions that might be taken and their possible effects, the sensitivity
analysis assumes no changes in the company's financial structure.
of 4.75%
and 4.94% at April 3, 2010 and December 31, 2009, respectively), through its
maturity. The swaps are classified as fair value hedges and had a
fair value of $1.4 million and $2.0 million at April 3, 2010 and December 31,
2009, respectively.
In June
2004 and November 2009, the company entered into interest rate swaps, with an
aggregate notional amount of $275.0 million. The swaps modify the
company's interest rate exposure by effectively converting a portion of the
fixed 6.875% senior notes to a floating rate, based on the six-month U.S. dollar
LIBOR plus a spread (an effective rate of 4.04% and 4.18% at April 3, 2010 and
December 31, 2009, respectively), through its maturity. The swaps are
classified as fair value hedges and had a fair value of $10.1 million and $9.6
million at April 3, 2010 and December 31, 2009, respectively.
Item
4. Controls and
Procedures.
Evaluation of Disclosure
Controls and Procedures
The
company’s management, under the supervision and with the participation of the
company’s Chief Executive Officer and Chief Financial Officer, carried out an
evaluation of the effectiveness of the design and operation of the company’s
disclosure controls and procedures as of April 3, 2010 (the "Evaluation"). Based
upon the Evaluation, the company’s Chief Executive Officer and Chief Financial
Officer concluded that the company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) are
effective.
Changes in Internal Control
over Financial Reporting
There was
no change in the company's internal control over financial reporting that
occurred during the company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the company's internal
control over financial reporting.
Item
1A. Risk
Factors.
Except as
set forth below, there were no material changes to the company's risk
factors as discussed in Item 1A - Risk Factors in the company's Annual
Report on Form 10-K for the year ended December 31, 2009.
With
respect to the risk factor titled "The company may
not have adequate or cost-effective liquidity or capital resources", the
company stated in its Form 10-K for the year ended December 31, 2009 that it had
access to committed credit lines of $1.4 billion. The company now has
access to committed credit lines of $1.1 billion.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
In March
2010, the company announced its Board of Directors approved the repurchase of up
to $100 million of the company's common stock in such amounts as to offset the
dilution from the granting of equity-based compensation awards. As of
April 3, 2010, the company has not repurchased any common stock under the
plan.
The
following table shows the share-repurchase activity for the quarter ended April
3, 2010:
Month
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number
of Shares
Purchased
as
Part
of Publicly
Announced
Program
|
|
|
Approximate
Dollar
Value of
Shares
that
May Yet
be
Purchased
Under
the
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1 through 31, 2010
|
|
|
338 |
|
|
$ |
29.61 |
|
|
|
- |
|
|
|
- |
|
February
1 through 28, 2010
|
|
|
200,407 |
|
|
|
28.17 |
|
|
|
- |
|
|
|
- |
|
March
1 through April 3, 2010
|
|
|
18,296 |
|
|
|
28.94 |
|
|
|
- |
|
|
|
100,000,000 |
|
Total
|
|
|
219,041 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
The
purchases of Arrow common stock noted above reflect shares that were withheld
from employees for stock-based awards, as permitted by the plan, in order to
satisfy the required tax withholding obligations. None of these purchases were
made pursuant to the publicly announced repurchase plan.
Item
6. Exhibits.
Exhibit
Number
|
|
Exhibit
|
|
|
|
31(i)
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31(ii)
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32(i)
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32(ii)
|
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
|
SIGNATURE
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 3, 2010
|
By:
|
/s/
Paul J. Reilly
|
|
|
Paul J. Reilly
|
|
|
Executive Vice President, Finance and Operations,
and Chief Financial Officer
|