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 October 2, 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 x 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 115,801,922 shares of Common Stock outstanding as of October 22,
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
|
25
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
34
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
35
|
|
|
|
|
Part
II.
|
Other
Information
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
36
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
36
|
|
|
|
|
|
Item
6.
|
Exhibits
|
37
|
|
|
|
|
Signature
|
|
38
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements.
ARROW
ELECTRONICS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands except per share data)
(Unaudited)
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
4,657,841 |
|
|
$ |
3,671,865 |
|
|
$ |
13,506,514 |
|
|
$ |
10,481,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
4,049,047 |
|
|
|
3,250,804 |
|
|
|
11,771,311 |
|
|
|
9,226,865 |
|
Selling, general and
administrative expenses
|
|
|
390,727 |
|
|
|
321,503 |
|
|
|
1,133,352 |
|
|
|
965,645 |
|
Depreciation and
amortization
|
|
|
19,210 |
|
|
|
16,919 |
|
|
|
55,447 |
|
|
|
50,262 |
|
Restructuring, integration, and
other charges
|
|
|
14,338 |
|
|
|
37,583 |
|
|
|
27,424 |
|
|
|
80,853 |
|
|
|
|
4,473,322 |
|
|
|
3,626,809 |
|
|
|
12,987,534 |
|
|
|
10,323,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
184,519 |
|
|
|
45,056 |
|
|
|
518,980 |
|
|
|
157,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of affiliated companies
|
|
|
1,633 |
|
|
|
1,883 |
|
|
|
4,566 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on prepayment of debt
|
|
|
- |
|
|
|
5,312 |
|
|
|
1,570 |
|
|
|
5,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other financing expense, net
|
|
|
18,921 |
|
|
|
18,033 |
|
|
|
57,362 |
|
|
|
58,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
167,231 |
|
|
|
23,594 |
|
|
|
464,614 |
|
|
|
97,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
48,729 |
|
|
|
11,018 |
|
|
|
142,878 |
|
|
|
36,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
net income
|
|
|
118,502 |
|
|
|
12,576 |
|
|
|
321,736 |
|
|
|
60,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests
|
|
|
- |
|
|
|
(5
|
) |
|
|
(5
|
) |
|
|
(25
|
) |
Net
income attributable to shareholders
|
|
$ |
118,502 |
|
|
$ |
12,581 |
|
|
$ |
321,741 |
|
|
$ |
60,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.01 |
|
|
$ |
.10 |
|
|
$ |
2.71 |
|
|
$ |
.50 |
|
Diluted
|
|
$ |
1.00 |
|
|
$ |
.10 |
|
|
$ |
2.68 |
|
|
$ |
.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,958 |
|
|
|
119,888 |
|
|
|
118,813 |
|
|
|
119,745 |
|
Diluted
|
|
|
118,235 |
|
|
|
120,785 |
|
|
|
120,270 |
|
|
|
120,238 |
|
See
accompanying notes.
ARROW
ELECTRONICS, INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands except par value)
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
509,724 |
|
|
$ |
1,137,007 |
|
Accounts
receivable, net
|
|
|
3,602,733 |
|
|
|
3,136,141 |
|
Inventories
|
|
|
2,013,711 |
|
|
|
1,397,668 |
|
Other
current assets
|
|
|
215,130 |
|
|
|
168,812 |
|
Total current assets
|
|
|
6,341,298 |
|
|
|
5,839,628 |
|
Property,
plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
23,745 |
|
|
|
23,584 |
|
Buildings
and improvements
|
|
|
134,631 |
|
|
|
137,539 |
|
Machinery
and equipment
|
|
|
845,058 |
|
|
|
779,105 |
|
|
|
|
1,003,434 |
|
|
|
940,228 |
|
Less:
Accumulated depreciation and amortization
|
|
|
(506,912
|
) |
|
|
(479,522
|
) |
Property,
plant and equipment, net
|
|
|
496,522 |
|
|
|
460,706 |
|
|
|
|
|
|
|
|
|
|
Investments
in affiliated companies
|
|
|
57,096 |
|
|
|
53,010 |
|
Cost
in excess of net assets of companies acquired
|
|
|
1,253,092 |
|
|
|
926,296 |
|
Other
assets
|
|
|
560,877 |
|
|
|
482,726 |
|
Total
assets
|
|
$ |
8,708,885 |
|
|
$ |
7,762,366 |
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
3,072,831 |
|
|
$ |
2,763,237 |
|
Accrued expenses
|
|
|
626,926 |
|
|
|
445,914 |
|
Short-term borrowings, including
current portion of long-term debt
|
|
|
16,854 |
|
|
|
123,095 |
|
Total current
liabilities
|
|
|
3,716,611 |
|
|
|
3,332,246 |
|
Long-term
debt
|
|
|
1,627,501 |
|
|
|
1,276,138 |
|
Other
liabilities
|
|
|
224,061 |
|
|
|
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
|
|
|
1,056,035 |
|
|
|
1,056,704 |
|
Treasury
stock (9,539 and 5,459 shares in 2010 and 2009, respectively), at
cost
|
|
|
(283,064
|
) |
|
|
(179,152
|
) |
Retained
earnings
|
|
|
2,016,258 |
|
|
|
1,694,517 |
|
Foreign
currency translation adjustment
|
|
|
228,614 |
|
|
|
229,019 |
|
Other
|
|
|
(2,468
|
) |
|
|
(9,415
|
) |
Total
shareholders' equity
|
|
|
3,140,712 |
|
|
|
2,916,960 |
|
Noncontrolling
interests
|
|
|
- |
|
|
|
337 |
|
Total
equity
|
|
|
3,140,712 |
|
|
|
2,917,297 |
|
Total
liabilities and equity
|
|
$ |
8,708,885 |
|
|
$ |
7,762,366 |
|
See
accompanying notes.
ARROW
ELECTRONICS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Consolidated net
income
|
|
$
|
321,736
|
|
|
$
|
60,394
|
|
Adjustments
to reconcile consolidated net income to net cash provided by (used for)
operations:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
55,447
|
|
|
|
50,262
|
|
Amortization of stock-based
compensation
|
|
|
24,992
|
|
|
|
19,219
|
|
Amortization of deferred
financing costs and discount on notes
|
|
|
1,686
|
|
|
|
1,681
|
|
Equity in earnings of affiliated
companies
|
|
|
(4,566
|
)
|
|
|
(3,233
|
)
|
Deferred income
taxes
|
|
|
29,027
|
|
|
|
21,933
|
|
Restructuring, integration, and
other charges
|
|
|
19,146
|
|
|
|
61,268
|
|
Excess tax benefits from
stock-based compensation arrangements
|
|
|
(1,740
|
)
|
|
|
1,741
|
|
Loss
on prepayment of debt
|
|
|
964
|
|
|
|
3,228
|
|
Change in assets and liabilities,
net of effects of acquired businesses:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(351,362
|
)
|
|
|
413,790
|
|
Inventories
|
|
|
(595,588
|
)
|
|
|
331,098
|
|
Accounts payable
|
|
|
243,797
|
|
|
|
(157,827
|
)
|
Accrued expenses
|
|
|
89,250
|
|
|
|
(158,527
|
)
|
Other assets and
liabilities
|
|
|
(74,058
|
)
|
|
|
4,292
|
|
Net
cash provided by (used for) operating activities
|
|
|
(241,269
|
)
|
|
|
649,319
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and
equipment
|
|
|
(83,373
|
)
|
|
|
(99,022
|
)
|
Cash consideration paid for
acquired businesses
|
|
|
(460,001
|
)
|
|
|
-
|
|
Proceeds
from sale of properties
|
|
|
16,971
|
|
|
|
1,153
|
|
Other
|
|
|
-
|
|
|
|
(272
|
)
|
Net cash used for investing
activities
|
|
|
(526,403
|
)
|
|
|
(98,141
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Change in short-term and other
borrowings
|
|
|
(902
|
)
|
|
|
(32,009
|
)
|
Proceeds from long-term bank
borrowings, net
|
|
|
360,400
|
|
|
|
-
|
|
Repurchase/repayment
of senior notes
|
|
|
(69,545
|
)
|
|
|
(135,658
|
)
|
Net proceeds from note
offering
|
|
|
-
|
|
|
|
297,430
|
|
Proceeds from exercise of stock
options
|
|
|
3,196
|
|
|
|
3,069
|
|
Excess tax benefits from
stock-based compensation arrangements
|
|
|
1,740
|
|
|
|
(1,741
|
)
|
Repurchases of common
stock
|
|
|
(131,266
|
)
|
|
|
(2,323
|
)
|
Net cash provided by financing
activities
|
|
|
163,623
|
|
|
|
128,768
|
|
Effect
of exchange rate changes on cash
|
|
|
(23,234
|
)
|
|
|
19,552
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(627,283
|
)
|
|
|
699,498
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,137,007
|
|
|
|
451,272
|
|
Cash
and cash equivalents at end of period
|
|
$
|
509,724
|
|
|
$
|
1,150,770
|
|
See
accompanying notes.
ARROW
ELECTRONICS, INC.
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 Form 10-Q for the quarterly periods ended July 3,
2010 and April 3, 2010, as well as the 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.
Recently Announced
Acquisitions
In
September 2010, the company announced an agreement to acquire Nu Horizons
Electronics Corp. ("Nu Horizons"), a leading global distributor of advanced
technology semiconductor, display, illumination, and power solutions to a wide
variety of commercial original equipment manufacturers and electronic
manufacturing services providers in the components business, for approximately
$130,000 in cash, or $7.00 per share. Nu Horizons has sales facilities in
more than 50 locations across North America, Asia and Europe, as well as
regional logistics centers throughout the world, serving a wide variety of end
markets including industrial, military, networking, and data communications. Nu
Horizons is headquartered in Melville, N.Y., and has over 700 employees
globally. The acquisition has been approved by the Boards of Directors of
both companies and is now subject to approval by Nu Horizons’ shareholders as
well as customary regulatory approvals and is expected to close during the
fourth quarter of 2010. The company was named as a defendant in four
shareholder class action lawsuits filed in the New York State Supreme Court in
Suffolk County, relating to the proposed acquisition of Nu Horizons. The
complaints assert virtually identical claims for alleged breaches of fiduciary
duty by Nu Horizons and its Board of Directors arising from their attempt to
sell Nu Horizons to Arrow and charge the company with aiding and abetting those
breaches of fiduciary duty. The company does not expect the outcome of
this matter to have a material adverse affect on its consolidated financial
position or results of operations.
In
September 2010, the company announced an agreement to acquire all the assets and
operations of the RF, Wireless and Power Division ("RFPD") of Richardson
Electronics, Ltd. ("Richardson") for approximately $210,000 in cash, subject to
a post-closing working capital adjustment. Richardson RFPD is a leading
value-added global component distributor and provider of engineered solutions
serving the global radio frequency and wireless communications market. Based in
the Chicago area, with approximately 400 employees, Richardson RFPD’s product
set includes solutions for infrastructure and wireless networks, power
management and alternative energy markets. The acquisition has been
approved by the Boards of Directors of both companies and is now subject to the
approval of Richardson's shareholders as well as customary regulatory approvals
and is expected to close in early 2011.
2010
On
September 8, 2010, the company acquired Shared Technologies Inc. ("Shared") for
a purchase price of $261,288, which included debt paid at closing of $61,898,
and is subject to a final working capital adjustment based upon a closing audit.
Shared sells, installs, and maintains communications solutions, including the
latest in unified communications, voice and data technologies, contact center,
network security, and traditional telephony. Shared is based in Irving,
Texas, with locations throughout the U.S. and has approximately 1,000
employees. Since the date of acquisition, Shared sales of $17,461 were
included in the company's consolidated results of operations for both the third
quarter and first nine months of 2010. Total Shared sales for 2009 were
approximately $250,000.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
The
following table summarizes the preliminary allocation of the net consideration
paid to the fair value of the assets acquired and liabilities assumed for the
Shared acquisition:
Accounts
receivable, net
|
|
$ |
41,117 |
|
Inventories
|
|
|
4,514 |
|
Property,
plant and equipment
|
|
|
7,503 |
|
Other
assets
|
|
|
5,226 |
|
Identifiable
intangible assets
|
|
|
113,700 |
|
Cost
in excess of net assets of companies acquired
|
|
|
188,196 |
|
Accounts
payable
|
|
|
(20,235
|
) |
Accrued
expenses
|
|
|
(36,268
|
) |
Other
liabilities
|
|
|
(42,465
|
) |
Cash
consideration paid, net of cash acquired
|
|
$ |
261,288 |
|
The
company allocated $28,900 of the purchase price to intangible assets relating to
customer relationships, with a useful life of 10 years, $78,000 to trade names
with an indefinite useful life, $1,700 to developed technology, with a useful
life of 10 years, and $5,100 to other intangible assets (consisting of
non-competition agreements and sales backlog), with useful lives ranging from 1
to 2 years.
The cost
in excess of net assets acquired related to the Shared acquisition was recorded
in the company's global enterprise computing solutions business segment.
The intangible assets related to the Shared acquisition are not expected to be
deductible for income tax purposes.
On June
1, 2010, the company acquired PCG Parent Corp., doing business as Converge
("Converge"), for a purchase price of $138,363, which included cash acquired of
$4,803, and debt paid at closing of $27,546. Converge is 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. Since the date of acquistion, Converge sales of
$79,016 and $106,259 were included in the company's consolidated results of
operations for the third quarter and first nine months of 2010,
respectively. Total Converge sales for 2009 were approximately
$280,000.
The
following table summarizes the company's unaudited consolidated results of
operations for the third quarter and first nine months of 2010, as well as the
unaudited pro forma consolidated results of operations of the company, as though
the Shared and Converge acquisitions occurred on January 1, 2010:
|
|
Quarter Ended
October 2, 2010
|
|
|
Nine Months Ended
October 2, 2010
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
4,657,841 |
|
|
$ |
4,698,701 |
|
|
$ |
13,506,514 |
|
|
$ |
13,804,092 |
|
Net
income attributable to shareholders
|
|
|
118,502 |
|
|
|
118,574 |
|
|
|
321,741 |
|
|
|
328,913 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.01 |
|
|
$ |
1.01 |
|
|
$ |
2.71 |
|
|
$ |
2.77 |
|
Diluted
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
2.68 |
|
|
$ |
2.73 |
|
The
unaudited pro forma consolidated results of operations do not purport to be
indicative of the results obtained had the Shared and Converge acquisitions
occurred as of the beginning of 2010, 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 these
acquisitions.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
In April
2010, the company acquired Verical Incorporated, an ecommerce business geared
towards meeting the end-of-life components and parts shortage needs of
customers. In June 2010, the company acquired Sphinx Group Limited, a
United Kingdom-based value-added distributor of security and networking
solutions. In August 2010, the company acquired Transim Technology
Corporation, a leading service provider of online component design and
engineering solutions for technology manufacturers. On October 1, 2010, the
company acquired Eshel Technology Group, Inc., a leading solid-state lighting
distributor and value-added service provider. The impact of these
acquisitions was not material to the company's consolidated financial position
and results of operations. Annual sales for these acquisitions were
approximately $103,000.
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 third quarter and first nine months of 2009, as well as the
unaudited pro forma consolidated results of operations of the company, as though
the Shared, Converge, and Petsche acquisitions occurred on January 1,
2009:
|
|
Quarter Ended
October 3, 2009
|
|
|
Nine Months Ended
October 3, 2009
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
3,671,865 |
|
|
$ |
3,846,558 |
|
|
$ |
10,481,116 |
|
|
$ |
11,011,137 |
|
Net
income attributable to shareholders
|
|
|
12,581 |
|
|
|
14,801 |
|
|
|
60,419 |
|
|
|
71,960 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.10 |
|
|
$ |
.12 |
|
|
$ |
.50 |
|
|
$ |
.60 |
|
Diluted
|
|
$ |
.10 |
|
|
$ |
.12 |
|
|
$ |
.50 |
|
|
$ |
.60 |
|
The
unaudited pro forma consolidated results of operations do not purport to be
indicative of the results obtained had the Shared, Converge, and Petsche
acquisitions 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 these acquisitions.
Other
Amortization
expense related to identifiable intangible assets was $5,342 and $14,636 for the
third quarter and first nine months of 2010 and $3,855 and $11,531 for the third
quarter and first nine months of 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 |
|
Acquisitions
|
|
|
117,426 |
|
|
|
212,755 |
|
|
|
330,181 |
|
Foreign
currency translation
|
|
|
- |
|
|
|
(3,385
|
) |
|
|
(3,385
|
) |
October
2, 2010
|
|
$ |
590,847 |
|
|
$ |
662,245 |
|
|
$ |
1,253,092 |
|
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:
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Marubun/Arrow
|
|
$ |
40,686 |
|
|
$ |
37,649 |
|
Altech
Industries
|
|
|
16,410 |
|
|
|
15,361 |
|
|
|
$ |
57,096 |
|
|
$ |
53,010 |
|
The
equity in earnings (loss) of affiliated companies consists of the
following:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marubun/Arrow
|
|
$ |
1,262 |
|
|
$ |
1,529 |
|
|
$ |
3,739 |
|
|
$ |
2,448 |
|
Altech
Industries
|
|
|
371 |
|
|
|
354 |
|
|
|
827 |
|
|
|
803 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(18
|
) |
|
|
$ |
1,633 |
|
|
$ |
1,883 |
|
|
$ |
4,566 |
|
|
$ |
3,233 |
|
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 October 2,
2010, the company's pro-rata share of this debt was approximately $23,700. 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:
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
3,641,841 |
|
|
$ |
3,175,815 |
|
Allowances
for doubtful accounts
|
|
|
(39,108 |
) |
|
|
(39,674 |
) |
Accounts
receivable, net
|
|
$ |
3,602,733 |
|
|
$ |
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:
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
9.15%
senior notes, due 2010
|
|
$ |
- |
|
|
$ |
69,544 |
|
Cross-currency
swap, due 2010
|
|
|
- |
|
|
|
41,943 |
|
Interest
rate swaps designated as fair value hedges
|
|
|
- |
|
|
|
2,036 |
|
Short-term
borrowings in various countries
|
|
|
16,854 |
|
|
|
9,572 |
|
|
|
$ |
16,854 |
|
|
$ |
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 October 2, 2010 and December 31,
2009 were 2.3% and 3.5%, respectively.
Long-term
debt consists of the following:
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Revolving
credit facility, due 2012
|
|
$ |
360,400 |
|
|
$ |
- |
|
Bank
term loan, due 2012
|
|
|
200,000 |
|
|
|
200,000 |
|
6.875%
senior notes, due 2013
|
|
|
349,816 |
|
|
|
349,765 |
|
6.875%
senior debentures, due 2018
|
|
|
198,398 |
|
|
|
198,241 |
|
6.00%
notes, due 2020
|
|
|
299,916 |
|
|
|
299,909 |
|
7.5%
senior debentures, due 2027
|
|
|
197,715 |
|
|
|
197,610 |
|
Cross-currency
swap, due 2011
|
|
|
- |
|
|
|
12,497 |
|
Interest
rate swaps designated as fair value hedges
|
|
|
17,787 |
|
|
|
9,556 |
|
Other
obligations with various interest rates and due dates
|
|
|
3,469 |
|
|
|
8,560 |
|
|
|
$ |
1,627,501 |
|
|
$ |
1,276,138 |
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
The 7.5%
senior debentures are not redeemable prior to their maturity. The 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:
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
9.15%
senior notes, due 2010
|
|
$ |
- |
|
|
$ |
73,000 |
|
6.875%
senior notes, due 2013
|
|
|
389,000 |
|
|
|
378,000 |
|
6.875%
senior debentures, due 2018
|
|
|
226,000 |
|
|
|
214,000 |
|
6.00%
notes, due 2020
|
|
|
324,000 |
|
|
|
300,000 |
|
7.5%
senior debentures, due 2027
|
|
|
206,000 |
|
|
|
208,000 |
|
The
carrying amount of the company's short-term borrowings, revolving credit
facility, bank term loan, and other obligations approximate their fair
value.
During
the second quarter of 2010, the company sold a property and was required to
repay the related collateralized debt with a face amount of $9,000. For
the first nine months of 2010, the company recognized a loss on prepayment of
debt of $1,570 ($964 net of related taxes or $.01 per share on both a basic and
diluted basis) in the accompanying consolidated statements of
operations.
In
September 2009, the company repurchased $130,455 principal amount of its 9.15%
senior notes due 2010. The related loss on the repurchase for the third
quarter and first nine months of 2009, including the premium paid and write-off
of the related deferred financing costs, offset by the gain for terminating a
portion of the related interest rate swaps aggregated $5,312 ($3,228 net of
related taxes or $.03 per share on both a basic and diluted basis) and was
recognized as a loss on prepayment of debt. During the third quarter of
2010, the company repaid the remaining $69,545 principal amount of its 9.15%
senior notes upon maturity.
In
September 2009, the company completed the sale of $300,000 principal amount of
6.00% notes due in 2020. The net proceeds of the offering of $297,430 were
used to repay a portion of the previously discussed 9.15% senior notes due 2010
and for general corporate purposes.
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 October 2, 2010). The facility
fee related to the credit facility is .125%. At October 2, 2010, the
company had $360,400 in outstanding borrowings under the revolving credit
facility. There were no outstanding borrowings under the revolving credit
facility at December 31, 2009.
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 a commercial paper rate plus a spread, which is based on
the company's credit ratings (.60% at October 2, 2010). The facility fee
is .50%. The company had no outstanding borrowings under the asset
securitization program at October 2, 2010 and December 31, 2009.
Both the
revolving credit facility and asset securitization program include terms and
conditions that limit the incurrence of additional borrowings, limit the
company's ability to pay cash dividends or repurchase
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
stock,
and require that certain financial ratios be maintained at designated levels.
As
of October 2, 2010, the company was in compliance with all covenants relating to
its revolving credit facility and is currently not aware of any events that
would cause non-compliance with any covenants in the future. In
connection with the asset securitization program, on October 27, 2010, the
lenders under the program agreed to waive any potential breach resulting from
any failure by the company to comply with a non-financial covenant to maintain
appropriate UCC filings arising out of a merger and changes in the names of
several of the company’s subsidiaries that are originators of accounts
receivable under the program. Under certain circumstances the failure to
file or amend the UCC filings may have resulted in the company being out of
compliance with its obligations under the program and the company has taken the
necessary actions to cure any non-compliance.
Interest
and other financing expense, net, includes interest income of $1,635 and $3,255
for the third quarter and first nine months of 2010 and $278 and $2,686 for the
third quarter and first nine months 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.
|
Level
2
|
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.
|
Level
3
|
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 October 2, 2010:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
$ |
- |
|
|
$ |
135,154 |
|
|
$ |
- |
|
|
$ |
135,154 |
|
Available-for-sale
securities
|
|
|
67,593 |
|
|
|
- |
|
|
|
- |
|
|
|
67,593 |
|
Interest
rate swaps
|
|
|
- |
|
|
|
17,787 |
|
|
|
- |
|
|
|
17,787 |
|
Foreign
exchange contracts
|
|
|
- |
|
|
|
(2,086
|
) |
|
|
- |
|
|
|
(2,086
|
) |
|
|
$ |
67,593 |
|
|
$ |
150,855 |
|
|
$ |
- |
|
|
$ |
218,448 |
|
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
|
) |
Foreign
exchange contracts
|
|
|
- |
|
|
|
544 |
|
|
|
- |
|
|
|
544 |
|
|
|
$ |
56,464 |
|
|
$ |
701,821 |
|
|
$ |
- |
|
|
$ |
758,285 |
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
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.
The fair
value of the company's available-for-sale securities is as follows:
|
|
October 2, 2010
|
|
|
December 31, 2009
|
|
|
|
Marubun
|
|
|
WPG
|
|
|
Marubun
|
|
|
WPG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
basis
|
|
$ |
10,016 |
|
|
$ |
10,798 |
|
|
$ |
10,016 |
|
|
$ |
10,798 |
|
Unrealized
holding gain
|
|
|
552 |
|
|
|
46,227 |
|
|
|
4,408 |
|
|
|
31,242 |
|
Fair
value
|
|
$ |
10,568 |
|
|
$ |
57,025 |
|
|
$ |
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
|
|
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet
Location
|
|
October 2,
2010
|
|
|
December 31,
2009
|
|
Derivative instruments designated
as hedges:
|
|
|
|
|
|
|
|
|
Interest
rate swaps designated as fair value hedges
|
|
Other
current assets
|
|
$ |
- |
|
|
$ |
2,036 |
|
Interest
rate swaps designated as fair value hedges
|
|
Other
assets
|
|
|
17,787 |
|
|
|
9,556 |
|
Cross-currency
swaps designated as net investment hedges
|
|
Short-term
borrowings
|
|
|
- |
|
|
|
(41,943
|
) |
Cross-currency
swaps designated as net investment hedges
|
|
Long-term
debt
|
|
|
- |
|
|
|
(12,497
|
) |
Foreign
exchange contracts designated as cash flow hedges
|
|
Other
current assets
|
|
|
718 |
|
|
|
406 |
|
Foreign
exchange contracts designated as cash flow hedges
|
|
Accrued
expenses
|
|
|
(50
|
) |
|
|
(272
|
) |
Total
derivative instruments designated as hedging instruments
|
|
|
|
|
18,455 |
|
|
|
(42,714
|
) |
Derivative
instruments not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other
current assets
|
|
|
3,270 |
|
|
|
2,362 |
|
Foreign
exchange contracts
|
|
Accrued
expenses
|
|
|
(6,024
|
) |
|
|
(1,952
|
) |
Total
derivative instruments not designated as hedging
instruments
|
|
|
|
|
(2,754
|
) |
|
|
410 |
|
Total
|
|
|
|
$ |
15,701 |
|
|
$ |
(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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps (a)
|
|
$
|
-
|
|
|
$
|
4,097
|
|
|
$
|
-
|
|
|
$
|
4,097
|
|
Total
|
|
$
|
-
|
|
|
$
|
4,097
|
|
|
$
|
-
|
|
|
$
|
4,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (b)
|
|
$
|
(4,608
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(8,700
|
)
|
Total
|
|
$
|
(4,608
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(8,700
|
)
|
|
|
Quarter Ended October 2, 2010
|
|
|
Nine Months Ended October 2, 2010
|
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized
in Income
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized
in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (d)
|
|
$ |
1,257 |
|
|
$ |
83 |
|
|
$ |
- |
|
|
$ |
637 |
|
|
$ |
(7 |
) |
|
$ |
- |
|
Total
|
|
$ |
1,257 |
|
|
$ |
83 |
|
|
$ |
- |
|
|
$ |
637 |
|
|
$ |
(7 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency
swaps (c)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
52,158 |
|
|
$ |
- |
|
|
$ |
(91 |
) |
Total
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
52,158 |
|
|
$ |
- |
|
|
$ |
(91 |
) |
|
|
Quarter Ended October 3, 2009
|
|
|
Nine Months Ended October 3, 2009
|
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
Effective Portion
|
|
|
Ineffective
Portion
|
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized
in Income
|
|
|
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
|
|
|
Gain/(Loss)
Reclassified
into Income
|
|
|
Gain/(Loss)
Recognized
in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps (c)
|
|
$ |
637 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,379 |
|
|
$ |
- |
|
|
$ |
- |
|
Foreign
exchange contracts (d)
|
|
|
772 |
|
|
|
56 |
|
|
|
- |
|
|
|
(1,673
|
) |
|
|
7 |
|
|
|
- |
|
Total
|
|
$ |
1,409 |
|
|
$ |
56 |
|
|
$ |
- |
|
|
$ |
(294 |
) |
|
$ |
7 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency
swaps (c)
|
|
$ |
(14,638 |
) |
|
$ |
- |
|
|
$ |
382 |
|
|
$ |
(13,262 |
) |
|
$ |
- |
|
|
$ |
2,066 |
|
Total
|
|
$ |
(14,638 |
) |
|
$ |
- |
|
|
$ |
382 |
|
|
$ |
(13,262 |
) |
|
$ |
- |
|
|
$ |
2,066 |
|
(a)
|
The
amount of gain/(loss) recognized in income on derivatives is recorded in
"Loss on prepayment of debt" 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.
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
(d)
|
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 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 4.37% and 4.18% at October 2, 2010 and December 31,
2009, respectively), through its maturity. The swaps are classified as
fair value hedges and had a fair value of $17,787 and $9,556 at October 2, 2010
and December 31, 2009, respectively.
Cross-Currency
Swaps
The
company occasionally 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"). 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"). These cross-currency swaps hedge a
portion of the company's net investment in euro-denominated net assets, by
effectively converting the interest expense on $300,000 of long-term debt from
U.S. dollars to euros. During the second quarter of 2010, the
company paid $2,282, plus accrued interest, to terminate these cross-currency
swaps. The 2006 cross-currency swap and the 2005 cross-currency swap
had a negative fair value at December 31, 2009 of $12,497 and $41,943,
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
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
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 October 2, 2010 and
December 31, 2009 was $312,666 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.
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 third quarters of 2010 and 2009, the company recorded restructuring,
integration, and other charges of $14,338 ($9,506 net of related taxes or $.08
per share on both a basic and diluted basis) and $37,583 ($29,075 net of related
taxes or $.24 per share on both a basic and diluted basis),
respectively.
During
the first nine months of 2010 and 2009, the company recorded restructuring,
integration, and other charges of $27,424 ($19,146 net of related taxes or $.16
per share on both a basic and diluted basis) and $80,853 ($61,268 net of related
taxes or $.51 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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges - current period actions
|
|
$ |
8,432 |
|
|
$ |
35,333 |
|
|
$ |
19,419 |
|
|
$ |
78,761 |
|
Restructuring
and integration charges - actions taken in prior periods
|
|
|
314 |
|
|
|
2,250 |
|
|
|
1,407 |
|
|
|
2,092 |
|
Acquisition-related
expenses
|
|
|
5,592 |
|
|
|
- |
|
|
|
6,598 |
|
|
|
- |
|
|
|
$ |
14,338 |
|
|
$ |
37,583 |
|
|
$ |
27,424 |
|
|
$ |
80,853 |
|
2010 Restructuring
Charge
The
following table presents the components of the 2010 restructuring charge of
$19,419 and activity in the restructuring accrual for the first nine months of
2010:
|
|
Personnel
Costs
|
|
|
Facilities
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charge
|
|
$ |
12,389 |
|
|
$ |
2,429 |
|
|
$ |
4,601 |
|
|
$ |
19,419 |
|
Payments
|
|
|
(9,507
|
) |
|
|
(308
|
) |
|
|
(2,104
|
) |
|
|
(11,919
|
) |
Non-cash
usage
|
|
|
- |
|
|
|
- |
|
|
|
(657
|
) |
|
|
(657
|
) |
Foreign
currency translation
|
|
|
62 |
|
|
|
15 |
|
|
|
94 |
|
|
|
171 |
|
October
2, 2010
|
|
$ |
2,944 |
|
|
$ |
2,136 |
|
|
$ |
1,934 |
|
|
$ |
7,014 |
|
The restructuring charge of
$19,419 for the first nine months of 2010 primarily includes personnel costs of
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
$12,389
and facilities costs of $2,429. The personnel costs are related to
the elimination of approximately 160 positions within the global ECS business
segment and approximately 90 positions within the global components business
segment. The facilities costs are related to exit activities for 7
vacated facilities in Europe and North America 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 Restructuring
Charge
The
following table presents the activity in the restructuring accrual for the first
nine months of 2010 related to the 2009 restructuring:
|
|
Personnel
Costs
|
|
|
Facilities
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$ |
25,380 |
|
|
$ |
6,287 |
|
|
$ |
224 |
|
|
$ |
31,891 |
|
Restructuring
charge (credit)
|
|
|
2,828 |
|
|
|
(1,586
|
) |
|
|
- |
|
|
|
1,242 |
|
Payments
|
|
|
(24,206
|
) |
|
|
(369
|
) |
|
|
(158
|
) |
|
|
(24,733
|
) |
Foreign
currency translation
|
|
|
(1,584
|
) |
|
|
(334
|
) |
|
|
(17
|
) |
|
|
(1,935
|
) |
October
2, 2010
|
|
$ |
2,418 |
|
|
$ |
3,998 |
|
|
$ |
49 |
|
|
$ |
6,465 |
|
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 nine months 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 (credits)
|
|
|
(187
|
) |
|
|
556 |
|
|
|
(204
|
) |
|
|
165 |
|
Payments
|
|
|
(1,211
|
) |
|
|
(1,524
|
) |
|
|
- |
|
|
|
(2,735
|
) |
Non-cash
usage
|
|
|
- |
|
|
|
(582
|
) |
|
|
- |
|
|
|
(582
|
) |
Foreign
currency translation
|
|
|
(17
|
) |
|
|
(164
|
) |
|
|
(9
|
) |
|
|
(190
|
) |
October
2, 2010
|
|
$ |
313 |
|
|
$ |
4,962 |
|
|
$ |
1,609 |
|
|
$ |
6,884 |
|
Restructuring and
Integration Accrual Summary
In
summary, the restructuring and integration accruals aggregate $20,363 at October
2, 2010, all of which is expected to be spent in cash, and are expected to be
utilized as follows:
·
|
The
accruals for personnel costs of $5,675 to cover the termination of
personnel are primarily expected to be spent within one year.
|
·
|
The
accruals for facilities totaling $11,096 relate to vacated leased
properties that have scheduled payments of $5,016 in 2010, $3,818 in 2011,
$1,211 in 2012, $824 in 2013, $190 in 2014, and $37
thereafter.
|
·
|
Other
accruals of $3,592 are expected to be utilized over several
years.
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Acquisition-Related
Expenses
Included
in restructuring, integration, and other charges for the third quarter and first
nine months of 2010 are $5,592 and $6,598, respectively, of other
acquisition-related expenses, primarily consisting of professional fees directly
related to recent acquisition activity.
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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to shareholders
|
|
$ |
118,502 |
|
|
$ |
12,581 |
|
|
$ |
321,741 |
|
|
$ |
60,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
116,958 |
|
|
|
119,888 |
|
|
|
118,813 |
|
|
|
119,745 |
|
Net
effect of various dilutive stock-based compensation awards
|
|
|
1,277 |
|
|
|
897 |
|
|
|
1,457 |
|
|
|
493 |
|
Weighted
average shares outstanding - diluted
|
|
|
118,235 |
|
|
|
120,785 |
|
|
|
120,270 |
|
|
|
120,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.01 |
|
|
$ |
.10 |
|
|
$ |
2.71 |
|
|
$ |
.50 |
|
Diluted
(a)
|
|
$ |
1.00 |
|
|
$ |
.10 |
|
|
$ |
2.68 |
|
|
$ |
.50 |
|
(a)
|
Stock-based
compensation awards for the issuance of 4,455 and 3,281 shares for the
third quarter and first nine months of 2010 and 3,339 and 3,915 shares for
the third quarter and first nine months of 2009, respectively, were
excluded from the computation of net income per share on a diluted basis
as their effect was
anti-dilutive.
|
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Note K – Shareholders'
Equity
Comprehensive
Income
The
components of comprehensive income are as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
net income
|
|
$ |
118,502 |
|
|
$ |
12,576 |
|
|
$ |
321,736 |
|
|
$ |
60,394 |
|
Foreign
currency translation adjustments (a)
|
|
|
131,040 |
|
|
|
54,933 |
|
|
|
(405
|
) |
|
|
72,909 |
|
Other
(b)
|
|
|
6,867 |
|
|
|
4,346 |
|
|
|
6,947 |
|
|
|
17,664 |
|
Comprehensive
income
|
|
|
256,409 |
|
|
|
71,855 |
|
|
|
328,278 |
|
|
|
150,967 |
|
Comprehensive
loss attributable to noncontrolling interests
|
|
|
- |
|
|
|
(9
|
) |
|
|
- |
|
|
|
(37
|
) |
Comprehensive
income attributable to shareholders
|
|
$ |
256,409 |
|
|
$ |
71,864 |
|
|
$ |
328,278 |
|
|
$ |
151,004 |
|
(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.
|
(b)
|
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.
|
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 through a share-repurchase
program. In July 2010, the company's Board of Directors approved an
additional repurchase of up to $100,000 of the company's common stock. As of
October 2, 2010, the company repurchased 4,693,900 shares under these plans with
a market value of $124,993 at the dates of repurchase.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
411 |
|
|
$ |
442 |
|
|
$ |
1,233 |
|
|
$ |
1,326 |
|
Interest
cost
|
|
|
2,248 |
|
|
|
2,244 |
|
|
|
6,744 |
|
|
|
6,732 |
|
Expected
return on plan assets
|
|
|
(1,498
|
) |
|
|
(1,266
|
) |
|
|
(4,494
|
) |
|
|
(3,798
|
) |
Amortization
of unrecognized net loss
|
|
|
967 |
|
|
|
876 |
|
|
|
2,901 |
|
|
|
2,628 |
|
Amortization
of prior service cost
|
|
|
20 |
|
|
|
137 |
|
|
|
60 |
|
|
|
411 |
|
Amortization
of transition obligation
|
|
|
7 |
|
|
|
103 |
|
|
|
21 |
|
|
|
309 |
|
Net
periodic benefit costs
|
|
$ |
2,155 |
|
|
$ |
2,536 |
|
|
$ |
6,465 |
|
|
$ |
7,608 |
|
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 $9,000 was spent on these activities to date, and
it is anticipated that these activities, along with the initial phases of the
treatment of contaminated groundwater offsite and remaining Remedial Action Work
Plan costs, will cost an additional $9,700 to $18,700.
The
company currently estimates that the additional cost of project management and
regulatory oversight on the Norco site will range from $400 to
$500. 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.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
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 $2,606 during the first nine months of
2010 to $43,518. 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 are included in the corporate business
segment.
ARROW
ELECTRONICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except per share data)
(Unaudited)
Sales and
operating income (loss), by segment, are as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
3,437,632 |
|
|
$ |
2,541,339 |
|
|
$ |
9,824,670 |
|
|
$ |
7,157,921 |
|
Global
ECS
|
|
|
1,220,209 |
|
|
|
1,130,526 |
|
|
|
3,681,844 |
|
|
|
3,323,195 |
|
Consolidated
|
|
$ |
4,657,841 |
|
|
$ |
3,671,865 |
|
|
$ |
13,506,514 |
|
|
$ |
10,481,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
196,803 |
|
|
$ |
81,507 |
|
|
$ |
533,405 |
|
|
$ |
215,598 |
|
Global
ECS
|
|
|
35,479 |
|
|
|
32,359 |
|
|
|
102,415 |
|
|
|
98,846 |
|
Corporate
(a)
|
|
|
(47,763
|
) |
|
|
(68,810
|
) |
|
|
(116,840
|
) |
|
|
(156,953
|
) |
Consolidated
|
|
$ |
184,519 |
|
|
$ |
45,056 |
|
|
$ |
518,980 |
|
|
$ |
157,491 |
|
(a)
|
Includes
restructuring, integration, and other charges of $14,338 and $27,424 for
the third quarter and first nine months of 2010 and $37,583 and $80,853
for the third quarter and first nine months of 2009,
respectively.
|
Total
assets, by segment, are as follows:
|
|
October 2,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
5,883,629 |
|
|
$ |
4,512,141 |
|
Global
ECS
|
|
|
2,204,723 |
|
|
|
2,258,803 |
|
Corporate
|
|
|
620,533 |
|
|
|
991,422 |
|
Consolidated
|
|
$ |
8,708,885 |
|
|
$ |
7,762,366 |
|
Sales, by
geographic area, are as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
(b)
|
|
$ |
2,278,632 |
|
|
$ |
1,761,918 |
|
|
$ |
6,424,651 |
|
|
$ |
4,976,648 |
|
EMEA
|
|
|
1,364,472 |
|
|
|
970,914 |
|
|
|
4,009,187 |
|
|
|
3,007,415 |
|
Asia/Pacific
|
|
|
1,014,737 |
|
|
|
939,033 |
|
|
|
3,072,676 |
|
|
|
2,497,053 |
|
Consolidated
|
|
$ |
4,657,841 |
|
|
$ |
3,671,865 |
|
|
$ |
13,506,514 |
|
|
$ |
10,481,116 |
|
(b)
|
Includes
sales related to the United States of $2,078,575 and $5,798,499 for the
third quarter and first nine months of 2010 and $1,583,852 and $4,476,121
for the third quarter and first nine months of 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:
|
|
October 2,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Americas
(c)
|
|
$ |
422,967 |
|
|
$ |
381,827 |
|
EMEA
|
|
|
56,111 |
|
|
|
61,960 |
|
Asia/Pacific
|
|
|
17,444 |
|
|
|
16,919 |
|
Consolidated
|
|
$ |
496,522 |
|
|
$ |
460,706 |
|
(c)
|
Includes
net property, plant and equipment related to the United States of $421,738
and $380,576 at October 2, 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 nine
months of 2010, approximately 73% of the company's sales were from the global
components business segment, and approximately 27% of the company's sales were
from the global ECS business segment.
The
company's business initiatives are 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
September 8, 2010, the company acquired Shared Technologies Inc. ("Shared")
which sells, installs, and maintains communications solutions, including the
latest in unified communications, voice and data technologies, contact center,
network security, and traditional telephony. On June 1, 2010, the
company acquired PCG Parent Corp., doing business as Converge ("Converge"), a
leading provider of reverse logistics services. 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. Results of
operations of Shared, Converge, and Petsche are included in the company's
consolidated results from their respective dates of
acquisition. Results of operations of Shared are included within the
company's global ECS business segment and results of operations of Converge and
Petsche are included within the company's global components business
segment.
Consolidated
sales for the third quarter of 2010 increased by 26.9%, compared with the
year-earlier period, due to a 35.3% increase in the global components business
segment sales and a 7.9% increase in the global ECS business segment
sales. On a pro forma basis, which includes Shared, Converge, and
Petsche as though these acquisitions occurred on January 1, 2009, consolidated
sales increased 22.2%. The translation of the company's international financial
statements into U.S. dollars resulted in a reduction in consolidated sales of
$75.1 million for the third quarter of 2010, compared with the year-earlier
period, due to a stronger U.S. dollar. Excluding the impact of
foreign currency, the company's consolidated sales increased by 29.5% for the
third quarter of 2010.
Net
income attributable to shareholders increased to $118.5 million in the third
quarter of 2010, compared with net income attributable to shareholders of $12.6
million in the year-earlier period. The following items impacted the
comparability of the company's results:
Third quarter of 2010 and
2009:
|
·
|
restructuring,
integration, and other charges of $14.3 million ($9.5 million net of
related taxes) in 2010 and $37.6 million ($29.1 million net of related
taxes) in 2009; and
|
|
·
|
a
loss on prepayment of debt of $5.3 million ($3.2 million net of related
taxes) in 2009.
|
First nine months of 2010
and 2009:
|
·
|
restructuring,
integration, and other charges of $27.4 million ($19.1 million net of
related taxes) in 2010 and $80.9 million ($61.3 million net of related
taxes) in 2009; and
|
|
·
|
a
loss on prepayment of debt of $1.6 million ($1.0 million net of related
taxes) in 2010 and $5.3 million ($3.2 million net of related taxes) in
2009.
|
Excluding
the above-mentioned items, the increase in net income attributable to
shareholders for the third 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, and a lower effective income tax
rate. This was offset, in part, by increased depreciation and amortization
expense due primarily to increased acquisition activity.
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.
Sales
Following
is an analysis of net sales by reportable segment (in millions):
|
|
October 2,
2010
|
|
|
October 3,
2009
|
|
|
% Change
|
|
Third
Quarter Ended:
|
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
3,438 |
|
|
$ |
2,541 |
|
|
|
35.3
|
% |
Global
ECS
|
|
|
1,220 |
|
|
|
1,131 |
|
|
|
7.9
|
% |
Consolidated
|
|
$ |
4,658 |
|
|
$ |
3,672 |
|
|
|
26.9
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
components
|
|
$ |
9,825 |
|
|
$ |
7,158 |
|
|
|
37.3
|
% |
Global
ECS
|
|
|
3,682 |
|
|
|
3,323 |
|
|
|
10.8
|
% |
Consolidated
|
|
$ |
13,507 |
|
|
$ |
10,481 |
|
|
|
28.9
|
% |
Consolidated
sales for the third quarter and first nine months of 2010 increased by $986.0
million, or 26.9%, and $3.03 billion, or 28.9%, compared with the year-earlier
periods. The increase was driven by an increase in the global
components business segment sales of $896.3 million, or 35.3%, and $2.67
billion, or 37.3%, for the third quarter and first nine months of 2010,
respectively, and an increase in the global ECS business segment sales of $89.7
million, or 7.9%, and $358.6 million, or 10.8%, for the third quarter and first
nine months of 2010, respectively. On a pro forma basis, which
includes Shared, Converge, and Petsche as though these acquisitions occurred on
January 1, 2009, consolidated sales for the third quarter and first nine months
of 2010 increased 22.2% and 25.4%, respectively. The translation of
the company's international financial statements into U.S. dollars resulted in a
reduction in consolidated sales of $75.1 million and $53.8 million for the third
quarter and first nine months of 2010, compared with the year-earlier periods,
due to a stronger U.S. dollar. Excluding the impact of foreign
currency, the company's consolidated sales increased by 29.5% for both the third
quarter and first nine months of 2010, respectively.
In the
global components business segment, sales for the third quarter and first nine
months 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. On a pro forma basis, which includes Converge and Petsche
as though these acquisitions occurred on January 1, 2009, global components
business segment sales for the third quarter and first nine months of 2010
increased 29.5% and 32.7%, respectively. The growth in
the global
components business segment for the third quarter and first nine months of 2010
was primarily driven by the sales increase in EMEA of 51.7% and 42.7%, the sales
increase in the Americas of 36.6% and 36.7%, the sales increase in Asia/Pacific
of 8.1% and 23.1%, respectively, and, to a lesser extent, the acquisitions of
Converge and Petsche. Excluding the impact of foreign currency, the
company's global components business segment sales increased by 38.0% and 37.7%
for the third quarter and first nine months of 2010, respectively.
In the
global ECS business segment, the sales for the third quarter and first nine
months of 2010 increased primarily due to higher demand for
products. On a pro forma basis, which includes Shared as though this
acquisition occurred on January 1, 2009, global ECS business segment sales for
the third quarter and first nine months of 2010 increased 5.9% and 9.7%,
respectively. The increase in sales for the third quarter and first
nine months of 2010 was due to growth in storage, software, services, and
industry standard servers, offset, in part, by declines principally in
proprietary servers. Excluding the impact of foreign currency,
the company's global ECS business segment sales increased by 10.4% and 11.9% for
the third quarter and first nine months of 2010,
respectively.
Gross
Profit
The
company recorded gross profit of $608.8 million and $1.74 billion in the third
quarter and first nine months of 2010, respectively, compared with $421.1
million and $1.25 billion in the year-earlier periods. The increase
in gross profit was primarily due to the 26.9% and 28.9% increase in sales
during the third quarter and first nine months of 2010,
respectively. The gross profit margin for the third quarter of 2010
increased by approximately 160 basis points, compared with the year-earlier
period, due primarily to a lessening of pricing pressure in the global
components business and an improvement in gross profit margin in the global ECS
business due to a change in product mix. The gross profit margin for the first
nine months of 2010 increased by approximately 90 basis points, compared with
the year-earlier period, due primarily to a lessening of pricing pressure in the
global components business, offset, in part, by a lower gross profit margin in
the global ECS business due to a change in product mix. In addition,
the global components business segment sales comprised a larger percentage of
the company's consolidated sales for the third quarter and first nine months of
2010 as compared with the year-earlier periods. 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 $14.3 million
($9.5 million net of related taxes or $.08 per share on both a basic and diluted
basis) and $27.4 million ($19.1 million net of related taxes or $.16 per share
on both a basic and diluted basis) for the third quarter and first nine months
of 2010, respectively. Included in the restructuring,
integration, and other charges for the third quarter and first nine months of
2010 are restructuring charges of $8.4 million and $19.4 million, respectively,
related to initiatives taken by the company to improve operating efficiencies.
Also included in the restructuring, integration, and other charges for the third
quarter and first nine months of 2010 are charges of $.3 million and $1.4
million, respectively, related to restructuring and integration actions taken in
prior periods and acquisition-related expenses of $5.6 million and $6.6 million,
respectively.
The
restructuring charges of $8.4 million and $19.4 million for the third quarter
and first nine months of 2010 primarily includes personnel costs of $3.4 million
and $12.4 million and facilities costs of $2.2 million and $2.4 million,
respectively. The personnel costs are related to the elimination of
approximately 160 positions within the global ECS business segment and
approximately 90 positions within the global components business
segment. The facilities costs are related to exit activities for 7
vacated facilities in Europe and North America 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 $37.6 million
($29.1 million net of related taxes or $.24 per share on both a basic and
diluted basis) and $80.9 million ($61.3 million net of related taxes or $.51 per
share on both a basic and diluted basis) for the third quarter and first nine
months of 2009, respectively. Included in the restructuring, integration, and
other charges for the third quarter and first nine months of 2009 are
restructuring charges of $35.3 million and $78.8 million, respectively, related
to initiatives taken by the company to improve operating
efficiencies. Also, included in the restructuring, integration, and
other charges for the third quarter and first nine months of 2009 are charges of
$2.3 million and $2.1 million, respectively, related to restructuring and
integration actions taken in prior periods.
The
restructuring charges of $35.3 million and $78.8 million for the third quarter
and first nine months of 2009, respectively, primarily includes personnel costs
of $31.2 million and $70.6 million and facilities costs of $4.0 million and $7.7
million, respectively. The personnel costs are related to the
elimination of approximately 1,305 positions within the global components
business segment and approximately 260 positions within the global ECS business
segment. The facilities costs are related to exit activities for 26
vacated facilities worldwide 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 $184.5 million and $519.0 million in the
third quarter and first nine months of 2010, respectively, as compared with
operating income of $45.1 million and $157.5 million in the year-earlier
periods. Included in operating income for the third quarter and first
nine months of 2010 were the previously discussed restructuring, integration,
and other charges of $14.3 million and $27.4 million,
respectively. Included in operating income for the third quarter and
first nine months of 2009 were the previously discussed restructuring and
integration charges of $37.6 million and $80.9 million,
respectively.
Selling,
general and administrative expenses increased $69.2 million, or 21.5%, in the
third quarter of 2010 on a sales increase of 26.9% compared with the third
quarter of 2009 and $167.7 million, or 17.4%, for the first nine months of 2010
on a sales increase of 28.9% compared with the first nine months of
2009. The dollar increase in selling, general and administrative
expenses was primarily due to higher variable selling, general and
administrative expenses to support the increased sales, the reinstatement of
certain employee-related costs that were temporarily suspended during the global
economic downturn, and selling, general and administrative expenses incurred by
Shared, Converge, and Petsche, which were acquired in September 2010, June 2010,
and December 2009, respectively. These increases were offset, in
part, by the impact of a stronger U.S. dollar on the translation of the
company's international financial statements for both the third quarter and
first nine months of 2010 compared with the year-earlier periods. Selling,
general and administrative expenses as a percentage of sales for the third
quarters of 2010 and 2009 decreased to 8.4% from 8.8%, respectively, and to 8.4%
from 9.2% for the first nine months of 2010 and 2009, respectively. This
decrease was primarily due to the company's continuing efforts to streamline and
simplify processes and the company's ability to better leverage its existing
cost structure to manage the increased level of sales relative to the
year-earlier periods.
Depreciation
and amortization expense increased by $2.3 million, or 13.5%, and $5.2 million,
or 10.3%, for the third quarter and first nine months of 2010, respectively,
compared with the year-earlier periods, primarily due to
acquisitions.
Loss
on Prepayment of Debt
During
the second quarter of 2010, the company sold a property and was required to
repay the related collateralized debt with a face amount of $9.0
million. For the first nine months of 2010, the company recognized a
loss on prepayment of debt of $1.6 million ($1.0 million net of related taxes or
$.01 per share on both a basic and diluted basis) in the accompanying
consolidated statements of operations. The loss was offset by a gain
on the sale of this property of $1.7 million included in restructuring,
integration, and other charges in the accompanying consolidated statements of
operations.
The
company recorded a loss on prepayment of debt of $5.3 million ($3.2 million net
of related taxes or $.03 per share on both a basic and diluted basis) for both
the third quarter and first nine months of 2009, related to the repurchase of
$130.5 million principal amount of its 9.15% senior notes due
2010. The loss on prepayment of debt includes the related premium
paid and write-off of the related deferred financing costs, offset by the gain
for terminating a portion of the related interest rate swaps.
Interest
and Other Financing Expense
Net
interest and other financing expense increased by $.9 million, or 4.9%, in the
third quarter of 2010, compared with the year-earlier period, primarily due to
higher average debt outstanding.
Net
interest and other financing expense decreased by $.8 million, or 1.4%, in the
first nine months of 2010, compared with the year-earlier period, primarily due
to lower interest rates on the company's variable rate debt.
Income
Taxes
The
company recorded a provision for income taxes of $48.7 million and $142.9
million (an effective tax rate of 29.1% and 30.8%) for the third quarter and
first nine months of 2010, respectively. The company's provision for
income taxes and effective tax rate for the third quarter and first nine months
of 2010 was impacted by the previously discussed restructuring, integration, and
other charges and loss on the prepayment of debt. Excluding the
impact of the above-mentioned items, the company's effective tax rate for the
third quarter and first nine months of 2010 was 29.5% and 30.7%,
respectively.
The
company recorded a provision for income taxes of $11.0 million and $36.9 million
(an effective tax rate of 46.7% and 37.9%) for the third quarter and first nine
months of 2009, respectively. The company's provision for income
taxes and effective tax rate for the third quarter and first nine months of 2009
was impacted by the previously discussed restructuring, integration, and other
charges and loss on prepayment of debt. The higher effective tax rate
was primarily due to valuation allowances recorded in certain international tax
jurisdictions where the income tax benefits related to restructuring,
integration, and other charges may not be realized. Excluding the
impact of the previously discussed restructuring, integration, and other charges
and loss on prepayment of debt, the company's effective tax rate for both the
third quarter and first nine months of 2009 was 32.5% and 31.9%,
respectively.
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 $118.5 million and
$321.7 million in the third quarter and first nine months of 2010, respectively,
compared with net income attributable to shareholders of $12.6 million and $60.4
million in the year-earlier periods. Included in net income
attributable to shareholders for the third quarter and first nine months of 2010
were the previously discussed restructuring, integration, and other charges of
$9.5 million and $19.1 million, respectively. Also included in net
income attributable to shareholders for the first nine months of 2010 was the
previously
discussed
loss on prepayment of debt of $1.0 million. Included in net income
attributable to shareholders for the third quarter and first nine months of 2009
were the previously discussed restructuring, integration, and other charges of
$29.1 million and $61.3 million, respectively. Also included in net income
attributable to shareholders for both the third quarter and first nine months of
2009 was the previously discussed loss on prepayment of debt of $3.2
million. Excluding the above-mentioned items, the increase in net
income attributable to shareholders for the third quarter and first nine months
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, and a lower effective income tax rate. This was
offset, in part, by increased depreciation and amortization expense due
primarily to increased acquisition activity.
Liquidity
and Capital Resources
At
October 2, 2010 and December 31, 2009, the company had cash and cash equivalents
of $509.7 million and $1.14 billion, respectively.
During
the first nine months of 2010, the net amount of cash used for the company's
operating activities was $241.3 million, the net amount of cash used for
investing activities was $526.4 million, and the net amount of cash provided by
financing activities was $163.6 million. The effect of exchange rate
changes on cash was a decrease of $23.2 million.
During
the first nine months of 2009, the net amount of cash provided by the company's
operating activities was $649.3 million, the net amount of cash used for
investing activities was $98.1 million, and the net amount of cash provided by
financing activities was $128.8 million. The effect of exchange rate
changes on cash was an increase of $19.6 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 64.5% and 58.4% at October 2, 2010 and December
31, 2009, respectively.
The net
amount of cash used for the company's operating activities during the first nine
months of 2010 was $241.3 million and was primarily due to an increase in
accounts receivable and inventory offset, in part, by earnings from operations,
adjusted for non-cash items, and an increase in accounts payable and accrued
expenses.
The net
amount of cash provided by the company's operating activities during the first
nine months of 2009 was $649.3 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 13.7% in the third quarter of 2010 compared
with 11.7% in the third quarter of 2009.
Cash Flows from Investing
Activities
The net
amount of cash used for investing activities during the first nine months of
2010 was $526.4 million, primarily reflecting $460.0 million of cash
consideration paid for acquired businesses and $83.4 million for capital
expenditures, offset, in part, by proceeds from the sale of properties of
$17.0 million. Included in capital expenditures for the first nine
months of 2010 is $46.1 million related to the company's global enterprise
resource planning ("ERP") initiative.
During the first nine months of 2010, the
company acquired Verical Incorporated, an ecommerce business geared towards
meeting the end-of-life components and parts shortage needs of customers,
Converge, a leading provider of reverse logistics services, Sphinx Group
Limited, a United Kingdom-based value-
added
distributor of security and networking solutions, Transim Technology
Corporation, a leading service provider of online component design and
engineering solutions for technology manufacturers, Shared Technologies Inc., a
leading North American unified communications and managed services provider, and
Eshel Technology Group, Inc., a leading solid-state lighting distributor and
value-added service provider, for cash consideration of $456.9
million. In addition the company made a payment of $3.1 million to
increase its ownership interest in a majority-owned subsidiary.
The net
amount of cash used for investing activities during the first nine months of
2009 was $98.1 million, primarily reflecting $99.0 million for capital
expenditures, which includes $68.3 million of capital expenditures related to
the company's global ERP initiative, offset, in part, by proceeds from the sale
of properties of $1.2 million.
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 a similar cash flow impact expected for
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 nine months of
2010 was $163.6 million. The primary sources of cash from financing activities
during the first nine months of 2010 were $360.4 million of proceeds for
revolving credit facility borrowings, $3.2 million of proceeds from the exercise
of stock options, and $1.7 million related to excess tax benefits from
stock-based compensation arrangements. The primary use of cash for
financing activities included $131.3 million of repurchases of common stock, a
$69.5 million repayment of senior notes, and a $.9 million decrease in
short-term and other borrowings.
The net
amount of cash provided by financing activities during the first nine months of
2009 was $128.8 million. The primary sources of cash from financing activities
were $297.4 million of net proceeds from a note offering and $3.1 million of
proceeds from the exercise of stock options. The primary use of cash for
financing activities during the first nine months of 2009 included $135.7
million of repurchases of senior notes, a $32.0 million decrease in short-term
borrowings, $2.3 million of repurchases of common stock, and a $1.7 million
shortfall in tax benefits from stock-based compensation
arrangements.
In
September 2009, the company repurchased $130.5 million principal amount of its
9.15% senior notes due 2010. The related loss on the repurchase for
the third quarter and first nine months of 2009, including the premium paid and
write-off of the related deferred financing costs, offset by the gain for
terminating a portion of the related interest rate swaps aggregated $5.3 million
($3.2 million net of related taxes or $.03 per share on both a basic and diluted
basis) and was recognized as a loss on prepayment of debt. During the third
quarter of 2010, the company repaid the remaining $69.5 million principal amount
of its 9.15% senior notes upon maturity.
In
September 2009, the company completed the sale of $300.0 million principal
amount of 6.00% notes due in 2020. The net proceeds of the offering
of $297.4 million were used to repay a portion of the previously discussed 9.15%
senior notes due 2010 and for general corporate purposes.
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 October 2,
2010). The facility fee related to the credit facility is .125%. At
October 2, 2010, the company had $360.4 million in outstanding borrowings under
the revolving credit facility. There were no outstanding borrowings
under the revolving credit facility at December 31, 2009.
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 October 2, 2010). The facility fee is
..50%. The company had no outstanding borrowings under the asset securitization
program at October 2, 2010 and December 31, 2009.
Both the
revolving credit facility and asset securitization program 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. As of
October 2, 2010, the company was in compliance with all covenants relating to
its revolving credit facility and is currently not aware of any events that
would cause non-compliance with any covenants in the future. In
connection with the asset securitization program, on October 27, 2010, the
lenders under the program agreed to waive any potential breach resulting from
any failure by the company to comply with a non-financial covenant to maintain
appropriate UCC filings arising out of a merger and changes in the names of
several of the company’s subsidiaries that are originators of accounts
receivable under the program. Under certain circumstances the failure to
file or amend the UCC filings may have resulted in the company being out of
compliance with its obligations under the program and the company has taken the
necessary actions to cure any non-compliance.
Management
believes that the 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. The company continually evaluates its liquidity
requirements and would seek to amend its existing borrowing capacity or access
the financial markets as deemed necessary.
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, except as follows:
|
·
|
during
the third quarter of 2010, the company repaid the remaining $69.5 million
principle amount of its 9.15% senior notes upon maturity;
and
|
|
·
|
at
October 2, 2010, the company had $360.4 million in outstanding borrowings
under the revolving credit facility which matures in January
2012.
|
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 through a share-repurchase
program. In July 2010, the company's Board of Directors approved an
additional repurchase of up to $100 million of the company's common stock. As of
October 2, 2010, the company repurchased 4,693,900 shares under these plans with
a market value of $125.0 million at the dates of repurchase.
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 nine months 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 October 2, 2010 and
December 31, 2009 was $312.7 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. For the first nine months of 2010,
sales would have increased $53.8 million and operating income would be
relatively flat, 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 $402.4 million and $17.5 million,
respectively, if average foreign exchange rates declined by 10% against the U.S.
dollar in the first nine months 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"). 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"). These cross-currency swaps are designated as net investment
hedges and hedge a portion of the company's net investment in euro-denominated
net assets, by effectively converting the interest expense on $300.0 million of
long-term debt from U.S. dollars to euros. During the second quarter
of 2010, the company paid $2.3 million, plus accrued interest, to terminate
these cross-currency swaps. The 2006 cross-currency swap and the 2005
cross-currency swap had a negative fair value at December 31, 2009 of $12.5
million and $41.9 million, respectively.
Interest Rate
Risk
At
October 2, 2010, approximately 48% of the company's debt was subject to fixed
rates, and 52% of its debt was subject to floating rates. A one
percentage point change in average interest rates would not materially impact
net income attributable to shareholders for the first nine months 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.
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 4.37% and 4.18% at October 2, 2010 and
December 31, 2009, respectively), through its maturity. The swaps are
classified as fair value hedges and had a fair value of $17.8 million and $9.6
million at October 2, 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 October 2, 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
During
the third quarter of 2010, the company completed the process of installing a new
enterprise resource planning ("ERP") system in a select operation in Europe as
part of a phased implementation schedule. This new ERP system, which
will replace multiple legacy systems of the company, is expected to be
implemented globally over the next several years. The implementation
of this new ERP system involves changes to the company’s procedures for internal
control over financial reporting. The company follows a system implementation
life cycle process that requires significant pre-implementation planning,
design, and testing. The company also conducts extensive
post-implementation monitoring, testing, and process modifications to ensure the
effectiveness of internal controls over financial reporting, and the company did
not experience any significant difficulties to date in connection with this
implementation.
There
were no other changes 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.
PART
II. OTHER INFORMATION
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:
Add the
following additional risk factor:
We
have and may continue to pursue acquisitions and investments in businesses
outside our traditional core distribution business.
We have
made, and may continue to make acquisitions of, or investments in new services,
businesses, or technologies to expand our current service offerings and product
lines. Some of these may involve risks that may differ from those
traditionally associated with our core distribution business, including
undertaking product or service warranty responsibilities that in our traditional
core business would generally reside primarily with our suppliers. If
we are not successful in mitigating or insuring against such risks, they could
have a material adverse effect on the company’s business.
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 through a share-repurchase
program. In July 2010, the company's Board of Directors approved an additional
repurchase of up to $100 million of the company's common stock.
The
following table shows the share-repurchase activity for the quarter ended
October 2, 2010:
Month
|
|
Total
Number of
Shares
Purchased(1)
|
|
|
Average
Price Paid
per Share
|
|
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program(2)
|
|
|
Approximate
Dollar Value of
Shares that May
Yet be
Purchased
Under the
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
4 through 31, 2010
|
|
|
1,191 |
|
|
$ |
28.19 |
|
|
|
- |
|
|
|
125,005,230 |
|
August
1 through 31, 2010
|
|
|
2,031,944 |
|
|
|
24.61 |
|
|
|
2,031,788 |
|
|
|
75,006,991 |
|
September
1 through October 2, 2010
|
|
|
1,974 |
|
|
|
25.87 |
|
|
|
- |
|
|
|
75,006,991 |
|
Total
|
|
|
2,035,109 |
|
|
|
|
|
|
|
2,031,788 |
|
|
|
|
|
(1)
|
Includes
share repurchases under the 2010 share repurchase programs and those
associated with shares withheld from employees for stock-based awards, as
permitted by the plan, in order to satisfy the required tax withholding
obligations.
|
(2)
|
The
difference between the "total number of shares purchased" and the "total
number of shares purchased as part of publicly announced program" for the
quarter ended October 2, 2010 is 3,321 shares, which relate to shares
withheld from employees for stock-based awards, as permitted by the plan,
in order to satisfy the required tax withholding
obligations. The purchase of these shares were not made
pursuant to any 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.
|
|
|
|
101.INS*
|
|
XBRL
Instance Document
|
|
|
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase
Documents
|
*
|
XBRL
(Extensible Business Reporting Language) information is furnished and not
filed or a part of a registration statement or prospectus for purposes of
sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934, and
otherwise is not subject to liability under these
sections.
|
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: October
28, 2010
|
By:
|
/s/ Paul J. Reilly
|
|
|
Paul
J. Reilly
|
|
|
Executive
Vice President, Finance and Operations,
and
Chief Financial Officer
|