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 September 30, 1995 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 Identifi- incorporation or organization) cation Number) 25 Hub Drive, Melville, New York 11747 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (516) 391-1300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $1 par value: 50,602,844 shares outstanding at November 3, 1995. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. <TABLE> ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS EXCEPT PER SHARE DATA) (Unaudited) <CAPTION> Nine Months Ended Three Months Ended September 30 September 30 1995 1994 1995 1994 <S> <C> <C> <C> <C> Sales $4,358,157 $3,393,093 $1,459,591 $1,161,423 Costs and expenses: Cost of products sold 3,592,195 2,793,231 1,202,797 960,507 Selling, general and administrative expenses 427,591 362,447 140,580 120,740 Depreciation and amortization 23,687 19,657 8,135 6,698 Integration charge - 21,875 - 21,875 4,043,473 3,197,210 1,351,512 1,109,820 Operating income 314,684 195,883 108,079 51,603 Equity in earnings of affiliated company 2,168 - 398 - Interest expense 34,641 27,685 12,455 8,695 Earnings before income taxes and minority interest 282,211 168,198 96,022 42,908 Provision for income taxes 114,787 67,481 38,414 16,815 Earnings before minority interest 167,424 100,717 57,608 26,093 Minority interest 19,863 12,656 6,650 4,314 Net income $ 147,561 $ 88,061 $ 50,958 $ 21,779 Net income per common share Primary $3.12 $1.89 $1.07 $.47 Fully diluted $2.94 $1.81 $1.01 $.45 Average number of common shares and common share equivalents outstanding: Primary 47,268 46,563 47,740 46,578 Fully diluted 51,264 50,337 51,519 50,351 See accompanying notes. </TABLE> -2- <TABLE> ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) <CAPTION> September 30, December 31, 1995 1994 (Unaudited) ASSETS <S> <C> <C> Current assets: Cash and short-term investments $ 77,644 $ 105,606 Accounts receivable, less allowance for doubtful accounts ($36,681 in 1995 and $31,132 in 1994) 931,450 697,021 Inventories 935,466 725,436 Prepaid expenses and other assets 34,411 30,180 Total current assets 1,978,971 1,558,243 Property, plant and equipment at cost: Land 11,956 11,970 Buildings and improvements 67,315 53,962 Machinery and equipment 105,345 84,740 184,616 150,672 Less: accumulated depreciation and amortization 70,644 60,857 113,972 89,815 Investment in affiliated company 35,706 - Cost in excess of net assets of companies acquired, less accumulated amortization ($44,968 in 1995 and $36,057 in 1994) 386,181 334,297 Other assets 58,725 56,419 $2,573,555 $2,038,774 See accompanying notes. </TABLE> -3- <TABLE> ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) <CAPTION> September 30, December 31, 1995 1994 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current liabilities: Accounts payable $ 473,299 $ 411,766 Accrued expenses 244,640 191,574 Short-term borrowings, including current maturities of long-term debt 138,003 86,123 Total current liabilities 855,942 689,463 Long-term debt 410,417 224,398 Deferred income taxes and other liabilities 69,072 56,335 Subordinated debentures 124,970 125,000 Minority interest 95,339 105,693 Shareholders' equity: Common stock, par value $1: Authorized - 80,000,000 shares Issued - 46,817,358 shares in 1995 and 46,167,913 shares in 1994 46,817 46,168 Capital in excess of par value 409,739 388,913 Retained earnings 547,650 400,089 Foreign currency translation adjustment 20,048 6,367 1,024,254 841,537 Less: Unamortized employee stock awards and other 6,439 3,652 1,017,815 837,885 $2,573,555 $2,038,774 See accompanying notes. </TABLE> -4- <TABLE> ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (Unaudited) <CAPTION> Nine Months Ended September 30, 1995 1994 <S> <C> <C> Cash flows from operating activities: Net income $147,561 $ 88,061 Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest in earnings 19,863 12,656 Integration charge - 21,875 Depreciation and amortization 25,035 21,355 Equity in undistributed earnings of affiliated company (2,168) - Deferred income taxes 10,926 8,677 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (214,527) (83,836) Inventories (184,510) (29,904) Prepaid expenses and other assets (3,328) (2,840) Accounts payable 49,990 75,986 Accrued expenses 41,946 (24,275) Other (6,236) (5,873) Net cash provided by (used for) operating activities (115,448) 81,882 Cash flows from investing activities: Acquisitions of property, plant and equipment, net (34,743) (13,081) Cash consideration paid for acquired businesses (95,719) (80,784) Repayment by affiliate - 7,730 Collection of notes receivable from officers 190 1,796 Net cash (used for) investing activities (130,272) (84,339) Cash flows from financing activities: Change in short term borrowings 45,877 9,531 Proceeds from credit facilities 167,312 17,229 Repayment of long-term debt (22,297) (16,821) Proceeds from long-term debt 37,226 14,351 Proceeds from exercise of stock options 12,426 3,677 Distribution to partners (29,965) (3,990) Financing fees paid (516) (200) Net cash provided by financing activities 210,063 23,777 Effect of exchange rate changes on cash 7,695 3,631 Net increase (decrease) in cash and short-term investments (27,962) 24,951 Cash and short-term investments at beginning of period 105,606 80,962 Cash and short-term investments from affiliate at beginning of period - 1,112 Cash and short-term investments at end of period $ 77,644 $107,025 Supplemental disclosures of cash flow information Cash paid during the period: Income taxes $72,119 $ 43,344 Interest 34,416 29,968 See accompanying notes </TABLE> -5- ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (Unaudited) Note A -- Basis of presentation The accompanying consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's audited consolidated financial statements for the year ended December 31, 1994 and the notes thereto. The results of operations for the interim periods are not necessarily indicative of results for the full year. In November 1994, the company completed the acquisition of Anthem Electronics, Inc. ("Anthem") in a transaction accounted for as a pooling of interests. Accordingly, the 1994 consolidated statements of income and cash flows have been restated to include the operations of Anthem. Note B -- Net income per common share Net income per common share on a primary basis is based upon the weighted average number of shares of common stock and common stock equivalents outstanding. For the nine months ended September 30, 1995 and 1994, the average number of common stock equivalents was 754,083 and 608,456, respectively. For the quarter ended September 30, 1995 and 1994, the average number of common stock equivalents was 1,006,711 and 541,712 respectively. Net income per common share on a fully diluted basis assumes that the 5-3/4% convertible subordinated debentures (the "debentures") were converted to common stock at the beginning of the period and the related interest expense, net of taxes, was eliminated. Note C -- Credit agreement In August 1995, the company's credit agreement with a group of banks was amended to increase the amount of borrowings available to $500,000,000 from $175,000,000, to reduce the borrowing rate, and to extend the maturity date to August 2000. The amended facility allows for up to $250,000,000 of the borrowings to be denominated in foreign currencies. Note D - Subsequent event On October 5, 1995, the company called for redemption its 5-3/4% debentures due 2002. The conversion resulted in the issuance of 3,772,254 shares of common stock on October 25, 1995. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Sales Consolidated sales for the nine months and third quarter of 1995 increased 28.4% and 25.7% compared with year-earlier periods. This sales growth was principally due to increased activity levels in each of the company's distribution groups throughout the world and, to a lesser extent, acquisitions in Europe and the Pacific Rim. Operating income The company recorded operating income of $314.7 million and $108.1 million in the first nine months and third quarter of 1995, respectively, compared with $195.9 million and $51.6 million, respectively, in the year- earlier periods. Excluding the special charge of $21.9 million associated with the integration of Gates, operating income was $217.8 million and $73.5 million for the nine months and three months ended September 30, 1994, respectively. The improvement in operating income reflects the impact of increased sales, acquisitions, and the benefits of economies of scale resulting from the integration of Anthem and Gates with Arrow. Interest expense Interest expense of $34.6 million and $12.5 million in the first nine months and third quarter of 1995, respectively, increased from $27.7 million during the first nine months of 1994 and $8.7 million in the comparable quarter of 1994. The increase from the first nine months and third quarter of 1994 reflects increased company borrowings to finance working capital requirements necessary to support higher sales. Income taxes During the first nine months and third quarter of 1995 the company recorded a provision for taxes at an effective tax rate of 40.7% and 40.0% compared with 40.1% and 39.2%, respectively, in the year-earlier periods. The increase in the provision from the comparable year-earlier periods is due to increased earnings in countries with higher marginal tax rates. Net income The company recorded net income of $147.6 million and $51.0 million in the first nine months and third quarter of 1995, respectively, compared with $88.1 million in the first nine months of 1994 and $21.8 million in the third quarter of 1994. Excluding the special charge of $21.9 million ($13.1 million after taxes) associated with the integration of Gates, net income was $101.2 million ($2.17 per share on a primary basis) and $34.9 million ($.75 per share on a primary basis) for the nine months and three months ended September 30, 1994, respectively. The increase in net income over the year- earlier periods is due to increased sales and lower operating expenses as a percentage of sales offset in part by an increase in interest expense as previously discussed. -7- Liquidity and capital resources The company maintains a high level of current assets, primarily accounts receivable and inventories. Consolidated current assets as a percentage of total assets were approximately 77% and 79% at September 30, 1995 and 1994, respectively, excluding in 1994, the effect of the investments in net assets of acquired businesses. The net amount of cash used for the company's operating activities during the first nine months of 1995 was $115.4 million, principally reflecting increased working capital requirements supporting higher sales. The net amount of cash used for investing activities was $130.3 million, including $95.7 million for various acquisitions. The net amount of cash provided by financing activities was $210.1 million, principally reflecting the company's U.S. credit agreements and European bank borrowings, offset in part by distributions to partners and the net repayment of debt. The net amount of cash provided by the company's operating activities during the first nine months of 1994 was $81.9 million, principally reflecting earnings. The net amount of cash used for investing activities was $84.3 million, including approximately $80.8 million for various acquisitions. The net amount of cash provided by financing activities was $23.8 million, principally reflecting the company's U.S. credit agreements and European bank borrowings, offset in part by the net payment of debt. In October 1995, the company called for redemption its 5-3/4% convertible subordinated debentures, due 2002, which resulted in the issuance of 3,772,254 shares of common stock and eliminated approximately $125,000,000 in long term debt. The company believes that its working capital, funds available under its credit agreements, and additional funds generated from operations will be sufficient to satisfy its cash requirements at least through 1997. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 11 - Statement Re: Computation of Earnings Per Share (b) Reports on Form 8-K. None -8- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARROW ELECTRONICS, INC. Date: November 13, 1995 By:/s/ Robert E. Klatell Robert E. Klatell Executive Vice President and Chief Financial Officer Date: November 13, 1995 By:/s/ Paul J. Reilly Paul J. Reilly Controller -9-