UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2004
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.
11-1806155
(I.R.S. Employer
Identification Number)
11747
(Zip Code)
(631) 847-2000
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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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: 115,859,013 shares outstanding at November 2, 2004.
ARROW ELECTRONICS, INC.
INDEX
2
PART I. FINANCIAL
INFORMATION
Item 1.
Financial
Statements
.
ARROW ELECTRONICS, INC.
See accompanying notes.
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ARROW ELECTRONICS, INC.
See accompanying notes.
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ARROW ELECTRONICS, INC.
See accompanying notes.
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ARROW ELECTRONICS, INC.
Note
A — Basis of Presentation
The accompanying consolidated financial statements of Arrow Electronics, Inc.
(the “company”) 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 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 the information or
notes necessary for a complete presentation and, accordingly, should be read in
conjunction with the company’s prior quarterly reports on Form 10-Q and with
the company’s audited consolidated financial statements for the year ended
December 31, 2003 as filed in the company’s Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform with current year
presentation.
Note
B — Impact of Recently Issued Accounting Standards
Financial
Accounting Standards Statement No. 132 (revised 2003), “Employers’
Disclosures about Pensions and Other Postretirement Benefits” (“Statement No.
132R”), effective on January 1, 2004, revises employers’ disclosures about
pension plans and other postretirement benefit plans and requires additional
disclosures in annual financial statements about the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and
components of net periodic benefit cost of defined benefit pension plans and
other postretirement benefit plans. Statement No. 132R also requires interim
disclosure of the elements of net periodic benefit cost and, if significantly
different from amounts previously disclosed, the total amount of contributions
paid or expected to be paid during the current fiscal year. The company adopted
the disclosure provisions of Statement No. 132R in the first quarter of 2004.
Note
C — Acquisitions
On July 27, 2004, the company completed the previously announced acquisition of
Disway AG (“Disway”), an electronic components distributor in Italy, Germany,
Austria, and Switzerland. In 2003, Disway had sales of approximately $155,000.
The final purchase price is subject to a full year audit. For financial
reporting purposes, the Disway acquisition has been accounted for as a purchase
transaction. Accordingly, Disway’s results of operations have been included in
the consolidated results of the company as of the date of acquisition.
In February 2003, the company acquired substantially all of the assets of the
Industrial Electronics Division (“IED”) of Agilysys, Inc. IED was an
electronics distributor serving industrial original equipment manufacturers
(“OEMs”) and contract manufacturers (“CMs”). The net consideration paid for
this acquisition was $238,132 including $12,179 paid during the first quarter
of 2004
.
For financial reporting purposes, the IED acquisition has been accounted for as
a purchase transaction. Accordingly, the consolidated results of the company
include IED’s performance from the date of acquisition. The consolidated
results of the company for the three months ended September 30, 2004 and 2003
fully reflect IED’s financial results. The company’s unaudited summary of
operations for the nine months ended September 30, 2004 and 2003,
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ARROW ELECTRONICS, INC.
as though the acquisition of the IED business had occurred on January 1, 2003,
is as follows (shares in thousands):
(a) Amounts have been prepared on a pro forma basis.
The unaudited summary of operations does not purport to be indicative of the
results which would have been obtained if the acquisition had been made at the
beginning of 2003 or of those results which may be obtained in the future. The
unaudited summary of operations for the nine months ended September 30, 2004
reflects cost savings the company has achieved from the IED acquisition, as
well as the reduction of sales resulting from the combination.
As a result of certain acquisitions, the company may be contractually required
to purchase the shareholder interest held by others in its majority (but less
than 100%) owned subsidiaries. The payments for such purchases, which are
dependent upon the exercise of a put or call option by either party, are based
upon a multiple of earnings over a contractually determined period and, in
certain instances, capital structure. There are no expiration dates for these
agreements. The terms of these agreements generally provide no limitation to
the maximum potential future payments; however, in most instances the amount to
be paid will not be less than the pro-rata net book value (total assets minus
total liabilities) of the subsidiary. During the first nine months of 2004, the
company made a payment in the amount of $805, which was capitalized as cost in
excess of net assets of companies acquired partially offset by the carrying
value of the related minority interest, to increase its ownership interest in
Dicopel US and Dicopel SA (collectively, “Dicopel”) from 70% to 80%. During the first nine
months of 2003, the company made such payments in the amount of $2,099, which
were capitalized as cost in excess of net assets of companies acquired
partially offset by the carrying value of the related minority interest, to
increase its ownership interest in Arrow Components (NZ) Limited to 100%; $477
to increase its ownership interest in Dicopel from 60% to 70%; and $2,800 to
increase its ownership interest in Components Agent (Cayman) Limited to 100%. If the put or call options on outstanding agreements were exercised
at September 30, 2004, such payments would be approximately $9,000 ($6,000 at
December 31, 2003), which would be capitalized as cost in excess of
net assets of companies acquired partially offset by the carrying value of the
related minority interest. As these payments are based on the earnings
of the acquired companies, the amounts will change as the performance of these
subsidiaries change.
Note D — Investments
The company has a 50% interest in several joint ventures with Marubun
Corporation, collectively referred to as Marubun/Arrow, and a 50% interest in
Altech Industries (Pty.) Ltd., a joint venture with Allied Technologies
Limited. These investments in affiliated companies are accounted for using
the equity method.
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ARROW ELECTRONICS, INC.
The investments in affiliated companies are as follows:
The equity in earnings of affiliated companies are as follows:
Under the terms of the joint venture agreements, the company would be required
to pay its pro-rata share, based upon its ownership interests, of the debt of
the joint ventures in the event that the joint ventures were unable to meet
their obligations. At September 30, 2004 and December 31, 2003, the company’s
pro-rata share of this debt was $8,500 and $7,290, respectively. The company
believes there is sufficient equity in the joint ventures to cover this
potential liability.
During the third quarter of 2004, the company determined that an
other-than-temporary impairment occurred related to an investment and
accordingly, a loss on the investment of $1,318 ($.01 per share) is
recognized.
The company has a 5% interest in World Peace Industrial Co., Ltd. and an 8.4%
interest in Marubun Corporation. These investments are accounted for as
available-for-sale securities using the fair value method as follows:
The fair value of these investments are included in “Other assets” and the
related net unrealized holding losses are included in “Other” in the
shareholders’ equity section in the accompanying consolidated balance sheet.
At September 30, 2004, the cost of the company’s investment in Marubun
Corporation, a Japanese company, was $23,065, the unrealized holding loss was
$6,991 and the fair value was $16,074. Since December 31, 2003, the fair value
of the company’s investment has increased by $3,078. Although the fair value
of the Marubun Corporation investment has been below the cost basis for more
than 18 months, the company has concluded that an other-than-temporary decline
has not occurred based upon its assessment of the following factors:
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ARROW ELECTRONICS, INC.
While Marubun Corporation experienced the effects of the same worldwide
technology cyclical downturn as the rest of the electronics distribution
industry, it experienced period over period growth in sales for the quarter
ended June 30, 2004, which is the most recently available public
financial information. Marubun Corporation also remained profitable for the
quarter ended June 30, 2004 and reported a strong balance sheet at June 30,
2004. Its stock value has fluctuated over the last twelve months, with an
increase of 13.2% compared with the stock value at September 30, 2003. The company’s
intent and ability is to retain this investment over a period of time
sufficient to allow for recovery in market value. The company could potentially
record an impairment charge in future periods if, among other factors, Marubun
Corporation’s future earnings differ from currently available public forecasts.
Such an impairment charge would have been $6,991 ($.06 per share) for the three
and nine months ended September 30, 2004.
Note E — Accounts
Receivable
The company has a $550,000 asset securitization program (the “program”). At
September 30, 2004 and December 31, 2003, there were no receivables sold to and
held by third parties under the program, and as such, the company had no
obligations outstanding under the program. The company has not utilized the
program since June 2001.
Accounts receivable consists of the following:
Note F — Cost in
Excess of Net Assets of Companies Acquired
Cost in excess of net assets of
companies acquired related to the company’s electronic
components business segment is as follows:
All existing and future costs in excess of net assets of companies acquired
will be subject to an annual impairment test on the first day of the fourth
quarter of each year, or earlier if indicators of potential impairment exist.
The company does not have any other intangible assets subject to valuation
under Financial Accounting Standards Board (“FASB”) Statement No. 142,
“Goodwill and Other Intangible Assets”.
Note
G — Debt
The company recorded a loss on prepayment of debt of $911 ($545 net of related
taxes or $.01 per share) and $3,292 ($1,969 net of related taxes or $.02 per
share), for the third quarter of 2004 and 2003, respectively. For the nine
months ended September 30, 2004 and 2003, the company recorded a loss on
prepayment of debt of $31,692 ($18,952 net of related taxes or $.17 and $.15
per share on a basic and diluted basis, respectively) and $6,234 ($3,728 net of
related taxes or $.04 per share), respectively. These items are discussed in
greater detail below.
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ARROW ELECTRONICS, INC.
During the third quarter of 2004, the company repurchased $19,841 accreted
value of its zero coupon convertible debentures due in 2021, which could have
been initially put to the company in February 2006 (“convertible debentures”).
The related loss on the repurchase, including the premium paid and the
write-off of related deferred financing costs, aggregated $911 ($545 net of
related taxes or $.01 per share) and is recognized as a loss on prepayment of
debt. As a result of this transaction, net interest expense will be reduced by
approximately $930 from the date of repurchase through the 2006 put date, based
on interest rates in effect at the time of the repurchase.
During the first nine months of 2004, the company repurchased, through a series
of transactions, $253,422 accreted value of its convertible debentures. The
related loss on the repurchase, including the premium paid and the write-off of
related deferred financing costs, aggregated $12,771 ($7,637 net of related
taxes or $.07 and $.06 per share on a basic and diluted basis, respectively).
Also during the first nine months of 2004, the company repurchased and/or
redeemed, through a series of transactions, $250,000 principal amount of its
8.7% senior notes, due in October 2005. The premium paid and the related
deferred financing costs written-off upon the repurchase and/or redemption of
this debt, net of the gain recognized by terminating the related interest rate
swaps, aggregated $18,921 ($11,315 net of related taxes or $.10 and $.09 per
share on a basic and diluted basis, respectively). The aggregate of these
charges is recognized as a loss on prepayment of debt. As a result of these
transactions, net interest expense will be reduced by approximately $34,330
from the dates of repurchase and/or redemption through the earliest maturity date,
based on interest rates in effect at the time of the repurchases.
In February 2004, the company issued 13,800,000 shares of common stock with net
proceeds of $312,789. The proceeds were used to redeem $208,500 of the
company’s outstanding 8.7% senior notes due in October 2005, as described
above, and for the repurchase of a portion of the company’s outstanding
convertible debentures ($91,873 accreted value).
During the third quarter of 2003, the company repurchased, through a series of
transactions, $154,891 accreted value of its convertible debentures. The
related loss on the repurchase, including the write-off of related deferred
financing costs offset, in part, by the discount on the repurchase, aggregated
$3,292 ($1,969 net of related taxes or $.02 per share) and was recognized as a
loss on prepayment of debt. As a result of these transactions, interest
expense will be reduced by approximately $4,600 from the dates of repurchase
through the 2006 put date, based on interest rates in effect at the time of the
repurchases.
During the first nine months of 2003 through a series of transactions, along
with the aforementioned repurchase of convertible debentures in the third
quarter of 2003, the company repurchased, prior to maturity, 8.2% senior notes
with a principal amount of $84,820, which matured in October 2003. The premium
paid and the related deferred financing costs written-off upon the repurchase
of this debt aggregated $2,942 ($1,759 net of related taxes or $.02 per share)
and was recognized as a loss on prepayment of debt. As a result of these
transactions, net interest expense was reduced by approximately $3,300 from the
dates of the repurchases through the 2003 maturity date.
In June 2003, the company completed the sale of $350,000 principal amount of
6.875% senior notes due in 2013. The net proceeds of the offering of $346,286
were used to repay the aforementioned 8.2% senior notes and for general
corporate purposes. The additional debt the company carried during the period
between the sale of the 6.875% senior notes in June 2003 and the repayment of
the 8.2% senior notes in October 2003 negatively impacted the third quarter
loss by $4,700 ($2,900 net of related taxes).
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ARROW ELECTRONICS, INC.
At September 30, 2004 and December 31, 2003, the company had no outstanding
borrowings under its $450,000 revolving credit facility.
In June 2004, the company entered into a series of interest rate swaps (the
“2004 swaps”), with an aggregate notional amount of $300,000, in order to
manage the company’s targeted mix of fixed and floating rate debt. The 2004
swaps modify the company’s interest rate exposure by effectively converting the
fixed 9.15% senior notes and 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 6.53% and 3.80% at September 30, 2004, respectively) through
their maturities. The 2004 swaps are classified as fair value hedges and at
September 30, 2004 had a fair value of $11,848.
In November 2003, the company entered into a series of interest rate swaps (the
“2003 swaps”), with an aggregate notional amount of $200,000, in order to
manage the company’s targeted mix of fixed and floating rate debt. The 2003
swaps modify the company’s interest rate exposure by effectively converting the
fixed 7% senior notes to a floating rate based on the six-month U.S. dollar
LIBOR plus a spread (an effective rate of 5.81% and 5.20% at September 30, 2004
and December 31, 2003, respectively) through their maturities. The 2003 swaps
are classified as fair value hedges and at September 30, 2004 and December 31,
2003 had fair values of $147 and $1,649, respectively.
In August 2002, the company entered into a series of interest rate swaps (the
“2002 swaps”), with an aggregate notional amount of $250,000, in order to
manage the company’s targeted mix of fixed and floating rate debt. During the
first quarter of 2004, the company, in conjunction with the aggregate
repurchase and/or redemption of the outstanding $250,000 principal amount of
its 8.7% senior notes, terminated the 2002 swaps and recognized a gain of
$7,424. This gain was reported as a component of the aforementioned loss on
prepayment of debt of $18,921.
Interest expense, net, includes interest income of $1,435 and $2,869 for the
three months ended September 30, 2004 and 2003, respectively, and $6,365 and
$7,542 for the nine months ended September 30, 2004 and 2003, respectively.
Note
H — Restructuring, Integration, and Other Charges
Restructuring
The company recorded restructuring charges of $407 ($175 net of related taxes)
and $9,100 ($6,325 net of related taxes or $.06 per share), for the third
quarter of 2004 and 2003, respectively. For the nine months ended September
30, 2004 and 2003, the company recorded restructuring charges of $7,984 ($4,756
net of related taxes or $.05 and $.04 per share on a basic and diluted basis,
respectively) and $30,342 ($20,732 net of related taxes or $.21 per share),
respectively. These items are discussed in greater detail below.
2004
Restructuring
During the first quarter of 2004, the company announced a series of additional
steps to make its organizational structure more efficient. These steps are
expected to permanently reduce its cost structure by $15,000 annually. The
estimated restructuring charge associated with these actions totals
approximately $4,500, of which $4,368 ($2,786 net of related taxes or $.03 per
share) was recorded in the first nine months of 2004. The company will record
the balance of the restructuring charge over the next several quarters.
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ARROW ELECTRONICS, INC.
The 2004 restructuring charge consisted of personnel costs relating to the
elimination of approximately 90 positions, or less than 1%, of the prior
year-end worldwide total of 11,200 positions. This charge resulted primarily in
the elimination of certain corporate support functions across multiple
locations in North America. Approximately 80% of this total charge is expected
to be spent in cash. As of September 30, 2004, after cash payments of $2,878
and non-cash usage of $310, the balance of the accrual is $1,180.
2003
Restructuring
During 2003, the company implemented actions to become more effectively
organized and to improve its operating efficiencies, with annualized savings of
$75,000. The company took these steps in order to make its organizational
structure, systems, and processes more efficient. The restructuring charges
associated with these actions total approximately $43,357, of which $37,965
($27,144 net of related taxes or $.27 per share) was recorded in 2003. The
company recorded a restructuring charge of $618 ($343 net of related taxes) in
the third quarter of 2004 and restructuring charges of $4,369 ($2,572 net of
related taxes or $.02 and $.01 per share on a basic and diluted basis,
respectively) for the first nine months of 2004. The charges recorded in the
third quarter and first nine months of 2003 associated with these actions
totaled $9,100 ($6,325 net of related taxes or $.06 per share) and $30,342
($20,732 net of related taxes or $.21 per share), respectively, and relate
primarily to personnel costs. The company will record the balance of the
restructuring charge of approximately $1,000 over the next several quarters.
The 2003 restructuring charges are comprised of the following at September 30,
2004:
2001
and prior Restructurings
In mid 2001, the company took a number of significant steps related to cost
containment and cost reduction actions, to mitigate, in part, the impact of
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ARROW ELECTRONICS, INC.
significantly reduced sales. As a result, the company recorded restructuring
charges and other charges of $227,622 ($145,079 net of related taxes or $1.47
per share) in 2001. These charges included costs associated with headcount
reductions, the consolidation or closing of facilities, valuation adjustments
to inventory and Internet investments, the termination of certain customer
engagements, and various other miscellaneous items. The company recorded a
charge of $174,622, in addition to prior real estate commitments of $2,052.
Also included in the 2001 charge was a non-cash charge of $53,000 to fully
write-down various Internet investments to their realizable values.
The company recorded a reversal of $211 ($168 net of related taxes), which is
included in restructuring charges, in the third quarter of 2004. As of
September 30, 2004, cash payments of $28,192, non-cash usage of $190,879, and a
reversal of $753 ($602 net of related taxes) which is included in restructuring
charges for the nine months ended September 30, 2004, were recorded against the
accrual.
As of September 30, 2004 and December 31, 2003, the company had $9,850 and
$11,795, respectively, of unused accruals of which $5,214 and $6,406,
respectively, are required to address remaining real estate lease commitments.
In addition, accruals of $4,612 and $5,365, at September 30, 2004 and December
31, 2003, respectively, relate to the termination of certain customer programs.
The company also had $24 of remaining accruals, for both periods presented,
primarily related to IT systems no longer being used.
Integration
In the first quarter of 2003, the company incurred integration costs of $18,407
($14,063 net of related taxes) related to the acquisition of IED. Of the total
amount recorded, $6,904 ($4,822 net of related taxes or $.05 per share)
relating primarily to severance costs for the company’s employees was expensed
and $11,503 ($9,241 net of related taxes) relating primarily to severance costs
for IED employees and professional fees was recorded as additional cost in
excess of net assets of companies acquired. As of September 30, 2004,
approximately $800 of this accrual was required to address remaining
contractual obligations.
The remaining integration accrual as of September 30, 2004, of approximately
$11,400 relates to numerous acquisitions made prior to 2000, which individually
are not significant and principally represent payments for remaining
contractual obligations.
Total integration charges are as follows at September 30, 2004:
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Restructuring and
Integration Summary
The remaining balances of the aforementioned restructuring and integration
charges as of September 30, 2004 aggregate $28,619, of which
$18,554 is
expected to be spent in cash, and will be utilized as follows:
The
company’s restructuring and integration programs principally impacted its
electronic components business segment.
Acquisition Indemnification
In the third quarter of 2003, the company recognized an acquisition
indemnification charge of €11,327 ($13,002 or $.13 per share at the 2003 third
quarter-end exchange rate) for the full amount of a claim asserted by
the French tax authorities relating to alleged fraudulent activities
concerning value-added tax by Tekelec Europe SA (“Tekelec”), a French subsidiary of
the company. The alleged activities occurred prior to the company’s purchase
of Tekelec from Tekelec Airtronic SA (“Airtronic”) in 2000. As announced on
August 13, 2004, an agreement (the “settlement agreement”) was reached with
the French tax authorities pursuant to which Tekelec will pay €3,429
($4,257 at the exchange rate prevailing at the end of the third quarter of
2004) in full settlement of this claim. Under the Airtronic indemnity
agreement, the consent of Airtronic to a settlement of an indemnified matter
is required. Tekelec did not receive the consent of Airtronic to the
settlement agreement, but the company decided to proceed with the settlement
in light of the company’s inability to assess Airtronic’s ability and intent
to fulfill its obligations under the indemnity. The company recorded an
acquisition indemnification credit of €7,898 ($9,676 at the exchange rate
prevailing on August 12, 2004 or $.09 and $.08 per share on a
basic and diluted basis, respectively) in the third quarter and first
nine months of 2004 to reduce the
liability previously recorded (€11,327) to the current required level
(€3,429).
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Note I — Net Income (Loss) per Share
The following
table sets forth the calculation of net income (loss) per share on a
basic and diluted basis (shares in thousands):
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Note J —
Comprehensive Income
Comprehensive income is defined as the aggregate change in shareholders’ equity
excluding changes in ownership interests. The components of comprehensive
income are as follows:
Note K — Defined Benefit Plan
Retirement benefits for certain employees were provided under a defined benefit
plan, the Wyle Electronics Retirement Plan (the “Wyle plan”). Benefits under
this plan were frozen as of December 31, 2000. The following tables present
the components of the net periodic pension cost for the Wyle plan:
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Note L — Employee Stock Plans
The company applies Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations in accounting for its
various stock-based compensation plans (“compensation plans”). If compensation
expense for the company’s compensation plans had been determined utilizing the
fair value method of accounting at the grant dates for awards under the
compensation plans in accordance with FASB Statement No. 123, “Accounting for
Stock-Based Compensation”, as amended by FASB Statement No. 148, “Accounting
for Stock-Based Compensation – Transition and Disclosure”, the company’s pro
forma net income (loss) and basic and diluted net income (loss) per share would
have been as follows:
Note M — Contingencies
Reference
is made to Note 15 to the company’s audited consolidated financial
statements contained in the company’s Annual Report on Form 10-K for the year
ended December 31, 2003 (“Note 15”) in which the company has previously
disclosed certain environmental contingencies arising out of the company’s
purchase of Wyle Electronics in 1999 and certain litigation and tax
contingencies from its purchase of Tekelec Europe SA in 2000.
Wyle
Environmental Indemnification
Pursuant to the consent decree among the company, Wyle Laboratories, Inc. (a
former subsidiary of Wyle Electronics) and the California Department of Toxic
Substance Control (the “DTSC”), as discussed at Note 15, in May 2004 a Removal
Action Work Plan (the “Plan”) pertaining to the remediation of contaminated
groundwater at certain previously-identified areas at the Norco, California
site was accepted by the DTSC. The company currently estimates that the work
under the Plan will cost approximately $6,400, of which approximately $2,800
has been spent to date. The complete scope of work under the consent decree,
which includes the characterization of pollutants released at the site and the
design and implementation of additional remedial actions in other areas in
connection therewith, has not yet been finalized and the total associated costs
have therefore not yet been determined. Characterization of the extent of
contaminated groundwater also continues at the second previously identified
Wyle Laboratories site, located in Huntsville, Alabama. Under the direction of
the Alabama Department of Environmental Management, approximately $490 has been
spent to date, but the complete scope of the characterization effort, the
design of any remediation action, and the ultimate cost of the project are all
as yet unknown.
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As is also discussed more fully at Note 15, the company continues to believe
that any cost which it may incur in connection with potential remediation at
the Wyle Laboratories sites and any related litigation is covered by an
indemnification (except, under the terms thereof, for 15% of the first $3,000
of all environmental claims in the aggregate, or $450). This indemnification
arose out of the company’s purchase of Wyle Electronics from VEBA, which has
since merged with E.ON AG, a large German-based multinational conglomerate.
E.ON AG has, subject to the terms of its contract with the company,
acknowledged liability in respect to the Wyle Laboratories sites and made an
initial, partial payment. The company’s demands for subsequent payments have
not been met, however, and in September 2004, the company filed suit against
E.ON AG and certain of its U.S. subsidiaries in the United States District
Court for the Northern District of Alabama seeking further payments of
indemnified amounts and additional related damages.
Also included in the above-referenced lawsuit against E.ON AG is a claim for
the reimbursement of pre-acquisition tax liabilities of Wyle in the amount of
$7,836 for which E.ON AG is also contractually liable to reimburse
and indemnify the company.
E.ON AG has specifically acknowledged owing the company not less than $6,335
of such amounts, but its undertakings to make payments of at least that amount have
not been kept.
E.ON AG has been served but has not yet answered the complaint in the pending
lawsuit. The company believes strongly in the merits of the complaint, which
it intends to pursue vigorously.
Export
and Re-Export Regulations
Because of the international nature of its business, the company is subject to
the import and export laws and regulations of the United States and certain
foreign governments, which govern the international transfer of certain of the
products sold by the company and its subsidiaries around the world.
Under U.S. Export Administration Regulations, administered by the Bureau of
Industry and Security (“BIS”) of the Department of Commerce, licenses or proper
license exceptions are required for the shipment of covered U.S. goods and
technology to certain countries, including China, Taiwan, India and other
countries which are among the markets in which the company operates and to
which it ships products covered by the regulations. Non-compliance with the
regulations can result in a wide range of penalties including the denial of
export privileges, fines, criminal penalties, and seizure of commodities.
In September 2004, the company made a preliminary, voluntary disclosure to
BIS advising them that the company suspected that its Hong Kong subsidiary,
Arrow Asia Pac, Ltd., may have exported or re-exported certain products without
the required licenses. The company is undertaking a review of its historical
shipments to determine the number and nature of any violations, and upon
reaching such a determination will communicate the information to BIS. Until
that review is completed it is not possible to determine what penalties, if
any, the company will face or their potential impact upon the company’s
financial position, liquidity or results of operations.
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, and tax matters. It is not anticipated
that any such other matters will have a material adverse impact on
the company’s financial position, liquidity, or results of
operations.
18
ARROW ELECTRONICS, INC.
Note N — Segment and Geographic Information
The company is engaged in the distribution of electronic components to OEMs and
CMs and computer products to value-added resellers and OEMs. 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. Computer products includes the company’s North
American Computer Products group together with UK Microtronica, ATD (in
Iberia), Arrow Computer Products (in France), and Nordic Microtronica (for the
three and nine months ended September 30, 2003 only).
Sales and operating income, by segment, are as follows:
Total assets, by segment, are as follows:
Sales, by geographic area, are as follows:
19
ARROW ELECTRONICS, INC.
Total assets, by geographic area, are as follows:
20
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The company has two business segments: electronic components and computer
products. Consolidated sales grew by 27.4% in the third quarter of 2004 and
30.6% in the first nine months of 2004, compared with the year-earlier periods,
as a result of strong sales growth in the components businesses in North
America, Europe, and Asia/Pacific, as well as continued growth in the company’s
North American Computer Products group (“NACP”) businesses. The increase in
sales, excluding the impact of the weaker U.S. dollar, was 24.3% for the third
quarter of 2004 and 26.7% for the first nine months of 2004. The growth in the
North American Components (“NAC”) businesses was driven by the strength of
demand from the company’s broad customer base, as well as the cyclical upturn
that began during 2003. The growth in the European components businesses is
primarily due to improved customer order patterns and the completion, during
the third quarter of 2004, of the previously announced acquisition of Disway AG
(“Disway”). The growth in the Asia/Pacific components businesses is a result of
the region’s strong growth coupled with the company’s increased focus in the
region. The growth in NACP is due to a company initiative to grow sales of
certain strategic product segments such as storage, software, and services, a
change in the business model used for the sale of Hewlett-Packard Company
(“HP”) products in the first quarter of 2004, as described
below, and increases in
its Enterprise Computing Solutions business.
Net income increased to $63.4 million in the third quarter of 2004 and $159.8
million in the first nine months of 2004, compared with net losses of $6.2
million and $.3 million in the year-earlier periods. The increase in net
income is due to the company’s ability to increase sales without operating
expenses increasing at the same rate, the impact of efficiency initiatives
reducing operating expenses, and lower interest costs as a result of the
prepayment of debt. In addition, the following items impact the comparability
of the company’s results:
Three Months Ended September 30, 2004 and 2003
Nine Months Ended September 30, 2004 and 2003
21
Sales
Consolidated sales increased 27.4% for the third quarter of 2004 and 30.6% for
the first nine months of 2004, compared with the year-earlier periods. Sales in
the Americas increased in the third quarter and first nine months of 2004 by
$309.1 million or 24.6% and $1.16 billion or 32.3%, respectively, compared
with the year-earlier periods as a result of organic growth in both the NAC and
NACP businesses. The growth in the NAC businesses was driven by the strength of
demand from the company’s broad customer base, as well as the cyclical upturn
that began during 2003. The growth in the NACP businesses is due to a company
initiative to grow sales of certain strategic product segments such as storage,
software, and services, a change in the business model used for the sale of HP
products in the first quarter of 2004, and increases in its
Enterprise Computing Solutions business. European sales for the third quarter
and first nine months of 2004 increased by $158.4 million or 24.7% and $453.0
million or 22.2%, respectively, compared with the year-earlier periods
primarily due to improved customer order patterns and the completion, during
the third quarter of 2004, of the acquisition of Disway, as well as the impact
of a weaker U.S. dollar on the translation of the company’s European financial
statements offset, in part, by the elimination of sales in the Nordic commodity
computer products business, which the company exited during the third quarter
of 2003. Asia/Pacific sales for the third quarter and first nine months of 2004
increased by $106.0 million or 54.2% and $284.9 million or 49.7%, respectively,
compared with the year-earlier periods, as a result of improved market
conditions as well as the company’s increased focus in this region. The
consolidated increase in sales was impacted by the translation of the company’s
international financial statements into U.S. dollars which resulted in
increased sales of $52.5 million for the third quarter of 2004 and $190.6
million for the first nine months of 2004, compared with the year-earlier
periods, due to a weaker U.S. dollar. The increase in sales, excluding the
impact of the weaker U.S. dollar, was 24.3% for the third quarter of 2004 and
26.7% for the first nine months of 2004.
Sales of electronic components increased $412.6 million or 26.1% for the third
quarter of 2004 and $1.43 billion or 30.7% for the first nine months of
2004, compared with the year-earlier periods. The factors impacting the overall
increase in worldwide sales of electronic components include the aforementioned
increased sales in North America, Europe, and the Asia/Pacific region.
Sales of computer products increased $160.8 million or 31.2% for the third
quarter of 2004 and $470.5 million or 30.3% for the first nine months of 2004,
compared with the year-earlier periods. This increase is due in part to a
change in the way revenue is recognized within the business model with HP.
During February 2004, HP modified its agreements with distributors transforming
the relationship from that of an agent to that of a distributor. This
modification, which required a change in the method of recognizing HP revenue,
increased sales by an estimated $94.9 million and $174.3 million during the
third quarter and first nine months of 2004, respectively. Sales in the
Enterprise Computing Solutions business increased by 48.0% and 44.3% in the
third quarter and first nine months of 2004, respectively, compared with the
year-earlier periods and excluding the aforementioned change related to HP,
sales would have increased 33.8% in the third quarter of 2004 and 27.1% in the
first nine months of 2004. Sales in the computer products’ original equipment
manufacturers (“OEM”) business increased by 14.6% and 21.0%, in the third
quarter and first nine months of 2004, respectively, compared with the
year-earlier periods, though the OEM market continues to be impacted by reduced
activity levels at large, complex telecommunications and networking companies.
These increases were offset, in part, by the elimination of sales in the Nordic
commodity computer products business, which the company exited during the third
quarter of 2003.
22
Gross Profit
The company recorded gross profit of $420.2 million in the third quarter of
2004 and $1.29 billion in the first nine months of 2004, compared with gross
profit of $343.6 million and $1.03 billion in the year-earlier periods. The
increase in gross profit is principally due to the increase in sales during the
first nine months of 2004. The gross profit margin for the third quarter and
first nine months of 2004 each decreased by 70 basis points, when compared with
the year-earlier periods. This is the result of the Asia/Pacific and NACP
businesses accounting for a larger part of the company’s sales mix, pricing
pressures in the marketplace relating to the worldwide components businesses,
as well as a change in NACP’s business model used for the sale of HP products
in the first quarter of 2004 which only impacts gross profit margin and not
gross profit.
Restructuring, Integration, and Other Charges
Restructuring
The company recorded restructuring charges of $.4 million ($.2 million net of
related taxes) and $9.1 million ($6.3 million net of related taxes or $.06 per
share), for the third quarter of 2004 and 2003, respectively. For the nine
months ended September 30, 2004 and 2003, the company recorded restructuring
charges of $8.0 million ($4.8 million net of related taxes or $.05 and $.04 per
share on a basic and diluted basis, respectively) and $30.3 million ($20.7
million net of related taxes or $.21 per share), respectively. These items are
discussed in greater detail below.
2004 Restructuring
During the first quarter of 2004, the company announced a series of additional
steps to make its organizational structure more efficient. These steps are
expected to permanently reduce its cost structure by $15.0 million annually.
The estimated restructuring charge associated with these actions totals
approximately $4.5 million, of which $4.4 million ($2.8 million net of related
taxes or $.03 per share) was recorded in the first nine months of 2004. The
company will record the balance of the restructuring charge over the next
several quarters.
The 2004 restructuring charge consisted of personnel costs relating to the
elimination of approximately 90 positions, or less than 1%, of the prior
year-end worldwide total of 11,200 positions. This charge resulted primarily in
the elimination of certain corporate support functions across multiple
locations in North America. Approximately 80% of this total charge is expected
to be spent in cash. As of September 30, 2004, after cash payments of $2.9
million and non-cash usage of $.3 million, the balance of the accrual is $1.2
million.
2003 Restructuring
During 2003, the company implemented actions to become more effectively
organized and to improve its operating efficiencies, with annualized savings of
$75.0 million. The company took these steps in order to make its organizational
structure, systems, and processes more efficient. The restructuring charges
associated with these actions total approximately $43.4 million, of which $38.0
million ($27.1 million net of related taxes or $.27 per share) was recorded in
2003. The company recorded a restructuring charge of $.6 million ($.3 million
net of related taxes) in the third quarter of 2004 and restructuring charges of
$4.4 million ($2.6 million net of related taxes or $.02 and $.01 per share on a
basic and diluted basis, respectively) for the first nine months of 2004. The
charges recorded in the third quarter and first nine months of 2003 associated
with these actions totaled $9.1 million ($6.3 million net of related taxes or
$.06 per share) and $30.3 million ($20.7 million net of related taxes or $.21
per share), respectively, and relate primarily to personnel costs. The company will record the balance of the
23
restructuring charge of approximately $1.0 million over the next several
quarters.
2001
and prior Restructurings
Also included in the restructuring charges for the third quarter and first nine
months of 2004 is a reversal of $.2 million ($.2 million net of related taxes)
and $.8 million ($.6 million net of related taxes), respectively, recorded
against the mid-2001 restructuring accrual.
Integration
In the first quarter of 2003, the company incurred integration costs of $18.4
million ($14.1 million net of related taxes) related to the acquisition of IED.
Of the total amount recorded, $6.9 million ($4.8 million net of related taxes
or $.05 per share) relating primarily to severance costs for the company’s
employees was expensed and $11.5 million ($9.2 million net of related taxes)
relating primarily to severance costs for IED employees and professional fees
was recorded as additional cost in excess of net assets of companies acquired.
As of September 30, 2004, approximately $.8 million of this accrual was
required to address remaining contractual obligations.
Restructuring and Integration Summary
The remaining balances of the aforementioned restructuring and integration
charges as of September 30, 2004 aggregate $28.6 million,
of which $18.6
million is expected to be spent in cash, and will be utilized as follows:
Acquisition Indemnification
In the third quarter of 2003, the company recognized an acquisition
indemnification charge of €11.3 million ($13.0 million or $.13 per share at
the 2003 third quarter-end exchange rate) for the full amount of a claim asserted
by the French tax authorities relating to alleged fraudulent
activities concerning value-added tax by Tekelec Europe SA (“Tekelec”), a French subsidiary of
the company. The alleged activities occurred prior to the company’s purchase
of Tekelec from Tekelec Airtronic SA (“Airtronic”) in 2000. As announced on
August 13, 2004, an agreement (the “settlement agreement”) was reached with
the French tax authorities pursuant to which Tekelec will pay €3.4 million
($4.3 million at the exchange rate prevailing at the end of the third quarter
of 2004) in full settlement of this claim. Under the Airtronic indemnity
agreement, the consent of Airtronic to a settlement of an indemnified matter
is required. Tekelec did not receive the
24
consent of Airtronic to the settlement agreement, but the company decided to proceed with the settlement
in light of the company’s inability to assess Airtronic’s ability and intent
to fulfill its obligations under the indemnity. The company recorded an
acquisition indemnification credit of €7.9 million ($9.7 million at the
exchange rate prevailing on August 12, 2004 or $.09 and $.08 per
share on a basic and diluted basis, respectively) in the third quarter
and first nine months of 2004 to
reduce the liability previously recorded (€11.3 million) to the current
required level (€3.4 million).
Operating Income
The company recorded operating income of $115.0 million in the third quarter of
2004 and $340.7 million in the first nine months of 2004, compared with
operating income of $34.2 million and $109.8 million in the year-earlier
periods. The increase in operating income of $80.9 million for the third
quarter of 2004 and $230.9 million for the first nine months of 2004, compared
with the year-earlier periods, is principally a result of increased sales in
both the third quarter and first nine months of 2004, the cost savings realized
from the 2004 and 2003 restructurings, and the impact of the acquisition
indemnification credit.
Operating expenses decreased in the third quarter of 2004 compared to the same
year-earlier period. This decrease is principally due to the recording of an
acquisition indemnification credit in 2004 compared to an acquisition
indemnification charge in 2003 and comparably higher overall restructuring
charges in 2003 offset, in part, by higher variable expenses in 2004 as a
result of the increase in sales. The increase in operating expenses for the
first nine months of 2004, compared to the same year-earlier period, is
principally due to higher variable expenses as a result of the increase in
sales in 2004 offset, in part, by the acquisition indemnification credit
recorded in 2004 compared to an acquisition indemnification charge in 2003,
comparably higher overall restructuring charges in 2003, as well as an
integration charge recorded in 2003.
Loss on Prepayment of Debt
The company recorded a loss on prepayment of debt of $.9 million ($.5 million
net of related taxes or $.01 per share) and $3.3 million ($2.0 million net of
related taxes or $.02 per share), for the third quarter of 2004 and 2003,
respectively. For the nine months ended September 30, 2004 and 2003, the
company recorded a loss on prepayment of debt of $31.7 million ($19.0 million
net of related taxes or $.17 and $.15 per share on a basic and diluted basis,
respectively) and $6.2 million ($3.7 million net of related
taxes or $.04 per
share), respectively. These items are discussed in greater detail below.
During the third quarter of 2004, the company repurchased $19.8 million
accreted value of its zero coupon convertible debentures due in 2021, which
could have been initially put to the company in February 2006 (“convertible
debentures”). The related loss on the repurchase, including the premium paid
and the write-off of related deferred financing costs, aggregated $.9 million
($.5 million net of related taxes or $.01 per share) and is recognized as a
loss on prepayment of debt. As a result of this transaction, net interest
expense will be reduced by approximately $.9 million from the date of repurchase through the 2006 put date, based on interest rates in effect at the
time of the repurchase.
During the first nine months of 2004, the company repurchased, through a series
of transactions, $253.4 million accreted value of its convertible debentures.
The related loss on the repurchase, including the premium paid and the
write-off of related deferred financing costs, aggregated $12.8 million ($7.6
million net of related taxes or $.07 and $.06 per share on a basic and diluted
basis, respectively). Also during the first nine months of 2004, the company
repurchased and/or redeemed, through a series of transactions, $250.0
25
million
principal amount of its 8.7% senior notes, due in October 2005. The premium
paid and the related deferred financing costs written-off upon the repurchase
and/or redemption of this debt, net of the gain recognized by terminating the
related interest rate swaps, aggregated $18.9 million ($11.3 million net of
related taxes or $.10 and $.09 per share on a basic and diluted basis,
respectively). The aggregate of these charges is recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense
will be reduced by approximately $34.3 million from the dates of repurchase
and/or redemption through the earliest maturity date, based on interest rates in
effect at the time of the repurchases.
During the third quarter of 2003, the company repurchased, through a series of
transactions, $154.9 million accreted value of its convertible debentures. The
related loss on the repurchase, including the write-off of related deferred
financing costs offset, in part, by the discount on the repurchase, aggregated
$3.3 million ($2.0 million net of related taxes or $.02 per share) and was
recognized as a loss on prepayment of debt. As a result of these transactions,
interest expense will be reduced by approximately $4.6 million from the dates
of repurchase through the 2006 put date, based on interest rates in effect at
the time of the repurchases.
During the first nine months of 2003 through a series of transactions, along with the aforementioned repurchase of convertible
debentures in the third quarter of 2003, the
company repurchased, prior to maturity, 8.2% senior notes with a principal
amount of $84.8 million, which matured in October 2003. The premium paid and
the related deferred financing costs written-off upon the repurchase of this
debt aggregated $2.9 million ($1.8 million net of related taxes or $.02 per
share) and was recognized as a loss on prepayment of debt. As a result of these
transactions, net interest expense was reduced by approximately $3.3 million
from the dates of the repurchases through the 2003 maturity date.
Loss on Investment
During the third quarter of 2004, the company determined that an
other-than-temporary impairment occurred related to an investment and
accordingly, a loss on the investment of $1.3 million ($.01 per share) is
recognized.
Interest Expense
Net interest expense of $24.4 million in the third quarter of 2004 and $79.6
million in the first nine months of 2004 decreased from $36.2 million and
$101.4 million in the year-earlier periods primarily as a result of lower debt
balances. The company made debt
repayments in excess of $700.0 million since September 2003
by utilizing available cash and $312.8 million of net proceeds from
the issuance of 13.8 million shares of common stock in February 2004.
Income Taxes
The company recorded an income tax provision of $26.4 million and $70.5 million
on income before income taxes and minority interest of $90.0 million and $231.1
million for the third quarter and first nine months of 2004, respectively. In
the comparable year-earlier periods, the company recorded an income tax
provision of $2.9 million on a loss before income taxes and minority interest
of $3.6 million and $5.6 million on income before income taxes and minority
interest of $5.3 million. The income taxes recorded for the third quarter and
first nine months of 2004 are impacted by the aforementioned restructuring charges and loss on prepayment of debt. In addition, the loss on
investment is a capital loss for tax purposes. The company presently
has capital loss carryforwards and as such, this capital loss may not result in any
tax benefit. Accordingly, no tax benefit has been recorded. Also, the
acquisition indemnification credit recorded in the third quarter of 2004 is not
taxable for tax purposes. The income taxes recorded for the third quarter and
first nine months of 2003 were impacted by the restructuring charges,
26
integration charge, and loss on prepayment of debt. In addition, the principal
reason for recording an income tax provision on a loss, in 2003, is that the
acquisition indemnification charge was not deductible for tax purposes. The
company’s income tax provision and effective tax rate is principally 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 (Loss)
The company recorded net income of $63.4 million in the third quarter of 2004
and $159.8 million in the first nine months of 2004, compared with a net loss
of $6.2 million and $.3 million in the year-earlier periods. Included in the
results for the third quarter and first nine months of 2004 are the acquisition
indemnification credit of $9.7 million, restructuring charges of $.2 million
(net of related taxes) and $4.8 million (net of related taxes), respectively,
loss on prepayment of debt of $.5 million (net of related taxes) and $19.0
million (net of related taxes), respectively, as well as a loss on investment
of $1.3 million. Included in the results for the third quarter and first nine
months of 2003 are the acquisition indemnification charge of $13.0 million,
restructuring charges of $6.3 million (net of related taxes) and $20.7 million
(net of related taxes), respectively, and a loss on prepayment of debt of $2.0
million (net of related taxes) and $3.7 million (net of related taxes),
respectively. Also included for the first nine months of 2003 is an integration
charge of $4.8 million (net of related taxes).
Liquidity and Capital Resources
The net amount of cash utilized in the company’s operating activities during
the first nine months of 2004 was $107.9 million. This usage
principally resulted from higher
working capital requirements due to increased sales and selective investments
in inventory to support sales initiatives offset,
in part, by earnings from operations, adjustments for non-cash items
and the net impact of the charges, credits and losses. The
net amount of cash used for investing activities during the first nine months
of 2004 was $34.6 million, including $34.7 million for consideration paid for
acquired businesses and $16.7 million for various capital expenditures offset,
in part, by proceeds of $8.3 million from a note receivable and net proceeds of
$8.6 million from the sale of the Brookhaven, New York logistics center. The
net amount of cash used for financing activities during the first nine months
of 2004 was $235.6 million, primarily reflecting $268.4 million used to repay
senior notes and $262.2 million used to repurchase convertible debentures,
offset, in part, by the net proceeds of $312.8 million from the February 2004
equity offering.
At September 30, 2004, cash and short-term investments decreased to $237.6
million from $612.4 million at December 31, 2003 as a result of cash used for
operating activities, investing activities, and financing activities of $107.9
million, $34.6 million, and $235.6 million, respectively, partially offset by
the effect of exchange rate changes on cash of $3.3 million.
The net amount of cash provided by the company’s operating activities during
the first nine months of 2003 was $140.0 million, principally a result of an
income tax refund of $89.3 million offset, in part, by higher working capital
requirements. The net amount of cash used for investing activities during the
first nine months of 2003 was $251.3 million, including $231.3 million for
consideration paid for acquired businesses and $21.8 million for various capital expenditures. The net amount of cash provided by financing activities
during the first nine months of 2003 was $75.7 million, primarily reflecting
the net proceeds of $346.3 million from the June 2003 senior note offering
offset, in part, by $90.2 million used for the early retirement
of senior notes, $154.4 million used to repurchase the convertible debentures, and the
repayment of short-term borrowings and long-term debt.
27
Cash Flows from Operating Activities
The company historically has maintained a significant investment in accounts
receivable and inventories. As a percentage of total assets, accounts
receivable and inventories were approximately 66.0% and 58.1% at September 30,
2004 and December 31, 2003, respectively.
One of the characteristics of the company’s business is that in periods of
revenue growth, investments in accounts receivable and inventories grow, and
the company’s need for financing may increase. In the periods in which sales
decline, investments in accounts receivable and inventories generally decrease,
and cash is generated. At September 30, 2004, working capital, defined as
accounts receivable and inventories net of payables, increased by $434.3
million or 23.0%, compared with December 31, 2003, as a result of increased
sales.
Net cash used for operating activities increased by $247.9 million for the nine
months ended September 30, 2004, as compared with the year-earlier period,
primarily due to higher working capital requirements resulting from increased
sales offset, in part, by earnings from operations and adjustments for non-cash
items.
Cash Flows from Investing Activities
On July 27, 2004, the company completed the previously announced acquisition of
Disway, an electronic components distributor operating in Italy, Germany,
Austria, and Switzerland. In 2003, Disway had sales of approximately $155.0
million. The final purchase price is subject to a full year audit.
In February 2003, the company acquired substantially all the assets of the IED
business. The net cost of this acquisition was $238.1 million, of which $12.2
million was paid during the first quarter of 2004.
As a result of certain acquisitions, the company may be contractually required
to purchase the shareholder interest held by others in its majority (but less
than 100%) owned subsidiaries. During the first nine months of 2004, the
company made a payment in the amount of $.8 million to increase its ownership
interest in Dicopel US and Dicopel SA from 70% to 80%. During the first nine
months of 2003, the company made payments, which aggregated, $5.4 million to
purchase additional interests in certain of its majority (but less than 100%)
owned subsidiaries. If the put or call options on outstanding agreements were
exercised at September 30, 2004, such payments would be approximately $9.0
million ($6.0 million at December 31, 2003). As these
payments are based on the earnings of the acquired companies, the amounts will change as the
performance of these subsidiaries change.
During the second quarter of 2004, the company received proceeds of $8.3
million from a note receivable and net proceeds of $8.6 million on the sale of
its Brookhaven, New York logistics center.
Capital expenditures decreased by $5.1 million, or 23.2%, during the first nine
months in 2004, when compared with the first nine months in 2003, as a result
of the company’s continued cost containment actions, including the
consolidation of facilities.
Cash Flows from Financing Activities
Total debt decreased to $1.55 billion at September 30, 2004 from $2.03 billion
at December 31, 2003, principally due to the redemption of the company’s 8.7%
senior notes and repurchase of convertible debentures noted below.
During the third quarter of 2004, the company repurchased $19.8 million
accreted value of its convertible debentures. The related loss on the
repurchase, including the premium paid and the write-off of related deferred
28
financing costs, aggregated $.9 million ($.5 million net of related taxes or
$.01 per share) and is recognized as a loss on prepayment of debt. As a result
of this transaction, net interest expense will be reduced by approximately $.9
million from the date of repurchase through the 2006 put date, based on
interest rates in effect at the time of the repurchase.
During the first nine months of 2004, the company repurchased, through a series
of transactions, $253.4 million accreted value of its convertible debentures.
The related loss on the repurchase, including the premium paid and the
write-off of related deferred financing costs, aggregated $12.8 million ($7.6
million net of related taxes or $.07 and $.06 per share on a basic and diluted
basis, respectively). Also during the first nine months of 2004, the company
repurchased and/or redeemed, through a series of transactions, $250.0 million
principal amount of its 8.7% senior notes, due in October 2005. The premium
paid and the related deferred financing costs written-off upon the repurchase
and/or redemption of this debt, net of the gain recognized by terminating the
related interest rate swaps, aggregated $18.9 million ($11.3 million net of
related taxes or $.10 and $.09 per share on a basic and diluted basis,
respectively). The aggregate of these charges is recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense
will be reduced by approximately $34.3 million from the dates of repurchase
and/or redemption through the earliest maturity date, based on interest rates in
effect at the time of the repurchases.
In February 2004, the company issued 13.8 million shares of common stock with
net proceeds of $312.8 million. The proceeds were used to redeem $208.5 million
of the company’s outstanding 8.7% senior notes due in October 2005, as
described above, and for the repurchase of a portion of the company’s
outstanding convertible debentures ($91.9 million accreted value).
The company has a $550.0 million asset securitization program (the “program”).
At September 30, 2004 and December 31, 2003, there were no receivables sold to
and held by third parties under the program, and as such, the company had no
obligations outstanding under the program. The company has not utilized the
program since June 2001. The company pays the banks a facility fee of .3% per
annum.
At September 30, 2004 and December 31, 2003, the company had no outstanding
borrowings under its $450.0 million revolving credit facility, for which the
company pays a facility fee of .25% per annum.
During the third quarter of 2003, the company repurchased, through a series of
transactions, $154.9 million accreted value of its convertible debentures. The
related loss on the repurchase, including the write-off of related deferred
financing costs offset, in part, by the discount on the repurchase, aggregated $3.3 million ($2.0 million net of related taxes or $.02 per share) and was
recognized as a loss on prepayment of debt. As a result of these transactions,
interest expense will be reduced by approximately $4.6 million from the dates
of repurchase through the 2006 put date, based on interest rates in effect at
the time of the repurchases.
During the first nine months of 2003 through a series of transactions, along with the aforementioned repurchase of
convertible debentures in the third quarter of 2003, the
company repurchased, prior to maturity, 8.2% senior notes with a principal
amount of $84.8 million, which matured in October 2003. The premium paid and
the related deferred financing costs written-off upon the repurchase of this
debt aggregated $2.9 million ($1.8 million net of related taxes or $.02 per
share) and was recognized as a loss on prepayment of debt. As a result of
these transactions, net interest expense was reduced by approximately $3.3
million from the dates of the repurchases through the 2003 maturity date.
In June 2003, the company completed the sale of $350.0 million principal amount
of 6.875% senior notes due in 2013. The net proceeds of the offering of
29
$346.3
million were used to repay the aforementioned 8.2% senior notes
and for general corporate purposes. The additional debt the
company carried during the period between the sale of the 6.875% senior notes
in June 2003 and the repayment of the 8.2% senior notes in October 2003
negatively impacted the third quarter loss by $4.7 million ($2.9 million net of
related taxes).
Restructuring and Integration Activities
Based on the aforementioned restructuring and integration charges, at September
30, 2004, the company has a remaining accrual of $28.6 million,
of which $18.6
million is expected to be spent in cash. The expected cash payments are
approximately $5.7 million in 2004, $7.3 million in 2005, $3.2 million in 2006,
$1.1 million in 2007, and $1.3 million thereafter.
Impact of Governmental Regulation
The company’s worldwide operations are subject to local laws and regulations.
Of particular note at this time are two European Union (“EU”) directives, the
first of which is the Restriction of Certain Hazardous Substances Directive
(“RoHS”). Effective July 1, 2006, this directive restricts the distribution of
products within the EU containing certain substances, including lead. While
the enabling legislation of most EU member countries has not yet been enacted,
and the implementing details not yet known, it appears the company will not be
able to sell non-RoHS compliant product to most customers who intend to sell
their finished goods into the EU after the effective date.
The second directive is the Waste Electrical and Electronic Equipment
Directive, effective August 13, 2005, under which a manufacturer or importer
will be required, at its own cost, to take back and recycle all of the products
it manufactured in or imported into the EU.
Both directives will effect the worldwide electronics, and electronics
components, industries as a whole and collaborative efforts among suppliers,
distributors and customers to develop compliant processes have begun. Pending
those developments and the enactment of enabling legislation it is not possible
to estimate the cost of compliance, if any, on the company.
Contractual Obligations
The company has contractual obligations for long-term debt, capital leases,
operating leases, purchase obligations, projected pension contributions 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, 2003. There have been no material changes outside the
ordinary course of the company’s business since December 31, 2003 with the
exception of the repurchase and/or redemption of all the company’s 8.7% senior
notes due in October 2005 and a portion of the company’s convertible debentures.
Off-Balance Sheet Arrangements
The company does not have any off-balance sheet financing or unconsolidated
special purpose entities.
Critical Accounting Policies and Estimates
The company's financial statements have been 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 judgements that affect
the reported amounts of assets,
30
liabilities, sales, and expenses and related disclosure of contingent assets
and liabilities. The company evaluates its estimates, including those related
to uncollectible receivables, inventories, intangible assets, income taxes,
restructuring and integration costs, and contingencies and litigation, on an
ongoing basis. The company bases its estimates on historical experience and on
various other assumptions that are believed to be 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.
The company believes there have been no significant changes, during the nine
months ended September 30, 2004, to the items disclosed as critical accounting
policies and estimates in Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 2003 in the
company’s Annual Report on Form 10-K.
Impact of Recently Issued Accounting Standards
See Note B in the Notes to Consolidated Financial Statements for a full
description of recent accounting pronouncements including the anticipated dates
of adoption and effects on results of operations and financial condition.
Information Relating to Forward-Looking Statements
This report includes forward-looking statements that are subject to certain
risks and uncertainties which could cause actual results or facts to differ
materially from such statements for a variety of reasons, including, but not
limited to: industry conditions, changes in product supply, pricing, customer
demand, competition, other vagaries in the electronic components and computer
products markets, changes in relationships with key suppliers, the effects of
additional actions taken to lower costs, and the company’s ability to generate
additional cash flow. 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.
The company is exposed to market risk from changes in foreign currency exchange
rates and interest rates.
Foreign Currency Exchange Rate Risk
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material impact on the
company’s financial results in the future. The company’s primary exposure
relates to transactions in which the currency collected from customers is
different from the currency utilized to purchase the product sold in Europe,
the Asia/Pacific region, and Latin and South America. The company’s policy is
to hedge substantially all currency exposures for which natural hedges do not
exist. Natural hedges exist when purchases and sales within a specific country
are both denominated in the same currency and therefore no exposure exists to
hedge with a foreign exchange forward or option contract
(collectively, “foreign exchange contracts”). In many regions in Asia, for example, sales and
purchases are primarily denominated in U.S. dollars, resulting in a “natural
hedge.” Natural hedges exist in most countries in which the company operates,
although the percentage of natural offsets, as compared with offsets, which
need to be hedged by foreign exchange contracts, will vary from country to
country. The company does not enter into forward exchange contracts for trading
purposes. The risk of loss on a forward exchange contract is the risk
31
of
nonperformance by the counterparties, which the company minimizes by limiting
its counterparties to major financial institutions. The fair value of the
foreign exchange contracts is estimated using market quotes. The notional
amount of the foreign exchange contracts at September 30, 2004 and December 31,
2003 was $245.1 million and $222.7 million, respectively. The carrying amounts,
which are nominal, approximated fair value at September 30, 2004 and December
31, 2003. The translation of the financial statements of the non-North American
operations is impacted by fluctuations in foreign currency exchange rates. The
consolidated increase in sales and operating income was impacted by the
translation of the company’s international financial statements into U.S.
dollars which resulted in increased sales of $190.6 million and increased
operating income of $2.4 million for the first nine months of 2004, compared
with the year-earlier periods, based on 2003 sales at the average rate for the
first nine months of 2004. Sales and operating income would have fluctuated by
approximately $204.0 million and $12.8 million, respectively, if average
foreign exchange rates changed by 10% in the first nine months of 2004. This
amount was determined by considering the impact of a hypothetical foreign
exchange rate on the sales and operating income of the company’s international
operations.
Interest Rate Risk
The company’s interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. The
company historically has managed its exposure to interest rate risk through the
proportion of fixed rate and floating rate debt in its total debt portfolio. In
addition, the company uses interest rate swaps to manage its targeted mix of
fixed and floating rate debt. At September 30, 2004, approximately 65% of the
company’s debt was subject to fixed rates and 35% of its debt was subject to
floating rates. A one percentage point change in average interest rates would
not have a material impact on interest expense, net of interest income, in the
first nine months of 2004. 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.
Item 4.
Controls and Procedures.
The company’s chief executive officer and chief financial officer have
evaluated the effectiveness of the company’s disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the “Exchange Act”)) as of September 30, 2004. Based on such
evaluation, they have concluded that, as of September 30, 2004, the company’s
disclosure controls and procedures were effective to ensure that
information required to be disclosed by the company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission. However, in evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
32
There were no changes in the company’s internal control over financial
reporting or in other factors that has or is reasonably likely to materially
affect the company’s internal control over financial reporting during the
period covered by this quarterly report.
33
Three Months Ended
Nine Months Ended
September 30,
September 30,
2004
2003
2004
2003
$
2,668,701
$
2,095,245
$
8,094,395
$
6,198,489
2,248,538
1,751,680
6,799,978
5,164,764
301,315
271,767
907,271
823,194
13,070
15,512
48,095
50,469
(9,676
)
13,002
(9,676
)
13,002
407
9,100
7,984
30,342
—
—
—
6,904
2,553,654
2,061,061
7,753,652
6,088,675
115,047
34,184
340,743
109,814
1,566
1,751
2,912
3,136
911
3,292
31,692
6,234
1,318
—
1,318
—
24,350
36,202
79,563
101,367
90,034
(3,559
)
231,082
5,349
26,392
2,888
70,474
5,586
63,642
(6,447
)
160,608
(237
)
245
(213
)
827
75
$
63,397
$
(6,234
)
$
159,781
$
(312
)
$
.55
$
(.06
)
$
1.42
$
—
$
.52
$
(.06
)
$
1.36
$
—
115,175
100,142
112,217
100,073
124,862
100,142
124,500
100,073
Table of Contents
September 30,
December 31,
2004
2003
(Unaudited)
$
237,558
$
612,404
1,970,624
1,770,690
1,551,633
1,327,523
60,126
59,030
3,819,941
3,769,647
40,142
43,676
185,730
197,142
412,845
413,861
638,717
654,679
(381,207
)
(366,550
)
257,510
288,129
39,523
36,738
945,182
923,256
271,116
315,218
$
5,333,272
$
5,332,988
$
1,201,462
$
1,211,724
414,323
414,551
18,961
14,349
1,634,746
1,640,624
1,529,585
2,016,627
159,652
170,406
117,679
103,878
800,395
503,320
1,098,083
938,302
74,792
67,046
2,090,949
1,612,546
(55,119
)
(74,816
)
(3,735
)
(8,074
)
(22,806
)
(24,325
)
2,009,289
1,505,331
$
5,333,272
$
5,332,988
Table of Contents
Nine Months Ended
September 30,
2004
2003
$
159,781
$
(312
)
828
75
51,962
54,438
13,459
21,760
(2,912
)
(3,136
)
2,060
(5,949
)
(9,676
)
13,002
4,756
20,732
—
4,822
18,952
3,728
1,318
—
(146,519
)
(33,943
)
(197,096
)
52,809
(492
)
3,157
(32,498
)
(41,103
)
5,636
44,900
22,531
4,983
(107,910
)
139,963
(16,701
)
(21,755
)
8,616
—
(34,725
)
(231,288
)
—
1,025
(140
)
763
8,333
—
(34,617
)
(251,255
)
(29,831
)
(25,208
)
(1,904
)
(13
)
—
(1,014
)
(268,399
)
(90,197
)
(262,168
)
(154,355
)
—
346,286
312,789
—
13,900
243
(235,613
)
75,742
3,294
19,406
(374,846
)
(16,144
)
612,404
694,092
$
237,558
$
677,948
$
25,986
$
(62,515
)
89,203
67,822
Table of Contents
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
For the Nine
Months Ended
September 30,
2004
2003 (a)
$
8,094,395
$
6,294,489
159,781
2,765
$
1.42
$
.03
1.36
.03
112,217
100,073
124,500
100,814
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
September 30,
December 31,
2004
2003
$
17,725
$
15,364
21,798
21,374
$
39,523
$
36,738
September 30,
December 31,
2004
2003
$
33,863
$
33,863
(5,110
)
(7,241
)
$
28,753
$
26,622
–
broad worldwide and Japan specific economic factors,
–
publicly available forecasts for sales and earnings growth for
the industry and Marubun Corporation,
–
the cyclical nature of the technology industry, and
–
recent financial performance of Marubun Corporation.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
September 30,
December 31,
2004
2003
$
2,013,796
$
1,817,769
(43,172
)
(47,079
)
$
1,970,624
$
1,770,690
$
923,256
26,983
(5,057
)
$
945,182
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(a)
Personnel costs represent the elimination of approximately 930 positions in the first nine months of 2003 (1,085 positions for the full year 2003).
(b)
Personnel costs represent the elimination of approximately 170 positions in the first nine months of 2004.
(c)
Facilities include the $2,914 gain on the sale of the company’s Brookhaven, New York logistics center during the second quarter of 2004.
(d)
Facilities include $2,914 which is the cash received in excess of the related net assets on the sale of the company’s Brookhaven, New York logistics center.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(a)
Relates to various acquisitions made prior to 2002.
(b)
Represents costs associated with the acquisition and integration of IED.
(c)
Principally represents the reversal of charges to goodwill resulting from changes in estimates.
–
The personnel costs accruals of $2,293 will be utilized to cover costs
associated with the termination of personnel, which are principally
expected to be spent by the end of 2004.
–
The facilities accruals totaling $14,972 relate to terminated leases
with expiration dates through 2010. Approximately $2,187 will be paid
by the end of 2004. The minimum lease payments for these leases are
approximately $7,190 in 2005, $3,155 in 2006, $1,149 in 2007, and
$1,291 thereafter.
–
The customer termination accrual of $4,612 relates to costs associated
with the termination of certain customer programs principally related
to services not traditionally provided by the company and is expected
to be utilized over several years.
–
Asset and inventory write-downs of $1,065 relate primarily to fixed
assets, leasehold improvements, and inventory write-downs, the
majority of which are expected to be utilized by the end of 2004.
–
IT and other of $5,677 primarily represents consulting contracts for
logistics services, certain terminated contracts, and professional
fees related to legal and accounting services, the majority of which
are expected to be utilized by the end of 2005.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
For the Three
For the Nine
Months Ended
Months Ended
September 30,
September 30,
2004 (a)
2003 (b)
2004 (c)
2003 (d)
$
63,397
$
(6,234
)
$
159,781
$
(312
)
2,143
—
9,085
—
$
65,540
$
(6,234
)
$
168,866
$
(312
)
$
.55
$
(.06
)
$
1.42
$
—
$
.52
$
(.06
)
$
1.36
$
—
115,175
100,142
112,217
100,073
1,356
—
1,725
—
8,331
—
10,558
—
124,862
100,142
124,500
100,073
(a)
Includes an acquisition indemnification credit of $9,676 ($.09 and $.08 per share on a basic and diluted basis,
respectively), a restructuring charge of $407 ($175 net of related taxes), a loss on prepayment of debt of $911
($545 net of related taxes or $.01 per share), and a loss on investment of $1,318 ($.01 per share).
(b)
Includes an acquisition indemnification charge of $13,002 ($.13 per share), a restructuring charge of $9,100
($6,325 net of related taxes or $.06 per share), and a loss on prepayment of debt of $3,292 ($1,969 net of
related taxes or $.02 per share).
(c)
Includes an acquisition indemnification credit of $9,676 ($.09 and $.08 per share on a basic and diluted basis,
respectively), restructuring charges of $7,984 ($4,756 net of related taxes or $.05 and $.04 per share on a
basic and diluted basis, respectively), a loss on prepayment of debt of $31,692 ($18,952 net of related taxes
or $.17 and $.15 per share on a basic and diluted basis, respectively), and a loss on investment of $1,318
($.01 per share).
(d)
Includes an acquisition indemnification charge of $13,002 ($.13 per share), restructuring charges of $30,342
($20,732 net of related taxes or $.21 per share), an integration charge of $6,904 ($4,822 net of related taxes
or $.05 per share), and a loss on prepayment of debt of $6,234 ($3,728 net of related taxes or $.04 per share).
(e)
The effect of options to purchase 6,013 and 4,683 shares for the three and nine months ended September 30,
2004, respectively, were excluded from the calculation and the effect of options to purchase 8,074 and 8,347
shares for the three and nine months ended September 30, 2003, respectively, were excluded from the
computation. The impact of such common stock equivalents are excluded
from the calculation of diluted net income
(loss) per share as their effect is anti-dilutive. In addition,
diluted net income (loss) per share for the three
and nine months ended September 30, 2003 excludes the effect of 16,736 and 17,733 shares, respectively, related
to convertible debentures.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
For the Three
For the Nine
Months Ended
Months Ended
September 30,
September 30,
2004 (a)
2003 (b)
2004 (c)
2003 (d)
$
63,397
$
(6,234
)
$
159,781
$
(312
)
(5,445
)
9,202
(7,746
)
111,606
(3,058
)
2,295
2,131
2,851
79
—
(612
)
—
$
54,973
$
5,263
$
153,554
$
114,145
(a)
Includes an acquisition indemnification credit of $9,676, a restructuring charge of $407 ($175 net of
related taxes), a loss on prepayment of debt of $911 ($545 net of related taxes), and a loss on investment
of $1,318.
(b)
Includes an acquisition indemnification charge of $13,002, a restructuring charge of $9,100 ($6,325 net of
related taxes), and a loss on prepayment of debt of $3,292 ($1,969 net of related taxes).
(c)
Includes an acquisition indemnification credit of $9,676, restructuring charges of $7,984 ($4,756 net of
related taxes), a loss on prepayment of debt of $31,692 ($18,952 net of related taxes), and a loss on
investment of $1,318.
(d)
Includes an acquisition indemnification charge of $13,002, restructuring charges of $30,342 ($20,732 net of
related taxes), an integration charge of $6,904 ($4,822 net of related taxes), and a loss on prepayment of
debt of $6,234 ($3,728 net of related taxes).
(e)
The foreign currency translation adjustments have not been tax effected as investments in foreign
affiliates are deemed to be permanent.
(f)
The net unrealized gain on available-for-sale securities has not been tax effected as the company has
sufficient capital tax loss carryforwards to offset the gain.
For the Three
For the Nine
Months Ended
Months Ended
September 30,
September 30,
2004
2003
2004
2003
$
1,354
$
1,365
$
4,062
$
4,095
(1,548
)
(1,333
)
(4,644
)
(3,999
)
271
416
813
1,248
$
77
$
448
$
231
$
1,344
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(a)
Includes an acquisition indemnification credit of $9,676 and restructuring charges of $407 and $7,984 for
the three and nine months ended September 30, 2004, respectively. Also included is an acquisition
indemnification charge of $13,002, restructuring charges of $9,100 and $30,342 for the three and nine
months ended September 30, 2003, respectively, and an integration charge of $6,904 for the nine months
ended September 30, 2003.
September 30,
December 31,
2004
2003
$
4,345,523
$
3,877,418
656,492
678,353
331,257
777,217
$
5,333,272
$
5,332,988
(b)
Included in sales for the Americas related to the United States is $1,469,451 and
$1,192,767 for the three months ended September 30, 2004 and 2003 respectively, and
$4,452,424 and $3,361,604 for the nine months ended September 30, 2004 and 2003,
respectively.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
September 30,
December 31,
2004
2003
$
2,611,132
$
2,969,483
2,179,763
1,943,522
542,377
419,983
$
5,333,272
$
5,332,988
(c)
Included in total assets for the Americas related to
the United States is $2,500,044 and $2,787,141 at
September 30, 2004 and December 31, 2003,
respectively.
Table of Contents
•
an acquisition indemnification credit of $9.7 million in 2004 and
an acquisition indemnification charge of $13.0 million in 2003;
•
restructuring charges of $.4 million ($.2 million net of related
taxes) in 2004 and $9.1 million ($6.3 million net of related taxes) in
2003;
•
a loss on the prepayment of debt of $.9 million ($.5 million net of
related taxes) in 2004 and $3.3 million ($2.0 million net of related
taxes) in 2003; and
•
a loss on the write-down of an investment of $1.3 million in 2004.
•
an acquisition indemnification credit of $9.7 million in 2004 and
an acquisition indemnification charge of $13.0 million in 2003;
•
restructuring charges of $8.0 million ($4.8 million net of related
taxes) in 2004 and $30.3 million ($20.7 million net of related taxes)
in 2003;
•
an integration charge of $6.9 million ($4.8 million net of related
taxes) in 2003 associated with the acquisition of the Industrial
Electronics Division (“IED”) of Agilysys, Inc.;
•
a loss on the prepayment of debt of $31.7 million ($19.0 million
net of related taxes) in 2004 and $6.2 million ($3.7 million net of
related taxes) in 2003; and
•
a loss on the write-down of an investment of $1.3 million in 2004.
Table of Contents
Table of Contents
Table of Contents
-
The personnel costs accruals of $2.3 million will be utilized to cover
costs associated with the termination of personnel, which are
principally expected to be spent by the end of 2004.
-
The facilities accruals totaling $15.0 million relate to terminated
leases with expiration dates through 2010. Approximately $2.2 million
will be paid by the end of 2004. The minimum lease payments for these
leases are approximately $7.2 million in 2005, $3.2 million in 2006,
$1.1 million in 2007, and $1.3 million thereafter.
-
The customer termination accrual of $4.6 million relates to costs
associated with the termination of certain customer programs
principally related to services not traditionally provided by the
company and is expected to be utilized over several years.
-
Asset and inventory write-downs of $1.1 million relate primarily to
fixed assets, leasehold improvements, and inventory write-downs, the
majority of which are expected to be utilized by the end of 2004.
-
IT and other of $5.6 million primarily represents consulting contracts
for logistics services, certain terminated contracts, and professional
fees related to legal and accounting services, the majority of which
are expected to be utilized by the end of 2005.
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PART II. OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K.
34
(a)
Exhibits
3(ii)
Amended Corporate By-Laws dated July 29, 2004.
10(a)
First Amendment, dated September 17, 2004, to
the Grantor Trust Agreement, as amended and
restated on November 11, 2003, by and between
Arrow Electronics, Inc. and Wachovia Bank,
N.A.
10(b)
Amendment No. 11 to the Transfer and
Administration Agreement, dated as of August
13, 2004, to the Transfer and Administration
Agreement dated as of March 21, 2001.
31(i)
Certification of William E. Mitchell, Chief
Executive Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002.
31(ii)
Certification of Paul J. Reilly, Chief
Financial Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002.
32(i)
Certification of William E. Mitchell, Chief
Executive Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002.
32(ii)
Certification of Paul J. Reilly, Chief
Financial Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002.
(b)
Reports on Form 8-K
The company filed or furnished the following Current Reports on Form 8-K during the
third quarter ended September 30, 2004:
July 22, 2004:
Press Release announcing the company’s second quarter 2004 results.
July 27, 2004:
Press Release announcing that the company completed its previously announced
acquisition of Disway AG.
August 5, 2004:
Press release announcing that the company elected a new Director to its Board of
Directors.
August 13, 2004:
Press release announcing that the company settled a claim for the payment of French
value-added tax against its French subsidiary, Tekelec Europe SA, and
that an acquisition indemnification credit would be recorded for the difference between the amount previously
reserved for the claim and the amount of the settlement.
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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: November 5, 2004 | By: | /s/ Paul J. Reilly | ||
| Paul J. Reilly | ||||
| Vice President and Chief Financial Officer | ||||
35
Exhibit 3 (ii)
As amended through
BY-LAWS
ARTICLE I
Shareholders
Section 1.01
.
Annual Meeting
. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly come before it shall be held on such date in the month of April, May
or June in each calendar year, and at such time and place, as shall be fixed by
the Board of Directors and stated in the notice or waiver of notice of the
meeting.
Section 1.02
.
Special Meetings
. Special meetings of the shareholders,
for any purpose or purposes, may be called at any time by the Chairman of the
Board or by resolution of the Board of Directors. Special meetings of
shareholders shall be held at such place as shall be fixed by the person or
persons calling the meeting and stated in the notice or waiver of notice of the
meeting. At any special meeting of the shareholders only such business may be
transacted which is related to the purpose or purposes stated in the notice or
waiver of notice of the meeting.
Section 1.03
.
Notice of Meetings of Shareholders
. Whenever shareholders
are required or permitted to take any action at a meeting, written notice shall
be given stating the
July 29, 2004
-of-
ARROW ELECTRONICS, INC.
(herein called the “Corporation”)
Exhibit 3 (ii)
place, date and hour of the meeting and, unless it is the annual meeting, indicating that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of shareholders may be written or electronic. Notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting, provided, however, that such notice may be given by third class mail not less than twenty-four nor more than sixty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at the shareholder’s address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the Corporation a written request that notice to such shareholder be mailed to some other address, then directed to such shareholder at such other address. If transmitted electronically, such notice is given when directed to the shareholder’s electronic mail address as supplied by the shareholder to the Secretary of the Corporation or as otherwise directed pursuant to the shareholder’s authorization or instructions.
When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned is announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. However, if after the adjournment, the Board of Directors fixes a new record date for the adjourned meeting, a notice of the
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Exhibit 3 (ii)
adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice under this Section.
Section 1.04 . Waivers of Notice . Notice of meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. Waiver of notice may be written or electronic. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by such shareholder.
Section 1.05 . Quorum . Presence in person or by proxy of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of a quorum and at any such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed.
Section 1.06 . Fixing Record Date . For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action; the Board of Directors may fix, in advance, a date as the record date for any
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Exhibit 3 (ii)
such determination of shareholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.
When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this Section for the adjourned meeting.
Section 1.07 . List of Shareholders at Meetings . A list of shareholders as of the record date, certified by the Corporation officer responsible for its preparation or by a transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear form such list of shareholders entitled to vote thereat may vote at such meeting.
Section 1.08 . Proxies . Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for such shareholder by proxy.
Section 1.09 . Inspectors of Election . The Board of Directors, in advance of any meeting of shareholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the
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Exhibit 3 (ii)
person presiding at the meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability.
The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.
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Exhibit 3 (ii)
Section 1.10 . Voting . Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in such shareholder’s name on the record of shareholders, except as otherwise expressly provided in the Certificate of Incorporation of the Corporation.
Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law or by the Certificate of Incorporation of the Corporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon.
Section 1.11 . Organization of Shareholders Meetings . At each meeting of shareholders, the Chairman of the Board or, in his absence, the President or a Vice President shall act as Chairman of the meeting. The Secretary, or in the Secretary’s absence, any person appointed by the Chairman of the meeting as the Secretary thereof, shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the shareholders shall be as determined by the Chairman of the meeting.
SECTION 1.12. Notice of Shareholder Nominations and Business .
(a) Annual Meetings of Shareholders .
(1) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the shareholders may be made at an
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Exhibit 3 (ii)
annual meeting of the shareholders (A) by or at the direction of the Board of Directors or (B) by any shareholder of the Corporation who is entitled to vote at the meeting with respect to the election of directors or the business to be proposed by such shareholder, as the case may be, who complies with the notice procedures set forth in clauses (2) and (3) of Paragraph (a) of this Section 1.12 and who is a shareholder of record at the time such notice is delivered to the Secretary of the Corporation as provided in this Section.
(2) For nominations or other business to be properly brought by a shareholder before an annual meeting pursuant to clause (B) of Paragraph (a)(1) of this Section, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must be a proper subject for shareholder action under the Business Corporation Law. To be timely, a shareholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the
-7-
Exhibit 3 (ii)
event that the date of the annual meeting is advanced by more than thirty (30) days, or delayed by more than sixty (60) days, from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. Such shareholder’s notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for
-8-
Exhibit 3 (ii)
conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything to the contrary in the second sentence of Paragraph (a)(2) of this Section 1.12, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least eighty (80) days prior to the first anniversary of the preceding annual meeting, a shareholder’s notice shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the
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Exhibit 3 (ii)
principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b)
Special Meetings of Shareholders
.
Nominations of persons for
election to the Board of Directors may be made at a special meeting of
shareholders at which directors are to be elected (i) by or at the
direction of the Chairman of the Board or the Board of Directors pursuant
to a resolution adopted by a majority of the entire Board, or (ii) by any
shareholder of the Corporation who is entitled to vote at the meeting
with respect to the election of directors, who complies with the notice
procedures set forth in this Paragraph and who is a shareholder of record
at the time such notice is delivered to the Secretary of the Corporation
as provided in this Section. Nominations by shareholders of persons for
election to the Board of Directors may be made at such a special
meeting of shareholders if the shareholder’s notice as required by
Paragraph (a)(2) of this Section 1.12, shall have been delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not earlier than the ninetieth (90th) day prior to such
special meeting and not later than the close of business on the
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Exhibit 3 (ii)
later of (i) the sixtieth (60th) day prior to such special meeting or (ii) the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.
(c) General .
(1) Only persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to serve as directors and only such business shall be conducted at an annual or special meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.12.
(2) Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 1.12 and, if any proposed nomination or business is not in compliance with this Section 1.12, to declare that such defective nomination or proposal shall be disregarded.
-11-
Exhibit 3 (ii)
(3) For purposes of this Section 1.12, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 1.12, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 1.12. Nothing in this Section 1.12 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation’s proxy materials with respect to a meeting of shareholders pursuant to Rule 14a-8 under Exchange Act.
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Exhibit 3 (ii)
ARTICLE II
Directors
Section 2.01 . Number and Powers . The business of the Corporation shall be managed by its Board of Directors, each of whom shall be at least twenty-one years of age. The number of directors which shall constitute the entire Board of Directors shall not be less than three. Subject to such limitation, the number of directors may be fixed and from time to time increased or decreased by action of a majority of the entire Board of Directors or by the shareholders, but no decrease shall shorten the term of any incumbent director. If not otherwise fixed by the Board of Directors or shareholders, the number of directors shall be three.
Section 2.02 . Election and Term . At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. Unless a particular directorship shall theretofore be vacated by resignation, death, removal, or otherwise, each director shall hold office until the next annual meeting of shareholders, and until such director’s successor has been elected and qualified.
Section 2.03 . Resignations . Any director of the Corporation may resign at any time by giving notice to the Board of Directors, the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, if any, or if no time is specified therein, then upon receipt of such notice by the addressee; and, unless otherwise provided therein, the acceptance of such resignation shall not be necessary to make it effective.
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Exhibit 3 (ii)
Section 2.04 . Removal of Directors . Any or all of the directors may be removed with or without cause by vote of the shareholders at a duly called meeting.
Section 2.05 . Vacancies . Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less then a quorum. Each director so elected shall hold office for the unexpired term of his predecessor, or if such director was elected to fill a newly created directorship, such director shall serve until the next annual meeting of the shareholders and until such director’s successor shall have been duly elected and qualified.
Section 2.06 . Quorum and Voting . One-third of the entire Board of Directors, but not less than two directors, shall constitute a quorum for the transaction of business or of any specified item of business. Except as otherwise provided by statue, the Certificate of Incorporation, or these By-laws, the vote of a majority of the directors present at a meeting at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting of the directors to another time and place. Notice of any adjournment need not be given if such time and place are announced at the meeting.
Section 2.07 . Regular Meetings . Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be fixed by the Board of Directors and no notice thereof shall be necessary. The annual meeting of the
-14-
Exhibit 3 (ii)
Board of Directors may be held without notice immediately after the annual meeting of the shareholders.
Section 2.08 . Special Meetings . Special meetings shall be called at any time only by the Chairman of the Board or by a majority of the Board of Directors then in office. Special meetings shall be held at such place as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting.
Section 2.09 . Notice of Meetings . Unless waived, notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) stating the time and place of the meeting, shall be given to each director by delivered letter, by telegram or telex or by personal communication either over the telephone or otherwise, in each such case not later than the first day prior to the meeting, or by mailed letter deposited in the United States mail with postage thereon prepaid not later than the seventh day prior to the meeting. Notice of meetings of the Board of Directors and waivers thereof need not state the purpose or purposes of the meeting.
Notice of any meeting need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director.
Section 2.10 . Organization of Meetings of the Board . At each meeting of the Board of Directors, the Chairman of the Board, or in the Chairman of the Board’s absence another director chosen by a majority of the directors present, shall act as Chairman of the meeting. The Secretary or, in the
-15-
Exhibit 3 (ii)
Secretary’s absence, any person appointed by the Chairman of the meeting shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board of Directors shall be as determined by the Chairman of the meeting.
Section 2.11 . Committees . The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee, an Audit Committee, a Compensation Committee, a Corporate Governance Committee and other committees, each consisting of one or more directors (or such greater number as may be required by applicable law, regulations or rule), and each of which, to the extent provided in the resolution, shall have all the authority of the Board of Directors, except that no such committee shall have authority as to the following matters:
| (a) | The submission to shareholders of any action that needs shareholders’ authorization under the Business Corporation Law. | |||
| (b) | The filling of vacancies in the Board of Directors or in any committee. | |||
| (c) | The fixing of compensation of the directors for serving on the Board of Directors or on any committee. | |||
| (d) | The amendment or repeal of the By-laws, or the adoption of new By-laws. | |||
| (e) | The amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable. | |||
The Board of Directors may designate one or more directors as alternate members of any such committee, who may
-16-
Exhibit 3 (ii)
replace any absent members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors.
Regular meetings of any such committee shall be held at such time and place as shall from time to time be fixed by such committee and no notice thereof shall be necessary. Special meetings may be called at any time by any member of such committee or by the Board of Directors. Notice of each special meeting of each such committee shall be given (or waived) in the same manner as notice of a meeting of the Board of Directors. A majority of the members of any such committee shall constitute a quorum for the transaction of business and the act of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee.
Section 2.12 . Action Without Meeting . To the extent permitted by law, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee consent in writing to the adoption of a resolution authorizing the action.
Section 2.13 . Telephonic Meetings . To the extent permitted by law, any meeting of the Board of Directors or any committee thereof may be held by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
ARTICLE III
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Exhibit 3 (ii)
Officers
Section 3.01. Election or Appointment; Number . The officers of the Corporation shall be elected or appointed by the Board of Directors. The officers shall be a President, one or more Executive Vice-Presidents, Senior Vice Presidents and/or Vice-Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors may from time to time determine. Any person may hold two or more offices at the same, except the offices of President and Secretary. Any officer may, but no officer need, be chosen from among the Board of Directors.
Section 3.02. Term . All officers shall be elected or appointed to hold office until the meeting of the Board of Directors following the next annual meeting of shareholders and each officer shall hold office for the term for which such officer is elected or appointed and until such officer’s successor has been elected or appointed and qualified, but the Board of Directors may remove any officer with or without cause at any time.
Section 3.03. Authority . The officers shall have the authority, perform the duties and exercise the powers in management of the Corporation usually incident to the offices held by them, respectively, and/or such other authority, duties, and powers as may be assigned to them from time to time by that Board of Directors.
-18-
Exhibit 3 (ii)
ARTICLE IV
Capital Stock
Section 4.01 . Stock Certificates . The shares of the Corporation shall be represented by certificates signed by the Chairman of the Board or the President or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employees. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she was such officer at the date of issue.
Section 4.02 . Transfer of Shares . The shares of the Corporation may be transferred only by the holder in person or by the holder’s attorney upon surrender for cancellation of certificates for the shares, with an assignment or power of transfer endorsed therefor or delivered therewith, duly executed, with such proof of the authenticity of the signature and of authority to transfer, and of payment of transfer taxes, as the Corporation or its agents may require.
Section 4.03 . Lost or Destroyed Certificates . No certificate for shares shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen except on production of such evidence of loss, destruction, or theft and on delivery to the Corporation, if the Board of
-19-
Exhibit 3 (ii)
Directors shall so require, of a bond of indemnity in such amount and upon such terms and secured by such surety as the Board of Directors may in its discretion require.
Section 4.04 . Transfer Agent and Registrar . The Board of Directors, to the extent permitted by law, shall have power and authority to make all rules and regulations, as it may deem expedient, concerning the issue, transfer and registration of share certificates. The Board of Directors may appoint one or more transfer agents and one or more registrars and may require all certificates for shares to bear the signature or signatures of any of them.
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Exhibit 3 (ii)
ARTICLE V
Miscellaneous
Section 5.01 . Seal . The seal of the Corporation shall be circular in form and contain the name of the Corporation and the year and state of its organization.
Section 5.02 . Checks . All checks or demands for money shall be signed by such person or persons as the Board of Directors may from time to time determine.
Section 5.03 . Fiscal Year . Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall begin the first day of January in each year, and shall end on the thirty-first day of December of such year.
Section 5.04 . Entire Board . As used in these By-laws, the term “entire Board” means the total number of directors which the Corporation would have if there were no vacancies.
Section 5.05 . Amendment of By-laws . The By-laws of the Corporation may be amended, repealed or adopted by the Board of Directors or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that any amendment by the Board of Directors changing the numbers of directors shall require the vote of a majority of the entire Board and except that any By-law adopted by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as provided in the Business Corporation Law of the State of New York (the “Business Corporation Law”).
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Exhibit 3 (ii)
ARTICLE VI
Indemnification
Section 6.01 . Indemnification of Directors and Officers . The Corporation shall indemnify any person who is or was a director or officer of the Corporation and who is made, or threatened to be made, a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation to procure a judgment in its favor and an action by any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Corporation is serving or has served in any capacity at the request of the Corporation, by reason of the fact that such person, such person’s testator or intestate, is or was a director or officer of the Corporation, or is or was serving such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity against all loss and expense including, without limiting the generality of the foregoing, judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys’ fees and disbursements actually and necessarily incurred as a result of such action or proceeding, or any appeal therein; provided, however, that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that such person’s acts were committed in bad faith or were the result of active and deliberate dishonestly and were material to the cause of action so adjudicated, or that such person
-22-
Exhibit 3 (ii)
personally gained in fact a financial profit or other advantage to which he was not legally entitled.
In any case in which a director or officer of the Corporation (or a representative of the estate of such director or officer) requests indemnification, upon such person’s request the Board of Directors shall meet within one month thereof to determine whether such person is eligible for indemnification in accordance with the standard set forth above. Such determination shall be made:
(a) by the Board of Directors acting by a quorum consisting of directors who are not parties to the action or proceeding in respect of which indemnification is sought; or
(b) if such quorum is unobtainable or if directed by such quorum, then by either (i) the Board of Directors upon the option in writing of independent legal counsel that indemnification is proper in the circumstances because such person is eligible for indemnification in accordance with the standard set forth above, or (ii) by the shareholders upon a finding that such person is eligible for indemnification in accordance with the standard set forth above. Notwithstanding the foregoing, a determination of eligibility for indemnification may be made in any manner permitted by law.
The Corporation shall advance defense expenses incurred by any person who is made or threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether by or in the right of the Corporation or otherwise, by reason of the fact that such person, such person’s testator or intestate, is or was a
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Exhibit 3 (ii)
director or officer of the Corporation, or is serving or has served any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity at the request of the Corporation while such person is or was such a director or officer, upon request of such person and receipt of an undertaking by such person or on such person’s behalf to repay amounts advanced if it is ultimately determined that such person was not eligible for indemnification in accordance with the standard set forth above.
The foregoing provisions of this Section shall be deemed to be a contract between the Corporation and each director and officer of the Corporation who serves in such capacity at any time while this Section 6.01 and the relevant provisions of the Business Corporation Law are in effect, and any repeal or modification of this Section or such provisions of the Business Corporation Law shall not affect any rights or obligations existing prior to such modification or repeal with respect to any action or proceeding theretofore or thereafter brought; provided, however, that the right of indemnification provided in this Section shall not be deemed exclusive of any other rights to which any director or officer of the Corporation may now be or hereafter become entitled apart from this Section, under any applicable law including the Business Corporation Law. Notwithstanding the foregoing, the Corporation shall enter into such additional contracts providing or indemnification and advancement of expenses with officers, directors, employees, and agents of the Corporation or its subsidiaries and affiliates as the Board of Directors shall authorize, provided that the terms of any such contract shall be not inconsistent with the provisions of this Section, and provided further that the
-24-
Exhibit 3 (ii)
Corporation shall provide notice of such contracts in accordance with the following paragraph.
If any action with respect to indemnification of directors and officers is taken by way of amendment to these by-laws, resolution of the Board of Directors, or by agreement, then the Corporation shall give such notice to the shareholders as is required by law.
-25-
Exhibit 10(a)
AMENDMENT NO. 1
TO
ARROW ELECTRONICS, INC. GRANTOR TRUST AGREEMENT
(as amended and restated
November 11,
2003)
WHEREAS, Arrow Electronics, Inc. (the “Company”) has created a grantor trust (the “Trust”) with Wachovia Bank, N.A., a national association (the “Trustee”), pursuant to an agreement originally entered into on June 28, 1998, which was amended and restated in its entirety on August 27, 2002 and again on November 11, 2003 (the “Agreement”);
WHEREAS, effective October 1, 2004, the Company adopted the Arrow Electronics, Inc. Executive Deferred Compensation Plan and desires to include that Plan as an additional Arrangement under the Agreement, the assets in respect of which are to be held in a separate Benefit Fund within the meaning of the Agreement; and
NOW, THEREFORE, the Company and the Trustee hereby agree pursuant to Section 14 of the Agreement to amend the Agreement in the following respects:
| 1. | A new Section 17 is added to read as follows: |
| Section 17. Arrow Electronics, Inc. Executive Deferred Compensation Plan. |
| (a) | The Arrow Electronics, Inc. Executive Deferred Compensation Plan, adopted effective October 1, 2004 and as in effect from time to time thereafter (the “DCP”), shall constitute a separate Arrangement hereunder effective October 1, 2004. | |||
| (b) | The assets contributed to the Trust in respect of the DCP shall be held in a separate Benefit Fund (within the meaning of Section 1(g)), which shall at all times be separately invested (and the grant of discretion to provide otherwise in Section 1(g)(5) shall not apply). | |||
| (c) | The second, third and last sentences of Section 6(d) (restricting investments after a Change of Control to high quality fixed income investments) shall not apply, and the investment of the assets of such separate Benefit Fund shall be determined by the Trustee by applying the criteria in clauses (1), (2) and (3) of the fourth sentence of Section 6(d) to the DCP as a separate Arrangement. | |||
| (d) | Attachment II and references thereto in the Trust Agreement shall not apply to the obligations under the DCP, and such obligations and the assets of the separate Benefit Fund in respect thereof shall be disregarded in determining amounts that must be contributed to the Trust in respect of other Arrangements. | |||
| 2. | A new paragraph 3 is added to the listing of Arrangements in Attachment I, to read as follows: |
| 3. | The Arrow Electronics, Inc. Executive Deferred Compensation Plan, effective October 1, 2004. |
IN WITNESS WHEREOF, the instrument of amendment of the Agreement has been executed on behalf of the parties hereto this 17th day of September, 2004, to be effective as of October 1, 2004.
|
ARROW ELECTRONICS, INC.
|
WACHOVIA BANK, N.A. | |
|
By:
/s/
Peter S. Brown
|
By: /s/ Alan C. Frazier | |
|
Its: Senior Vice President
|
Its: Senior Vice President | |
|
ATTEST:
|
ATTEST: | |
|
By:
/s/
Fran Ceraso
|
By: /s/ Beverley H. Wood | |
|
Its: Executive Assistant
|
Its: Senior Vice President |
ATTACHMENT I
1. Arrow Electronics, Inc. Supplemental Executive Retirement Plan, as amended effective January 1, 2002, including a plan document bearing that name and applicable to all Participants and, with respect to each individual Participant, (1) a letter advising of his or her Participant status and the date it commenced, the date the Participant is first eligible to retire, his or her annual pension available at such retirement, the maximum pension to which the Participant may become entitled, and the date when he or she is first eligible for that maximum pension, and (2) any individual agreement with such Participant pertinent thereto.
2. The Arrow Electronics, Inc. Management Insurance Program, consisting of individual agreements with the individuals participating therein.
3. The Arrow Electronics, Inc. Executive Deferred Compensation Plan, effective October 1, 2004.
Exhibit 10(b)
EXECUTION COPY
AMENDMENT NO. 11 TO TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NO. 11 TO TRANSFER AND ADMINISTRATION AGREEMENT, dated as of August 13, 2004 (this “Amendment” ), to that certain Transfer and Administration Agreement dated as of March 21, 2001, as amended by Amendment No. 1 to Transfer and Administration Agreement dated as of November 30, 2001, Amendment No. 2 to Transfer and Administration Agreement dated as of December 14, 2001, Amendment No. 3 to Transfer and Administration Agreement dated as of March 20, 2002, Amendment No. 4 to Transfer and Administration Agreement dated as of March 29, 2002, Amendment No. 5 to Transfer and Administration Agreement dated as of May 22, 2002, Amendment No. 6 and Limited Waiver to Transfer and Administration Agreement dated as of September 27, 2002, Amendment No. 7 to Transfer and Administration Agreement dated as of February 19, 2003, Amendment No. 8 to Transfer and Administration Agreement dated as of April 14, 2003, Amendment No. 9 to Transfer and Administration Agreement dated as of August 13, 2003, and Amendment No. 10 to Transfer and Administration Agreement dated as of February 18, 2004 (as so amended and in effect, the “TAA” ), by and among Arrow Electronics Funding Corporation, a Delaware corporation (the “SPV” ), Arrow Electronics, Inc., a New York corporation, individually ( “Arrow” ) and as the initial Master Servicer, the several commercial paper conduits identified on Schedule A to the TAA and their respective permitted successors and assigns (the “Conduit Investors” ; each individually, a “Conduit Investor” ), the agent bank set forth opposite the name of each Conduit Investor on such Schedule A and its permitted successors and assigns (each a “Funding Agent” ) with respect to such Conduit Investor, and Bank of America, National Association, a national banking association, as the administrative agent for the Investors (the “Administrative Agent” ), and the financial institutions from time to time parties thereto as Alternate Investors. Capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the TAA.
PRELIMINARY STATEMENTS:
WHEREAS, the SPV, Arrow, the Conduit Investors, the Funding Agents, the Alternate Investors and the Administrative Agent have entered into the TAA;
WHEREAS, the SPV and Arrow have requested that the Conduit Investors, the Funding Agents, the Alternate Investors and the Administrative Agent agree to make certain changes and amendments to the TAA;
WHEREAS, Old Line Funding, LLC and Bowand, LLC ( “Bowand” ) desire to become Conduit Investors under the TAA and Royal Bank of Canada and Danske Bank A/S, New York Branch desire to become Alternate Investors and Funding Agents under the TAA;
WHEREAS, Kitty Hawk Funding Corporation and Delaware Funding Company, LLC have agreed to reduce their respective Conduit Funding Limits and Bank of America and JPMorgan Chase Bank have agreed to reduce their respective Alternate Investor Commitments;
Exhibit 10(b)
WHEREAS, subject to the terms and conditions set forth herein, the Conduit Investors, the Alternate Investors, the Funding Agents and the Administrative Agent are willing to make such changes and amendments to the TAA; and
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendments to the TAA . Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the TAA is hereby amended as follows:
Section 1.1. Section 1.1 is amended by amending and restating the definition of “Multi-year Credit Agreement,” such definition to read in its entirety as follows:
“Multi-year Credit Agreement” means the $450,000,000 Amended and Restated Three-Year Credit Agreement, dated as of December 18, 2003, among Arrow, the subsidiary borrowers parties thereto, the several banks and other financial institutions from time to time parties thereto, Bank of America, N.A., The Bank of Nova Scotia, BNP Paribas and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent, as the same may from time to time be amended, supplemented or otherwise modified, or, in the event that such Amended and Restated Three Year Credit Agreement has expired, has terminated or is otherwise no longer in effect, the “Multi-year Credit Agreement” shall mean the then current replacement credit or loan facility among Arrow and the lender(s) party thereto; provided, however, that if no such credit or loan facility is then in effect, the Multi-year Credit Agreement shall mean the most recent credit or loan facility as in effect immediately prior to its expiration, or other termination.
Section 1.2. As of the effective date of this Amendment, Royal Bank of Canada, as Alternate Investor and Funding Agent, Old Line Funding, LLC, as Conduit Investor, Danske Bank A/S, New York Branch, as Alternate Investor and Funding Agent, and Bowand, LLC, as Conduit Investor (collectively, the “New TAA Parties” ), shall each be a party to the TAA and, to the extent provided in this Amendment, have the rights and obligations of an Alternate Investor, Funding Agent or Conduit Investor, as applicable, thereunder.
Accordingly, each of the New TAA Parties (i) confirms that it has received a copy of the TAA, the First Tier Agreement and each Originator Agreement together with copies of the financial statements referred to in Section 6.1 of the TAA, to the extent delivered through the date of this Amendment, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (ii) appoints and authorizes the Administrative Agent and the Related Funding Agent to take such action as Administrative Agent or the Related Funding Agent on its behalf and to exercise such powers and discretion under the TAA and the other Transaction Documents as are delegated to the Administrative Agent or the Related Funding Agent by the terms thereof, together with such
- 2 -
Exhibit 10(b)
powers and discretion as are reasonably incidental thereto; (iii) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the TAA are required to be performed by it as an Alternate Investor or Conduit Investor, as applicable; and (iv) specifies as its address for notices and its account for payments the office and account set forth beneath its name on the signature pages hereof; and (v) has pursuant to Section 9.3(e) of the TAA, agreed to deliver the forms prescribed by the Internal Revenue Service of the United States of America certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the TAA or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty.
Section 1.3. Schedule A to the TAA is deleted in its entirety and is replaced with the schedule attached hereto as Annex I.
Section 1.4. Schedule B to the TAA is deleted in its entirety and is replaced with the schedule attached hereto as Annex II.
Section 1.5. Schedule 11.3 to the TAA is deleted in its entirety and is replaced with the schedule attached hereto as Annex III.
Section 1.6. In addition to the foregoing and notwithstanding anything to the contrary contained in the TAA, each of the parties hereto hereby agree as follows:
so long as Bowand is a Conduit Investor party to the TAA,
(i) Polonius Inc., a corporation organized under the laws of the state of Delaware ( “Polonius” ), shall be deemed to be:
(1) a “Conduit Investor” for purposes of the definition of “Commercial Paper”, Sections 2.4(b) , 2.4(f) , 11.11 and 11.12 , and the definitions of “CP Rate” and “Yield” in Section 2.4(d) , of the TAA;
(2) a “Match Funding Conduit Investor” for purposes of the definition of “Interest Component”, Sections 2.4(b) and 2.5 , and the definitions of “Alternate Rate”, “CP Rate” and“Rate Period” in Section 2.4(d) , of the TAA; and
(3) an “Investor” for purposes of Sections 2.3(b)(ii) and 9.1 through 9.6 of the TAA; provided that no provision of this Section 1.6(i) shall result in a duplicate obligation owing by the SPV to Bowand and Polonius under Section 2.4 or 2.5 or Schedule I or IV of the TAA in respect of Yield or Fees, determined as if Bowand and Polonius were one in the same Conduit Investor (or Match Funding Conduit Investor, as applicable) for purposes thereof.
(ii) Polonius agrees to be bound by, and to comply with, the applicable provisions of Sections 2.4 , 9.2 , 9.3 and 11.4 of the TAA.
- 3 -
Exhibit 10(b)
SECTION 2. Representations and Warranties of the SPV and Arrow . To induce the Conduit Investors, Alternate Investors, the Funding Agents and the Administrative Agent to enter into this Amendment, the SPV and Arrow each makes the following representations and warranties (which representations and warranties shall survive the execution and delivery of this Amendment) as of the date hereof, after giving effect to the amendments set forth herein:
Section 2.1. Authority . The SPV and Arrow each has the requisite corporate power, authority and legal right to execute and deliver this Amendment and to perform its obligations hereunder and under the Transaction Documents, including the TAA (as modified hereby). The execution, delivery and performance by the SPV and Arrow of this Amendment and their performance of the Transaction Documents, including the TAA (as modified hereby), have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions.
Section 2.2. Enforceability . This Amendment has been duly executed and delivered by the SPV and Arrow. This Amendment is the legal, valid and binding obligation of the SPV and Arrow, enforceable against the SPV and Arrow in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether considered in a proceeding at law or in equity). The making and delivery of this Amendment and the performance of the Agreement, as amended by this Amendment, do not violate any provision of law or any regulation (except to the extent that the violation thereof could not, in the aggregate, be expected to have a Material Adverse Effect or a material adverse effect on the condition (financial or otherwise), business or properties of Arrow and the other Originators, taken as a whole), or its charter or by-laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected.
Section 2.3. Representations and Warranties . The representations and warranties contained in the Transaction Documents are true and correct on and as of the date hereof as though made on and as of the date hereof after giving effect to this Amendment.
Section 2.4. No Termination Event . After giving effect to this Amendment, no event has occurred and is continuing that constitutes a Termination Event or a Potential Termination Event.
SECTION 3. Conditions Precedent . This Amendment shall become effective, as of the date hereof, on the date on which the following conditions precedent shall have been fulfilled:
Section 3.1. This Amendment . The Administrative Agent shall have received counterparts of this Amendment, duly executed by each of the parties hereto.
- 4 -
Exhibit 10(b)
Section 3.2. Additional Documents . The Administrative Agent shall have received all additional approvals, certificates, documents, instruments and items of information as the Administrative Agent may reasonably request and all of the foregoing shall be in form and substance reasonably satisfactory to the Administrative Agent and each Funding Agent.
Section 3.3. Legal Matters . All instruments and legal and corporate proceedings in connection with the transactions contemplated by this Amendment shall be satisfactory in form and substance to the Administrative Agent, the Administrative Agent’s counsel and each Funding Agent and the fees and expenses of counsel to the Administrative Agent incurred in connection with the execution of this Amendment and the transactions contemplated hereby shall have been paid in full.
SECTION 4. References to and Effect on the Transaction Documents .
Section 4.1. Except as specifically amended and modified hereby, each Transaction Document is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.
Section 4.2. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Investor, Funding Agent or the Administrative Agent under any Transaction Document, nor constitute a waiver, amendment or modification of any provision of any Transaction Document, except as expressly provided in Section 1 hereof.
Section 4.3. This Amendment contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.
Section 4.4. Each reference in the TAA to “this Agreement”, “hereunder”, “hereof” or words of like import, and each reference in any other Transaction Document to “the Transfer and Administration Agreement”, “thereunder”, “thereof” or words of like import, referring to the Agreement, shall mean and be a reference to the Agreement as amended hereby.
- 5 -
Exhibit 10(b)
SECTION 5. Execution in Counterparts . This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 6. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AMENDMENT OR ANY OTHER TRANSACTION DOCUMENT.
- 6 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
|
Arrow Electronics Funding Corporation
,
as SPV |
||||
| By: | /s/ Ira M. Birns | |||
| Name: | Ira M. Birns | |||
| Title: | President | |||
|
Arrow Electronics, Inc.
,
individually and as Master Servicer |
||||
| By: | /s/ Ira M. Birns | |||
| Name: | Ira M. Birns | |||
| Title: | Vice President and Treasurer | |||
|
Kitty Hawk Funding Corporation,
as a Conduit Investor |
||||
| By: | /s/ Jill A. Gordon | |||
| Name: | Jill A. Gordon | |||
| Title: | Vice President | |||
|
Bank of America, National Association,
as a Funding Agent, as Administrative Agent, and as an Alternate Investor |
||||
| By: | /s/ Charu Mani | |||
| Name: | Charu Mani | |||
| Title: | Vice President | |||
|
Delaware Funding Company, LLC,
as a Conduit Investor By: JPMorgan Chase Bank, its attorney-in-fact |
||||
| By: | /s/ Mark J. Connor | |||
| Name: | Mark J. Connor | |||
| Title: | Vice President | |||
|
JPMorgan Chase Bank,
(successor by merger to Morgan Guaranty Trust Company of New York) as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Christopher Lew | |||
| Name: | Christopher Lew | |||
| Title: | Assistant Vice President | |||
|
Alpine Securitization Corp.,
as a Conduit Investor By: Credit Suisse First Boston, New York Branch, its attorney-in-fact |
||||
| By: | /s/ Mark Lengel | |||
| Name: | Mark Lengel | |||
| Title: | Director | |||
| By: | /s/ Joseph Soave | |||
| Name: | Joseph Soave | |||
| Title: | Director | |||
|
Credit Suisse First Boston, New York Branch
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Joseph Borg | |||
| Name: | Joseph Borg | |||
| Title: | Vice President | |||
| By: | /s/ Alberto Zonca | |||
| Name: | Alberto Zonca | |||
| Title: | Vice President | |||
|
Liberty Street Funding Corp.,
as a Conduit Investor |
||||
| By: | /s/ Bernard J. Angelo | |||
| Name: | Bernard J. Angelo | |||
| Title: | Vice President | |||
|
The Bank of Nova Scotia,
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Norman Last | |||
| Name: | Norman Last | |||
| Title: | Managing Director | |||
|
Gotham Funding Corporation,
as a Conduit Investor |
||||
| By: | /s/ R. Douglas Donaldson | |||
| Name: | R. Douglas Donaldson | |||
| Title: | Treasurer | |||
|
The Bank of Tokyo-Mitsubishi, Ltd., New York
Branch, as a Funding Agent |
||||
| By: | /s/ A.K. Reddy | |||
| Name: | A.K. Reddy | |||
| Title: | Vice President | |||
|
The Bank of Tokyo-Mitsubishi, Ltd., New York
Branch, as an Alternate Investor |
||||
| By: | /s/ J. Terrence Dennehy | |||
| Name: | J. Terrence Dennehy | |||
| Title: | Authorized Signatory | |||
|
Bowand, LLC,
as a Conduit Investor |
||||
| By: | /s/ Bernard J. Angelo | |||
| Name: | Bernard J. Angelo | |||
| Title: | President | |||
|
Notice Delivered to:
Bowand, LLC c/o Global Securitization Services, LLC 445 Broad Hollow Road Melville, NY 11747 Ph: (631) 587-4700 Fax: (212) 302-8767 |
||||
|
Danske Bank A/S, New York Branch,
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ John A. O’Neill | /s/ Peter L. Hargraves | ||
| Name: | John A. O’Neill | Peter L. Hargraves | ||
| Title: | Assistant General Manager | Vice President | ||
|
Notice Delivered to:
Danske Bank A/S, New York Branch 299 Park Avenue, 14 th Floor New York, New York 10171-1499 |
||||
|
Attention: Joe Brandariz
Telephone: 212/984-8430 Facsimile: 212/984-9570 |
||||
|
Old Line Funding, LLC,
as a Conduit Investor |
||||
| By: | /s/ Robert S. Jones | |||
| Name: | Robert S. Jones | |||
| Title: | Authorized Signatory | |||
|
Notice Delivered to:
OLD LINE FUNDING, LLC c/o Global Securitization Services, LLC 445 Broad Hollow Road Suite 239 Melville, NY 11747 Attention: Andrew L. Stidd, Managing Director Tel. No.: (631) 930-7207 Facsimile No.: (212) 302-8767 |
||||
|
Royal Bank of Canada
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Robert S. Jones | |||
| Name: | Robert S. Jones | |||
| Title: | Authorized Signatory | |||
| By: | /s/ Steven F. Adams | |||
| Name: | Steven F. Adams | |||
| Title: | Authorized Signatory | |||
|
Notice Delivered to:
ROYAL BANK OF CANADA One Liberty Plaza, 5 th Floor New York, NY 10006-1404 Attention: Managing Director, Global Securitization Group Tel No.: (212) 428-6537 Facsimile No.: (212) 428-2304 |
||||
Agreed and Acknowledged to by :
|
Polonius Inc.
as a commercial paper conduit |
||||
| By: | /s/ Bernard J. Angelo | |||
| Name: | Bernard J. Angelo | |||
| Title: | Vice President | |||
ANNEX I
Schedule A
Conduit
Related
Alternate
Funding
Alternate
Related Funding
Investor(s)
Conduit Investor
Limit
Investor(s)
Agent
Commitment
Corporation
$
82,280,000
Bank of America,
National
Association
Bank of America,
National
Association
$
82,280,000
Company, LLC
$
82,280,000
JPMorgan Chase Bank
(successor by
merger to Morgan
Guaranty Trust
Company)
JPMorgan Chase Bank
(successor by
merger to Morgan
Guaranty Trust
Company)
$
82,280,000
$
82,280,000
Credit Suisse First
Boston, New York
Branch
Credit Suisse First
Boston, New York
Branch
$
82,280,000
$
82,280,000
The Bank of Nova
Scotia
The Bank of Nova
Scotia
$
82,280,000
Corporation
$
82,280,000
The Bank of
Tokyo-Mitsubishi,
Ltd., New York
Branch
The Bank of
Tokyo-Mitsubishi,
Ltd., New York
Branch
$
82,280,000
LLC
$
74,800,000
Royal Bank of Canada
Royal Bank of Canada
$
74,800,000
$
74,800,000
Danske Bank A/S,
New York Branch
Danske Bank A/S,
New York Branch
$
74,800,000
Annex II
SCHEDULE B
Match Funding Conduit Investors
Kitty Hawk Funding Corporation
Old Line Funding, LLC
Bowand, LLC
Annex III
SCHEDULE 11.3
Address and Payment Information
If to the Conduit Investors:
| (1) |
Kitty Hawk Funding Corporation
Lord Securities 48 Wall Street 27 th Floor New York, New York 10005 Attention: Jill Gordon Telephone: 212/346-9021 Facsimile: 212/346-9012 |
|||
| (2) |
Delaware Funding Company, LLC
500 Stanton Christiana Road Newark, DE 19713 Location: CS /2 Attention: Asset Backed Finance Telephone: 302/634-5501 Facsimile: 302/634-5490 |
|||
| (3) |
Alpine Securitization Corp.
c/o Credit Suisse First Boston, New York Branch as Administrative Agent 11 Madison Avenue New York, NY 10010 Attention: Joe Soave Telephone: 212/325-9082 Facsimile: 212/325-4519 |
|||
| (4) |
Liberty Street Funding Corp.
c/o Global Securitization Services, LLC 114 West 47 th Street Suite 1715 New York, NY 10036 Attention: Andrew L. Stidd Telephone: 212/302-5151 Facsimile: 212/302-8767 |
|||
| (5) |
Gotham Funding Corporation
c/o The Bank of Tokyo-Mitsubishi, Ltd., New York Branch 1251 Avenue of the Americas New York, New York 10020 Attention: Devang Sodha Telephone: 212/782-5980 Facsimile: 212/782-6998 |
|||
| (6) |
Old Line Funding, LLC
c/o Global Securitization Services, LLC 445 Broad Hollow Road Suite 239 Melville, NY 11747 Attention: Tony Wong Tel. No.: (631) 930-7207 Facsimile No.: (212) 302-8767 |
|||
| (7) |
Bowand, LLC
c/o Global Securitization Services, LLC 445 Broad Hollow Road Suite 239 Melville, NY 11747 Ph: (631) 587-4700 Fax: (212) 302-8767 |
|||
If to the Alternate Investors :
| (1) |
Bank of America, National Association
NC1-027-19-01 214 North Tryon Street, 19 th Floor Charlotte, NC 28255 Attention: Global Asset Backed Securitization Group; Portfolio Management Attention: Charu Mani Telephone: 704/683-4692 Facsimile: 704/388-9169 |
|||
| (2) |
JPMorgan Chase Bank
4 New York Plaza, 6 th Floor New York, NY 10004 Attention: Conduit Administration Telephone: (212) 623-5370 Facsimile: (212) 623-5980 |
|||
| (3) |
Credit Suisse First Boston, New York Bank
11 Madison Avenue New York, New York 10010 Attention: Joe Soave Telephone: 212/325-9082 Facsimile: 212/325-4519 |
|||
| (4) |
The Bank of Nova Scotia
1 Liberty Plaza, 26 th Floor New York, New York 10006 Attention: [Richard L. Taiano] Telephone: 212/225-5070 Facsimile: 212/225-5290 |
|||
| (5) |
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch
1251 Avenue of the Americas New York, New York 10020 Attention: US Corporate Banking, PMG Group, Spencer Hughes Telephone: 212/782-4226 Facsimile: 212/782-6998 |
|||
| (6) |
Royal Bank of Canada
One Liberty Plaza, 5 th Floor New York, NY 10006-1404 Attention: Managing Director, Global Securitization Group Tel No.: (212) 428-6537 Facsimile No.: (212) 428-2304 |
|||
| (7) |
Danske Bank A/S, New York Branch
299 Park Avenue, 14 th Floor New York, New York 10171-1499 Attention: Peter Hargraves Telephone: 212/984-8433 Facsimile: 212/984-9567 |
|||
If to the Funding Agents:
| (1) |
Bank of America, National Association,
as Funding Agent for Kitty Hawk Funding Corporation NC1-027-19-01 214 North Tryon Street, 19 th Floor Charlotte, NC 28255 Attention: Global Asset Backed Securitization Group; Portfolio Management Telephone:704/683-4692 Facsimile:704/388-9169 |
|
Payment Information:
Deutsche Bank |
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|
ABA 021001033
Account No.: 00362941 Account Name: DB as Depository for KHFC |
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| (2) |
JPMorgan Chase Bank,
as Funding Agent for Delaware Funding Corporation 4 New York Plaza, 6 th Floor New York, NY 10004 Attention: Conduit Administration Telephone: (212) 623-5370 Facsimile: (212) 623-5980 |
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| Payment Information: | ||||
|
JPMorgan Chase Bank
ABA No. 021-000-021 Account No. 507953622 Reference: Arrow Funding Corp. |
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| (3) |
Credit Suisse First Boston New York Branch,
as Funding Agent for Alpine Securitization Corp. 11 Madison Avenue New York, New York 10010 Attention: Joe Soave Telephone: 212/325-9082 Facsimile: 212/325-4519 |
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| Payment Information: | ||||
|
Bank of New York
ABA No. 02-000-018 Account No. 890-038-7025 Reference: Arrow Funding |
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| (4) |
The Bank of Nova Scotia,
as Funding Agent for Liberty Street Funding Corp. 1 Liberty Plaza, 26 th Floor New York, New York 10006 Attention: Richard L. Taiano Telephone: 212/225-5070 Facsimile: 212/225-5290 |
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| Payment Information: | ||||
|
The Bank of Nova Scotia- New York Agency
ABA No. 026-002-532 Account No. 02158-13 Reference: Arrow Electronics Funding Corporation [Reason for Payment] |
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| (5) |
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch
as Funding Agent for Gotham Funding Corporation 1251 Avenue of the Americas 10 th Floor New York, New York 10020 Attention: Aditya Reddy Telephone: 212/782-6957 Facsimile: 212/782-6448 |
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| Payment Information: | ||||
|
Bank of Tokyo-Mitsubishi Trust Company
ABA No. 026-009-687 Account Name: Gotham Funding Corporation Account No. 310035147 Reference: Arrow - Electronics |
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| (6) |
Royal Bank of Canada
as Funding Agent for Old Line Funding, LLC Global Securitization Group One Liberty Plaza New York, New York 10006-1404 Attention:Tony Cowart Telephone:212/428-6291 Facsimile:212/428-2304 |
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| Payment Information: | ||||
|
Deutsche Bank Trust Company Americas
ABA #021-001-033 Account Name: Old Line Funding Corporation Account # 048-72-850 Reference: Kim Sukdeo/Arrow Electronics (212) 602-1263 |
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| (7) |
Danske Bank A/S, New York Branch
as Funding Agent for Bowand, LLC 299 Park Avenue, 14 th Floor New York, New York 10171-1499 |
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|
Attention:Joe Brandariz
Telephone:212/984-8430 Facsimile:212/984-9570 |
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| Payment Information: | ||||
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Danske Bank A/S, New York, New York
ABA #026-003-719 Reference: Bowand, LLC |
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If to the SPV:
Arrow Electronics Funding Corporation
7459 South Lima Street
Building 2
Englewood, Colorado 80112
Telephone:
Facsimile:
Payment Information:
Chase Manhattan Bank
ABA 021 000 021
Account No. 323-1-96500
Reference A/R Securitization Funding
If to Arrow or the Master Servicer:
Arrow Electronics, Inc.
50 Marcus Drive
Melville, New York 11747
Telephone: (631) 847-1657
Facsimile: (631) 847-5379
Payment Information:
Chase Manhattan Bank
New York, NY
ABA 021000021
Account No. 144-0-91175
If to the Administrative Agent:
Bank of America, National Association
NC1-027-19-01
214 North Tryon Street, 19
th
Floor
Charlotte, NC 28255
Attention: Global Asset Backed Securitization Group;
Portfolio Management
Attention: Charu Mani
Telephone: 704/683-4692
Facsimile: 704/388-9169
Additional copy of Master Servicer Report, Investment Request to be delivered to:
Bank of America, National Association,
as Administrator
NC1-027-19-01
214 North Tryon Street
Charlotte, NC 28255
Attention: Global Asset Backed Securitization Group;
Portfolio Management, Tim Pacitto
Telephone: 704/388-9464
Facsimile: 704/388-0027
Email: timothy.pacitto@bankofamerica.com
Payment Information:
Collection Account
ABA 053 000 196
Account Name: BA as Agent for Investors - Collection Account (Arrow)
Account No. 0006 8765 0051
Reference: Arrow Electronics
Funding Account
ABA 026009593
Account Name: BA as Agent for Investors - Arrow Electronics
Account No. 0006 8765 0048
Reference: Arrow Electronics
Exhibit 31(i)
Arrow Electronics, Inc.
Sarbanes-Oxley Act of 2002
I, William E. Mitchell, President and Chief Executive Officer, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Arrow Electronics, Inc. (the “registrant”); | |||
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: | |||
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and | |||
| c) | disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||
| Date: November 5, 2004 | By: | /s/ William E. Mitchell | ||
| William E. Mitchell | ||||
| President and Chief Executive Officer | ||||
Exhibit 31(ii)
Arrow Electronics, Inc.
Sarbanes-Oxley Act of 2002
I, Paul J. Reilly, Vice President and Chief Financial Officer, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Arrow Electronics, Inc. (the “registrant”); | |||
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: | |||
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and | |||
| c) | disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||
| Date: November 5, 2004 | By: | /s/ Paul J. Reilly | ||
| Paul J. Reilly | ||||
| Vice President and Chief Financial Officer | ||||
Exhibit 32(i)
Arrow Electronics, Inc.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Arrow Electronics, Inc. (the “company”) for the period ended September 30, 2004 (the “Report”), I, William E. Mitchell, Chief Executive Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |||
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. | |||
| Date: November 5, 2004 | By: | /s/ William E. Mitchell | ||
| William E. Mitchell | ||||
| President and Chief Executive Officer | ||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32(ii)
Arrow Electronics, Inc.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Arrow Electronics, Inc. (the “company”) for the period ended September 30, 2004 (the “Report”), I, Paul J. Reilly, Chief Financial Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |||
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. | |||
| Date: November 5, 2004 | By: | /s/ Paul J. Reilly | ||
| Paul J. Reilly | ||||
| Vice President and Chief Financial Officer | ||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.