Arrow Electronics First Quarter 2008 Earnings Call Presentation

First Quarter 2008 Earnings Call

April 23, 2008

WELCOME

Sabrina Weaver

Director, Investor Relations

First Quarter EarningsApril 23, 2008

SAFE HARBOR STATEMENT

Some of the comments to be made on this morning’s call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons including, but not limited to: industry conditions, the company’s implementation of its new global financial system and the company’s planned implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, the company’s ability to generate additional cash flow and the other risks described from time to time in the company’s reports to the Securities and Exchange Commission (including the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q). Forward-looking statements are those statements, which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

BUSINESS OVERVIEW

Bill Mitchell

Chairman & CEO


OVERVIEW

Record level first-quarter sales and WC/sales, positive cash flow generation

Increasingly challenging market conditions at quarter end

Global Enterprise Computing SolutionsStrong growth in storage, software and services offset by weakness in serversTook actions to adjust cost structure, yet we continue to focus on investing for the long-term+ Launch of midmarket initiative, LOGIX acquisition (closing pending)+ Successful implementation of ERP in North American Sun business

Global ComponentsExecuted well in cautious marketplaceNorth America stable, double-digit growth in Asia Pac, Europe softBook-to-bill above 1 globally+ North America and Asia Pac above 1.05Strong Y/Y increase in design registrations in North America Achieva acquisition further strengthens Asia Pac (closing pending)

Challenging quarter…


IN SUMMARY…

Global scale and financial strength allow us to take advantage of opportunities in the market

Continue to invest in the long-term future of Arrow

Taken steps to be more efficient in all areas of our business

Strategic priorities are clearContinue to pursue transformational opportunities in ECSLeverage global scale in componentsInstall world class systems and processes Pursue growth opportunities across products, markets and geographies

FINANCIAL OVERVIEW

Paul Reilly

Senior Vice President & CFO


CONSOLIDATED SALES

$2,727$3,192

$3,498$4,028

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

*Includes KeyLink Systems Group sales in Q1-07 and excludes procurement agreement sales in Q1-08.

Sales $4.0Bn

+15% Y/Y, -9% Q/Q

+5%Y/Y Pro forma for KeyLink*


GLOBAL ENTERPRISE COMPUTING SOLUTIONS

$460 $511

$712

$1,106

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

*Includes KeyLink Systems Group sales in Q1-07 and excludes procurement agreement sales in Q1-08.

Sales $1.1Bn

+55% Y/Y, -31% Q/Q

+6%Y/Y Pro forma for KeyLink*

17th consecutive quarter of Y/Y growth

Lower than anticipated volume, margin, and rebates on servers and a lag in return on investments in growth initiatives pressured margins

Increased ROWC 28% Y/Y


GLOBAL COMPONENTS

$2,267

$2,681 $2,785 $2,922

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

Sales $2.9Bn

+5% Y/Y, +4% Q/Q

Decreased operating expense/sales 20 bps Y/Y

Operating margin close to financial target

Decreased WC/sales 70 bps Y/Y


ASIA PAC COMPONENTS

$304

$531 $545

$653

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

Sales $653MM

+20% Y/Y, Flat Q/Q

Stronger than normal seasonality

Increased operating income almost 47% Y/Y

Improved ROWC 200 bps Y/Y


NORTH AMERICAN COMPONENTS

$1,046

$1,191$1,165 $1,162

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

Sales $1.2Bn

Up slightly Q/Q, flat Y/Y

Sales in core SMB +2% Q/Q, +2% Y/Y

Grew core SMB operating income 3-4x sales Q/Q and Y/Y

Increased ROWC 18% Y/Y


EUROPE COMPONENTS

$916 $959$1,075 $1,107

Q1-05 Q1-06 Q1-07 Q1-08

($ in millions)

Sales $1.1Bn

+11% Q/Q, +3% Y/Y

+8% Q/Q, -9% Y/Y, excluding FX

Increased operating margin 70 bps Q/Q

Grew earnings 2x the rate of sales Q/Q


P&L HIGHLIGHTS($ in millions, except per share data, may reflect rounding)

1Q08 Q/Q Change

Y/Y Change

Sales $4,028 -9% +15%

Gross Profit Margin 14.6% +70bps -90bps

Operating Exp*/Sales 10.5% +120bps -50bps

Operating Income* $163.6 -20% +5%

Operating Margin* 4.1% -50bps -40bps

Net Income* $97.9 -19% +7%

Diluted EPS* $0.79 -19% +7%

•Represents GAAP measure adjusted to exclude the impact of restructuring and integration and other items affecting comparability. Includes amortization of intangible assets of $.02. See “Earnings Reconciliation” for a reconciliation between GAAP and “Adjusted” results.

* $47MM of total expense reductions announced in last 3 quarters *


STRONG FINANCIAL POSITION

Cash flow of $40MM in Q16th consecutive quarter of positive cash flow generationAbility to self-fund growth initiatives

Financial StabilityStrong balance sheetAccess to committed liquidity facilities

Focused management of working capitalIncreased ROWC almost 160 bps Y/YDecreased WC/sales 280 bps Y/Y

ROIC* significantly exceeded cost of capital for the 17th consecutive quarter

*ROIC = Annualized, tax effected op. income and equity in earnings of affiliates excluding restructuring and other charges - annualized minority interest /( Avg Debt + Avg Equity – Avg Cash over $150MM).

Competitive advantage

BUSINESS UNIT REVIEW

Mike Long

President & COO


ENTERPRISE COMPUTING SOLUTIONS

Double-digit Y/Y increases in storage, software, and services

End-of-quarter weakness in servers

Lower than anticipated volume, margin, and rebates on servers and a lag on return on investments pressured operating margin

ECS Europe moving forwardLOGIX acquisition to bring scale and senior leadership (closing pending)Andy Bryant to spend significant time in Europe

Launched midmarket initiative

Implemented ERP in North American Sun businessSuccessful transition with no delays in orders/shipmentOn budget and on time

Mixed results in the first quarter…


GLOBAL COMPONENTS REGIONAL PERFORMANCE

Asia PacificStrong Y/Y growth in Taiwan, India, Australia/NZ, and ASEAN regionContinued to outgrow the marketStrategic expansion in Asia Pac+ Hynetic & Shreyanics in India+ Achieva in the ASEAN region (closing pending)

North AmericaStrong sequential increase in book-to-billDouble-digit Y/Y growth in design registrationsStrong performance in military segment+ Acquired and integrated ACI Electronics

EuropeMarket conditions weakened in Q1Strong Euro impacting export market

Sales at the high end of guidance range in a cautious market…


GLOBAL COMPONENTS LEADING INDICATORS

Book-to-bill above parity; at 1.03 worldwide for 3rd consecutive QNA strengthened, Asia Pac stable, Europe weakened

Lead times stable and within normal range of 8 to 12 weeks

No increase in cancellation rates

Quarterly customer survey in North AmericaInventory well positioned heading into Q2Outlook for purchase requirements softened

CLOSING COMMENTS

Bill Mitchell

Chairman & CEO


IN CLOSING…

Mixed performance in cautious marketComponents sales at high end of guidance rangeECS performance did not meet expectations

Continue to manage company conservatively and prudently Maintain flexibility to take advantage of opportunities

Consistently generating cash & balance sheet is in great shape

Committed to investment initiatives to position Arrow for future growth

Focus on efficiency in all areas of business to ensure premium returns to investors


SECOND QUARTER 2008 GUIDANCE

Consolidated Sales $3.85Bn to $4.15Bn

Global Components $2.70Bn to $2.90Bn

Global ECS $1.15Bn to $1.25Bn

Diluted EPS* $0.74 to $0.80

*Excluding Charges, including $.02 to $.03 estimated amortization of intangible assets.

QUESTIONS & ANSWERS


EARNINGS RECONCILIATION$ in thousands, except per share data

Q108 Q407 Q107

Operating income, as Reported $144,143 $193,583 $162,659

Restructuring and integration charges (credit) 6,478 9,955 (6,147)

Preference claim from 2001 12,941 -- --

Operating income, as Adjusted $163,562 $203,538 $156,512

Net income, as Reported $85,871 $113,963 $96,294

Restructuring and integration charges (credit) 4,159 6,598 (4,522)

Preference claim from 2001 7,822 -- --

Net income, as Adjusted $97,852 $120,561 $91,772

Diluted EPS, as Reported $.69 $.92 $.77

Restructuring and integration charges (credit) .03 .05 (.04)

Preference claim from 2001 .06 -- --

Diluted EPS, as Adjusted $.79 $.97 $.74

The sum of the components for net income per share, as Adjusted, may not agree to totals, as presented, due to rounding.


EARNINGS RECONCILIATIONReferences to restructuring and other charges refer to the following incremental charges taken in the quarters indicated:

Q1-08 Restructuring and Integration Charges:

During the first quarter of 2008, the company recorded a restructuring and integration charge of $6.5 million ($4.2 million net of related taxes or $.03 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies. Included in this restructuring and integration charge is a restructuring charge of $5.3 million related to efficiency initiatives taken by the company during the first quarter of 2008. These actions are expected to reduce costs by approximately $7.0 million per annum, with approximately $1.0 million realized in the first quarter of 2008.

Q1-08 Legal Settlement: As previously disclosed, during the first quarter of 2008, the company recorded a charge, including legal fees, related to a preference claim from 2001 of $12.9 million ($7.8 million net of related taxes or $.06 per share on both a basis and diluted basis).

Q4-07 Restructuring and Integration Charges:

During the fourth quarter of 2007, the company recorded a restructuring and integration charge of $10.0 million ($6.6 million net of related taxes or $.05 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies.

Q1-07 Restructuring and integration Charges: During the first quarter of 2007, the company recorded a restructuring and integration credit of $6.1 million ($4.5 million net of related taxes or $.04 per share on both a basic and diluted basis), primarily related to the sale of the company's Harlow, England facility and the acquisition of KeyLink.

First Quarter 2008 Earnings Call

April 23, 2008

Economy & Finance

Arrow Electronics First Quarter 2008 Earnings Call Presentation