Investor Day 2010

INVESTOR DAY 2010

Emerging even stronger from challenging times

WELCOME

Mike Taunton Vice President &

Treasurer

Investor Day 2010

AGENDASESSION I

SESSION II

8:30 – 10:00 Welcome Mike Taunton

Strategic Overview Mike Long

Global Components Peter Kong

Global ECS Andy Bryant

Strategy Q&A All

10:00 – 10:15 Coffee Break

10:15 – 11:00 Financial Overview Paul Reilly

Finance Q&A All

Closing Remarks Mike Long

Investor Day 2010

This presentation may include forward-looking statements, including statements addressing future financial results. These statements are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company's implementation of its new 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, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements, which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

SAFE HARBOR STATEMENT

STRATEGIC OVERVIEW

Mike Long Chairman, President,

and CEO

Investor Day 2010

Key actions taken by post- recession leaders

Profitable market share growthMaximize cash flowRadical simplification of businessAcquire for strategic gainsStrengthen capital structure

SUCCESSFUL COMPANIES…

…Emerge from the downturn as the post-recession industry leader

A Foundation of Strength

Supply Chain Efficiently managed

Working Capital Best-in-class levels

Expense Reductions

Reduced costs by $225MM annually

Earnings 11x last downturn

Cash Flow Generated $5.7Bn in cash since 2001

Balance Sheet Strongest balance ever, <$300MM in net debt, net debt/cap ~8%*

*As of December 31, 2009.

Investor Day 2010

$37

$22

$36

$22

$34

$21

$35

$22

$40

$25

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$37

$23

$39

$24

$42

$25

$32

$20

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$33

$20

$38

$23

$40

$25

$42

$25

$0

$10

$20

$30

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$50

$60

$70Q

3'06

Q4'

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Q1'

07

Q2'

07

Q3'

07

Q4'

07

Q1'

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Q2'

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Q3'

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Q1'

10

SEMI PEMCO

GLOBAL COMPONENTS TOTAL AVAILABLE MARKET

Significant opportunity to increase our share of the market

Source: SIA; core component TAM excluding memory and microprocessors, excluding Japan.

Cor

e C

ompo

nent

s TA

M ($

Bn)

DTAM ~ 24%

Investor Day 2010

Targeting large, growing markets

SMB market is forecasted to be a $57Bn market

Software and services have high gross margins and low working capital requirements

Worldwide Market

WORLDWIDE IT TOTAL AVAILABLE MARKET

Global ECS well positioned to capitalize on market growth…

TAM ($Bn)

Servers $48

Storage $29

Networking $135

Infrastructure software $86

Services $297

Source: IDC and industry estimates.

Investor Day 2010

ARROW’S STRATEGIC FRAMEWORK

Shift investment to sales excellence while maximizing our core infrastructure capability for earnings growth and cash generation

Lean cost structureBusiness simplificationOperational excellence

Solution sellingDemand creationImproved value-added content

Focus on high-growth/vertical marketsGeographic expansionExpand services

Optimize Gross Profit

Profitable Market Share Growth

Operational Efficiency

Margin

Revenue

Costs

Shift in

vestm

ent a

nd

addit

ional

cash

gene

ratio

n

Investor Day 2010

Market share enables Arrow to:

Be a driving forcedriving force

in the industry

Offer comprehensive value and services to

increase marginsincrease margins

PROFITABLE MARKET SHARE GROWTH

Be a respected partnerrespected partner to suppliers and

customers

Have the sales force coveragesales force coverage we need to increase

customer countcustomer count

Investor Day 2010

Aggressively grow the top line

Increase customer penetrationSolution sales outpacing piece part salesBring suppliers technology to market

New/Expanded ECS Supplier Relationships

New/Expanded Global Components Supplier Relationships


Investor Day 2010

Supplier Expectations

Customer Expectations

The sweet spot of our value is where Arrow capabilities match supplier and customer expectations

ArrowArrow’’s s Value Value

PropositionProposition$ $

OPTIMIZE GROSS PROFIT

Translating Arrow’s value proposition into increased profitability

Most efficient providerClear route to marketDedicated to driving growthTechnical/engineering expertiseFinancial strength

Global footprint and broad line cardValue-added servicesDrive demand generationProactive engineering supportFinancial support

Investor Day 2010

Accelerate profitable sales growth with existing portfolio

Expand our value proposition across the product lifecycle

Building solutions in reverse logistics

Build global brand identity & affinity for Arrow Services

Grow sales faster than core business

Grow margins faster than sales

Deliver "Best in Class" customer service

Expand addressable market

EXPANDING VALUE-ADDED SERVICES: STRATEGIC INTENT

Become the #1 player in a $225Bn + total addressable market

Investor Day 2010

$150Bn TAM$75Bn + TAM

Global ComponentsServices

Less than 1% share

ECS Services

Less than 1% share

VALUE-ADDED SERVICES: DRIVING DIFFERENTIATION & PROFITS

We have not yet begun to penetrate the services opportunity

One of our largest growth opportunities

Investor Day 2010

ERP&

WorldwideInfrastructure

Financial Strength

Global ECS

Global

Com

pone

nts

Value

Added

High Margin / Low Cost Services

ERP&

WorldwideInfrastructure

Financial Strength

Global ECS

Global

Com

pone

nts

Value

Added

High Margin / Low Cost Services

Accelerate sales

Sales excellence

Growth in existing and new

markets

Enhance our value proposition

with increased value-added

services

Capitalize on our foundation of

strength

Drive execution with best-in-class

operational efficiency

OUR STRATEGY

Investor Day 2010

OPERATIONAL EFFICIENCY

We have improved efficiencies and reduced costs by more than $225 million during the downturn, resulting in a record low level of opex/sales

Y/Y

% C

hang

e Opex*/Sales

*Represents GAAP measure adjusted to exclude the impact of restructuring and other items affecting comparability.

-30%

-20%

-10%

0%

10%

20%

30%

Q1-

07

Q2-

07

Q3-

07

Q4-

07

Q1-

08

Q2-

08

Q3-

08

Q4-

08

Q1-

09

Q2-

09

Q3-

09

Q4-

09

Q1-

10

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

Operating Expense* Sales Opex*/Sales

Investor Day 2010

FIRST QUARTER RESULTS


Q1 sales and EPS well ahead of expectations

Achieved record level of sales for any Q1

Operating income and ROIC almost doubled Y/Y

ROIC of 12.1% Results demonstrate significant operating leverage

Operating income growth substantially outpaced sales growth

Impressive financial strength allows us to continue to invest in the business

Value-added services

Vertical markets

Geographic expansion

$3,498

$4,028

$3,417

$4,235

Q1-07 Q1-08 Q1-09 Q1-10

Total Sales ($ Bn)

GLOBAL COMPONENTS

Peter Kong President, Global

Components

Investor Day 2010

Americas

EMEASA

Asia/Pacific

2009 Revenue $9.8Bn

Presence in 46 countries and territories across North America, Europe, and Asia-Pacific

Market share leader in North America, leading player in Europe and Asia

Over 110,000 customers across all end markets and geographies

A large portion of our customer base uses one or more value-added service

Ship over 36,000 line items per day and manage over 1 million part numbers

Our components business provides value-added services for OEMs and EMS companies

ARROW GLOBAL COMPONENTS

35%

29%

36%

Investor Day 2010

*Primarily MCU/MPU and non-DRAM memory.

Computing/Memory* 12%

Discrete/Logic 21%

Passives 9%

Electromechanical 4%

Microcomponents* 12%

ASIC/Application Specific/Opto 13%

Connectors 6%

Analog 24%

UNMATCHED LINE CARD TOUCHING ALL TECHNOLOGIES

We have a broad technology portfolio with more than 800 suppliers

Semi = 70%

PEMCO = 18%

Computing/ memory = 12%

Investor Day 2010

Most Efficient Provider

Effective go-to-market model

Differentiated Value Proposition

Lead with solutions

Maximize global presence

Large customer intimacy Vertical focus for mid sizeSmall enterprise Arrow Advantage

Demand creation

Excess managementValue-add

Design supportSolution orientationValue-added

Business simplification

Operational excellence

Global relationships

WW footprintBroad line card

GLOBAL COMPONENTS STRATEGY

Investor Day 2010

AsiaDiverse business modelsRapid pace of changeFastest growing market worldwide

EuropePan-European brandCountry-based purchasingValue-added service is rewarded

AmericasDesign work for high-growth marketsValue-added service is rewardedSupply chain solutions

VALUE IS REALIZED DIFFERENTLY ACROSS THE WORLD

Investor Day 2010

Relationships

Sales Excellence

Value-Added Services

Superior Execution

Strong Financial Position

Partner of Choice

OUR FOCUS IS UNCHANGING

We have never been as strong competitively

Investor Day 2010

Design Services Broad Line Card Supply Chain Services

COMMUNICATION • CONSUMER • COMPUTING • LIGHTING • AEROSPACE & DEFENCE • MEDICAL • ALTERNATE ENERGY

18%

77%

5%

Large Customers – Global EMS and OEM’s, Local Mega’s

Core – Medium Customer Focus

Small/Emerging – ArrowAdvantage

Regionally managed customersOptimize market segmentation, new customer growthInvest in under-penetrated geographies, emerging technologies and growth segments

Single point of contact at global level for global customersEnhance customers’ engagement and satisfaction from design to production Offer broad line card, supply chain solutions

Dedicated team, supported via all countriesGrow potential emerging customers to core (medium) On-line internet search capability

GLOBAL COMPONENTS GO-TO-MARKET MODEL

Investor Day 2010


Americas EMEA Asia Pacific

Lighting Lighting Lighting

Medical Emerging Markets Consumer

Aerospace & Defense Aerospace & Defense Industrial

Alternative Energy Transportation Communication

Expanding into attractive markets aligned with our strategy

Investor Day 2010

Current business $175MMExpected to double in 2010

WW high-brightness LED market is growing $2Bn per year32% CAGR 2009-2013$3 of related products for every $1 LED sold

Technology has advanced New and emerging applicationsLED reliability and lifetime advantagesLumens/watt surpass traditional light sources

Regulatory and green impactCalifornia Title 24, Energy StarNo mercury/lead, incandescent bans

Economics are starting to make senseMaintenance avoidanceImproved lumens/$ = lower initial fixture costEnergy savings

Concentration on high-growth markets – lighting


http://www.fleetsafety.com/catalog/FreedomBright.jpg

Investor Day 2010

Gaining traction due to government standards and tax benefits as well as rising costs in traditional energy

European standards and carbon tradingU.S. stimulus funding and tax breaks are sustaining pricing parityTightening state standards in NJ, CA, and CO

30 million homes will have meters by end 2011Emerging market for Home Area Network (HAN) devicesHigher acceptance of renewable energy demand

It’s where the money is going VC and private equity invested $3.5Bn in 2009 DOE invested $3.4Bn into Smart Grid projects in 2009

It’s where the jobs are going“Clean Energy” job growth outpacing other industriesSolar, wind and Smart Grid at the top of list


Concentration on high-growth markets – alternative energy

Investor Day 2010

Optimize Sales MixHigh-growth marketsDemand creation

Increase MarginsEngagement with suppliers and customers Value-added services

Operational EfficiencyPan European modelShared service centers

Profitable Market Share

Growth



GLOBAL COMPONENTS 2010 PRIORITIES

GLOBAL ECS

Andy Bryant President, Enterprise Computing Solutions

Investor Day 2010

2009 sales of $4.9 billion (33% of Arrow’s total sales)

Presence in 26 countries across North America and Europe

Over 2,200 employees

Positioned to provide end-to-end data center solutions

Loyal and successful partner base

SNAPSHOT OF ARROW ECS

Global, pure play value-added distributor

Specialized Channel Management services focused on the next wave of IT growth

North America

EMEA

2009 Revenue $4.9Bn

28%

72%

Investor Day 2010

Most Efficient Provider

Enterprise and mid-market leader

Focus on high growth sectors

Lead with solutions

Maximize global presence

ERP (North America)Web-based tools

Focus on core businessMid-market initiative

SecurityStorage management

NetworkingServices

Professional servicesSolution orientation

Pan-regional operating modelsEmerging markets

ECS STRATEGY

Investor Day 2010

Other 2%Services

16%

Software 33% Storage 22%

ISS 7%

Proprietary Servers 20%

Product Growth Rates (2009 to 2013):

Mid Range: 5%Volume: 2%Storage: 2%

Services: 3%Software: 5%Networking: 4%

Geography Growth Rates: North America: 4% Europe: 3%

Supplier Consolidation among suppliers will continue

2009 ECS Product Mix* High Growth SectorsY/Y Growth Q1 2010

ECS CORE MARKETS

Source: IDC; *Based on billings.

Investor Day 2010

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2006 2009

26% CAGR 2006-2009

DISCIPLINED APPROACH TO PROFITABLE GROWTH

ECS Worldwide RevenueIndustry- leading

working capital metrics

Investor Day 2010

OUR VISION

A specialist in infrastructure solutions of leading edge technologies, delivering best of class channel management services

From Supplier to VAR to End-User, our value proposition stems from managing the value chain

for our partners

Broad Line Distribution

Logistic & financial supportMarket: retail & small businessVolume products (PC’s)

Value-Added Distribution

Expertise in sales, pre-sales, marketing and post-sales supportMarket: enterprise accountsEnterprise products

Channel Management

Channel developmentMarket development & professional servicesMarket: enterprise & mid-marketInfrastructure solutions

Investor Day 2010

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,80019

99

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

E

2011

E

2012

E

-10%

-5%

0%

5%

10%

15%

TOTAL IT SPEND WORLDWIDE

Growth in IT spending returns

Source: IDC.

IT S

pend

($B

n)Y

/Y %

Change

Investor Day 2010

Convergence and Cloud Drive Demand for New Infrastructure

IT ENTERPRISE LANDSCAPE

Data Data CenterCenter

Public CloudPublic Cloud

Server

Unified Communication

Virtualization

Network

Storage

Security

Private CloudPrivate Cloud

Investor Day 2010

Specialists in enterprise infrastructure solutions of leading edge technologies

ARROW ECS GO-TO-MARKET MODEL

Pure-play enterprise value-added distributor

Arrow ECS

Virtualization & Infrastructure Software

Professional Services

Shared Services

Investor Day 2010

Growth Superior growth rates in storage, networking, virtualization, and security

Growing 2x faster than marketAbove market growth in servers


Optimize the leverage points in the operating model

Arrow ECS



Shared Services

Investor Day 2010

Return on Working Capital

Software drives higher returns on capitalEnables a solution sale



Arrow ECS



Shared Services

Investor Day 2010

Margin Enhancement

Increased mix of services drives higher gross margins



Arrow ECS



Shared Services

Investor Day 2010

Productivity Increase operational excellence to drive higher levels of productivityMaximize operating leverage



Arrow ECS



Shared Services

Investor Day 2010

Optimize Sales MixExpand our line card around leading technologiesDriver higher levels of services revenueInvest in high growth market segments

Increase MarginsEngagement with suppliers and customersSolution selling

Operational EfficiencyLeverage ERP platformService centersEuropean integration

Profitable Market Share

Growth



GLOBAL ECS 2010 PRIORITIES

STRATEGY Q&A

COFFEE BREAK

Investor Day 2010

AGENDASESSION I

SESSION II

8:30 – 10:00 Welcome Mike Taunton

Strategic Overview Mike Long

Global Components Peter Kong

Global ECS Andy Bryant

Strategy Q&A All

10:00 – 10:15 Coffee Break

10:15 – 11:00 Financial Overview Paul Reilly

Finance Q&A All

Closing Remarks Mike Long

FINANCIAL OVERVIEW

Paul Reilly EVP, Finance &

Operations and CFO

Investor Day 2010

DELIVERING FROM A FOUNDATION OF STRENGTHRevenue ($Bn)

$7.3

$14.7

2002 2009

11% CAGR

15.0%

9.3%

2002 2009

Operating Expense*/Sales


$253

$445

2002 2009

$0.15

$1.68

2002 2009

EBITDA* ($MM)

8% CAGR

(570) bps

Diluted EPS*

41% CAGR

Investor Day 2010

DELIVERING FROM A FOUNDATION OF STRENGTHAvailable Liquidity ($MM, inc. cash)

$1,444

$2,537

2002 2009

$2,093

$1,399

2002 2009

Total Debt ($MM)

53%

8%

2002 2009

5.5x

0.6x

2002 2009

Net Debt to Capital Net Debt to EBITDA*


Investor Day 2010

FIRST QUARTER RESULTS


Operating income growth substantially outpaced sales growth

Almost doubled Y/YSignificant operating leverage

Operating income grew 3x and 11x faster than sales Y/Y and Q/Q, respectivelyFocused management of working capital

Return on working capital reached record Q1 levelEfficiently manage all levers of working capital

Balance sheet and capital structure remain strongConservative debt levels and maturity profileNet debt to capital near record low levelNet debt to EBITDA less than 1x

Committed liquidity facilities provide flexibility to take advantage of opportunities that may arise

Investor Day 2010

2002 2009

$7B $15B

EVOLUTION OF OUR BUSINESS

Capitalizing on the opportunities of the markets served

Americas

23%

Europe

20%

Asia

23%

ECS

Americas

24%

ECS

Europe

10%

Global Components

Global ECS

Europe 33%

Asia 9%ECS

Americas 28%

Americas 30%

Investor Day 2010

WE HAVE FUNDAMENTALLY CHANGED THE WAY OUR COMPANY IS RUN

2002 2009 Variance

Net Sales $7.3Bn $14.7Bn 102%

Opex/Sales 15.0% 9.3% (570) bps

Operating Income* $173MM $378MM 118%

EPS* $0.15 $1.68 1,020%

WC/Sales $.22 $.12 (46%)

ROWC 9.4% 20.2% 1,080 bps

ROIC** 3.5% 7.6% 410 bps

Net Debt $1.4Bn $262MM (81%)

*Represents GAAP measure adjusted to exclude the impact of restructuring and other items affecting comparability. **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).

Investor Day 2010

OPERATING AT GREATER LEVELS OF EFFICIENCY

We should see more operating leverage coming out of this downturn…

*Represents GAAP measure adjusted to exclude the impact of restructuring and other items affecting comparability, **Based on First Call consensus.

($ Millions) 2002 2003 Variance 2009 2010** Variance

Sales $7,270 $8,528 17% $14,684 $17,869 22%

Gross profit $1,260 $1,421 13% $1,751 $2,223 27%

GP % 17.0% 16.7% -30 bps 11.9% 12.4% +50 bps

Operating expenses* $1,087 $1,179 8% $1,373 $1,570 14%

% of sales 15.0% 13.8% -120 bps 9.3% 8.8% -50 bps

Operating Income* $173 $242 40% $378 $653 73%OI % 2.4% 2.8% +40 bps 2.6% 3.7% +110 bps

EPS* $0.15 $0.74 393% $1.68 $3.23 92%

Investor Day 2010

ROIC > WACC

Generate positive cash flow throughout the cycle

Manage working capital at “best-in-class” levels

Absolute EPS

EPS growth

Differentiated operating income margin

CREATING SHAREHOLDER VALUE

Investor Day 2010

FINANCIAL UPDATE

*Excludes special charges; NAC pro forma includes A.E. Petsche, Euro/USD Fx Rate at 1.3800.

Global Components Actual 2007 Pro Forma 2007 VarianceAmericas % of sales 41% 37%EMEA % of sales 37% 32%Asia Pac % of sales 22% 31%Global ComponentsNet Sales $11,224 $13,017 16%Operating Margin* 5.4% 5.1% -30 bps

Global ECSNorth America % of sales 82% 72%Europe % of sales 18% 28%Global ECSNet Sales $4,761 $5,428 14%Operating Margin* 4.1% 4.1% Flat

Total ArrowNet Sales $15,985 $18,445 15%Operating Income $699 $775 11%Operating Margin* 4.4% 4.2% -20 bps

EPS – Diluted* $3.29 $3.83 16%

ROWC +190 bps

WC/sales -150 bps

Investor Day 2010

OUR FINANCIAL GOALS

Previous Long-Term Targets

Operating Income*

Global Components 5.7% - 7.0%

Global ECS 4.6% - 5.3%

Consolidated 4.5% - 5.8%

ROIC** 12.5% - 15.0%

*Excludes special charges **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)

Updated Long-Term Targets

Operating Income*

Global Components 5.3% - 6.6%

Global ECS 4.3% - 5.0%

Consolidated 4.1% - 5.4%

ROIC** 12.5% - 15.0%

ALL DRIVEN BY

MIX

Investor Day 2010

ERP PROGRESS AND FOCUS TO DATE

Project cost $350MM

ROI 20% +

Annual benefits $75MM

Completion date 2011

Estimated Global ERP Expense & Benefits Update

GFS delivered on time and on budgetECS North America delivered on time and on budgetSuccessful pilot implementation in Australia/New Zealand (global components)On track to transition Northern Europe (components) in Q3 2010

Investor Day 2010

ERP PROGRESS AND FOCUS TO DATE

Project cost $350MM

ROI 20% +

Annual benefits $75MM


Estimated Global ERP Expense & Benefits Update

GFS delivered on time and on budgetECS North America delivered on time and on budgetSuccessful pilot implementation in Australia/New Zealand (global components)On track to transition Northern Europe (components) in Q3 2010

Completion of Global Components transition moved out to 2012Risk adverse approach to implementationsChange management/preparationBusiness has changed since ERP began

Project cost ~ $425MM

ROI ~ 20%

Annual benefits $75MM +


Investor Day 2010

$12.39

$11.05 $10.82

$7.52

$6.45 $6.38

$1.63$0.79

$0.21

ARW

*Cumulative EPS for the last five years beginning July 1, 2005; Source: company financial statements; Represents GAAP basis (excluding goodwill impairments) through 1Q10; Companies included: AVT, IM, SNX, TECD, BHE, CLS, FLEX, JBL.

Earnings Per Share*

We have generated industry leading EPS in the last five years

CONSISTENT GENERATOR OF EARNINGS

Investor Day 2010

We are well positioned to perform well throughout the economic driven or secular cycle

Diversified revenue stream

Opportunities for organic growth

More flexible cost structure

Very strong balance sheet with significant liquidity

Consistent cash flow generator

We are continually looking for ways to operate our business more efficiently

We are committed to achieving our financial targets and in turn to increasing shareholder value

Our financial discipline and strategic vision will serve us well

IN SUMMARY…

FINANCE Q&A

CLOSING REMARKS

Mike Long Chairman, President,

and CEO

Investor Day 2010

Needs

ArrowValued

Metrics

Relationships

CapabilityOfferingsSup

plie

rs

Custom

ers

Understand the needs

Align Arrow’s capabilities to the need

Create a valued offering

Metrics and measurements to determine success

Get the full value for the services that we provide

DELIVERING THE VALUE

Maximize Arrow’s value for customers and suppliers

Investor Day 2010

KEY TAKE-AWAYS

Exited the downturn as an industry leader

Executing on strategic vision for profitable market share growth

Accelerate sales growth

Expand our value proposition

Outgrow the market

Impressive financial strength and flexible capital structure

Significant operating leverage in the model

Strong EPS growth

Generate premium returns for shareholders

INVESTOR DAY 2010


Investor Day 2010

Business

Transcript of Investor Day 2010