INVESTOR DAY 2008 Delivering today while building for the future
Sabrina WeaverDirector,
Investor Relations
WELCOME
8:00 – 10:00 Welcome Sabrina WeaverStrategic Overview Bill MitchellArrow’s Transformation Mike LongGlobal ECS Rich SeveraSupplier Insights Sean Kerins, HPQ/NTAP/VMW
10:00 – 10:15 Coffee Break
10:15 – Noon Global Components Kurt ColehowerSupplier Insights Brian McNally, FSL/NSM Financial Review Paul ReillyFinal Q&A AllClosing Remarks Bill Mitchell
Noon Lunch
AGENDA
SESSION I
SESSION II
Some of the comments to be made during this morning’s session may include forward- looking statements, including statements addressing future financial results, that 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 ongoing planned implementation of its new global financial system and new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the electronic components and computer products 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. You can identify these forward-looking statements 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
Bill MitchellChairman & CEO
Arrow’s Transformation – 3 Key ElementsDiversification of ECS product portfolio and geographic profile
Drive to achieve economies of scale, geographic expansion (Europe, Asia), new capabilities (software, midmarket) – CHANGE THE GAMEAll aimed at VALUE ADD portion of market
Global ComponentsThe largest components business – $11BnStrong opportunities for growth – customer (SMB), geography (Asia Pac), markets (lighting, military, industrial, medical, transportation), products (PEMCO, analog)
Global Systems ImplementationTimelineBenefits
Financial Strategy Geographic and product line mix impact on our financial targets
KEY AREAS OF FOCUS FOR TODAY
Our vision and strategy for the future
WE POWER THE SUPPLY CHAIN
OUR PRODUCTSUnmatched Line Card> 600 Suppliers
OUR REACHWorldwide Presence50 Countries & Territories
Components - $11Bn* ECS - $5Bn*50 countries and territories
across North America, Europe, and Asia-Pacific
Complex supply chain solutions, demand creation, design/engineering support,
materials mgmt, vertical market expertise, financing
Analog, Discrete, Programmables, Logic, Memory, and PEMCO
SMB focus in broad end markets via OEM’s and
CM’s: Key focus in industrial, automotive,
medical, aerospace
28** countries and territories across North America
and Europe
Complex configuration, vertical market expertise, technical augmentation, solutions labs, net new
demand creation
Mission critical solutions: Enterprise servers, storage,
software, and services
Value Added Resellers (VARs) with SMB focus
serving multiple end markets
Arrow is in the center of a $420Bn market. We touch all geographies, all technologies, and all end markets. We connect key players in unique, value enhancing and sustainable ways
OUR SERVICESArrow = Value Added Services
OUR PRODUCTSUnmatched Line CardApproximately 700
OUR CUSTOMERSDiverse Customer Base140,000 Customers
*2007 sales **Pro forma to include LOGIX
SHARED LEADERSHIP
GROW THE BUSINESS
Pursue opportunities, both
organically and through acquisition, to grow faster than
the market
FINANCIAL STRENGTH
OPERATIONAL EXCELLENCE
Increase efficiency and productivity while ensuring
flawless execution for our business
partners
Consistently generate cash, earn ROIC>WACC and, grow profits faster
than sales
Build the Arrow team to drive forward our
future goals by attracting, training, and retaining the
industry’s top talent
We have the right strategy in place to outgrow the market and achieve industry-leading profitability
ARROW STRATEGY AT A GLANCE
“May you live in interesting times”
Unverified Chinese proverb (or curse)
The current economic backdrop is uncertainCollapse of Bear Stearns; total losses of banks now exceed $300BnDollar fell below ¥100 for first time; record low against EuroSpread between “junk” bonds and American Treasuries exceeded 800 points for the first time in 5 years
The outlook - ???
In response, we continue to manage our business cautiously and prudently, yet we will seize opportunities as they arise
CURRENT ECONOMIC BACKDROP
We have built in flexibility to adjust to changing market conditions
WELL POSITIONED IN CURRENT ENVIRONMENT
We have fundamentally changed the way our company is run
Tech Bust Today
EARNINGS FLOOR
BALANCE SHEET
WORKING CAPITAL
CASH FLOW
SUPPLY CHAIN
$.15
$3Bn in net debt and 65% net debt/cap
WC/Sales of 25%
Cash generation only in down cycles
Volatile patterns
$2-2.50 in an extreme downside scenario
Strongest balance sheet in 10 yrs, net debt/cap ~20%
WC/Sales of 15%
Cash flow positive throughout the cycle
Muted cyclicality
DIVERSE REVENUE STREAM
Segment Revenue ($Bn)
Global Enterprise Computing Solutions Global Components
ECS now represents almost a third of our revenues and further offsets semi cyclicality
2004 2007*
80%
20% 30%
70%
*Includes KeyLink and related procurement agreement revenues for a full year
Our footprint is geographically diverse with a truly global presence
2007 Revenue ($Bn)
$4.1
$4.7$2.4
22%
41%37%
2004 Revenue ($Bn)
$3.4
$3.9
$1.2
14%
46%40%
Asia/PacificEMEASANorth America
Almost 50% of sales are outside of NA
Asia/Pacific components from 14% to 22%
Accretive to OI and ROIC as we reach our targeted level of profitability
US and Europe continue to be vital for design, growth & profitability
2007 Revenue ($Bn)
$5.0$8.6
$2.4
2007 Revenue ($Bn)
$0.8
$3.9
2004 Revenue ($Bn)
$2.2
2004 Revenue ($Bn)
$3.4$6.1
$1.2
82%
18%
57%32%
11%
54%
15%
31%
GLOBAL COMPONENTS
GLOBAL ECS
TOTAL ARROW
DIVERSE REVENUE STREAM
Over the last 5 years*
We grew earnings 5x faster than sales; 85% CAGR
WC/sales decreased more than 40%
Generated more than $2Bn in cash flow
ROIC increased by more than 2.5x
We are not done with our journey
Consistent go-to-market strategies worldwide to enable growth at great than market rates
Leverage global scale to achieve best in class cost structure
ERP to enable large gains in productivity
ALL OF ABOVE = PREMIUM RETURNS
*2002 through 2007
CONTINUED OPERATIONAL IMPROVEMENT
We have executed well and there is more to come
10.9%
3.4%
2002 2007
$7.3$8.5
$10.6 $11.2
$13.6
$16.0
2002 2003 2004 2005 2006 2007
Net Sales ($Bn) ROIC**
17% CAGR 26%
CAGR
Cumulative Operating Cash Flow ($MM)
$0.15
$0.74
$1.97$2.18
$2.92$3.29
2002 2003 2004 2005 2006 2007
Diluted EPS*
85% CAGR
$668$960
$1,148$1,550 $1,671
$2,521
2002 2003 2004 2005 2006 2007
CONTINUED OPERATIONAL IMPROVEMENT
*Represents GAAP measure adjusted to exclude the impact of restructuring and other items affecting comparability. Includes estimated amortization of intangible assets **ROIC = Tax effected op. inc. and equity earnings of affiliates excluding restructuring and other charges – annualized minority interest/(Avg Debt + Avg Equity – Avg Cash over $150MM).
Pursue significant organic growth opportunities – still a growth business
Products: PEMCO, analog, storage, software, servicesVertical Markets: lighting, medical, transportation, industrial, defense & aerospaceGeographies: Asia Pacific, Europe
Customers: focus on the “M” in SMBStrategically accelerate growth through acquisitionsBuild best-in-class global capabilities and leverage efficiencies of scale worldwide – Lean Six Sigma makes a huge differenceGlobal systems implementation to enable strategic initiatives and change our value proposition
OUR PRIORITIES FOR THE FUTURE
Our path to achieving our strategic and financial goals is clear
IN SUMMARY…
The best is yet to come
We occupy a unique, value-added space in the supply chain with growth opportunities across every customer segment, end market, geography, and technology
Strategic initiatives are in place to capture profitable growth
We are leveraging global scale to drive agility, responsiveness, and efficiency
We will continue to manage the company prudently, while taking advantage of market opportunities
We occupy a unique, value-added space in the supply chain with growth opportunities across every customer segment, end market, geography, and technology
Strategic initiatives are in place to capture profitable growth
We are leveraging global scale to drive agility, responsiveness, and efficiency
We will continue to manage the company prudently, while taking advantage of market opportunities
ARROW’S TRANSFORMATION
Mike LongPresident & COO
Global ECS: Portfolio and Geographic Expansion
Global Components: Powerful Go-To-Market Strategy and Roadmap
Acquisition Strategy and Integration Case Study
Global ERP Update
ARROW’S TRANSFORMATION: OVERVIEW
Achieve category leadership with KeyLink
ARROW’S TRANSFORMATION: GLOBAL ECS
Value PlatformsVolume Storage Software Europe
Now a $5Bn Value-added Distributor With Significant Scale and Scope
Gates acquisition
Line extension into value space with IBM, HP
Sun line extension
Geographic expansion into Europe & line extension in Software with ATI
Formation of Software Group
(Billings)
1995 1998 2000 2002 2004 2006* 2007
Divestiture of Gates, line extensions in EMC & NetApp, formation of Storage Group
Scale
*Excludes Microtronica, pro forma includes full year of Alternative Technology, InTechnology, and KeyLink billings
Achieve scale in Europe with LOGIX
2008-2010
Leverage powerful software portfolio
Transform global platform with ERP
Drive midmarket initiative
KeyLink Systems Group
March 2007North America – Midrange,
Storage, & SoftwareDecember 2006UK – Storage & Security
Specialist Distribution
November 2006North America - Software
February 2006Canada - Storage
December 2005Europe - Midrange & Security
August 2007Europe - Software
June 2008Europe – Midrange, Storage, & Software
Our strategic acquisitions have strengthened our line card, expanded our geographic presence and increased opportunities in fast-growing segments
ARROW’S TRANSFORMATION: GLOBAL ECS
Large Global
$1.2 Bn*
Medium Sized$9.2 Bn*
Small/Emerging, $800 MM*
Fortune 200
*2007 Arrow sales
• Regionally manage medium-to-large regional customers• Optimize market segmentation• Invest in under-penetrated geographies, technologies and
end markets• Offer broad line card, design support, and supply chain
solutions
• Provide single point of contact at global level• Offer broad line card and supply chain solutions
• Support with global infrastructure to scale many accounts• Help small and emerging customers grow • Robust transfer system to transition high potential accounts• Offer broad line card
Global go-to-market strategy optimized by segment
ARROW’S TRANSFORMATION: GLOBAL COMPONENTS
Large Multi-National Customers – Global Alliance
Core – Medium Customer Focus
SMB/Emerging – Arrow Advantage
Value
Time
Stage 1
Stage 2
2007 2011
Stage 3Sustain One-Arrow-at-Scale through ERP systemExpand “value-added”capabilities
Complete ERP implementations Drive vertical market initiatives on a global basisScale operational performance pilots
Implement consistent go-to-market modelPursue vertical market initiatives Product and geographic growth initiativesLaunch operational performance improvement pilotsDesign ERP system requirements and begin implementations
ARROW’S TRANSFORMATION: GLOBAL COMPONENTS
Roadmap
January 2008India
October 2007Japan
June 2007Australia/NZ
December 2005Taiwan
February 2008Defense/Aerospace
2008 – Pending, Components
distribution business of Achieva Ltd.,
ASEAN and China
Regional and product specific acquisitions in components have expanded our reach in the Asia Pacific marketplace and in fast growing end markets like defense/aerospace
ARROW’S TRANSFORMATION: GLOBAL COMPONENTS
The integration model for ACI was a complete “fold-in” of the businessRetained sales and supplier marketing functionsLeveraged Arrow’s back-office infrastructure to reduce ACI SG&A by more than 50%
ARROW’S TRANSFORMATION: ACI INTEGRATION CASE STUDY
Our integration competencies have been built up over many years integrating over 70 companies around the world
Weeks of Jan 23-Feb 4
CompleteMarch 3
Complete due diligenceComplete systems conversion & W/H transition planInventory auditKey supplier consents
Deal announcedEmployee meetingsKey customer meetingsBegin systems testing
Systems trainingEmployee onboardingKey customer meetings
Final systems check
Warehouse move: 15,000 part number setupsSystems transition: 5,000 customer records transferred
Open for business with no transition issues
Week of Feb 11
Week of Feb 18
Week of Feb 25
Transition March 1/2
DISCIPLINED APPROACH TO ACQUISITIONS
We will continue to use acquisitions as a strategic accelerator
STRATEGIC Does it fit our strategy of expansion into new geographies, technologies or end markets, or bring us scale?
FINANCIAL Does it meet our financial requirements?-Accretive to earnings in the first year-Non-dilutive to ROIC (target of 12.5% by year 3)-Cash flow positive
OPERATIONAL Does it share our passion for operational excellence?
CULTURAL Is there a cultural fit?
We have ample dry powder to execute: solid balance sheet, strong cash flow, and $1.4Bn of committed liquidity facilities in place Competitive advantage
OUR DECISION FRAMEWORK
Arrow ERP is a catalyst for changeOperate locally, leverage globallyCommon optimized processes and best practices drive flexibility
Based on Oracle ERP softwareProgress update
Global Financial System implementation completed in May 2007Successful implementation of Sun business in North America on April 1st
Implementation to date on plan and on budget+ 2007: $70-80MM cash flow impact; $12MM in incr. op. expenses+ 2008: $90-100MM cash flow impact; $25MM in incr. op. expenses+ 2009: $65-75MM cash flow impact; $40-45MM in incr. op. expenses
Global ERP is a critical component of our strategy realization“Today, an average of only 22% of customer interactions, 19% of supplier interactions and 33% of employee interactions are conducted online and processed automatically.” Bob Suh, Accenture’s chief technology strategist
GLOBAL ERP: OVERVIEW
Phased deployment will minimize business disruption risk
20102009200820072006
GLOBAL FINANCE (GFS)
ECSProcess Modeling
& System Build
Implementation
COMPONENTS Process Modeling
& System Build
Implementation
Europe - Asia - North America
Successful implementation in NA Sun business on
April 1st
GLOBAL ERP: ROADMAP
North America - Europe
TodayMultiple finance, logistics, HR, purchasing teams in EuropeInconsistent nomenclature for part identificationQuoting varies by region, often with manual entryChallenges in design win through product lifecycleMultiple pools of inventory with limited visibilityMultiple customer databases with unbalanced workloadVast, untapped market information
Single European platform enabling shared service modelsStandardized parts globally – leverage purchasing volume with visibility to lowest cost globallyStreamlined process, reduced non-value added activities, increased quote win ratioEnhanced design win tracking ability
Single platform to see global inventory, efficiently manage asset base worldwideSingle database enabling productivity gains and decreased time to marketData analytics unseen in today’s marketplace
Significant impact on profitability and returns; strategy enabler
GLOBAL ERP: GAME-CHANGING BENEFITS TO BE REALIZED
*Benefits to be phased in over time, run-rate savings estimated to be achieved by 2011
With ERP
Total anticipated annual savings* = Over $75MMTotal anticipated annual cash flow benefit* = Over $100MM
Rich SeveraPresident, Arrow North
America ECS
GLOBAL ECS
2007 sales of $4.8 billion; 30% of Arrow’s total sales
Presence in 28 countries across North America and Europe*
Over 2,500 employees*
Unmatched line card with unique software capabilities
18,000+ value-added reseller partners* serving enterprise and midmarket customers – the fastest growing segment
SNAPSHOT OF ARROW ECS
F500
Small Business
Enterprise & Midmarket
$120 Billion OpportunityGlobal SMB IT spending increases will be roughly 2% higher
than overall IT spending increases on a worldwide basis**
Target Customer Segment In Enterprise & Midmarket
*Pro forma to include LOGIX **Source: IDC
Global value-added distributor with scale and scope
High Speed Fulfillment to Small, Med,
Large Customers
1-Tier
Micro-Small Customers,Fulfillment for Large
Enterprise
VARs,Direct
Marketers
ARROW2-Tier
“Value”
ARROW2-Tier
“Value”
Internet Pass
Through Companies
2-Tier Broad-line “Volume”
Direct Marketers
All ProductsMission critical
servers, storage, software, services
Commodity PCs, low end servers,
printers
Large Enterprise Customers
VENDORS
Midmarket and
Enterprise Customers
World-class technical and engineering resources
Complex solution-selling capabilities
Solutions product portfolio
Co-investment with suppliers
Access to capital
THE IT DISTRIBUTION LANDSCAPE
ECS leads with a differentiated approach to value distribution
THE OPPORTUNITY
VAR enablement and trainingMarketing and demand generationDedicated resourcesOpportunity managementTechnical consultingIntegration services
Technology LeadershipManufacturing
Market Reach
Channel Enablement
Logistical Support
Product MarketingBrand Management
Product Portfolio Management
Training & EducationEngineering Resources
Solutions InfrastructureProduct Roadmap
Quote & ConfigurationFinancing Solutions
Integration CapabilityOrder Tracking
Solutions SalesMarket penetration
Life Cycle MgmtOpportunity MgmtSu
pplie
r
ECS
Channel Joint Value Proposition
Demand Generation
We support our VAR partners’ go-to-market strategies and help them navigate increasingly complex end-user demands
VALUE CREATION: ARROW’S DIFFERENTIATED MODEL
Collaborative Selling
ARW facilitates introduction of partner to end-user through demand generation campaign in 2004Partner secures foothold for storage solution supported by ARW technical configurationsPartner expands discovery of server requirements supported by ARW
100’s of configurations and re-designs over 2 year periodPartner/ARW jointly pitch and win datacenter redesign project
Virtualization solution on HP SuperdomesARW works with supplier to accelerate procurement to 10 days
Normal lead time is 5 weeksPost implementation, end-user seeks to expand relationship
"Partnership is about understanding and listening to your customer's needs. It's about bringing true value and executing on that value. [Partner] gets it, they get us.” – End-User
Arrow and a premier North American-based solutions provider working together on a $20MM communications opportunity
Strong SMB market
GlobalizationVirtualizationCompliance/ security
Increasing supply chain complexity
IDC estimates 5%-7% SMB market growth through 2010Customers and
vendors demanding more global solutionsIDC estimates
only 5% of servers are virtualized Continued
demand for storage and security products and solutions
VARs/end users need assistance navigating complexities
MARKET DRIVERS
Favorable market dynamics for continued growth
SMB Hard Target*SMB IT spend expected to grow faster than worldwide corporate IT spending in medium termECS is focused on enterprise and midmarket components of SMBOur current geographic footprint covers high opportunity SMB geographies
GEOGRAPHIC COVERAGE
Source: IDC *SMB includes firms <1,000 employees
5%11%
14%28% 48%34%
39%13%
ECS geographic footprintSMB % Total CompaniesSMB % of IT Spend
North America
Latin America
EMEAAPAC
2%6%
Japan
Expanding into attractive markets aligned with our strategy
3737
MIDMARKET INITIATIVE
Fortune 500
Large Enterprise
Medium Business
Small Business
End-Users
Solutions
Vertical Targets
Infrastructure
Demand Generation
Enablement (Core value-add)
Marketing, Technical Support, Back-office, Financing, Education, Vendor Linkage
40 new end-to-end solutions60 net new VARs recruited YTD
50,000 companies targeted Focus driven by IT dependencies
Dedicated resourcesCRMData warehousing
Financial ServicesHealthcareManufacturing & Distribution
Accelerating success in the midmarket
Network
Desktop
Server
Storage
Impa
ct o
f Virt
ualiz
atio
n
Software Hardware
ECS Product Coverage
“… virtualization begins a process that will extend this technology phenomenon far beyond its current general role as a tool for server consolidation.” - IDC
Enables multiple “virtual”servers to run on a shared machineTypical selling opportunities are linked to centralized data center installationsVirtualization drives incremental opportunities across the ECS portfolio (software, new storage, thin client)
VIRTUALIZATION
Next chapter in server consolidation with implications for broader portfolio
2005 2006 2007
VIRTUALIZATION
Incremental Sales From Virtualization
$400MM+ Software
Security/ Network
VMware, Citrix, Datacore, Vizioncore, Platespin
Nokia, Scriptlogic, ChipPC, Thinstall, Blue Coat, Checkpoint, Riverbed
Storage Netapp, HP, IBM, EMC, Sun, Hitachi, Brocade
Servers HP, IBM, Sun
Rapid growth in VMware and Citrix
Additional “drag-along” sales in software, storage, and servers
“Drag-Along” Upsides
Opportunities across the portfolio
Servers
Services
Storage
SoftwareHigh growth product segment with combined worldwide Y/Y growth of 23% in 2007*
Solu
tions
Sta
ck
BALANCED PORTFOLIO: STORAGE
*Pro forma for Alternative Technology, InTechnology, and KeyLink (excluding the related procurement agreement sales)
Investments in storage are yielding benefits in rapid revenue growth
BALANCED PORTFOLIO: SOFTWARE AND SERVICES
Follow the wire to your solution
Authentication
Access/Infrastructure
Security
Thin Client
Virtualization
73 Pre-sales engineers
38 Consulting & technical engineers
7 Solutions Centers
Over 400 certifications
Solutions and Services 100% Dedicated To and Thru our Partners
Data CenterLAN
InfrastructureEdge
Wireless or Wired
BranchOfficeSOHO
MobileUser
DisasterRecovery
Site
WANWANInternetInternet
Technical Capabilities Solutions
Arrow’s software group is now a $1 billion business
49%
12%
26%
13%
Volume 0-$2,999
$3,000-$5,999
$6,000-$9,999
$10,000-$24,999
Mid-Range $25,000-$49,999
$50,000-$99,999
$100,000-$249,999
$250,000-$499,999
High-End $500,000-$999,999
$1.00m-$2.99m
$3.00m+
Uni
x
Win
dow
s
Linu
x
i5/O
S
z/O
S
Net
war
e
Oth
er
Category ASV
Volume
High-End Volume
Mid-Range
High-End
Percent of Server Spend**ECS target product market is Mid-Range with some presence in High-End and High-Volume
$10,000-$24,999
$25,000-$499,999 <$9,999
>$500,000
Server Price Bands*
ECS Server Focus
ECS SERVER TARGET MARKET
ECS server focus remains in mid-range servers
*Source: IDC **2007 worldwide IT server spend via indirect channel
Industry Standard Servers
Mid Range
Super Computing & Mainframe
Value channel will continue to be the best route to market for this product setVirtualization and open architecture create incremental opportunities in ECS installed base
2007 2008 2009 2010 2011 2012
Unix i5/OS Windows Linux z/OS NetWare Other High-End Volume High-End
Mid-Range Server Spend Via Indirect Channel**CAGR (5yr)
2.6%
1.7%
IT Spend (2012)
$1.6Bn
$5.2Bn
Servers continue to be a portfolio play for ECS and we expect to continue to outgrow the market
Mid Range Unix
Mid-Range Other
High Volume
High End*
2.8% $3.4Bn
-4.7% $1.0Bn$10.4Bn
$11.2Bn $11.1Bn $11.1Bn $11.1Bn $11.2Bn
ECS SERVER TARGET MARKET
*High-end servers include only products between $500,000 to $999,999 in ASV **Source: IDC
Mid-range servers and UNIX provide a solid base for our solutions
PORTFOLIO TRANSFORMATION
21%
31%
12%
33%
% of 2007 Net Sales
$1.8Bn
$5.1Bn
Proprietary Servers
Industry Standard
Storage
SoftwareEvolving to a diversified portfolioInvestments in software are key to solutionsSteady gains in storageRapid growth in industry standard servers
Product Mix Comparison (Net Sales)
*
*Includes KeyLink and related procurement agreement revenues for a full year
1.01.7
0.5
1.6
1.1
0.6
0.1
0.2
2004 2007Proprietary Servers Industry StandardServices StorageSoftw are Other
We have evolved the product portfolio to provide a total set of solutions
IN SUMMARY…
Balanced portfolio with a strategic line card – outstanding growth opportunities in a highly differentiated model
Servers are a foundational component of our model
European expansion offers new growth opportunities, especially in Eastern Europe
Storage and Software growth will accelerate
“Follow the wire” brings more value-adds in security, additional infrastructure, and virtualization
Servers are a foundational component of our model
European expansion offers new growth opportunities, especially in Eastern Europe
Storage and Software growth will accelerate
“Follow the wire” brings more value-adds in security, additional infrastructure, and virtualization
SUPPLIER INSIGHTS
ModeratorSean Kerins
VP Storage Group, ECS
Guest PanelistsHewlett Packard
Frank RauchVP, Solution Partners Organization
NetAppPaul Mayes
WW Distr. Sales Director, Channel Sales
VMwareSteve Houck
VP WW Channel Sales
COFFEE BREAK
Kurt ColehowerPresident, Arrow North American Components
GLOBAL COMPONENTS
2007 Revenue $11.2Bn
$4.1
$4.7$2.4
22%
41%37%
Presence in 50 countries and territories across North America, Europe, and Asia-Pacific
Market share leader in North America and Europe, top player in Asia
Over 120,000 customers across all end markets and geographies; no one customer > 2% of sales
Product split: 68% semi, 23% PEMCO, 9% computing/memory
60-75% of our customer base uses one or more value-added services
Ship over 36,000 line items per day and manage over 1 million part numbers
Our Global Components business provides value-added services for OEMs and EMS companies
North America
EMEASA
Asia/Pacific
ARROW GLOBAL COMPONENTS
Computing/Memory* 9%
Discrete/Logic 20%
Passives 10%
Electromechanical 5%
Microcomponents* 13%
ASIC/Application Specific/Opto 11%
Connectors 8%
Analog 24%
We have a broad technology portfolio with more than 600 suppliers
*Primarily MCU/MPU and non-DRAM memory
UNMATCHED LINE CARD TOUCHING ALL TECHNOLOGIES
$0
$50
$100
$150
$200
$250
$300
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
($ in
Bill
ions
)Growth has slowed, but is still positive
GLOBAL COMPONENTS TOTAL AVAILABLE MARKET
Source: Worldwide semiconductor sales from the Semiconductor Industry Association
Semi forecasts for 2008 vary widely from 3% to 12%
2004-07 CAGR = 7% or 2x GDP
Favorable market dynamics for continued growth
Decreasing time-to- market
Increasing electronic content
Strong small and medium market
Customers/ suppliers need help in navigating the current business environment
Customers/ suppliers need flexibility and supply chain efficiencies to meet demands for reduced time-to-market
Strong demand from increasing electronic content and conversion from mechanical to electronic
Small and medium-sized customers expected to outgrow market
Increasing supply chain complexity
MARKET DRIVERS
Product growth opportunities: Analog
GLOBAL STRATEGY
$2Bn global business with strong focus on demand creationOpportunity
Global analog market 2007-12 revenue CAGR of 6-11%*Strong, consistent demand from broad base of end marketsConversion from mechanical to electronic Increasing electronic contentPenetrate new customersAnalog products align well with vertical market initiatives
*Source: Gartner and Databeans
Product growth opportunities: Passives, electromechanical, and connector products (PEMCO)
GLOBAL STRATEGY
$2Bn global business with #1 market positionTop 2 player in every major PEMCO technology5-yr sales CAGR of 16% organically
Capacitors 16%
Resistors 6%
Frequency Control 2%
Magnetics 2%
Circuit Protection 5%
Relays 6%
Thermal Mgmt 5%
Switches 7%
Power Products 6%
Comm Connectors 34%
Mil/Ind Connectors 10%
2007 PEMCO DTAM*
Passive ConnectorElectromechanical
OpportunityMarket share less than in semisRationalizing distribution partnerships is a positivePenetrate new customers Expand franchises into AsiaLeverage under-penetrated technologies
*Source: Independent sources, public supplier and competitive data
Industrial
Defense/Aerospace
Lighting
Medical
Transportation
Vertical market opportunities
GLOBAL STRATEGY
Markets that are growing in our two largest regions: NA and EuropeUnder penetrated todayClassic low volume – high mix markets that require specializationFit well with Arrow’s capabilities
$4Bn market in North America and EMEASA*Applications: factory automation, conveyor, package machinery, food processing equipment, industrial control, etc.
Customer needs weighted towards higher margin PEMCO productsSupply chain is highly fragmented with limited offerings
*Source: Gartner
Arrow IndustrialArrow Electronics North American Components
Vertical market opportunities: Industrial
GLOBAL STRATEGY
Why is this a good opportunity for Arrow?
Arrow Industrial provides differentiated engineering support for small to mid-tier OEM’s and emerging industrial equipment manufacturers
Vertical market opportunities: Aerospace and Defense
Arrow Military/AerospaceArrow Electronics North American Components
GLOBAL STRATEGY
Why is this a good opportunity for Arrow?Continued growth in defense and aerospace marketStrong growth in homeland security programs
Satellite, communications, anti-terrorist applicationsSophisticated electronic solutions and complex designStringent quality and performance requirementsObsolescence management
Vertical market opportunities: Aerospace and Defense
Arrow is the only broadline provider of components and value-added services focused exclusively on serving the needs of the A&D customer base
GLOBAL STRATEGY
Arrow Military/Aerospace$850MM business with unique military expertise
#1 position globally
Leading market share in many technology segments including discretes
Demand creation expertise: 1,200+ design wins in 2007 and growing
ACI acquisitionRevenue CAGR of 20% in last 5 yearsBrought scale, strong supplier and customer relationships, and top talent
LED market expected to nearly triple in a six year span, from $4.2 billion in 2006 to $12.3 billion by 2012*
Fragmented global marketplace
Under-penetrated by distribution
No dominant supplier
High electronic content and design complexity
*Source: iSuppli
Vertical market opportunities: Lighting
GLOBAL STRATEGY
Why is this a good opportunity for Arrow?
Vertical market opportunities: Lighting
http://lighting.arrow.com
GLOBAL STRATEGY
Arrow Global Lighting InitiativeProvide LED alternatives to incandescent, halogen and fluorescent lightingHelp customers navigate complexities of new lighting technology with wide range of solutionsOver 1,200 customers; 50% new to distributionExpanded line card to 12 suppliers2005-07 sales CAGR >50%
Extensive line card, unsurpassed supply chain management and design services, and experienced technical team to assist customers as they evolve and expand
Vertical market opportunities: Medical
$6B Global Market in 2007 with a 12% CAGR through 2012* Strong growth in digital imaging and storageIncreasing electronic contentLocal design and manufacturing necessaryInvestment activity by venture capital driving emerging customer base
0% 5% 10% 15% 20% 25% 30% 35%
X-RayElectrocardiogram
PacemakerTransport
Cholesterol MonitorHearing Aid
Other MedicalBlood Pressure Monitor
PET ScannerMRI Scanner
Digital ThermometerGlucose Meter
CT ScannerBone Density Scanner
Lab EquipmentInfusion Pump
Ultrasound CartsOther Imaging
External DefibrillatorOther Handheld
Ultrasound PortablesTelemetry
Other Implantable DevicesUltrasound Peripheral
Worldwide Medical Electronics Revenue CAGR Through 2012 by Application
*Source: Databeans Medical 2007 **Source: Technology Forecasters
GLOBAL STRATEGY
Why is this a good opportunity for Arrow?
Vertical market opportunities: Medical
Consumer / Portable
Imaging Diagnostic & Therapy
ImplantableArrow Medical InitiativeAct as subject matter experts to aid with stringent government regulations and certificationPlay a key role at the front end of the design cycleBalance quality and regulatory compliance with time to market needsIdentified over 8,000 medical device customers in NA aloneIncreasing demand for services and support from customers in this specialized market
GLOBAL STRATEGY
$28Bn global market* Under penetrated by distribution25% of vehicle cost is from electronic content, approaching 40% by 2010**Requires engineering support and complex solutions
*Source: Gartner **Source: SAE International
Vertical market opportunities: Transportation
Occupant ComportLighting
Driver Protection
Powertrain
InfotainmentNavigation
Body Electronics
ABS Breaking
GLOBAL STRATEGY
Why is this a good opportunity for Arrow?
Arrow Transportation GroupDedicated organization focusing on the needs and requirements of the global transportation marketTechnology experts driving true demand creation Quality experts (NAFTA, PPAP)Generating 250 design wins annuallyTargeting higher margin small and medium-sized customers
Vertical market opportunities: Transportation
GLOBAL STRATEGY
Automotive Heavy Truck
Construction
Marine IndustryBus & Coach
Agriculture
GLOBAL STRATEGY
Geographic opportunities: Asia Pacific
Asia Pacific accounts for nearly 50% of total electronics spend in the world*Driven by transfer business and indigenous consumption
Domestic consumption became the biggest driver of GDP for the 1st time in 7 yrs
Demand for value-added services is growing Market still fragmented, but continues to consolidate**
Top distributors are benefitting
*Source: Technology Forecasters **Source: Independent sources, public supplier and competitive data, regional intelligence; excl CPU/DRAM
MARKET SHARE: TOP 10 DISTRIBUTORS
MARKET SHARE: TOP 3 DISTRIBUTORS2002 2007
34% 48%
20072002
18% 25%
$658$820
$1,170
$1,466
$2,382$2,449
$0
$500
$1,000
$1,500
$2,000
$2,500
2002 2003 2004 2005 2006 2007
Sales ($MM)
GLOBAL STRATEGY
Transformation in Asia PacificEntry into Japan with UEC acquisition; Hynetic (India)
and Achieva (ASEAN Region and China) in 2008
UltraSource acquisition expands presence in Taiwan
Sales grew more than 3.7x in last 5 years
Organic 5 year CAGR of 18%
Expanded footprint to 52 sales offices in 12 countries/territoriesProfitability increased almost 9x in last 5 yearsContinue to move forward with customer segmentation and profitability initiatives
OI%Target
2007
2002
Arrow Asia Pac surpasses $1Bn in annual sales
Broad, diversified customer and supplier baseStrong global footprint/information platforms for migrating supply chains
Transfer business doubled in the last yearAward winning levels of customer serviceFinancial strength
Engineering focus500 global field application engineers
Demand creation ability and design win performanceProvide flexible solutions to complex supply chain challenges
Our business partners choose Arrow for many reasons
WHY ARROW?
Market Access & Dependability
Unmatched Solutions Strength
Arrow Global Components
IN SUMMARY…
We occupy a unique, value-added space in the supply chain with capabilities across all geographies, technologies and end markets
Market share leader in North America and Europe and top player in Asia
See continued growth opportunities across product lines, end markets, and geographies in a market that grows 2-3x GDP growth
Focused in the SMB sweet spot with diversified customer and end market exposure and robust engineering capabilities
Investing in the future growth of our business while continuing to operatemore efficiently and achieve our long-term financial target
We occupy a unique, value-added space in the supply chain with capabilities across all geographies, technologies and end markets
Market share leader in North America and Europe and top player in Asia
See continued growth opportunities across product lines, end markets, and geographies in a market that grows 2-3x GDP growth
Focused in the SMB sweet spot with diversified customer and end market exposure and robust engineering capabilities
Investing in the future growth of our business while continuing to operatemore efficiently and achieve our long-term financial target
SUPPLIER INSIGHTS
ModeratorBrian McNally
President, Global Alliance and Supply Chain
Guest SpeakersFreescale Semiconductor
Henri RichardSVP, Chief Sales & Marketing Officer
National SemiconductorMike Noonen
SVP, Worldwide Marketing & Sales
Mike Noonen Senior Vice President
Worldwide Marketing & Sales National Semiconductor
Arrow Investor Day
National Helped Create The Analog Semiconductor Industry
Today National is Reinventing Analog
Optimal Performance at the Lowest
Power
PowerWise® Solutions Reduce Heat & Energy Consumption
• Power-Saver equalizers
• Synchronous switching regulators
• High-voltage PWM controllers
• High-precision temperature sensors
PowerWise® Solutions Extend Battery Life
• Adaptive Voltage Scaling technology
• Adaptive RF Power • RGB LED backlighting
• Mobile Pixel Link• Integrated Class D audio subsystems
• Analog Noise Reduction Technology
PowerWise® Solutions Increase Reliability
• High-speed A/D converters
• Operational amplifiers
• Precision Timing devices
• Synchronous switching regulators
Distribution Is Crucial To National
Distribution54%
Direct46%
Top Reasons Arrow Is A Great Partner For National
1. Worldwide Synergy and Efficiencies
2. Engagement With All Customers
3. Market Segment Expertise
4. Together We Offer Complete Solutions
Arrow Has Worldwide Synergy and Efficiencies
• Organized to be global without compromising regional influence
• Disciplined approach to inventory and asset management
• Collaborative and effective information management
• Ability to track designs worldwide from concept to production
Arrow Actively & Efficiently Engages With All Customers
Worldwide Global Customers
1000s of Mid-size Customers
10,000s of Small and Emerging
Customers
Arrow Alliance
Arrow Electronic
Components
Arrow Advantage
Arrow Has Market Segment Expertise and Resources
Arrow makes it easy for our mutual
customers to get the right solution and assistance
Arrow Offers Our Mutual Customers Complete Solutions
Thank You
TM
Freescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
Freescale SemiconductorArrow Financial Analysts Meeting
5 June 2008
Henri RichardSenior Vice President, Chief Sales and Marketing Officer
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
Freescale’s Unique Strengths
• 50+ years of innovation
• Leadership in growing Markets
• Broad Product & Technology Portfolio
• Deep Customer Relationships
• Flexible Manufacturing Strategy
• Significant R&D Investment
• Talented, Global Workforce
• Strong Financial Position
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
• Increasingly complex application requirements• Increasingly complex customer models• Compressed time to market requirements• Application support, not device support, is
required• More complete solutions are demanded• The competition continues to increase,
improve and disrupt• Internet both provides and limits access to
design engineers
Market Realities: The Call for Teamwork
"Individuals play the game, but teams beat the odds.”– U.S. Navy SEALs
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
Teamwork and Intelligence: Arrow and Freescale
Together, we provide: • Financial strength, inventory and customer credit• Wide customer base and reach• Demand creation capabilities• AP market presence to capture and leverage
design activity• New technology solutions for target market
segments• Deep customer and market knowledge • Critical technology and technical expertise
TM
“Talent wins games, but teamwork and intelligence wins championships.”
–Michael Jordan
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
A Powerful Market Combination: Arrow and Freescale
NetworkingWirelessConsumerIndustrialAutomotive
• Safety• Environmental• Comfort/
Entertainment
• Connectivity• Medical/Health• Lighting,
Building Automation
• Low Power
• Portable devices• Health• Energy
Management• Home
entertainment• Gaming
• Cellular & Portable
• Media convergence
• Cellular evolution of broadband data
• Increase in # of Internet households
• Ubiquitous connectivity
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
Together, we will:• Heighten focus on fastest growing market segments• Seek opportunities to leverage portfolio across markets • Better leverage geographic presence to meet supply and demand• Continually improve supply chain efficiency, worldwide coordination • Maintain investment in skilled, talented teams• Provide unparalleled customer support• Exceed industry growth expectations
• Freescale: 2X by 3 in key growth segments
Transforming the Market: Arrow and Freescale
TM
TMFreescale Semiconductor Confidential and Proprietary Information. Freescale™ and the Freescale logo are trademarksof Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2008.
Paul ReillySenior Vice President and
CFO
FINANCIAL REVIEW
$7.3$8.5
$10.6 $11.2
$13.6
$16.0
2002 2003 2004 2005 2006 2007
Driven by both organic growth and acquisitions
Total Sales ($Bn)
17% CAGR
STRONG REVENUE GROWTH
>12% CAGR Ex
Acqs*
*Excluding baseline KeyLink, Alternative Technology, InTechnology, DNS, Ultra Source, Disway, and Pioneer
14.9%
9.9%
2002 2007Operating Exp*/Sales ($MM)
*Represents GAAP measure adjusted to exclude items affecting comparability
In the last five years we have reduced our cost structure by over 30% while sales have grown nearly 120%
OPERATING AT GREATER LEVELS OF EFFICIENCY
24.5%
15.2%
2002 2007
WC/Sales*
9.8%
27.8%
2002 2007
ROWC**
Improved operating efficiency and focused management of working capital has driven improvements in all metrics
*Inventory + AR - AP at end of period/ sales **ROWC = operating income excluding restructuring and other charges/(Avg Inv. + Avg AR +Avg AP) ***ROIC = Tax effected op. income and equity in earnings of affiliates excluding restructuring and other charges - minority interest/(Avg Debt + Avg Equity – Avg Cash over $150MM)
IMPROVED WORKING CAPITAL PERFORMANCE
3.4%
10.9%
2002 2007
ROIC***
Arrow Today
Increased opportunities in ECS
Now 1/3 of our revenue base
More flexible cost structure
$210MM in cost savings since ’03
Increased compensation variability
Earnings floor established
Diverse geographic footprint
Broad customer base in non-traditional end markets
140,000 customers, no one customer > than 2% sales
CF positive throughout the cycle
Book value of $30 per share
Increased opportunities in ECS
Now 1/3 of our revenue base
More flexible cost structure
$210MM in cost savings since ’03
Increased compensation variability
Earnings floor established
Diverse geographic footprint
Broad customer base in non-traditional end markets
140,000 customers, no one customer > than 2% sales
CF positive throughout the cycle
Book value of $30 per share
Structural Semi Industry Changes
More disciplined approach to inventory
Inventory days at lows throughout the supply chain
More rational capital spending and utilization rates
Increased use of foundries creates greater flexibility
Semi industry growing at a more stable rate
More disciplined approach to inventory
Inventory days at lows throughout the supply chain
More rational capital spending and utilization rates
Increased use of foundries creates greater flexibility
Semi industry growing at a more stable rate
We have reduced our earnings volatility
WELL POSITIONED TO PERFORM THROUGHOUT THE CYCLE
WELL POSITIONED TO PERFORM IN THE FACE OF A WEAKENED ECONOMY
*Source: First Call estimates
In millions except per share data 2008E*Downside Scenario Assumptions
Sales $16,400 $14,760 Sales decline of 10%
Operating Expense $ $1,675 $1,610 Variable expenses at 4% of sales% 10.2% 10.9%
Operating Profit $ $660 $492% 4.0% 3.3%
Interest Expense $100 $95 Interest savings from lower WC
Net Income $390 $277
EPS, Diluted $3.12 $2.21
Shares Outstanding 125 125
Cumulative Operating Cash Flow($MM)
$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000
2001 2002 2003 2004 2005 2006 2007
We have generated cash for six consecutive years totaling $4.2Bn
Capital Allocation Strategy
Invest in the business
Acquisitions to strategically accelerate growth that meet our value criteria
Evaluate options to return value to shareholders
Maintain investment grade rating over the long-term
CASH FLOW POSITIVE INDEPENDENT OF MARKET CONDITIONS
STRONGEST BALANCE SHEET IN TEN YEARS
The health of our balance sheet is a competitive advantage
Decrease in net debt & net debt to cap to lowest level in ten years
Access to $1.4Bn in committed liquidity facilities
Conservative debt maturity profile with next maturity not until 2010
ROIC* above WACC for 17 consecutive quarters
Rated BBB- with a stable outlook by all three rating agencies
*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)
$0.10
$0.44$0.49
$0.68$0.74
$0.79
Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08
51% CAGR
*Represents GAAP measure adjusted to exclude items affecting comparability
$0.15
$0.74
$1.97$2.18
$2.92
$3.29
2002 2003 2004 2005 2006 2007
85% CAGR
(Diluted earnings per share, excl. special charges*)
RESULTING IN SIGNIFICANT EARNINGS EXPANSION
$184
$606
2002 2007
$5.7
$11.2
2002 2007
Sales increased 14% in the last five years
Taken out over $40MM in costs through targeted initiatives in the past three quarters
Operating expense/sales decreased almost 40% in the last five years
Grown earnings almost 2x faster than sales
Operating margin* near low end of target range
Return on working capital in excess of 25%
Net Sales ($Bn)
*Represents GAAP measure adjusted to exclude items affecting comparability
14% CAGR
27% CAGR
GLOBAL COMPONENTS OPERATING PERFORMANCE
We continue to execute well and produce industry-leading operating performance
Operating Income ($MM)*
$58
$202
2002 2007
$1.5
$4.8
2002 2007
We continue to outgrow the market and invest in future growth
Sales increased 25% in the last five years, or >12% organically
Operating margin* of 4.2% in 2007 at industry-leading levels
Legacy business already at targeted operating margin
Continue to invest in strategic growth initiatives including software, midmarket, and geographic expansion
Return on working capital in excess of 75%
*Represents GAAP measure adjusted to exclude items affecting comparability
25% CAGR
Operating Income ($MM)*
28% CAGR
GLOBAL ECS OPERATING PERFORMANCE
Net Sales ($Bn)
2007 ($MMs)ECS
Traditional Acquisitions Total
Sales $2,251 $2,510 $4,761
Operating Income* $112 $90 $202
Operating Margin* 5.0% 3.6% 4.2%
*Excludes special charges
THE ECS STORY
Our traditional business is performing very well and is within target rangeGP% in server lines has actually increased over the last decadeSoftware expansion has diluted OI% by 20 bps, yet returns are favorableEuropean expansion has impacted progress to achieving financial targets
Diluted 2007 OI% by 30 bps
ACQUISITION SCORECARD
Acquisitions in ECS Europe and ERP are a current drag on ROIC*
ERP implementation: 60-70 bps
European acquisitions: 30-40 bps
ROIC* excluding European acquisitions and ERP = 12.2% in 2007
*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)
Ultra Source KeyLink Alt Tech InTech DNS
Announced Accretion NA $.15-.17 $.02-.04 $.02-.04 $.06-.09
Actual Accretion Exceeded Exceeded Met Met Below
ROIC* exceeds WACC? YES YES YES YES NO
Investor Day 2007 Targets
Investor Day 2008 Targets
Operating Income*
Global Components 5.7% - 7.0% 5.7% - 7.0%Global ECS 4.9% - 5.3% 4.6% - 5.3%
Consolidated 4.6% - 5.8% 4.5% - 5.8%
WC/Sales $ $.15 - $.17 $.14 - $.15
ROIC** 12.5% - 15.0% 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)
FINANCIAL STRATEGY UPDATE
Global Components
*Excludes special charges
Global leverage
THE ROADMAP TO ACHIEVING OUR FINANCIAL TARGETS
2007 Operating Margin* 5.4%
TARGET 5.7-7.0%
ASIA PAC GLOBAL LEVERAGE
SMB
Increasing profitability in Asia/PacificContinued initiatives to change customer mix will drive increased margins
+ Achieving targeted profitability for the region adds 30-35bps to Global OI% and achieves low end of global target range
Leverage global scale and create best-in-class shared service functionsGlobal ERP to standardize processes and enable performance improvement
Strategic focus on small and medium-sized businessesThis customer base typically has a 300bp gross margin premium
Global ECS
*Excludes special charges
Global leverage
THE ROADMAP TO ACHIEVING OUR FINANCIAL TARGETS
2007 Operating Margin* 4.2%
TARGET4.6-5.3%EUROPE GLOBAL
LEVERAGEMIDMARKET
Getting Europe ECS to scale
LOGIX to bring needed scale & talented management
Top priority for Andy Bryant
Cost structure being evaluated
Global ERP to enable performance improvement and revenue enhancement
Leverage global scale and provide ECS with a tailored system
Provide rich data analytics unseen before in the marketplace to further enhance value-added capabilities
Midmarket initiative
Accretive to business model as we ramp up capabilities
$7.78$6.63 $6.31
$5.12$3.35
$0.03
($4.66)
$11.24
$8.44
($5.91)
ARW
*Cumulative EPS for the last five years beginning April 1, 2003; Source: company financial statements; Represents GAAP basis through 1Q08; Companies included: AVT, IM, SNX, TECD, BHE, CLS, FLEX, JBL, SANM
Earnings Per Share*
We have generated industry leading EPS in the last five years
CONSISTENT GENERATOR OF EARNINGS
We are well positioned to perform throughout the cycle
Diversified revenue stream
Opportunities for organic growth
More flexible cost structure
Strong balance sheet with significant liquidity
Consistent cash flow generator
ROIC*>WACC
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…
*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)
FINAL Q&A
CLOSING REMARKS
Bill MitchellChairman & CEO
*Represents CY2007 ROIC for ARW and comparable companies (AVT, IM, SNX, TECD, BHE, CLS, FLEX, JBL, SANM); ROIC = Tax effected op. income and equity in earnings of affiliates excluding restructuring and other charges - minority interest/(Avg Debt + Avg Equity – Avg Cash over $150MM); Source: Company financial statements
We generate industry-leading ROIC
2007 Return on Invested Capital (%)*
ARROW: STRONG RETURNS
10.9
11.5
10.0
7.9 7.6 7.6 7.4 7.1
3.6 3.5
ARW
11.412.2
Ex. ERP
Ex. ERP & Acq.
*Prices as of 5/30/08; Comparable companies include AVT, IM, SNX, TECD, BHE, FLEX, JBL, SANM, CLS; 2008 EPS from First Call
11.8 11.8 11.711.0
10.59.8
9.38.9 8.8
ARWP/E Ratio*
14.2
Arrow’s valuation has significant upside
ARROW: AN ATTRACTIVE VALUATION
DIVERSIFIED BUSINESS MODEL Reduced exposure to semi cyclicality via ECS expansion
GLOBAL REACH Now operating in 50 countries and territories
GROWTH OPPORTUNITIES Across products, markets, and geographies
DISCIPLINED ACQUISITION STRATEGY Capitalized on market opportunities to strategically accelerate growth; immediately accretive to EPS
LEVERAGING GLOBAL SCALE $210MM of costs taken out over last 5 yrs; ERP potential
SEASONED MANAGEMENT Experienced team with > 25 years of industry experience
ARROW: AN IMPRESSIVE SCORECARDSTRATEGIC VISION
FINANCIAL DISCIPLINE
STRONG EARNINGS GROWTH 85% EPS CAGR in last 5 yrs; 5x faster than growth in sales
HEALTHY BALANCE SHEET Net debt at lowest level in 10 yrs
IMPRESSIVE ASSET MANAGEMENT WC/sales decreased to record low level of 15%
& CASH FLOW PERFORMANCE 5 consecutive yrs of CF generation during period of growth
ROIC > WACC For 17 consecutive quarters – unprecedented
INVESTOR DAY 2008 Delivering today while building for the future
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