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Electronics Production | April 20, 2006

Arrow to increase net income 43%

Arrow Electronics, Inc. today reported first quarter 2006 net income of $81.6 million ($.68 and $.66 per share on a basic and diluted basis, respectively) on sales of $3.19 billion, compared with net income of $57.2 million ($.49 and $.47 per share on a basic and diluted basis, respectively) on sales of $2.73 billion in the first quarter of 2005.
The company's results for the first quarters of 2006 and 2005 include a number of items outlined below that impact their comparability. A reconciliation of these items is provided under the heading "Certain Non-GAAP Financial Information." Excluding those items, net income for the quarter ended March 31, 2006 would have been $84.1 million ($.70 and $.68 per share on a basic and diluted basis, respectively) and net income for the quarter ended April 1, 2005 would have been $58.7 million ($.50 and $.49 per share on a basic and diluted basis, respectively). Included in the results for 2006 is $2.5 million ($1.8 million net of related taxes or $.01 per share) related to the expensing of stock options in accordance with the provisions of Financial Accounting Standards Board Statement No. 123 (revised 2004), "Share Based Payment" ("FASB Statement No. 123(R)"). No such charge was recorded in 2005. Wall Street consensus, as reported by First Call, was $.60 on a diluted basis.

Operating income in the first quarter of 2006 and 2005 was $149.2 million and $108.5 million, respectively. Excluding the items impacting comparability included in the reconciliation provided under the heading "Certain Non-GAAP Financial Information," first quarter 2006 operating income would have been $150.8 million, up 36% over last year's $110.9 million. Operating income as a percentage of sales, excluding the previously mentioned items, increased by 60 basis points year-over-year.

"Our performance this quarter was outstanding, further demonstrating our consistent record of executing on the fundamentals of our business strategy - growth, operational excellence, financial stability, and shared leadership. We posted our 13th consecutive quarter of year-over-year sales growth as we continued to take advantage of opportunities in the marketplaces we serve around the world," said William E. Mitchell, President and Chief Executive Officer. "Operating income, excluding recent acquisitions, grew four times faster than sales; our ability to generate additional revenue with minimal incremental cost drove operating expenses as a percentage of sales to a first quarter 6-year low; and return on invested capital was at its highest level since 2000."

Worldwide components sales of $2.61 billion increased 13% sequentially and 19% over last year, while operating income increased 18% sequentially and 43% over last year. Excluding the Ultra Source acquisition completed in December 2005, sales increased 9% sequentially and 13% year-over-year. "North America reached a level of sales not seen since the first quarter of 2001; Europe posted the highest level of sales in its history while achieving impressive year-over-year operating income growth; and our business in Asia/Pacific achieved record sales for a first quarter with a solid contribution from recently acquired Ultra Source," stated Mr. Mitchell. The company noted that as of the first quarter of this year, the OEM Computing Solutions business, which was previously included in its computer products segment, became a part of North American Components given that these two businesses have overlap in their customer bases which creates greater opportunities for selling synergies. Prior period segment information has been adjusted to reflect this change.

Worldwide computer products sales decreased 11% sequentially in this seasonally weak quarter, yet increased 8% year-over-year. Excluding the DNS acquisition completed in the fourth quarter of 2005, sales for the Enterprise Computing Solutions business in North America decreased 12% year-over-year. "Our computer products business in North America posted solid earnings and returns despite some weakness in the proprietary server market," added Mr. Mitchell. "DNS grew sales by more than 50% when compared with their first quarter of 2005."

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