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Press release from Business Wire

Arrow Electronics Posts Sixth Consecutive Quarter of Record Revenue and Earnings Per Share

<p class='bwalignc'> -- Quarterly Non-GAAP Earnings Per Share of $1.20 -– </p> <p class='bwalignc'> -- 2011 Non-GAAP Earnings Per Share Expected to Be in Excess of $5.00 -- </p>

Wednesday, October 26, 2011

Arrow Electronics Posts Sixth Consecutive Quarter of Record Revenue and Earnings Per Share08:00 EDT Wednesday, October 26, 2011 MELVILLE, N.Y. (Business Wire) -- Arrow Electronics, Inc. (NYSE:ARW) today reported third quarter 2011 net income of $132.2 million ($1.17 and $1.15 per share on a basic and diluted basis, respectively) on sales of $5.19 billion, compared with net income of $118.5 million ($1.01 and $1.00 per share on a basic and diluted basis, respectively) on sales of $4.66 billion in the third quarter of 2010. The company's results for the third quarters of 2011 and 2010 include a number of items outlined below that impact their comparability. A complete reconciliation of these items is provided under the heading “Certain Non-GAAP Financial Information.” Excluding those items, on a non-GAAP basis, net income for the quarter ended October 1, 2011 would have been $138.3 million ($1.22 and $1.20 per share on a basic and diluted basis, respectively) and net income for the quarter ended October 2, 2010 would have been $128.0 million ($1.09 and $1.08 per share on a basic and diluted basis, respectively). “Revenue of $5.2 billion increased 11% year over year and was in line with our expectations. Earnings per share of $1.20 represent the highest third-quarter level in company history and the sixth consecutive quarter of record earnings. Based on our guidance for the fourth quarter, we are on track to achieve earnings per share in excess of $5 per share, an increase of more than 20% from 2010's record level,” said Michael J. Long, chairman, president, and chief executive officer. “I am extremely proud of the entire Arrow team for delivering such strong results in a challenging macroeconomic environment. In the face of these uncertain economic times, we remain focused on outgrowing the market in our core global components and global ECS businesses; expanding into faster growing, high-margin products and services; growing profits faster than sales; and increasing returns on capital.” “Gross margins continued to improve in the third quarter, increasing 60 basis points year over year. This represents the seventh consecutive quarter of year-over-year gross margin increases, and reflects the hard work of our teams across the world to drive enhanced profitability and our strategy to acquire companies in markets that have higher margins,” said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. “Cash flow generation was another bright spot this quarter, as we generated almost $120 million in cash from operations, and $436 million over the last twelve months. We again generated a return on invested capital well in excess of our weighted average cost of capital, which is a key driver in creating lasting shareholder value.” “During the quarter, we completed our previously announced $100 million stock buyback authorization bringing the total amount returned to shareholders over the past four years to $550 million,” added Mr. Reilly. “Our board has approved an additional $150 million repurchase authorization as we continue to believe this is an effective method of returning capital to shareholders.” Global components sales of $3.65 billion increased 6 percent year over year. “Sales growth in the Americas and Europe was partially offset by weakness in the Asia Pacific region, reflecting difficult market conditions,” Mr. Long said. Global enterprise computing solutions (“ECS”) sales of $1.54 billion increased 26 percent year over year. “Our ECS business again posted record quarterly revenue, with extremely strong year-over-year growth in all of our product lines led by services, software, proprietary servers, industry standard servers, and storage,” said Mr. Long. “We are focused on several growth opportunities, including the addition of new suppliers, the penetration of new market segments, and the expansion of our services portfolio.” The company's results for the third quarters of 2011 and 2010 include the items outlined below that impact their comparability: restructuring, integration, and other charges of $8.8 million ($6.0 million net of related taxes or $.05 per share on both a basic and diluted basis) in 2011 and $14.3 million ($9.5 million net of related taxes or $.08 per share on a both basic and diluted basis) in 2010. NINE-MONTH RESULTS Arrow's net income for the first nine months of 2011 was $424.7 million ($3.70 and $3.64 per share on a basic and diluted basis, respectively) on sales of $15.95 billion, compared with net income of $321.7 million ($2.71 and $2.68 per share on a basic and diluted basis, respectively) on sales of $13.51billion in the first nine months of 2010. Net income for the first nine months of 2011 includes restructuring, integration, and other charges of $23.7 million ($16.8 million net of related taxes or $.15 and $.14 per share on a basic and diluted basis, respectively), a charge of $5.9 million ($3.6 million net of related taxes or $.03 per share on both a basic and diluted basis) in connection with the settlement of a legal matter, and a gain on a bargain purchase of $1.8 million ($1.1 million net of related taxes or $.01 per share on both a basic and diluted basis) related to the acquisition of Nu Horizons Electronics Corp. Excluding these items, net income would have been $444.1 million ($3.87 and $3.81 per share on a basic and diluted basis, respectively) for the first nine months of 2011. Net income for the first nine months of 2010 includes restructuring, integration, and other charges of $27.4 million ($19.1 million net of related taxes or $.16 per share on both a basic and diluted basis) and a loss on prepayment of debt of $1.6 million ($1.0 million net of taxes or $.01 per share on both a basic and diluted basis). Excluding these items, net income would have been $341.9 million ($2.88 and $2.84 per share on a basic and diluted basis, respectively) for the first nine months of 2010. GUIDANCE “Looking ahead to the fourth quarter, we believe that total sales will be between $5.29 and $5.69 billion, with global component sales between $3.29 and $3.49 billion and global enterprise computing solutions sales between $2.0 and $2.2 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.25 to $1.37 per share. Our guidance assumes that the average Euro to USD exchange rate for the third quarter is 1.38 to 1,” said Mr. Reilly. “In the fourth quarter, we would expect global ECS sales to be in line with the low end of normal seasonality. Sales in our core global components business are expected to be below normal seasonality, reflecting weaker global macroeconomic conditions. The outlook reflects selective targeted operating expense reductions across both businesses,” Mr. Reilly added. “Based on our current guidance for the fourth quarter, we expect 2011 earnings per share to be in the range of $5.06 to $5.18, representing another record year for our company and year over year growth of 24% at the midpoint. We expect to again be cash flow positive in the fourth quarter and for 2011.” Please refer to the CFO commentary as a supplement to the company's earnings release, which can be found at www.arrow.com/investor. Arrow Electronics (www.arrow.com) is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow serves as a supply channel partner for over 1,200 suppliers and 115,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 340 locations in 52 countries. Certain Non-GAAP Financial Information In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (“GAAP”), the company provides certain non-GAAP financial information relating to operating income, net income attributable to shareholders and net income per basic and diluted share, each as adjusted for certain charges, credits and losses that the company believes impact the comparability of its results of operations. These charges, credits and losses arise out of the company's efficiency enhancement initiatives, acquisitions, prepayment of debt, and settlement of certain legal matters. A reconciliation of the company's non-GAAP financial information to GAAP is set forth in the table below. The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company's operating performance and underlying trends in the company's business because management considers the charges, credits and losses referred to above to be outside the company's core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company's financial and operating performance. In addition, the company's Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation. The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. ARROW ELECTRONICS, INC. EARNINGS RECONCILIATION (In thousands except per share data) (unaudited)             Quarter Ended Nine Months Ended October 1, October 2, October 1, October 2, 2011 2010 2011 2010   Operating income, as reported $ 209,162 $ 184,519 $ 676,660 $ 518,980 Restructuring, integration, and other charges 8,848 14,338 23,676 27,424 Settlement of legal matter   -   -   5,875   - Operating income, as adjusted $ 218,010 $ 198,857 $ 706,211 $ 546,404   Net income attributable to shareholders, as reported $ 132,216 $ 118,502 $ 424,722 $ 321,741 Restructuring, integration, and other charges 6,048 9,506 16,831 19,146 Settlement of legal matter - - 3,609 - Gain on bargain purchase - - (1,078 ) - Loss on prepayment of debt   -   -   -   964 Net income attributable to shareholders, as adjusted $ 138,264 $ 128,008 $ 444,084 $ 341,851   Net income per basic share, as reported 1.17 $ 1.01 $ 3.70 $ 2.71 Restructuring, integration, and other charges .05 .08 .15 .16 Settlement of legal matter - - .03 - Gain on bargain purchase - - (.01 ) - Loss on prepayment of debt   -   -   -   .01 Net income per basic share, as adjusted $ 1.22 $ 1.09 $ 3.87 $ 2.88   Net income per diluted share, as reported $ 1.15 $ 1.00 $ 3.64 $ 2.68 Restructuring, integration, and other charges .05 .08 .14 .16 Settlement of legal matter - - .03 - Gain on bargain purchase - - (.01 ) - Loss on prepayment of debt   -   -   -   .01 Net income per diluted share, as adjusted $ 1.20 $ 1.08 $ 3.81 $ 2.84 The sum of the components for basic and diluted net income per share, as adjusted, may not agree to totals, as presented, due to rounding. Information Relating to Forward-Looking Statements This press release includes forward-looking statements that 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 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. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (unaudited)                 Quarter Ended Nine Months Ended October 1, October 2, October 1, October 2, 2011 2010 2011 2010   Sales $ 5,186,857 $ 4,657,841 $ 15,949,791 $ 13,506,514 Costs and expenses: Cost of sales 4,475,718 4,049,047 13,745,997 11,771,311 Selling, general and administrative expenses 467,325 390,727 1,422,835 1,133,352 Depreciation and amortization 25,804 19,210 74,748 55,447 Restructuring, integration, and other charges 8,848 14,338 23,676 27,424 Settlement of legal matter   -   -   5,875   -   4,977,695   4,473,322   15,273,131   12,987,534 Operating income 209,162 184,519 676,660 518,980 Equity in earnings of affiliated companies 2,179 1,633 4,800 4,566 Gain on bargain purchase - - 1,755 - Loss on prepayment of debt - - - 1,570 Interest and other financing expense, net   25,225   18,921   77,528   57,362 Income before income taxes 186,116 167,231 605,687 464,614 Provision for income taxes   53,738   48,729   180,501   142,878 Consolidated net income 132,378 118,502 425,186 321,736 Noncontrolling interests   162   -   464   (5 ) Net income attributable to shareholders $ 132,216 $ 118,502 $ 424,722 $ 321,741   Net income per share: Basic $ 1.17 $ 1.01 $ 3.70 $ 2.71 Diluted $ 1.15 $ 1.00 $ 3.64 $ 2.68 Average number of shares outstanding: Basic 113,378 116,958 114,680 118,813 Diluted 114,940 118,235 116,557 120,270     ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)       October 1, December 31, 2011 2010 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 544,566 $ 926,321 Accounts receivable, net 4,174,050 4,102,870 Inventories 2,193,792 1,908,953 Other current assets   189,265   147,690 Total current assets   7,101,673   7,085,834 Property, plant and equipment, at cost: Land 23,776 24,213 Buildings and improvements 143,658 136,732 Machinery and equipment   922,188   863,773 1,089,622 1,024,718 Less: Accumulated depreciation and amortization   (538,908 )   (519,178 ) Property, plant and equipment, net   550,714   505,540 Investments in affiliated companies 59,095 59,455 Cost in excess of net assets of companies acquired 1,470,600 1,336,351 Other assets   686,645   613,358 Total assets $ 9,868,727 $ 9,600,538   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,235,394 $ 3,644,988 Accrued expenses 634,554 637,045 Short-term borrowings, including current portion of long-term debt   431,635   61,210 Total current liabilities   4,301,583   4,343,243   Long-term debt 1,791,714 1,761,203 Other liabilities 238,500 244,897   Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in 2011 and 2010 Issued – 125,382 and 125,337 shares in 2011 and 2010, respectively 125,382 125,337 Capital in excess of par value 1,070,783 1,063,461 Treasury stock (13,651 and 10,690 shares in 2011 and 2010, respectively), at cost (437,513 ) (318,494 ) Retained earnings 2,598,869 2,174,147 Foreign currency translation adjustment 187,633 207,914 Other   (14,626 )   (1,170 ) Total shareholders' equity 3,530,528 3,251,195 Noncontrolling interests   6,402   - Total equity   3,536,930   3,251,195 Total liabilities and equity $ 9,868,727 $ 9,600,538     ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)       Quarter Ended October 1, October 2, 2011 2010 Cash flows from operating activities: Consolidated net income $ 132,378 $ 118,502 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 25,804 19,210 Amortization of stock-based compensation 9,102 7,939 Amortization of deferred financing costs and discount on notes 881 582 Equity in earnings of affiliated companies (2,179 ) (1,633 ) Deferred income taxes 6 4,051 Restructuring, integration, and other charges 6,048 9,506 Excess tax benefits from stock-based compensation arrangements (641 ) (12 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 22,867 (53,872 ) Inventories 4,171 (149,716 ) Accounts payable (97,476 ) (63,319 ) Accrued expenses (18,230 ) 59,216 Other assets and liabilities   36,350   22,580 Net cash provided by (used for) operating activities   119,081   (26,966 )   Cash flows from investing activities: Cash consideration paid for acquired businesses (80,993 ) (287,648 ) Acquisition of property, plant and equipment   (27,927 )   (26,753 ) Net cash used for investing activities   (108,920 )   (314,401 )   Cash flows from financing activities: Change in short-term and other borrowings 105,708 6,892 Proceeds from long-term bank borrowings, net 197,000 360,400 Repayment of bank term loan (200,000 ) - Repayment of senior notes - (69,545 ) Proceeds from exercise of stock options 472 29 Excess tax benefits from stock-based compensation arrangements 641 12 Repurchases of common stock   (99,941 )   (50,087 ) Net cash provided by financing activities   3,880   247,701   Effect of exchange rate changes on cash   (499 )   26,726 Net increase (decrease) in cash and cash equivalents 13,542 (66,940 ) Cash and cash equivalents at beginning of period   531,024   576,664 Cash and cash equivalents at end of period $ 544,566 $ 509,724     ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)       Nine Months Ended October 1, October 2, 2011 2010 Cash flows from operating activities: Consolidated net income $ 425,186 $ 321,736 Adjustments to reconcile consolidated net income to net cash used for operations: Depreciation and amortization 74,748 55,447 Amortization of stock-based compensation 30,280 24,992 Amortization of deferred financing costs and discount on notes 2,332 1,686 Equity in earnings of affiliated companies (4,800 ) (4,566 ) Deferred income taxes (478 ) 29,027 Restructuring, integration, and other charges 16,831 19,146 Settlement of legal matter 3,609 - Gain on bargain purchase (1,078 ) - Loss on prepayment of debt - 964 Excess tax benefits from stock-based compensation arrangements (7,521 ) (1,740 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 136,451 (351,362 ) Inventories (109,633 ) (595,588 ) Accounts payable (508,391 ) 243,797 Accrued expenses (63,481 ) 89,250 Other assets and liabilities   (19,676 )   (74,058 ) Net cash used for operating activities   (25,621 )   (241,269 )   Cash flows from investing activities: Cash consideration paid for acquired businesses (523,330 ) (460,001 ) Acquisition of property, plant and equipment (88,267 ) (83,373 ) Proceeds from sale of properties   -   16,971 Net cash used for investing activities   (611,597 )   (526,403 )   Cash flows from financing activities: Change in short-term and other borrowings 391,844 (902 ) Proceeds from long-term bank borrowings, net 197,000 360,400 Repayment of bank term loan (200,000 ) - Repayment of senior notes - (69,545 ) Proceeds from exercise of stock options 46,618 3,196 Excess tax benefits from stock-based compensation arrangements 7,521 1,740 Repurchases of common stock   (196,802 )   (131,266 ) Net cash provided by financing activities   246,181   163,623   Effect of exchange rate changes on cash   9,282   (23,234 ) Net decrease in cash and cash equivalents (381,755 ) (627,283 ) Cash and cash equivalents at beginning of period   926,321   1,137,007 Cash and cash equivalents at end of period $ 544,566 $ 509,724     ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (unaudited)           Quarter Ended Nine Months Ended October 1, October 2, October 1, October 2, 2011 2010 2011 2010 Sales: Global components $ 3,648,858 $ 3,437,632 $ 11,410,789 $ 9,824,670 Global ECS   1,537,999   1,220,209   4,539,002   3,681,844 Consolidated $ 5,186,857 $ 4,657,841 $ 15,949,791 $ 13,506,514   Operating income (loss): Global components $ 194,178 $ 196,803 $ 647,094 $ 533,405 Global ECS 53,710 35,479 156,480 102,415 Corporate (a)   (38,726 )   (47,763 )   (126,914 )   (116,840 ) Consolidated $ 209,162 $ 184,519 $ 676,660 $ 518,980 (a)   Includes restructuring, integration, and other charges of $8.8 million and $23.7 million for the third quarter and first nine months of 2011 and $14.3 million and $27.4 million for the third quarter and first nine months of 2010, respectively. Also included in the first nine months of 2011 is a charge of $5.9 million related to the settlement of a legal matter. Arrow Electronics, Inc.Michael Taunton, 631-847-5680Vice President & TreasurerorPaul J. Reilly, 631-847-1872Executive Vice President, Finance and Operations & Chief Financial OfficerorMedia Contact:John Hourigan, 303-824-4586Director, External Communications