The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Business Wire

Arrow Electronics Reports Second-Quarter Results

<p class='bwalignc'> -- Sales of $5.15 Billion and Non-GAAP Earnings Per Share of $1.11 -- </p> <p class='bwalignc'> -- Generated More Than $575 Million in Cash from Operations over Last 12 Months -- </p>

Monday, July 30, 2012

Arrow Electronics Reports Second-Quarter Results08:00 EDT Monday, July 30, 2012 ENGLEWOOD, Colo. (Business Wire) -- Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2012 net income of $114.4 million, or $1.02 per share on a diluted basis, compared with net income of $156.2 million, or $1.33 per share on a diluted basis in 2011. Excluding certain items in both 2012 and 2011 as described in the non-GAAP earnings reconciliation table, net income of $124.1 million, or $1.11 per share on a diluted basis, in the second quarter of 2012 compared with net income of $159.8 million, or $1.36 per share on a diluted basis, in the second quarter of 2011. Second-quarter sales of $5.15 billion declined 7 percent from sales of $5.54 billion in the prior year. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 5 percent year over year. “In a challenging macroeconomic environment that weakened throughout the quarter, we executed well, with sales and earnings per share in line with our expectations. Although the macro environment continues to be challenging, we remain committed to selectively investing in line with our strategic priorities to drive organic growth and strengthen the business. At the same time, we are taking $20 million in additional cost and expense reduction actions as we continue to advance the efficiency of our organization,” said Michael J. Long, chairman, president, and chief executive officer. “We remain focused on our key financial objectives and have generated more than $575 million in cash flow from operations over the last 12 months, well in excess of our target,” said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. “We again delivered return on invested capital substantially ahead of our weighted average cost of capital.” Global enterprise computing solutions (“ECS”) second-quarter sales of $1.70 billion increased 2 percent year over year. Sales were in line with our expectations driven by another quarter of strong performance in ECS Europe, with sales increasing 12 percent year over year in local currency, as our supplier matrix expansion strategy continues to pay dividends. In the Americas we performed very well, growing sales 3 percent year over year, even as market growth has slowed. On a global basis, we saw solid double-digit year-over-year growth in services, storage, and software, offset by declines in servers. During the quarter we completed the acquisition of The Altimate Group, a value-added distributor of enterprise and midrange computing products, services, and solutions. This transaction further strengthens our relationships with key hardware, software and storage suppliers in Europe, supporting the strategic initiative to extend the ECS product matrix across the region. Global components second-quarter sales of $3.45 billion decreased 11 percent year over year. Sales in the Asia Pacific region were ahead of normal seasonality and our expectations on a sequential basis driven by strength in China and Taiwan, and declined 6 percent from the prior year. In the Americas sales were in line with normal seasonality on a sequential basis, and declined 4 percent year over year, as the business continues to perform well in a choppy market. Sales in our vertical lighting channel continue to outpace the market. European sales, while in line with normal seasonality, were down 14 percent year over year in local currency. SIX-MONTH RESULTS Arrow's net income for the first six months of 2012 was $228.0 million, or $2.02 per share on a diluted basis, compared with net income of $292.5 million, or $2.49 per share on a diluted basis, in the first six months of 2011. Sales of $10.04 billion declined 7 percent year over year from sales of $10.76 billion in the year-ago period. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 6 percent year over year in the first six months of 2012. Excluding certain items in both the first six months of 2012 and 2011 as described in the non-GAAP earnings reconciliation found below, net income would have been $243.9 million, or $2.16 per share on a diluted basis, for the first six months of 2012 compared with $305.8 million, or $2.60 per share on a diluted basis, for the first six months of 2011. GUIDANCE “Looking ahead, we believe that total third-quarter sales will be between $4.8 and $5.2 billion, with global components sales between $3.3 and $3.5 billion and global enterprise computing solutions sales between $1.5 and $1.7 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.00 to $1.12. Our guidance assumes that the average Euro to USD exchange rate for the third quarter is 1.21 to 1,” said Mr. Reilly. 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 more than 120,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 390 locations in 53 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, 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 Six Months Ended June 30,2012   July 2,2011 June 30,2012   July 2,2011   Operating income, as reported $ 188,689 $ 248,330 $ 376,138 $ 467,498 Restructuring, integration, and other charges 13,347 5,221 21,590 14,828 Settlement of legal matter   -   -   -   5,875   Operating income, as adjusted $ 202,036 $ 253,551 $ 397,728 $ 488,201     Net income attributable to shareholders, as reported $ 114,383 $ 156,197 $ 228,011 $ 292,506 Restructuring, integration, and other charges 9,702 3,584 15,843 10,783 Settlement of legal matter - - - 3,609 Gain on bargain purchase   -   -   -   (1,078 ) Net income attributable to shareholders, as adjusted $ 124,085 $ 159,781 $ 243,854 $ 305,820     Net income per basic share, as reported 1.04 $ 1.35 $ 2.05 $ 2.54 Restructuring, integration, and other charges .09 .03 .14 .09 Settlement of legal matter - - - .03 Gain on bargain purchase   -   -   -   (.01 ) Net income per basic share, as adjusted $ 1.12 $ 1.38 $ 2.19 $ 2.65     Net income per diluted share, as reported $ 1.02 $ 1.33 $ 2.02 $ 2.49 Restructuring, integration, and other charges .09 .03 .14 .09 Settlement of legal matter - - - .03 Gain on bargain purchase   -   -   -   (.01 ) Net income per diluted share, as adjusted $ 1.11 $ 1.36 $ 2.16 $ 2.60     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 Six Months Ended June 30,2012     July 2,2011 June 30,2012     July 2,2011   Sales $ 5,150,563 $ 5,539,931 $ 10,040,092 $ 10,762,934 Costs and expenses: Cost of sales 4,463,419 4,769,784 8,672,369 9,270,279 Selling, general and administrative expenses 457,073 490,590 912,910 955,510 Depreciation and amortization 28,035 26,006 57,085 48,944 Restructuring, integration, and other charges 13,347 5,221 21,590 14,828 Settlement of legal matter   -   -   -   5,875   4,961,874   5,291,601   9,663,954   10,295,436 Operating income 188,689 248,330 376,138 467,498 Equity in earnings of affiliated companies 1,428 1,408 3,612 2,621 Gain on bargain purchase - - - 1,755 Interest and other financing expense, net   28,555   26,536   55,687   52,303 Income before income taxes 161,562 223,202 324,063 419,571 Provision for income taxes   47,081   66,891   95,859   126,763 Consolidated net income 114,481 156,311 228,204 292,808 Noncontrolling interests   98   114   193   302 Net income attributable to shareholders $ 114,383 $ 156,197 $ 228,011 $ 292,506 Net income per share: Basic $ 1.04 $ 1.35 $ 2.05 $ 2.54 Diluted $ 1.02 $ 1.33 $ 2.02 $ 2.49 Average number of shares outstanding: Basic 110,433 115,434 111,218 115,323 Diluted 112,031 117,469 113,079 117,463   ARROW ELECTRONICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands except par value)     June 30, December 31, 2012 2011 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 325,832 $ 396,887 Accounts receivable, net 4,401,677 4,482,117 Inventories 2,074,777 1,963,910 Other current assets   223,138     181,677   Total current assets   7,025,424     7,024,591   Property, plant and equipment, at cost: Land 23,776 23,790 Buildings and improvements 145,934 147,215 Machinery and equipment   975,385     934,558   1,145,095 1,105,563 Less: Accumulated depreciation and amortization   (573,124 )   (549,334 ) Property, plant and equipment, net   571,971     556,229   Investments in affiliated companies 62,182 60,579 Intangible assets, net 406,324 392,763 Cost in excess of net assets of companies acquired 1,638,862 1,473,333 Other assets   330,139     321,584   Total assets $ 10,034,902   $ 9,829,079   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,440,928 $ 3,264,088 Accrued expenses 611,878 660,996 Short-term borrowings, including current portion of long-term debt   27,412     33,843   Total current liabilities   4,080,218     3,958,927     Long-term debt 1,957,873 1,927,823 Other liabilities 273,085 267,069 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in 2012 and 2011 Issued – 125,424 and 125,382 shares in 2012 and 2011, respectively 125,424 125,382 Capital in excess of par value 1,068,529 1,076,275 Treasury stock (16,637 and 13,568 shares in 2012 and 2011, respectively), at cost (555,110 ) (434,959 ) Retained earnings 3,000,968 2,772,957 Foreign currency translation adjustment 110,916 158,550 Other   (30,944 )   (29,393 ) Total shareholders' equity 3,719,783 3,668,812 Noncontrolling interests   3,943     6,448   Total equity   3,723,726     3,675,260   Total liabilities and equity $ 10,034,902   $ 9,829,079     ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)     Quarter Ended June 30,2012   July 2,2011 Cash flows from operating activities: Consolidated net income $ 114,481 $ 156,311 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 28,035 26,006 Amortization of stock-based compensation 6,891 10,821 Equity in earnings of affiliated companies (1,428 ) (1,408 ) Deferred income taxes (2,629 ) 573 Restructuring, integration, and other charges 9,702 3,584 Excess tax benefits from stock-based compensation arrangements (34 ) (1,152 ) Other (1,440 ) 734 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (214,037 ) (164,965 ) Inventories (81,464 ) (151,785 ) Accounts payable 244,623 163,088 Accrued expenses (10,065 ) (2,142 ) Other assets and liabilities   (32,016 )   (4,698 ) Net cash provided by operating activities   60,619     34,967   Cash flows from investing activities: Cash consideration paid for acquired businesses (26,654 ) (63,324 ) Acquisition of property, plant and equipment (26,611 ) (42,163 ) Purchase of cost method investment   (15,000 )   -   Net cash used for investing activities   (68,265 )   (105,487 ) Cash flows from financing activities: Change in short-term and other borrowings (3,503 ) (2,464 ) Proceeds from long-term bank borrowings, net (291,900 ) 101,700 Proceeds from exercise of stock options 628 18,996 Excess tax benefits from stock-based compensation arrangements 34 1,152 Repurchases of common stock   (100,114 )   (50,414 ) Net cash provided by (used for) financing activities   (394,855 )   68,970   Effect of exchange rate changes on cash   (11,375 )   11,272   Net increase (decrease) in cash and cash equivalents (413,876 ) 9,722 Cash and cash equivalents at beginning of period   739,708     521,302   Cash and cash equivalents at end of period $ 325,832   $ 531,024     ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)   Six Months Ended June 30,2012   July 2,2011 Cash flows from operating activities: Consolidated net income $ 228,204 $ 292,808 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 57,085 48,944 Amortization of stock-based compensation 14,146 21,178 Equity in earnings of affiliated companies (3,612 ) (2,621 ) Deferred income taxes 16,332 (484 ) Restructuring, integration, and other charges 15,843 10,783 Settlement of legal matter - 3,609 Excess tax benefits from stock-based compensation arrangements (4,981 ) (6,880 ) Other (2,897 ) 373 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 119,977 113,584 Inventories (105,821 ) (113,804 ) Accounts payable 109,425 (410,915 ) Accrued expenses (74,629 ) (45,251 ) Other assets and liabilities   (58,118 )   (56,026 ) Net cash provided by (used for) operating activities   310,954     (144,702 ) Cash flows from investing activities: Cash consideration paid for acquired businesses (187,197 ) (442,337 ) Acquisition of property, plant and equipment (48,864 ) (60,340 ) Purchase of cost method investment   (15,000 )   -   Net cash used for investing activities   (251,061 )   (502,677 ) Cash flows from financing activities: Change in short-term and other borrowings (12,577 ) (6,364 ) Proceeds from long-term bank borrowings, net 37,800 292,500 Proceeds from exercise of stock options 10,766 46,146 Excess tax benefits from stock-based compensation arrangements 4,981 6,880 Repurchases of common stock   (157,798 )   (96,861 ) Net cash provided by (used for) financing activities   (116,828 )   242,301   Effect of exchange rate changes on cash   (14,120 )   9,781   Net decrease in cash and cash equivalents (71,055 ) (395,297 ) Cash and cash equivalents at beginning of period   396,887     926,321   Cash and cash equivalents at end of period $ 325,832   $ 531,024     ARROW ELECTRONICS, INC.SEGMENT INFORMATION(In thousands)(unaudited)                               Quarter Ended Six Months Ended June 30,2012         July 2,2011 June 30,2012         July 2,2011 Sales: Global components $ 3,453,687 $ 3,875,331 $ 6,803,241 $ 7,761,931 Global ECS   1,696,876     1,664,600     3,236,851     3,001,003   Consolidated $ 5,150,563   $ 5,539,931   $ 10,040,092   $ 10,762,934     Operating income (loss): Global components $ 170,524 $ 224,035 $ 341,232 $ 452,916 Global ECS 65,961 63,690 121,448 102,770 Corporate (a)   (47,796 )   (39,395 )   (86,542 )   (88,188 ) Consolidated $ 188,689   $ 248,330   $ 376,138   $ 467,498     (a)     Includes restructuring, integration, and other charges of $13.3 million and $21.6 million for the second quarter and first six months of 2012 and $5.2 million and $14.8 million for the second quarter and first six months of 2011, respectively. Also included in the first six months of 2011 is a charge of $5.9 million related to the settlement of a legal matter. Arrow Electronics, Inc.Contacts:Greer Aviv, 303-824-3765Senior Manager, Investor RelationsorPaul J. Reilly, 631-847-1872Executive Vice President, Finance and Operations & Chief Financial OfficerorMedia Contact:John Hourigan, 303-824-4586Director, Corporate Communications