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Press release from Business Wire

Arrow Electronics Reports Third-Quarter Results

<p class='bwalignc'> -- Sales of $4.96 Billion and Non-GAAP Earnings Per Share of $1.02 --<br/><br/>-- Generated More Than $630 Million in Cash from Operations over Last 12 Months -- </p>

Wednesday, October 31, 2012

Arrow Electronics Reports Third-Quarter Results08:00 EDT Wednesday, October 31, 2012 ENGLEWOOD, Colo. (Business Wire) -- Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2012 net income of $103.6 million, or $.94 per share on a diluted basis, compared with net income of $132.2 million, or $1.15 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 found below, net income of $112.2 million, or $1.02 per share on a diluted basis, in the third quarter of 2012 compared with net income of $138.3 million, or $1.20 per share on a diluted basis, in the third quarter of 2011. In the third quarter of 2012, the company prospectively revised its presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees, as compared to presenting gross sales and costs of sales in prior periods. On a gross basis, these contracts would have contributed approximately $176.5 million, or 3.4 percent, to the company's sales in the third quarter of 2012. Within the company's statement of operations, this revised presentation had no impact on gross profit dollars, operating income dollars, net income dollars, and earnings per share for any periods reported. It also had no impact on the company's consolidated balance sheet or statement of cash flows. Third-quarter sales of $4.96 billion declined 4 percent from sales of $5.19 billion in the prior year. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales were flat year over year. Third-quarter operating income as a percentage of sales declined 70 basis points year over year. Pro forma for acquisitions and the aforementioned change in revenue presentation, operating income as a percentage of sales decreased 90 basis points year over year. “The third quarter again demonstrated our strong execution in what continues to be a challenging global macroeconomic environment. We reported third-quarter revenue of $5.0 billion and EPS of $1.02, both in line with our expectations,” said Michael J. Long, chairman, president, and chief executive officer. “Our fundamentals are strong and we continue to focus on operating the business for the long-term health of Arrow.” “Our cash flow generation was strong again this quarter, bringing the total amount generated over the last twelve months to more than $630 million or nearly double our targeted conversion rate,” said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. “Return on invested capital remains an important metric for us, and we again generated returns in excess of our weighted average cost of capital.” Global components third-quarter sales of $3.37 billion decreased 8 percent year over year. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales were flat year over year. Sales in the Asia Pacific region increased 10 percent year over year, driven by the core business and a rebound in the company's Ultra Source business. In the Americas sales declined 1 percent year over year due to a weaker overall market as well as customer cautiousness. European sales were down 4 percent year over year in local currency as the macroeconomic environment continues to impact the region. Global enterprise computing solutions (“ECS”) third-quarter sales of $1.59 billion increased 3 percent year over year. This represents the 11th consecutive quarter of year-over-year organic growth for the ECS team. On a global basis, solid year-over-year growth in storage and software was offset by continued weakness in the server market. In the third quarter the company saw good performance in the Americas, with sales in the core value-added distribution business in line with expectations in a seasonally slow quarter. In Europe, the team delivered solid results in line with normal seasonality on a local currency basis, even as market conditions weakened somewhat in the region. The company's matrix expansion strategy remains a key driver of the successes in the region. NINE-MONTH RESULTS Arrow's net income for the first nine months of 2012 was $331.6 million, or $2.96 per share on a diluted basis, compared with net income of $424.7 million, or $3.64 per share on a diluted basis, in the first nine months of 2011. Sales of $15.00 billion declined 6 percent year over year from sales of $15.95 billion in the year-ago period. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales declined 3 percent year over year in the first nine months of 2012. Excluding certain items in both the first nine months of 2012 and 2011 as described in the non-GAAP earnings reconciliation found below, net income would have been $356.0 million, or $3.18 per share on a diluted basis, for the first nine months of 2012 compared with $444.1 million, or $3.81 per share on a diluted basis, for the first nine months of 2011. GUIDANCE “Looking ahead, we believe that total fourth-quarter sales will be between $5.1 and $5.5 billion, with global components sales between $3.0 and $3.2 billion and global enterprise computing solutions sales between $2.1 and $2.3 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.01 to $1.13. Our guidance assumes that average diluted shares outstanding are 107.3 million and the average Euro to USD exchange rate for the fourth quarter is 1.29 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 Nine Months Ended September 29,2012     October 1,2011 September 29,2012     October 1,2011   Operating income, as reported $ 163,817 $ 209,162 $ 539,955 $ 676,660 Restructuring, integration, and other charges 14,562 8,848 36,152 23,676 Settlement of legal matter   -   -   -   5,875 Operating income, as adjusted $ 178,379 $ 218,010 $ 576,107 $ 706,211   Net income attributable to shareholders, as reported $ 103,617 $ 132,216 $ 331,628 $ 424,722 Restructuring, integration, and other charges 8,576 6,048 24,419 16,831 Settlement of legal matter - - - 3,609 Gain on bargain purchase   -   -   -   (1,078 ) Net income attributable to shareholders, as adjusted $ 112,193 $ 138,264 $ 356,047 $ 444,084   Net income per basic share, as reported $ .96 $ 1.17 $ 3.01 $ 3.70 Restructuring, integration, and other charges .08 .05 .22 .15 Settlement of legal matter - - - .03 Gain on bargain purchase   -   -   -   (.01 ) Net income per basic share, as adjusted $ 1.04 $ 1.22 $ 3.23 $ 3.87   Net income per diluted share, as reported $ .94 $ 1.15 $ 2.96 $ 3.64 Restructuring, integration, and other charges .08 .05 .22 .14 Settlement of legal matter - - - .03 Gain on bargain purchase   -   -   -   (.01 ) Net income per diluted share, as adjusted $ 1.02 $ 1.20 $ 3.18 $ 3.81     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 September 29,2012   October 1,2011 September 29,2012   October 1,2011       Sales $ 4,962,331 $ 5,186,857 $ 15,002,423 $ 15,949,791 Costs and expenses: Cost of sales 4,299,612 4,475,718 12,971,981 13,745,997 Selling, general and administrative expenses 456,521 467,325 1,369,431 1,422,835 Depreciation and amortization 27,819 25,804 84,904 74,748 Restructuring, integration, and other charges 14,562 8,848 36,152 23,676 Settlement of legal matter   -   -   -   5,875   4,798,514   4,977,695   14,462,468   15,273,131 Operating income 163,817 209,162 539,955 676,660 Equity in earnings of affiliated companies 2,154 2,179 5,766 4,800 Gain on bargain purchase - - - 1,755 Interest and other financing expense, net   23,956   25,225   79,643   77,528 Income before income taxes 142,015 186,116 466,078 605,687 Provision for income taxes   38,323   53,738   134,182   180,501 Consolidated net income 103,692 132,378 331,896 425,186 Noncontrolling interests   75   162   268   464 Net income attributable to shareholders $ 103,617 $ 132,216 $ 331,628 $ 424,722 Net income per share: Basic $ .96 $ 1.17 $ 3.01 $ 3.70 Diluted $ .94 $ 1.15 $ 2.96 $ 3.64 Average number of shares outstanding: Basic 108,301 113,378 110,245 114,680 Diluted 109,894 114,940 112,096 116,557         ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)   September 29, December 31, 2012 2011 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 358,550 $ 396,887 Accounts receivable, net 4,336,757 4,482,117 Inventories 2,079,446 1,963,910 Other current assets   189,800   181,677 Total current assets   6,964,553   7,024,591 Property, plant and equipment, at cost: Land 23,855 23,790 Buildings and improvements 149,226 147,215 Machinery and equipment   1,003,816   934,558 1,176,897 1,105,563 Less: Accumulated depreciation and amortization   (593,744 )   (549,334 ) Property, plant and equipment, net   583,153   556,229 Investments in affiliated companies 64,232 60,579 Intangible assets, net 424,548 392,763 Cost in excess of net assets of companies acquired 1,705,811 1,473,333 Other assets   333,066   321,584 Total assets $ 10,075,363 $ 9,829,079 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,372,036 $ 3,264,088 Accrued expenses 702,546 660,996 Short-term borrowings, including current portion of long-term debt   379,470   33,843 Total current liabilities   4,454,052   3,958,927   Long-term debt 1,561,976 1,927,823 Other liabilities 264,006 267,069 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 1,077,936 1,076,275 Treasury stock (18,742 and 13,568 shares in 2012 and 2011, respectively), at cost (629,231 ) (434,959 ) Retained earnings 3,104,585 2,772,957 Foreign currency translation adjustment 140,858 158,550 Other   (28,266 )   (29,393 ) Total shareholders' equity 3,791,306 3,668,812 Noncontrolling interests   4,023   6,448 Total equity   3,795,329   3,675,260 Total liabilities and equity $ 10,075,363 $ 9,829,079       ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)   Quarter Ended September 29,2012   October 1,2011 Cash flows from operating activities: Consolidated net income $ 103,692 $ 132,378 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 27,819 25,804 Amortization of stock-based compensation 10,715 9,102 Equity in earnings of affiliated companies (2,154 ) (2,179 ) Deferred income taxes 1,634 6 Restructuring, integration, and other charges 8,576 6,048 Excess tax benefits from stock-based compensation arrangements (102 ) (641 ) Other (1,443 ) 881 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 115,535 22,867 Inventories 6,298 4,171 Accounts payable (77,510 ) (97,476 ) Accrued expenses (32,565 ) (18,230 ) Other assets and liabilities   15,834   36,350 Net cash provided by operating activities   176,329   119,081 Cash flows from investing activities: Cash consideration paid for acquired businesses (4,053 ) (80,993 ) Acquisition of property, plant and equipment   (26,710 )   (27,927 ) Net cash used for investing activities   (30,763 )   (108,920 ) Cash flows from financing activities: Change in short-term and other borrowings 20,372 (1,792 ) Proceeds from (repayment of) long-term bank borrowings, net (62,800 ) 304,500 Repayment of bank term loan - (200,000 ) Proceeds from exercise of stock options 715 472 Excess tax benefits from stock-based compensation arrangements 102 641 Repurchases of common stock   (64,997 )   (99,941 ) Net cash provided by (used for) financing activities   (106,608 )   3,880 Effect of exchange rate changes on cash   (6,240 )   (499 ) Net increase in cash and cash equivalents 32,718 13,542 Cash and cash equivalents at beginning of period   325,832   531,024 Cash and cash equivalents at end of period $ 358,550 $ 544,566         ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)   Nine Months Ended September 29,2012   October 1,2011 Cash flows from operating activities: Consolidated net income $ 331,896 $ 425,186 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 84,904 74,748 Amortization of stock-based compensation 24,861 30,280 Equity in earnings of affiliated companies (5,766 ) (4,800 ) Deferred income taxes 17,966 (478 ) Restructuring, integration, and other charges 24,419 16,831 Settlement of legal matter - 3,609 Excess tax benefits from stock-based compensation arrangements (5,083 ) (7,521 ) Other (4,340 ) 1,254 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 235,512 136,451 Inventories (99,523 ) (109,633 ) Accounts payable 31,915 (508,391 ) Accrued expenses (107,194 ) (63,481 ) Other assets and liabilities   (42,284 )   (19,676 ) Net cash provided by (used for) operating activities   487,283   (25,621 ) Cash flows from investing activities: Cash consideration paid for acquired businesses (191,250 ) (523,330 ) Acquisition of property, plant and equipment (75,574 ) (88,267 ) Purchase of cost method investment   (15,000 )   - Net cash used for investing activities   (281,824 )   (611,597 ) Cash flows from financing activities: Change in short-term and other borrowings 7,795 (8,156 ) Proceeds from (repayment of) long-term bank borrowings, net (25,000 ) 597,000 Repayment of bank term loan - (200,000 ) Proceeds from exercise of stock options 11,481 46,618 Excess tax benefits from stock-based compensation arrangements 5,083 7,521 Repurchases of common stock   (222,795 )   (196,802 ) Net cash provided by (used for) financing activities   (223,436 )   246,181 Effect of exchange rate changes on cash   (20,360 )   9,282 Net decrease in cash and cash equivalents (38,337 ) (381,755 ) Cash and cash equivalents at beginning of period   396,887   926,321 Cash and cash equivalents at end of period $ 358,550 $ 544,566         ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (unaudited)   Quarter Ended Nine Months Ended September 29,2012   October 1,2011 September 29,2012   October 1,2011 Sales: Global components $ 3,372,117 $ 3,648,858 $ 10,175,358 $ 11,410,789 Global ECS   1,590,214   1,537,999   4,827,065   4,539,002 Consolidated $ 4,962,331 $ 5,186,857 $ 15,002,423 $ 15,949,791   Operating income (loss): Global components $ 155,061 $ 194,178 $ 496,293 $ 647,094 Global ECS 55,273 53,710 176,721 156,480 Corporate (a)   (46,517 )   (38,726 )   (133,059 )   (126,914 ) Consolidated $ 163,817 $ 209,162 $ 539,955 $ 676,660   (a)   Includes restructuring, integration, and other charges of $14.6 million and $36.2 million for the third quarter and first nine months of 2012 and $8.8 million and $23.7 million for the third quarter and first nine months of 2011, 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.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