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Press release from Business Wire

Arrow Electronics Revenue Advances Year over Year

<p class='bwalignc'> -- Margins Expand in the Quarter -- </p> <p> </p>

Wednesday, October 30, 2013

Arrow Electronics Revenue Advances Year over Year

08:00 EDT Wednesday, October 30, 2013

ENGLEWOOD, Colo. (Business Wire) -- Arrow Electronics, Inc. (NYSE:ARW) today reported third quarter 2013 net income of $96.8 million, or $.95 per share on a diluted basis, compared with net income of $103.6 million, or $.94 per share on a diluted basis in the third quarter of 2012. Excluding certain items in both the third quarters of 2013 and 20121, net income would have been $119.9 million, or $1.18 per share on a diluted basis, in the third quarter of 2013 compared with net income of $119.3 million, or $1.09 per share on a diluted basis, in the third quarter of 2012. Third quarter sales of $5.05 billion increased 2 percent from sales of $4.96 billion in the prior year.

“We again produced excellent results in the third quarter, with revenue and adjusted earnings per share growing 2 percent and 8 percent, respectively, year over year. In a global macro environment that remains unsettled, we continue to execute well,” said Michael J. Long, chairman, president, and chief executive officer, “striking the right balance between maximizing our performance in the short term and investing in our long term strategy. In addition to growing the business and expanding margins, we invested in acquisitions that will accelerate our growth.”

Global components third-quarter sales of $3.47 billion increased 3 percent year over year and were in line with expectations. Sales, as adjusted, increased 1 percent year over year. In the Americas, sales increased 2 percent year over year. European sales, as adjusted, advanced 4 percent year over year. Sales in the Asia-Pacific region were essentially flat year over year. Global components operating income, as adjusted, grew 6 percent year over year to $169.1 million.

Global ECS third-quarter sales of $1.58 billion decreased 1 percent year over year. Sales, as adjusted, declined 2 percent year over year. In the Americas, sales growth was 3 percent year over year. In Europe, sales, as adjusted, decreased 14 percent year over year. The company noted that both regions were affected by the quarter end cut off, which was earlier than some of their suppliers. Global ECS operating income, as adjusted, grew 7 percent year over year to $63.7 million.

“In addition to growing revenue and earnings, we generated $81 million in cash flow from operations during the quarter. With $423 million of cash flow from operations on a trailing twelve month basis, we again surpassed our targeted goals” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer.

NINE-MONTHS RESULTS

Arrow's net income for the first nine months of 2013 was $264.6 million, or $2.53 per share on a diluted basis, compared with net income of $331.6 million, or $2.96 per share on a diluted basis in the first nine months of 2012. Excluding certain items in both the first nine months of 2013 and 20121, net income would have been $347.0 million, or $3.32 per share on a diluted basis, in the first nine months of 2013 compared with net income of $378.1 million, or $3.37 per share on a diluted basis, in the first nine months of 2012. In the first nine months of 2013, sales of $15.2 billion increased 1 percent from sales of $15.0 billion in the first nine months of 2012.

1 A reconciliation of non-GAAP adjusted financial measures including sales, as adjusted, operating income, as adjusted, net income attributable to shareholders, as adjusted, and net income per share, as adjusted to GAAP financial measures is presented in the reconciliation tables included below.

GUIDANCE

Looking ahead, the company currently expects to see normal seasonality in the fourth quarter of 2013. “In the fourth quarter, we believe that total sales will be between $5.6 billion and $6.0 billion, with global components sales between $3.2 billion and $3.4 billion and global enterprise computing solutions sales between $2.4 billion and $2.6 billion. We expect earnings per share, on a diluted basis, excluding any charges to be in the range of $1.56 to $1.68. Our guidance includes the impact of our recent Computerlinks acquisition, which closed on October 28th, 2013, assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding are expected to be 102.5 million, and the average USD to Euro exchange rate for the fourth quarter is 1.37 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 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 470 locations in 55 countries.

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, risks related to the integration of acquired businesses, changes in legal and regulatory matters, 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.

For a further discussion of factors to consider in connection with these forward-looking statements, investors should refer to Item 1A Risk Factors of the company's Annual Report on Form 10-K for the year ended December 31, 2012.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), the company also provides certain non-GAAP financial information relating to sales, operating income, net income attributable to shareholders, and net income per basic and diluted share. The company provides sales on a non-GAAP basis adjusted for the impact of changes in foreign currencies and certain other items that impact the year over year comparison. These other items include a prospective revision of sales related to a fulfillment contract to present these revenues on an agency basis as net fees, as compared to presenting gross sales (referred to as “change in presentation of sales” which had no impact on profitability or cash flow) and the impact of acquisitions by adjusting the company's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the period presented (referred to as "impact of acquisitions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for certain charges, credits, gains, and losses that the company believes impact the comparability of its results of operations. These charges, credits, gains, and losses arise out of the company's efficiency enhancement initiatives, acquisitions (including intangible assets amortization expense), prepayment of debt, and adjustments related to certain tax matters. A reconciliation of the company's non-GAAP financial information to GAAP is set forth in the tables 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 these items 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, sales, 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.

NON-GAAP SALES RECONCILIATION

(In thousands)

(Unaudited)

                         
Quarter Ended

September 28,
2013

September 29,
2012

 

% Change

 
Consolidated sales, as reported $ 5,048,211 $ 4,962,331 1.7 %
Impact of changes in foreign currencies - 60,237
Impact of acquisitions   5,488   37,636
Consolidated sales, as adjusted $ 5,053,699 $ 5,060,204 (.1 )%
 
Global components sales, as reported $ 3,467,285 $ 3,372,117 2.8 %
Impact of changes in foreign currencies - 36,876
Impact of acquisitions   5,488   37,636
Global components sales, as adjusted $ 3,472,773 $ 3,446,629 .8 %
 
Europe components sales, as reported $ 915,086 $ 840,826 8.8 %
Impact of changes in foreign currencies   -   40,251
Europe components sales, as adjusted $ 915,086 $

881,077

3.9 %
 
Global ECS sales, as reported $ 1,580,926 $ 1,590,214 (.6 )%
Impact of changes in foreign currencies   -   23,361
Global ECS sales, as adjusted $ 1,580,926 $ 1,613,575 (2.0 )%
 
ECS Europe sales, as reported $ 440,065 $ 482,011 (8.7 )%
Impact of changes in foreign currencies   -   26,698
ECS Europe sales, as adjusted $ 440,065 $ 508,709 (13.5 )%
 
Nine Months Ended

September 28,
2013

September 29,
2012

 

% Change

 
Consolidated sales, as reported $ 15,203,925 $ 15,002,423 1.3 %
Impact of changes in foreign currencies - 103,263
Impact of acquisitions 27,901 282,239
Change in presentation of sales   -   (280,626 )
Consolidated sales, as adjusted $ 15,231,826 $ 15,107,299 .8 %
 
Global components sales, as reported $ 10,058,555 $ 10,175,358 (1.1 )%
Impact of changes in foreign currencies - 69,586
Impact of acquisitions 27,901 116,567
Change in presentation of sales   -   (280,626 )
Global components sales, as adjusted $ 10,086,456 $ 10,080,885 .1 %
 
Europe components sales, as reported $ 2,703,471 $ 2,889,043 (6.4 )%
Impact of changes in foreign currencies - 77,548
Change in presentation of sales   -   (280,626 )
Europe components sales, as adjusted $ 2,703,471 $ 2,685,965 .7 %
 
Global ECS sales, as reported $ 5,145,370 $ 4,827,065 6.6 %
Impact of changes in foreign currencies - 33,677
Impact of acquisitions   -   165,672
Global ECS sales, as adjusted $ 5,145,370 $ 5,026,414 2.4 %
 
ECS Europe sales, as reported $ 1,583,975 $ 1,452,115 9.1 %
Impact of changes in foreign currencies - 40,020
Impact of acquisitions   -   165,672
ECS Europe sales, as adjusted $ 1,583,975 $ 1,657,807 (4.5 )%
 

ARROW ELECTRONICS, INC.

NON-GAAP EARNINGS RECONCILIATION

(In thousands except per share data)

(Unaudited)

                         

 

Quarter Ended Nine Months Ended

September 28,
2013

September 29,
2012

September 28,
2013

September 29,
2012

 
Operating income, as reported $ 162,736 $ 163,817 $ 456,163 $ 539,955
Intangible assets amortization expense 8,936 8,742 26,762 27,372
Restructuring, integration, and other charges   22,568   14,562   74,402   36,152
Operating income, as adjusted $ 194,240 $ 187,121 $ 557,327 $ 603,479
 
Net income attributable to shareholders, as reported $ 96,779 $ 103,617 $ 264,589 $ 331,628
Intangible assets amortization expense 7,074 7,145 21,219 22,081
Restructuring, integration, and other charges 16,077 8,576 52,260 24,419
Loss on prepayment of debt - - 2,627 -
Adjustments to tax reserves
Income taxes - - 5,362 -
Interest (net of taxes)   -   -   939   -
Net income attributable to shareholders, as adjusted $ 119,930 $ 119,338 $ 346,996 $ 378,128
 
Net income per basic share, as reported $ .96 $ .96 $ 2.56 $ 3.01
Intangible assets amortization expense .07 .07 .21 .20
Restructuring, integration, and other charges .16 .08 .51 .22
Loss on prepayment of debt - - .03 -
Adjustments to tax reserves
Income taxes - - .05 -
Interest (net of taxes)   -   -   .01   -
Net income per basic share, as adjusted $ 1.19 $ 1.10 $ 3.36 $ 3.43
 
Net income per diluted share, as reported $ .95 $ .94 $ 2.53 $ 2.96
Intangible assets amortization expense .07 .07 .20 .20
Restructuring, integration, and other charges .16 .08 .50 .22
Loss on prepayment of debt - - .03 -
Adjustments to tax reserves
Income taxes - - .05 -
Interest (net of taxes)   -   -   .01   -
Net income per diluted share, as adjusted $ 1.18 $ 1.09 $ 3.32 $ 3.37
 
      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.
 

ARROW ELECTRONICS, INC.

NON-GAAPSEGMENT RECONCILIATION

(In thousands)

(Unaudited)

                   
Quarter Ended Nine Months Ended

September 28,
2013

         

September 29,
2012

September 28,
2013

       

 

September 29,
2012

Global components operating income, as reported $ 164,096 $ 155,061 $ 432,534 $ 496,293
Intangible assets amortization expense   4,993   4,464   14,948   13,562
Global components operating income, as adjusted $ 169,089 $ 159,525 $ 447,482 $ 509,855
 
Global ECS operating income, as reported $ 59,757 $ 55,273 $ 202,070 $ 176,721
Intangible assets amortization expense   3,943   4,278   11,814   13,810
Global ECS operating income, as adjusted $ 63,700 $ 59,551 $ 213,884 $ 190,531
 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

                                     
Quarter Ended

 

Nine Months Ended

September 28,
2013

 

September 29,
2012

 

September 28,
2013

 

September 29,
2012

 
Sales $ 5,048,211 $ 4,962,331 $ 15,203,925 $ 15,002,423
Costs and expenses:
Cost of sales 4,376,551 4,299,612 13,200,621 12,971,981
Selling, general, and administrative expenses 453,920 456,521 1,376,199 1,369,431
Depreciation and amortization 32,436 27,819 96,540 84,904
Restructuring, integration, and other charges   22,568   14,562   74,402   36,152
  4,885,475   4,798,514   14,747,762   14,462,468
Operating income 162,736 163,817 456,163 539,955
Equity in earnings of affiliated companies 1,884 2,154 5,227 5,766
Loss on prepayment of debt - - 4,277 -
Interest and other financing expense, net   27,167   23,956   86,896   79,643
Income before income taxes 137,453 142,015 370,217 466,078
Provision for income taxes   40,490   38,323   105,260   134,182
Consolidated net income 96,963 103,692 264,957 331,896
Noncontrolling interests   184   75   368   268
Net income attributable to shareholders $ 96,779 $ 103,617 $ 264,589 $ 331,628
Net income per share:
Basic $ .96 $ .96 $ 2.56 $ 3.01
Diluted $ .95 $ .94 $ 2.53 $ 2.96
Weighted average shares outstanding:
Basic 100,750 108,301 103,269 110,245
Diluted 101,669 109,894 104,426 112,096
 

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

                   

September 28,
2013

December 31,
2012

ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 251,790 $ 409,684

Accounts receivable, net

4,568,553 4,923,898
Inventories 2,165,984 2,052,720
Other current assets   291,491   328,999
Total current assets   7,277,818   7,715,301
Property, plant, and equipment, at cost:
Land 24,000 23,944
Buildings and improvements 146,246 152,008
Machinery and equipment   1,105,548   1,030,983
1,275,794 1,206,935
Less: Accumulated depreciation and amortization   (659,249 )   (607,294 )
Property, plant, and equipment, net   616,545   599,641
Investments in affiliated companies 66,447 65,603
Intangible assets, net 393,052 414,033
Cost in excess of net assets of companies acquired 1,732,790 1,711,703
Other assets   279,397   279,406
Total assets $ 10,366,049 $ 10,785,687
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 3,431,341 $ 3,769,268
Accrued expenses 617,796 776,586
Short-term borrowings, including current portion of

long-term debt

  30,969   364,357
Total current liabilities   4,080,106   4,910,211
 
Long-term debt 1,913,852 1,587,478
Other liabilities 338,726 300,636
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in both 2013 and 2012
Issued – 125,424 shares in both 2013 and 2012 125,424 125,424
Capital in excess of par value 1,058,833 1,086,239
Treasury stock (24,707 and 19,423 shares in 2013 and

2012, respectively), at cost

(877,118 ) (652,867 )
Retained earnings 3,543,878 3,279,289
Foreign currency translation adjustment 211,585 182,632
Other   (33,745 )   (37,495 )
Total shareholders' equity 4,028,857 3,983,222
Noncontrolling interests   4,508   4,140
Total equity   4,033,365   3,987,362
Total liabilities and equity $ 10,366,049 $ 10,785,687
 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

         
Quarter Ended

September 28,
2013

         

September 29,
2012

Cash flows from operating activities:
Consolidated net income $ 96,963 $ 103,692
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 32,436 27,819
Amortization of stock-based compensation 11,465 10,715
Equity in earnings of affiliated companies (1,884 ) (2,154 )
Deferred income taxes (4,237 ) 1,634
Restructuring, integration, and other charges 16,077 8,576
Excess tax benefits from stock-based compensation arrangements (320 ) (102 )
Other 559 (1,443 )
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable 225,379 115,535
Inventories (34,314 ) 6,298
Accounts payable (237,258 ) (77,510 )
Accrued expenses (30,161 ) (32,565 )
Other assets and liabilities   6,427   15,834
Net cash provided by operating activities   81,132   176,329
Cash flows from investing activities:
Cash consideration paid for acquired businesses (34,010 ) (4,053 )
Acquisition of property, plant, and equipment   (31,904 )   (26,710 )
Net cash used for investing activities   (65,914 )   (30,763 )
Cash flows from financing activities:
Change in short-term and other borrowings 5,457 20,372
Repayment of long-term bank borrowings, net (157,600 ) (62,800 )
Proceeds from exercise of stock options 18,073 715
Excess tax benefits from stock-based compensation arrangements 320 102
Repurchases of common stock   (303 )   (64,997 )
Net cash used for financing activities   (134,053 )   (106,608 )
Effect of exchange rate changes on cash   24,734   (6,240 )
Net increase (decrease) in cash and cash equivalents (94,101 ) 32,718
Cash and cash equivalents at beginning of period   345,891   325,832
Cash and cash equivalents at end of period $ 251,790 $ 358,550
 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

                   
Nine Months Ended

September 28,
2013

September 29,
2012

Cash flows from operating activities:
Consolidated net income $ 264,957 $ 331,896
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 96,540 84,904
Amortization of stock-based compensation 24,247 24,861
Equity in earnings of affiliated companies (5,227 ) (5,766 )
Deferred income taxes 15,311 17,966
Restructuring, integration, and other charges 52,260 24,419
Excess tax benefits from stock-based compensation arrangements (6,937 ) (5,083 )
Loss on prepayment of debt 2,627 -
Other 182 (4,340 )
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable 386,542 235,512
Inventories (94,180 ) (99,523 )
Accounts payable (361,349 ) 31,915
Accrued expenses (204,013 ) (107,194 )
Other assets and liabilities   64,685   (42,284 )
Net cash provided by operating activities   235,645   487,283
Cash flows from investing activities:
Cash consideration paid for acquired businesses (43,392 ) (191,250 )
Acquisition of property, plant, and equipment (85,465 ) (75,574 )
Purchase of cost method investments   (3,000 )   (15,000 )
Net cash used for investing activities   (131,857 )   (281,824 )
Cash flows from financing activities:
Change in short-term and other borrowings (22,282 ) 7,795
Repayment of long-term bank borrowings, net (242,900 ) (25,000 )
Net proceeds from note offering 591,156 -
Redemption of senior notes (338,184 ) -
Proceeds from exercise of stock options 30,368 11,481
Excess tax benefits from stock-based compensation arrangements 6,937 5,083
Repurchases of common stock   (312,613 )   (222,795 )
Net cash used for financing activities   (287,518 )   (223,436 )
Effect of exchange rate changes on cash   25,836   (20,360 )
Net decrease in cash and cash equivalents (157,894 ) (38,337 )
Cash and cash equivalents at beginning of period   409,684   396,887
Cash and cash equivalents at end of period $ 251,790 $ 358,550

ARROW ELECTRONICS, INC.

SEGMENT INFORMATION

 (In thousands)

(Unaudited)

                     
Quarter Ended Nine Months Ended

September 28,
2013

 

 

September 29,
2012

September 28,
2013

 

 

September 29,
2012

Sales:
Global components $ 3,467,285 $ 3,372,117 $ 10,058,555 $ 10,175,358
Global ECS   1,580,926   1,590,214   5,145,370   4,827,065
Consolidated $ 5,048,211 $ 4,962,331 $ 15,203,925 $ 15,002,423
 
Operating income (loss):
Global components $ 164,096 $ 155,061 $ 432,534 $ 496,293
Global ECS 59,757 55,273 202,070 176,721
Corporate (a)   (61,117 )   (46,517 )   (178,441 )   (133,059 )
Consolidated $ 162,736 $ 163,817 $ 456,163 $ 539,955
 
(a)    

Includes restructuring, integration, and other charges of $22.6 million and $74.4 million for the third quarter and first nine months of 2013 and $14.6 million and $36.2 million for the third quarter and first nine months of 2012, respectively.

Arrow Electronics, Inc.
Greg Hanson
Vice President and Treasurer
303-824-4537
or
Paul J. Reilly
Executive Vice President, Finance and Operations & Chief Financial Officer
631-847-1872
or
Media Contact:
John Hourigan
Vice President, Global Communications
303-824-4586

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