ARW Arrow Electronics Inc

-- Record Full-Year Sales and Earnings Per Share --

-- Fourth-Quarter Earnings Per Share of $1.81; Non-GAAP Earnings Per Share of $2.00 --

Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2016 net income of $165 million, or $1.81 per share on a diluted basis, compared with net income of $158 million, or $1.69 per share on a diluted basis, in the fourth quarter of 2015. Excluding certain items1, net income would have been $182 million, or $2.00 per share on a diluted basis, in the fourth quarter of 2016, compared with net income of $182 million, or $1.94 per share on a diluted basis, in the fourth quarter of 2015. Fourth-quarter sales of $6.44 billion decreased 5 percent from sales of $6.75 billion in the prior year. In the fourth quarter of 2016, changes in foreign currencies had negative impacts on growth of approximately $91 million or 1 percent on sales and $.04 or 2 percent on earnings per share on a diluted basis compared to the fourth quarter of 2015.

“Our digital transformation and IoT solutions spanning from sensor to sunset helped drive record full-year sales and earnings per share,” said Michael J. Long, chairman, president, and chief executive officer. “Our customers value our comprehensive portfolio of electronic components and embedded computing, datacenter, cloud, and reverse logistics solutions.”

Global components fourth-quarter sales of $4 billion grew 9 percent year over year. Fourth-quarter sales, as adjusted, grew 10 percent year over year. Americas components sales grew 4 percent year over year. Asia-Pacific components sales grew 22 percent year over year. Europe components sales declined 1 percent year over year. Sales in the region, as adjusted, grew 2 percent year over year. “Global components sales exceeded the high end of our expectations and were propelled by our investments in customer-facing sales and engineering resources,” said Mr. Long.

Global enterprise computing solutions fourth-quarter sales of $2.45 billion declined 21 percent year over year. Sales when compared to the fourth quarter of 2015 were unfavorably impacted by approximately $250 million due to a later calendar start to the fourth quarter of 2016, and by approximately $250 million from a decrease in hardware sales offset by an increase in software sales, which are recognized on a net basis. “Full-year 2016 global enterprise computing solutions operating income grew 4 percent year over year, and we believe this is the best measure of our business,” added Mr. Long.

FULL-YEAR RESULTS

Arrow’s net income for 2016 was $523 million, or $5.68 per share on a diluted basis, compared with net income of $498 million, or $5.20 per share on a diluted basis, in 2015. Excluding certain items1, net income would have been $610 million, or $6.63 per share on a diluted basis, in 2016 compared with net income of $592 million, or $6.19 per share on a diluted basis, in 2015. In 2016, sales of $23.83 billion increased 2 percent from sales of $23.28 billion in 2015. In 2016, changes in foreign currencies had negative impacts on growth of approximately $202 million, or 1 percent on sales, and $.08, or 1 percent, on earnings per share on a diluted basis compared to 2015.

“We delivered record results in 2016, and our business is increasingly differentiated from the competition. We have a built a solid foundation for 2017 and into the future,” said Mr. Long.

“Cash flow from operations was $356 million in 2016 approximating our cash flow target,” said Chris Stansbury, senior vice president and chief financial officer. “In the fourth quarter we reduced net leverage and we returned approximately $49 million to shareholders through our stock repurchase program. In 2016 we returned approximately $200 million to shareholders through our stock repurchase program. We had approximately $520 million of remaining authorization under our share repurchase programs at the end of the year.”

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 herein.

GUIDANCE

“As we look to the first quarter, we believe that total sales will be between $5.375 billion and $5.775 billion, with global components sales between $3.775 billion and $3.975 billion, and global enterprise computing solutions sales between $1.6 billion and $1.8 billion. As a result of this outlook, we expect earnings per share on a diluted basis, to be in the range of $1.18 to $1.30, and earnings per share on a diluted basis, excluding any charges, to be in the range of $1.37 to $1.49 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent and average diluted shares outstanding are expected to be 91 million. We are expecting the average USD-to-Euro exchange rate for the first quarter to be approximately $1.07 to €1. We estimate changes in foreign currencies will have negative impacts on growth of approximately $70 million, or 1 percent on sales, and $.03, or 2 percent, on earnings per share on a diluted basis compared to the first quarter of 2016,” said Mr. Stansbury.

Please refer to the CFO commentary, which can be found at investor.arrow.com, as a supplement to the company’s earnings release.

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 125,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 465 locations serving over 90 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 enterprise computing solutions 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 Dec. 31, 2016.

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 the impact of acquisitions by adjusting the company's operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest 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), loss on prepayment of debt, and (gain)/loss on investments. 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. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)         Quarter Ended Year Ended December 31, 2016     December 31, 2015 December 31, 2016     December 31, 2015   Sales $ 6,442,891 $ 6,751,342 $ 23,825,261 $ 23,282,020 Costs and expenses: Cost of sales 5,619,543 5,912,376 20,681,062 20,246,770 Selling, general, and administrative expenses 518,329 529,089 2,052,863 1,986,249 Depreciation and amortization 37,679 37,900 159,195 155,754 Restructuring, integration, and other charges   12,441   17,666   73,602   68,765   6,187,992   6,497,031   22,966,722   22,457,538 Operating income 254,899 254,311 858,539 824,482 Equity in earnings of affiliated companies 2,179 2,147 7,573 7,037 Gain on sale of investment — — — 2,008 Loss on prepayment of debt — — — 2,943 Interest and other financing expense, net 38,887 34,442 150,715 135,401 Other expense, net   —   1,500   —   3,000 Income before income taxes 218,191 220,516 715,397 692,183 Provision for income taxes   53,233   61,108   190,674   191,697 Consolidated net income 164,958 159,408 524,723 500,486 Noncontrolling interests   440   916   1,973   2,760 Net income attributable to shareholders $ 164,518 $ 158,492 $ 522,750 $ 497,726   Net income per share: Basic 1.84 1.71 5.75 5.26 Diluted 1.81 1.69 5.68 5.20   Weighted average shares outstanding: Basic 89,596 92,731 90,960 94,608 Diluted 90,692 94,039 92,033 95,686     ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)         December 31, 2016 December 31, 2015 ASSETS Current assets: Cash and cash equivalents $ 534,320 $ 273,090 Accounts receivable, net 6,746,687 6,161,418 Inventories, net 2,855,645 2,466,490 Other current assets   180,069     285,473   Total current assets   10,316,721     9,186,471   Property, plant, and equipment, at cost: Land 23,456 23,547 Buildings and improvements 175,141 162,011 Machinery and equipment   1,297,657     1,250,115   1,496,254 1,435,673 Less: Accumulated depreciation and amortization   (739,955 )   (735,495 ) Property, plant, and equipment, net   756,299     700,178   Investments in affiliated companies 88,401 73,376 Intangible assets, net 336,882 389,326 Goodwill 2,392,220 2,368,832 Other assets   315,843     303,747   Total assets $ 14,206,366   $ 13,021,930   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 5,774,151 $ 5,192,665 Accrued expenses 821,244 819,463 Short-term borrowings, including current portion of long-term debt   93,827     44,024   Total current liabilities   6,689,222     6,056,152   Long-term debt 2,696,334 2,380,575 Other liabilities 355,190 390,392 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2016 and 2015 Issued – 125,424 shares in both 2016 and 2015 125,424 125,424 Capital in excess of par value 1,112,114 1,107,314 Treasury stock (36,511 and 34,501 shares in 2016 and 2015, respectively), at cost (1,637,476 ) (1,480,069 ) Retained earnings 5,197,230 4,674,480 Accumulated other comprehensive loss   (383,854 )   (284,706 ) Total shareholders' equity 4,413,438 4,142,443 Noncontrolling interests   52,182     52,368   Total equity   4,465,620     4,194,811   Total liabilities and equity $ 14,206,366   $ 13,021,930       ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)     Quarter Ended December 31, 2016     December 31, 2015 Cash flows from operating activities: Consolidated net income $ 164,958 $ 159,408 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 37,679 37,900 Amortization of stock-based compensation 10,042 13,491 Equity in earnings of affiliated companies (2,179 ) (2,147 ) Deferred income taxes (2,061 ) (21,048 ) Excess tax benefits from stock-based compensation arrangements (96 )

(48

) Other 1,508 2,837 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (972,399 ) (1,125,272 ) Inventories (286,306 ) 2,100 Accounts payable 1,095,530 1,352,100 Accrued expenses 149,935 128,867 Other assets and liabilities   23,443     (4,053 ) Net cash provided by operating activities   220,054     544,135     Cash flows from investing activities: Purchase price adjustment (cash consideration paid for acquired businesses) 4,195 (1,821 ) Acquisition of property, plant, and equipment (38,354 ) (41,744 ) Proceeds from sale of facilities   —     3,496   Net cash used for investing activities   (34,159 )   (40,069 )   Cash flows from financing activities: Change in short-term and other borrowings 16,743 (42,576 ) Repayment of long-term bank borrowings, net (7,000 ) (366,700 ) Proceeds from exercise of stock options 2,281 178 Excess tax benefits from stock-based compensation arrangements 96 48 Repurchases of common stock (49,268 ) (149,833 ) Other   (190 )   (1,937 ) Net cash used for financing activities   (37,338 )   (560,820 ) Effect of exchange rate changes on cash   1,348     (6,900 ) Net increase (decrease) in cash and cash equivalents 149,905 (63,654 ) Cash and cash equivalents at beginning of period   384,415     336,744   Cash and cash equivalents at end of period $ 534,320   $ 273,090       ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)       Year Ended December 31, 2016     December 31, 2015 Cash flows from operating activities: Consolidated net income $ 524,723 $ 500,486 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 159,195 155,754 Amortization of stock-based compensation 39,825 47,274 Equity in earnings of affiliated companies (7,573 ) (7,037 ) Deferred income taxes 28,130 5,833 Gain on sale of investment — (2,008 ) Excess tax benefits from stock-based compensation arrangements (5,049 ) (5,911 ) Other 5,972 10,894 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (636,944 ) (68,990 ) Inventories (403,980 ) (42,790 ) Accounts payable 582,165 33,398 Accrued expenses 47,020 56,139 Other assets and liabilities   22,322     (27,963 ) Net cash provided by operating activities   355,806     655,079     Cash flows from investing activities: Cash consideration paid for acquired businesses (64,751 ) (514,731 ) Acquisition of property, plant, and equipment (164,695 ) (154,800 ) Proceeds from sale of facilities — 3,496 Proceeds from sale of investment — 2,008 Other   (12,000 )   —   Net cash used for investing activities   (241,446 )   (664,027 )   Cash flows from financing activities: Change in short-term and other borrowings 48,684 (46,645 ) Proceeds from (repayment of) long-term bank borrowings, net 313,000 (128,000 ) Net proceeds from note offering — 688,162 Redemption of notes — (254,313 ) Proceeds from exercise of stock options 18,967 14,900 Excess tax benefits from stock-based compensation arrangements 5,049 5,911 Repurchases of common stock (216,446 ) (356,434 ) Other   (3,190 )   (7,768 ) Net cash provided by (used for) financing activities   166,064     (84,187 ) Effect of exchange rate changes on cash   (19,194 )   (34,130 ) Net increase (decrease) in cash and cash equivalents 261,230 (127,265 ) Cash and cash equivalents at beginning of period   273,090     400,355   Cash and cash equivalents at end of period $ 534,320   $ 273,090       ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)     Quarter Ended     December 31, 2016     December 31, 2015 % Change   Consolidated sales, as reported $ 6,442,891 $ 6,751,342 (4.6

)

%

Impact of changes in foreign currencies — (91,058 ) Impact of acquisitions   —   66,777   Consolidated sales, as adjusted $ 6,442,891 $ 6,727,061   (4.2

)

%

  Global components sales, as reported $ 3,995,491 $ 3,668,804 8.9

 

%

Impact of changes in foreign currencies — (26,949 ) Impact of acquisitions   —   4,850   Global components sales, as adjusted $ 3,995,491 $ 3,646,705   9.6

 

%

  Europe components sales, as reported $ 963,349 $ 972,125 (0.9

)

%

Impact of changes in foreign currencies — (28,341 ) Impact of acquisitions   —   143   Europe components sales, as adjusted $ 963,349 $ 943,927   2.1

 

%

  Asia components sales, as reported $ 1,487,816 $ 1,215,242 22.4

 

%

Impact of changes in foreign currencies — 786 Impact of acquisitions   —   —   Asia components sales, as adjusted $ 1,487,816 $ 1,216,028   22.4

 

%

  Global ECS sales, as reported $ 2,447,400 $ 3,082,538 (20.6

)

%

Impact of changes in foreign currencies — (64,108 ) Impact of acquisitions   —   61,927   Global ECS sales, as adjusted $ 2,447,400 $ 3,080,357   (20.5

)

%

  Europe ECS sales, as reported $ 818,363 $ 1,054,926 (22.4

)

%

Impact of changes in foreign currencies — (70,254 ) Impact of acquisitions   —   —   Europe ECS sales, as adjusted $ 818,363 $ 984,672   (16.9

)

%

  Americas ECS sales, as reported $ 1,629,037 $ 2,027,612 (19.7

)

%

Impact of changes in foreign currencies — 6,145 Impact of acquisitions   —   61,927   Americas ECS sales, as adjusted $ 1,629,037 $ 2,095,684   (22.3

)

%

    ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)         Year Ended December 31, 2016     December 31, 2015 % Change   Consolidated sales, as reported $ 23,825,261 $ 23,282,020 2.3

 

%

Impact of changes in foreign currencies — (201,764 ) Impact of acquisitions   48,148   680,798   Consolidated sales, as adjusted $ 23,873,409 $ 23,761,054   0.5

 

%

  Global components sales, as reported $ 15,408,839 $ 14,405,793 7.0

 

%

Impact of changes in foreign currencies — (79,175 ) Impact of acquisitions   9,711   338,553   Global components sales, as adjusted $ 15,418,550 $ 14,665,171   5.1

 

%

  Europe components sales, as reported $ 4,086,607 $ 3,874,744 5.5

 

%

Impact of changes in foreign currencies — (52,718 ) Impact of acquisitions   —   104,634   Europe components sales, as adjusted $ 4,086,607 $ 3,926,660   4.1

 

%

  Asia components sales, as reported $ 5,400,429 $ 4,720,210 14.4

 

%

Impact of changes in foreign currencies — (22,458 ) Impact of acquisitions   —   211,745   Asia components sales, as adjusted $ 5,400,429 $ 4,909,497   10.0

 

%

  Global ECS sales, as reported $ 8,416,422 $ 8,876,227 (5.2 )% Impact of changes in foreign currencies — (122,589 ) Impact of acquisitions   38,437   342,245   Global ECS sales, as adjusted $ 8,454,859 $ 9,095,883   (7.0

)

%

  Europe ECS sales, as reported $ 2,686,078 $ 2,913,995 (7.8

)

%

Impact of changes in foreign currencies — (111,522 ) Impact of acquisitions   —   —   Europe ECS sales, as adjusted $ 2,686,078 $ 2,802,473  

(4.2

)

%

  Americas ECS sales, as reported $ 5,730,344 $ 5,962,232 (3.9

)

%

Impact of changes in foreign currencies — (11,067 ) Impact of acquisitions   38,437   342,245   Americas ECS sales, as adjusted $ 5,768,781 $ 6,293,410   (8.3

)

%

    ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited)   Three months ended December 31, 2016    

ReportedGAAPmeasure

    Intangibleamortizationexpense     Restructuring& Integrationcharges     Other*     Non-GAAPmeasure Operating income $ 254,899 $ 13,634 $ 12,441 $ — $ 280,974 Income before income taxes 218,191 13,634 12,441 — 244,266 Provision for income taxes 53,233 4,870 3,733 — 61,836 Consolidated net income 164,958 8,764 8,708 — 182,430 Noncontrolling interests 440 336 — — 776 Net income attributable to shareholders $ 164,518 $ 8,428 $ 8,708 $ — $ 181,654 Net income per diluted share 1.81 0.09 0.10 — 2.00 Effective tax rate 24.4 % 25.3 %                                 Three months ended December 31, 2015 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other* Non-GAAPmeasure Operating income $ 254,311 11,743 17,666 — 283,720 Income before income taxes 220,516 11,743 17,666 1,500 251,425 Provision for income taxes 61,108 2,206 4,467 579 68,360 Consolidated net income 159,408 9,537 13,199 921 183,065 Noncontrolling interests 916 — — — 916 Net income attributable to shareholders $ 158,492 9,537 13,199 921 182,149 Net income per diluted share 1.69 0.10 0.14 0.01 1.94 Effective tax rate 27.7 % 27.2 %                                 Year Ended December 31, 2016 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other* Non-GAAPmeasure Operating income $ 858,539 54,886 73,602 — 987,027 Income before income taxes 715,397 54,886 73,602 — 843,885 Provision for income taxes 190,674 17,226 22,977 — 230,877 Consolidated net income 524,723 37,660 50,625 — 613,008 Noncontrolling interests 1,973 1,275 — — 3,248 Net income attributable to shareholders $ 522,750 36,385 50,625 — 609,760 Net income per diluted share 5.68 0.40 0.55 — 6.63 Effective tax rate 26.7 % 27.4 %                                 Year Ended December 31, 2015 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other* Non-GAAPmeasure Operating income $ 824,482 51,036 68,765 — 944,283 Income before income taxes 692,183 51,036 68,765 3,935 815,919 Provision for income taxes 191,697 9,780 17,461 1,952 220,890 Consolidated net income 500,486 41,256 51,304 1,983 595,029 Noncontrolling interests 2,760 — — — 2,760 Net income attributable to shareholders $ 497,726 41,256 51,304 1,983 592,269 Net income per diluted share 5.20 0.43 0.54 0.02 6.19 Effective tax rate 27.7 % 27.1 %                                 *Other includes gain/loss on sale of investments and loss on prepayment of debt.     ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (Unaudited)             Quarter Ended Year Ended December 31, 2016     December 31, 2015 December 31, 2016     December 31, 2015 Sales: Global components $ 3,995,491 $ 3,668,804 $ 15,408,839 $ 14,405,793 Global ECS   2,447,400     3,082,538     8,416,422     8,876,227   Consolidated $ 6,442,891   $ 6,751,342   $ 23,825,261   $ 23,282,020   Operating income (loss): Global components $ 161,804 $ 149,940 $ 686,466 $ 649,396 Global ECS 158,011 173,919 441,803 424,063 Corporate (a)   (64,916 )   (69,548 )   (269,730 )   (248,977 ) Consolidated $ 254,899   $ 254,311   $ 858,539   $ 824,482     (a)   Includes restructuring, integration, and other charges of $12.4 million and $73.6 million for the fourth quarter and Year Ended 2016 and $17.7 million and $68.8 million for the fourth quarter and Year Ended 2015, respectively.     NON-GAAP SEGMENT RECONCILIATION             Quarter Ended Year Ended December 31, 2016     December 31, 2015 December 31, 2016     December 31, 2015 Global components operating income, as reported $161,804 $ 149,940 $ 686,466 $ 649,396 Intangible assets amortization expense 7,497   6,657   31,621   27,125 Global components operating income, as adjusted $169,301   $ 156,597   $ 718,087   $ 676,521 Global ECS operating income, as reported $158,011 $ 173,919 $ 441,803 $ 424,063 Intangible assets amortization expense 6,137   5,086   23,265   23,911 Global ECS operating income, as adjusted $164,148   $ 179,005   $ 465,068   $ 447,974  

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Arrow Electronics, Inc.Steven O’Brien,Vice President, Investor Relations303-824-4544orMedia Contact:John Hourigan,Vice President, Global Communications303-824-4586