ARW Arrow Electronics Inc

-- Margins Expand Over Prior Year --

-- Earnings Per Share of $1.45; Non-GAAP Earnings Per Share of $1.65 --

Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2016 net income of $134.3 million, or $1.45 per share on a diluted basis, compared with net income of $123.9 million, or $1.28 per share on a diluted basis, in the second quarter of 2015. Excluding certain items1, net income would have been $152.7 million, or $1.65 per share on a diluted basis, in the second quarter of 2016, compared with net income of $148.9 million, or $1.54 per share on a diluted basis, in the second quarter of 2015. Second-quarter sales of $5.97 billion increased 2 percent from sales of $5.83 billion in the prior year. Second-quarter sales, adjusted for the impact of acquisitions, were flat year over year.

“By increasingly delivering more complex solutions, we capture a greater reward. That was evidenced by our margin performance,” said Michael J. Long, chairman, president, and chief executive officer. “Our core businesses remain healthy, and we made significant progress in the quarter with respect to our digital transformation, expanding our cloud solutions, and capturing the opportunities afforded by IoT to sell the capabilities of our entire enterprise.”

Global components second-quarter sales of $3.83 billion grew 4 percent year over year. Second-quarter sales, as adjusted, grew 1 percent year over year. Americas components sales were flat year over year. Europe components sales grew 7 percent year over year. Sales in the region, as adjusted, grew 3 percent year over year. Asia-Pacific components sales grew 5 percent year over year. Sales in the region, as adjusted, were flat year over year.

Global enterprise computing solutions second-quarter sales of $2.14 billion were flat year over year. Americas sales declined 2 percent year over year. Sales in the region, as adjusted, declined 6 percent year over year. Europe sales grew 6 percent year over year. Sales in the region, as adjusted, grew 4 percent year over year. “Our software-led solutions drove enterprise computing solutions operating income up 10 percent year over year, and we believe this is the best measure of the momentum in our business,” added Mr. Long.

“Cash flow from operations was $148 million in the second quarter as we continue to exceed our cash flow target,” said Chris Stansbury, senior vice president and chief financial officer. “During the quarter, we returned approximately $31 million to shareholders through our stock repurchase program. We had approximately $286 million of remaining authorization under our share repurchase programs at the end of the second quarter.”

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2016 was $240.5 million, or $2.59 per share on a diluted basis, compared with net income of $230 million, or $2.37 per share on a diluted basis in the first six months of 2015. Excluding certain items1, net income would have been $285 million, or $3.07 per share on a diluted basis, in the first six months of 2016 compared with net income of $276.7 million, or $2.86 per share on a diluted basis, in the first six months of 2015. In the first six months of 2016, sales of $11.45 billion increased 6 percent from sales of $10.83 billion in the first six months of 2015.

___________________________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 third quarter, we believe that total sales will be between $5.65 billion and $6.05 billion, with global components sales between $3.725 billion and $3.925 billion, and global enterprise computing solutions sales between $1.925 billion and $2.125 billion. As a result of this outlook, we expect earnings per share on a diluted basis, to be in the range of $1.23 to $1.35, and earnings per share on a diluted basis, excluding any charges, to be in the range of $1.45 to $1.57 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 92.5 million. We are expecting the average USD-to-Euro exchange rate for the third quarter to be approximately $1.11 to €1,” 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 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations serving over 85 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 December 31, 2015.

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 Six Months Ended July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

  Sales $ 5,972,101 $ 5,829,989 $ 11,446,278 $ 10,832,374 Costs and expenses: Cost of sales 5,173,310 5,061,394 9,898,589 9,378,457 Selling, general, and administrative expenses 518,704 504,754 1,024,517 959,284 Depreciation and amortization 40,389 39,751 81,322 76,913 Restructuring, integration, and other charges   16,106   17,147   36,894   33,343   5,748,509   5,623,046   11,041,322   10,447,997 Operating income 223,592 206,943 404,956 384,377 Equity in earnings of affiliated companies 2,227 1,903 4,083 3,216 Interest and other financing expense, net 39,024 34,696 74,599 65,550 Other expense, net   -   1,500   -   2,435 Income before income taxes 186,795 172,650 334,440 319,608 Provision for income taxes   51,457   47,967   92,510   88,834 Consolidated net income 135,338 124,683 241,930 230,774 Noncontrolling interests   1,068   751   1,425   784 Net income attributable to shareholders $ 134,270 $ 123,932 $ 240,505 $ 229,990   Net income per share:

Basic

$ 1.46 $ 1.30 $ 2.62 $ 2.40 Diluted $ 1.45 $ 1.28 $ 2.59 $ 2.37   Weighted average shares outstanding: Basic 91,782 95,638 91,647 95,776 Diluted 92,693 96,649 92,771 96,874      

ARROW ELECTRONICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands except par value)

  July 2,

2016

December 31,

2015

(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 495,771 $ 273,090 Accounts receivable, net 5,704,633 6,161,418 Inventories, net 2,504,121 2,466,490 Other current assets   331,159     285,473   Total current assets   9,035,684     9,186,471   Property, plant, and equipment, at cost: Land 23,723 23,547 Buildings and improvements 171,125 162,011 Machinery and equipment   1,322,470     1,250,115   1,517,318 1,435,673 Less: Accumulated depreciation and amortization   (779,767 )   (735,495 ) Property, plant, and equipment, net   737,551     700,178   Investments in affiliated companies 75,985 73,376 Intangible assets, net 365,603 389,326 Cost in excess of net assets of companies acquired 2,418,958 2,368,832 Other assets   313,025     303,747   Total assets $ 12,946,806   $ 13,021,930   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 4,644,655 $ 5,192,665 Accrued expenses 701,960 819,463 Short-term borrowings, including current portion of long-term debt   111,259     44,024   Total current liabilities   5,457,874     6,056,152     Long-term debt 2,619,003 2,380,575 Other liabilities 421,048 390,392 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 1,092,323 1,107,314 Treasury stock (34,073 and 34,501 shares in 2016 and 2015, respectively), at cost (1,475,671 ) (1,480,069 ) Retained earnings 4,914,985 4,674,480 Accumulated other comprehensive loss   (262,560 )   (284,706 ) Total shareholders' equity 4,394,501 4,142,443 Noncontrolling interests   54,380     52,368   Total equity   4,448,881     4,194,811   Total liabilities and equity $ 12,946,806   $ 13,021,930      

ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

  Quarter Ended July 2,

2016

  June 27,

2015

Cash flows from operating activities: Consolidated net income $ 135,338 $ 124,683 Adjustments to reconcile consolidated net income to net cash used for operations: Depreciation and amortization 40,389 39,751 Amortization of stock-based compensation 10,398 12,086 Equity in earnings of affiliated companies (2,227 ) (1,903 ) Deferred income taxes 5,114 14,115 Excess tax benefits from stock-based compensation arrangements (807 ) (185 ) Other 1,492 2,844 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (467,492 ) 143,882 Inventories (67,101 ) (131,399 ) Accounts payable 429,416 259,287 Accrued expenses 45,952 9,790 Other assets and liabilities   17,448     (11,917 ) Net cash provided by operating activities   147,920     461,034     Cash flows from investing activities: Cash consideration paid for acquired businesses 1,017 (337,585 ) Acquisition of property, plant, and equipment (39,075 ) (37,670 ) Other   (12,000 )   -   Net cash used for investing activities   (50,058 )   (375,255 ) Cash flows from financing activities: Change in short-term and other borrowings 67,141 (5,051 ) Proceeds from (repayment of)long-term bank borrowings, net (32,000 ) 82,800 Proceeds from exercise of stock options 9,139 1,898 Excess tax benefits from stock-based compensation arrangements 807 185 Repurchases of common stock   (28,149 )   (77,863 ) Net cash provided by financing activities   16,938     1,969   Effect of exchange rate changes on cash   (13,684 )   6,680   Net increase in cash and cash equivalents 101,116 94,428 Cash and cash equivalents at beginning of period   394,655     305,293   Cash and cash equivalents at end of period $ 495,771   $ 399,721      

ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

  Six Months Ended   July 2,

2016

  June 27,

2015

Cash flows from operating activities: Consolidated net income $ 241,930 $ 230,774 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 81,322 76,913 Amortization of stock-based compensation 19,275 22,006 Equity in earnings of affiliated companies (4,083 ) (3,216 ) Deferred income taxes 27,669 26,506 Excess tax benefits from stock-based compensation arrangements (4,939 ) (5,842 ) Other 2,954 4,574 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 529,246 1,079,153 Inventories (22,490 ) (82,825 ) Accounts payable (606,678 ) (1,020,150 ) Accrued expenses (114,741 ) (99,366 ) Other assets and liabilities   (38,137 )   (9,089 ) Net cash provided by operating activities   111,328     219,438     Cash flows from investing activities: Cash consideration paid for acquired businesses (45,473 ) (470,674 ) Acquisition of property, plant, and equipment (88,336 ) (68,820 ) Other   (12,000 )   2,008   Net cash used for investing activities   (145,809 )   (537,486 ) Cash flows from financing activities: Change in short-term and other borrowings 67,611 (3,817 ) Proceeds from long-term bank borrowings, net 233,000 34,400 Net proceeds from note offering - 688,162 Redemption of notes - (254,313 ) Proceeds from exercise of stock options 14,844 14,474 Excess tax benefits from stock-based compensation arrangements 4,939 5,842 Repurchases of common stock (46,833 ) (156,424 ) Other   (3,000 )   (3,000 ) Net cash provided by financing activities   270,561     325,324   Effect of exchange rate changes on cash   (13,399 )   (7,910 ) Net increase (decrease) in cash and cash equivalents 222,681 (634 ) Cash and cash equivalents at beginning of year   273,090     400,355   Cash and cash equivalents at end of year $ 495,771   $ 399,721      

ARROW ELECTRONICS, INC.NON-GAAP SALES RECONCILIATION(In thousands)(Unaudited)

  Quarter Ended July 2,

2016

  June 27,

2015

% Change   Consolidated sales, as reported $ 5,972,101 $ 5,829,989 2.4 % Impact of changes in foreign currencies - (1,309 ) Impact of acquisitions   -   163,354   Consolidated sales, as adjusted $ 5,972,101 $ 5,992,034   (0.3 %)   Global components sales, as reported $ 3,832,972 $ 3,698,175 3.6 % Impact of changes in foreign currencies - (6,292 ) Impact of acquisitions   -   96,352   Global components sales, as adjusted $ 3,832,972 $ 3,788,235   1.2 %   Europe components sales, as reported $ 1,056,691 $ 986,735 7.1 % Impact of changes in foreign currencies - 10,728 Impact of acquisitions   -   24,584   Europe components sales, as adjusted $ 1,056,691 $ 1,022,047   3.4 %   Asia components sales, as reported $ 1,298,429 $ 1,237,865 4.9 % Impact of changes in foreign currencies - (15,840 ) Impact of acquisitions   -   71,768   Asia components sales, as adjusted $ 1,298,429 $ 1,293,793   0.4 %   Global ECS sales, as reported $ 2,139,129 $ 2,131,814 0.3 % Impact of changes in foreign currencies - 4,983 Impact of acquisitions   -   67,002   Global ECS sales, as adjusted $ 2,139,129 $ 2,203,799   (2.9 %)   Europe ECS sales, as reported $ 720,335 $ 678,278 6.2 % Impact of changes in foreign currencies - 13,608 Impact of acquisitions   -   -   Europe ECS sales, as adjusted $ 720,335 $ 691,886   4.1 %   Americas ECS sales, as reported $ 1,418,794 $ 1,453,536 (2.4 %) Impact of changes in foreign currencies - (8,624 ) Impact of acquisitions   -   67,002   Americas ECS sales, as adjusted $ 1,418,794 $ 1,511,914   (6.2 %)     ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)  

 

Six Months Ended July 2,

2016

  June 27,

2015

% Change   Consolidated sales, as reported $ 11,446,278 $ 10,832,374 5.7 % Impact of changes in foreign currencies - (61,267 ) Impact of acquisitions   38,437   531,508   Consolidated sales, as adjusted $ 11,484,715 $ 11,302,615   1.6 %   Global components sales, as reported $ 7,508,901 $ 7,044,938 6.6 % Impact of changes in foreign currencies - (46,059 ) Impact of acquisitions   -   313,757   Global components sales, as adjusted $ 7,508,901 $ 7,312,636   2.7 %   Europe components sales, as reported $ 2,115,123 $ 1,909,996 10.7 % Impact of changes in foreign currencies - (12,803 ) Impact of acquisitions   -   98,666   Europe components sales, as adjusted $ 2,115,123 $ 1,995,859   6.0 %   Asia components sales, as reported $ 2,476,297 $ 2,263,779 9.4 % Impact of changes in foreign currencies - (28,218 ) Impact of acquisitions   -   211,745   Asia components sales, as adjusted $ 2,476,297 $ 2,447,306   1.2 %   Global ECS sales, as reported $ 3,937,377 $ 3,787,436 4.0 % Impact of changes in foreign currencies - (15,208 ) Impact of acquisitions   38,437   217,751   Global ECS sales, as adjusted $ 3,975,814 $ 3,989,979   (0.4 %)   Europe ECS sales, as reported $ 1,327,783 $ 1,259,941 5.4 % Impact of changes in foreign currencies - 6,108 Impact of acquisitions   -   -   Europe ECS sales, as adjusted $ 1,327,783 $ 1,266,049   4.9 %   Americas ECS sales, as reported $ 2,609,594 $ 2,527,495 3.2 % Impact of changes in foreign currencies - (21,317 ) Impact of acquisitions   38,437   217,751   Americas ECS sales, as adjusted $ 2,648,031 $ 2,723,929   (2.8 %)     ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited)     Quarter Ended   Six Months Ended July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

  Operating income, as reported $ 223,592 $ 206,943 $ 404,956 $ 384,377 Intangible assets amortization expense 14,446 13,917 27,359 25,024 Restructuring, integration, and other charges   16,106     17,147     36,894     33,343   Operating income, as adjusted $ 254,144   $ 238,007   $ 469,209   $ 442,744     Net income attributable to shareholders, as reported $ 134,270 $ 123,932 $ 240,505 $ 229,990 Intangible assets amortization expense 13,562 13,917 26,475 25,024 Restructuring, integration, and other charges 16,106 17,147 36,894 33,343 Loss on prepayment of debt - - - 2,943 (Gain)/loss on investments - 1,500 - (508 ) Tax effect   (11,197 )   (7,579 )   (18,910 )   (14,079 ) Net income attributable to shareholders, as adjusted $ 152,741   $ 148,917   $ 284,964   $ 276,713     Net income per basic share, as reported $ 1.46 $ 1.30 $ 2.62 $ 2.40 Intangible assets amortization expense .15 .15 .29 .26 Restructuring, integration, and other charges .18 .18 .40 .35 Loss on prepayment of debt - - - .03 (Gain)/loss on investments - .02 - - Tax effect   (.12 )   (.08 )   (.21 )   (.15 ) Net income per basic share, as adjusted $ 1.66   $ 1.56   $ 3.11   $ 2.89     Net income per diluted share, as reported $ 1.45 $ 1.28 $ 2.59 $ 2.37 Intangible assets amortization expense .15 .14 .29 .26 Restructuring, integration, and other charges .17 .18 .40 .34 Loss on prepayment of debt - - - .03 (Gain)/loss on investments - .02 - - Tax effect   (.12 )   (.08 )   (.20 )   (.15 ) Net income per diluted share, as adjusted $ 1.65   $ 1.54   $ 3.07   $ 2.86      

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.SEGMENT INFORMATION(In thousands)(Unaudited)

  Quarter Ended Six Months Ended July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

Sales: Global components $ 3,832,972 $ 3,698,175 $ 7,508,901 $ 7,044,938 Global ECS   2,139,129     2,131,814     3,937,377     3,787,436   Consolidated $ 5,972,101   $ 5,829,989   $ 11,446,278   $ 10,832,374     Operating income (loss): Global components $ 178,385 $ 169,817 $ 349,155 $ 334,712 Global ECS 109,399 98,394 187,611 165,911 Corporate (a)   (64,192 )   (61,268 )   (131,810 )   (116,246 ) Consolidated $ 223,592   $ 206,943   $ 404,956   $ 384,377             (a)  

Includes restructuring, integration, and other charges of $16.1 million and $36.9million for the second quarter and six months ended 2016 and $17.1 million and $33.3million for the second quarter and six months ended 2015, respectively.

     

NON-GAAP SEGMENT RECONCILIATION

  Quarter Ended Six Months Ended July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

Global components operating income, as reported $ 178,385 $ 169,817 $ 349,155 $ 334,712 Intangible assets amortization expense   8,545   7,146   16,445   12,928 Global components operating income, as adjusted $ 186,930 $ 176,963 $ 365,600 $ 374,640   Global ECS operating income, as reported $ 109,399 $ 98,394 $ 187,611 $ 165,911 Intangible assets amortization expense   5,901   6,771   10,914   12,096 Global ECS operating income, as adjusted $ 115,300 $ 105,165 $ 198,525 $ 178,007  

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Arrow Electronics, Inc.Steven O’Brien, 303-824-4544Director, Investor RelationsorMedia Contact:John Hourigan, 303-824-4586Vice President, Global Communications