ARW Arrow Electronics Inc

-- Margins Expand Over Prior Year --

-- Cash Flow from Operations of $159 Million --

Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2014 net income of $127.9 million, or $1.27 per share on a diluted basis, compared with net income of $89.9 million, or $.86 per share on a diluted basis in the second quarter of 2013. Excluding certain items1 in the second quarters of both 2014 and 2013, net income would have been $144.3 million, or $1.43 per share on a diluted basis, in the second quarter of 2014 compared with net income of $124.0 million, or $1.19 per share on a diluted basis, in the second quarter of 2013. Second-quarter sales of $5.68 billion increased 7 percent from sales of $5.31 billion in the prior year. Sales, as adjusted, increased 1 percent year over year.

“We delivered strong results in the second quarter as we continued to accomplish our strategic objectives. Earnings per share of $1.43 and sales of $5.7 billion were above the midpoints of our guidance. Global components, as well as the software and services portions of enterprise computing solutions, again delivered growth. Business conditions for the hardware portion of enterprise computing solutions improved from the first quarter as we anticipated,” said Michael J. Long, chairman, president, and chief executive officer.

Global components second-quarter sales of $3.57 billion increased 5 percent year over year. Sales in that segment, as adjusted, grew 2 percent year over year. Americas components sales increased 2 percent year over year. European components sales grew 9 percent year over year, or 3 percent as adjusted, marking the fifth consecutive quarter of year-over-year growth for the region on an as-adjusted basis. Components sales in the Asia-Pacific region increased 5 percent year over year.

Global enterprise computing solutions second-quarter sales of $2.11 billion grew 10 percent year over year. Sales in that segment, as adjusted, declined 1 percent year over year. The Americas and Europe continued to experience growth in infrastructure, security and virtualization software product lines, offset by a decline in proprietary servers.

“With $159 million in cash flow from operations in the second quarter, we again meaningfully exceeded our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “The highly effective management of our balance sheet and related strong cash flow provided us with the opportunity to both deploy capital toward our strategic initiatives and return approximately $50 million to shareholders through our stock repurchase program.”

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2014 was $235.0 million, or $2.33 per share on a diluted basis, compared with net income of $167.8 million, or $1.58 per share on a diluted basis in the first six months of 2013. Excluding certain items1 in both the first six months of 2014 and 2013, net income would have been $268.3 million, or $2.66 per share on a diluted basis, in the first six months of 2014 compared with net income of $227.1 million, or $2.14 per share on a diluted basis, in the first six months of 2013. In the first six months of 2014, sales of $10.76 billion increased 6 percent from sales of $10.16 billion in the first six months of 2013.

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 would expect market conditions for our global components and enterprise computing solutions businesses to remain consistent with the second quarter. We believe that total sales will be between $5.25 billion and $5.65 billion, with global components sales between $3.55 billion and $3.75 billion and global enterprise computing solutions sales between $1.7 billion and $1.9 billion. As a result of this outlook, we expect earnings per share, on a diluted basis, excluding any charges to be in the range of $1.26 to $1.38 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 100 million,” said Mr. Reilly.

Please refer to the CFO commentary, which can be found at www.arrow.com/investor, 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 in 58 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 Form 10-Q for the quarterly period ended June 28, 2014, as well as the company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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 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.

(In thousands except per share data)

(Unaudited)NON-GAAP SALES RECONCILIATION

 

Quarter Ended

June 28, 2014     June 29, 2013   % Change       Consolidated sales, as reported $ 5,676,539 $ 5,306,085 7.0%

Impact of changes in foreign currencies

- 62,739 Impact of acquisitions   -   263,707 Consolidated sales, as adjusted $ 5,676,539 $ 5,632,531 .8%

 

  Global components sales, as reported $ 3,569,344 $ 3,398,690 5.0% Impact of changes in foreign currencies - 41,407 Impact of acquisitions   -   55,169 Global components sales, as adjusted $ 3,569,344 $ 3,495,266 2.1%   Europe components sales, as reported $ 984,927 $ 901,748 9.2% Impact of changes in foreign currencies - 43,290 Impact of acquisitions   -   8,443 Europe components sales, as adjusted $ 984,927 $ 953,481 3.3%   Global ECS sales, as reported $ 2,107,195 $ 1,907,395 10.5% Impact of changes in foreign currencies - 21,332 Impact of acquisitions   -   208,538 Global ECS sales, as adjusted $ 2,107,195   $ 2,137,265 (1.4)%    

 

 

Six Months Ended

June 28, 2014 June 29, 2013 % Change   Consolidated sales, as reported $ 10,758,579 $ 10,155,714 5.9% Impact of changes in foreign currencies - 107,836 Impact of acquisitions   -   521,972 Consolidated sales, as adjusted $ 10,758,579 $ 10,785,522

(.3)%

 

  Global components sales, as reported $ 6,990,525 $ 6,591,270 6.1% Impact of changes in foreign currencies - 70,314 Impact of acquisitions   -   111,744 Global components sales, as adjusted $ 6,990,525 $ 6,773,328 3.2%   Europe components sales, as reported $ 1,973,860 $ 1,788,384 10.4% Impact of changes in foreign currencies - 75,687 Impact of acquisitions   -   17,039 Europe components sales, as adjusted $ 1,973,860 $ 1,881,110 4.9%   Global ECS sales, as reported $ 3,768,054 $ 3,564,444 5.7% Impact of changes in foreign currencies - 37,522 Impact of acquisitions   -   410,228 Global ECS sales, as adjusted $ 3,768,054   $ 4,012,194 (6.1)%      

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)NON-GAAP EARNINGS RECONCILIATION

 

  Quarter Ended Six Months Ended June 28, 2014   June 29, 2013 June 28, 2014   June 29, 2013         Operating income, as reported $ 208,269 $ 155,875 $ 386,009 $ 293,427 Intangible assets amortization expense 10,870 8,869 21,817 17,826 Restructuring, integration, and other charges   9,632   30,224   21,246   51,834 Operating income, as adjusted $ 228,771 $ 194,968 $ 429,072 $ 363,087   Net income attributable to shareholders, as reported $ 127,884 $ 89,935 $ 235,004 $ 167,810 Intangible assets amortization expense 8,867 7,029 17,774 14,145 Restructuring, integration, and other charges 7,526 20,688 15,546 36,183 Loss on prepayment of debt - - - 2,627 Settlement of tax matters Income taxes - 5,362 - 5,362 Interest (net of taxes)   -   939   -   939 Net income attributable to shareholders, as adjusted $ 144,277 $ 123,953 $ 268,324 $ 227,066   Net income per basic share, as reported $ 1.29 $ .87 $ 2.36 $ 1.61 Intangible assets amortization expense .09 .07 .18 .14 Restructuring, integration, and other charges .08 .20 .16 .35 Loss on prepayment of debt - - - .03 Settlement of tax matters Income taxes - .05 - .05 Interest (net of taxes)   -   .01   -   .01 Net income per basic share, as adjusted $ 1.45 $ 1.20 $ 2.69 $ 2.17   Net income per diluted share, as reported $ 1.27 $ .86 $ 2.33 $ 1.58 Intangible assets amortization expense .09 .07 .18 .13 Restructuring, integration, and other charges .07 .20 .15 .34 Loss on prepayment of debt - - - .02 Settlement of tax matters Income taxes - .05 - .05 Interest (net of taxes)   -   .01   -   .01 Net income per diluted share, as adjusted $ 1.43 $ 1.19 $ 2.66 $ 2.14    

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.

(In thousands except per share data)

(Unaudited)SEGMENT INFORMATION

 

  Quarter Ended

Six Months Ended

June 28, 2014   June 29, 2013 June 28, 2014 June 29, 2013 Sales:   Global components $ 3,569,344 $ 3,398,690 $ 6,990,525 $ 6,591,270 Global ECS   2,107,195   1,907,395   3,768,054   3,564,444 Consolidated $ 5,676,539 $ 5,306,085 $ 10,758,579 $ 10,155,714   Operating income (loss): Global components $ 159,642 $ 140,158 $ 320,788 $ 268,438 Global ECS 95,990 80,722 160,148 142,313 Corporate (a)   (47,363 )   (65,005 )   (94,927 )   (117,324 ) Consolidated $ 208,269 $ 155,875 $ 386,009 $ 293,427       (a)   Includes restructuring, integration, and other charges of $9.6 million and $21.2 million for the second quarter and first six months of 2014 and $30.2 million and $51.8 million for the second quarter and first six months of 2013, respectively.          

NON-GAAP SEGMENT RECONCILIATION

  Quarter Ended

Six Months Ended

June 28, 2014     June 29, 2013 June 28, 2014   June 29, 2013 Global components operating income, as reported $ 159,642 $ 140,158 $ 320,788   $ 268,438 Intangible assets amortization expense   5,458   4,940   11,006   9,955 Global components operating income, as adjusted $ 165,100 $ 145,098 $ 331,794 $ 278,393   Global ECS operating income, as reported $ 95,990 $ 80,722 $ 160,148 $ 142,313 Intangible assets amortization expense   5,412   3,929   10,811   7,871 Global ECS operating income, as adjusted $ 101,402 $ 84,651 $ 170,959 $ 150,184        

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

  Quarter Ended Six Months Ended June 28, 2014   June 29, 2013 June 28, 2014   June 29, 2013       Sales $ 5,676,539 $ 5,306,085 $ 10,758,579 $ 10,155,714 Costs and expenses: Cost of sales 4,929,018 4,616,513 9,307,230 8,824,070 Selling, general, and administrative expenses 489,908 470,874 967,811 922,279 Depreciation and amortization 39,712 32,599 76,283 64,104 Restructuring, integration, and other charges   9,632   30,224   21,246   51,834   5,468,270   5,150,210   10,372,570   9,862,287 Operating income 208,269 155,875 386,009 293,427 Equity in earnings of affiliated companies 1,181 1,360 2,598 3,343 Loss on prepayment of debt - - - 4,277 Interest and other financing expense, net   28,920   30,199   58,557   59,729 Income before income taxes 180,530 127,036 330,050 232,764 Provision for income taxes   52,470   37,000   94,798   64,770 Consolidated net income 128,060 90,036 235,252 167,994 Noncontrolling interests   176   101   248   184 Net income attributable to shareholders $ 127,884 $ 89,935 $ 235,004 $ 167,810 Net income per share: Basic $ 1.29 $ .87 $ 2.36 $ 1.61 Diluted

$

1.27 $ .86 $ 2.33 $ 1.58 Weighted-average shares outstanding: Basic 99,449 103,225 99,695 104,542 Diluted 100,562 104,024 100,980 105,892      

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

  June 28, 2014   December 31, 2013 (Unaudited) ASSETS Current assets:

Cash and cash equivalents

$ 308,936 $ 390,602

Accounts receivable, net

5,137,798 5,769,759 Inventories 2,295,216 2,167,287 Other current assets   280,436   258,122 Total current assets   8,022,386   8,585,770 Property, plant, and equipment, at cost: Land 24,023 24,051 Buildings and improvements 144,780 142,583 Machinery and equipment   1,163,463   1,113,987 1,332,266 1,280,621 Less: Accumulated depreciation and amortization   (690,835 )   (648,232 ) Property, plant, and equipment, net   641,431   632,389 Investments in affiliated companies 68,410 67,229 Intangible assets, net 419,282 426,069 Cost in excess of net assets of companies acquired 2,081,930 2,039,293 Other assets   326,154   310,133 Total assets $ 11,559,593 $ 12,060,883 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 4,074,627 $ 4,503,200 Accrued expenses 679,454 774,868 Short-term borrowings, including current portion of

long-term debt

  17,338   23,878 Total current liabilities   4,771,419   5,301,946   Long-term debt 2,103,960 2,226,132 Other liabilities 376,069 347,977 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2014 and 2013 Issued – 125,424 shares in both 2014 and 2013 125,424 125,424 Capital in excess of par value 1,065,657 1,071,075 Treasury stock (26,621 and 25,488 shares in 2014 and

2013, respectively), at cost

(1,009,351 ) (920,528 ) Retained earnings 3,913,713 3,678,709 Accumulated other comprehensive income   207,858   225,552 Total shareholders' equity 4,303,301 4,180,232 Noncontrolling interests   4,844   4,596 Total equity   4,308,145   4,184,828 Total liabilities and equity $ 11,559,593 $ 12,060,883      

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

  Quarter Ended June 28, 2014     June 29, 2013 Cash flows from operating activities: Consolidated net income $ 128,060 $ 90,036 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 39,712 32,599 Amortization of stock-based compensation 10,371 6,799 Equity in earnings of affiliated companies (1,181 ) (1,360 ) Deferred income taxes 5,338 (36 ) Restructuring, integration, and other charges 7,526 20,688 Excess tax benefits from stock-based compensation arrangements (386 ) (142 ) Other (120 ) 654 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (306,793 ) (227,817 ) Inventories (202,670 ) (34,489 ) Accounts payable 449,225 343,706 Accrued expenses 19,289 (415 ) Other assets and liabilities   11,064   103,694 Net cash provided by operating activities   159,435   333,917 Cash flows from investing activities: Acquisition of property, plant, and equipment   (29,160 )   (26,810 ) Net cash used for investing activities   (29,160 )   (26,810 ) Cash flows from financing activities: Change in short-term and other borrowings (2,566 ) (13,397 ) Repayment of long-term bank borrowings, net (35,000 ) (129,600 ) Proceeds from exercise of stock options 2,179 1,695 Excess tax benefits from stock-based compensation arrangements 386 142 Repurchases of common stock   (50,310 )   (198,806 ) Net cash used for financing activities   (85,311 )   (339,966 ) Effect of exchange rate changes on cash   5,689   14,599 Net increase (decrease) in cash and cash equivalents 50,653 (18,260 ) Cash and cash equivalents at beginning of period   258,283   364,151 Cash and cash equivalents at end of period $ 308,936 $ 345,891    

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Six Months Ended

June 28, 2014     June 29, 2013 Cash flows from operating activities: Consolidated net income $ 235,252 $ 167,994 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 76,283 64,104 Amortization of stock-based compensation 20,167 12,782 Equity in earnings of affiliated companies (2,598 ) (3,343 ) Deferred income taxes 15,979 19,548 Restructuring, integration, and other charges 15,546 36,183 Excess tax benefits from stock-based compensation arrangements (6,248 ) (6,617 ) Other 1,372 2,250 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 597,926 161,163 Inventories (130,669 ) (59,866 ) Accounts payable (410,063 ) (124,091 ) Accrued expenses (107,937 ) (173,852 ) Other assets and liabilities   (21,538 )   58,258 Net cash provided by operating activities   283,472   154,513 Cash flows from investing activities: Cash consideration paid for acquired businesses (60,224 ) (9,382 ) Acquisition of property, plant, and equipment (62,003 ) (53,561 ) Other   -   (3,000 ) Net cash used for investing activities   (122,227 )   (65,943 ) Cash flows from financing activities: Change in short-term and other borrowings (9,904 ) (27,739 ) Repayment of long-term bank borrowings, net (120,000 ) (85,300 ) Net proceeds from note offering - 591,156 Redemption of senior notes - (338,184 ) Proceeds from exercise of stock options 18,321 12,295 Excess tax benefits from stock-based compensation arrangements 6,248 6,617 Repurchases of common stock   (138,811 )   (312,310 ) Net cash used for financing activities   (244,146 )   (153,465 ) Effect of exchange rate changes on cash   1,235   1,102 Net decrease in cash and cash equivalents (81,666 )

(63,793

)

Cash and cash equivalents at beginning of period   390,602   409,684 Cash and cash equivalents at end of period $ 308,936 $ 345,891  

Arrow Electronics, Inc.Steven O’Brien, 303-824-4544Director, Investor RelationsorPaul J. Reilly, 631-847-1872Executive Vice President, Finance and Operations, &Chief Financial OfficerorMedia Contact:John Hourigan, 303-824-4586Vice President, Global Communications