ARW Arrow Electronics Inc

-- Operating Margins Expand Over Prior Year --

-- Cash Flow from Operations of $461 Million --

Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2015 net income of $123.9 million, or $1.28 per share on a diluted basis, compared with net income of $127.9 million, or $1.27 per share on a diluted basis, in the second quarter of 2014. Excluding certain items1 in the second quarters of 2015 and 2014, net income would have been $148.9 million, or $1.54 per share on a diluted basis, in the second quarter of 2015, compared with net income of $144.3 million, or $1.43 per share on a diluted basis, in the second quarter of 2014. Second-quarter sales of $5.83 billion increased 3 percent from sales of $5.68 billion in the prior year. Second-quarter sales, adjusted for the impact of acquisitions and changes in foreign currencies, also increased 3 percent year over year. In the second quarter of 2015, changes in foreign currencies had negative impacts on growth of $350 million on sales and $.10 or 7 percent on earnings per share on a diluted basis compared to the second quarter of 2014.

“Second-quarter sales exceeded the midpoint of our expectations. Excluding the impacts from changes in foreign currencies, EPS advanced nearly 16 percent year over year, with both our global components and enterprise computing solutions segments delivering sales growth and expanded operating margins. Both businesses continued to experience strong demand in Europe. Our focus on selling comprehensive solutions resulted in record second-quarter operating income and operating margin for our enterprise computing solutions business,” said Michael J. Long, chairman, president, and chief executive officer.

Global components second-quarter sales of $3.7 billion grew 4 percent year over year. Second-quarter sales, adjusted for acquisitions and changes in foreign currencies, grew 3 percent year over year. Americas components sales were flat year over year. Core components sales in the Americas grew 3 percent year over year. Europe components sales were flat year over year. Sales in the region, as adjusted, grew 11 percent year over year. Asia-Pacific components sales grew 11 percent year over year. Sales in the region, as adjusted, grew 4 percent year over year.

Global enterprise computing solutions second-quarter sales of $2.13 billion grew 2 percent year over year, adjusted for acquisitions and changes in foreign currencies. Sales, as reported, grew 1 percent year over year. Americas sales grew 9 percent year over year. Sales in the region, as adjusted, declined 1 percent year over year. Core enterprise computing solutions sales in the Americas region were flat year over year. Europe sales grew 8 percent on an as-adjusted basis. Sales in the region, as reported, declined 13 percent year over year. Both Americas and Europe experienced strong software growth.

“With $461 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 $78 million to shareholders through our stock repurchase program.”

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2015 was $230.0 million, or $2.37 per share on a diluted basis, compared with net income of $235.0 million, or $2.33 per share on a diluted basis in the first six months of 2014. Excluding certain items1 in both the first six months of 2015 and 2014, net income would have been $276.7 million, or $2.86 per share on a diluted basis, in the first six months of 2015 compared with net income of $268.3 million, or $2.66 per share on a diluted basis, in the first six months of 2014. In the first six months of 2015, sales of $10.83 billion increased 1 percent from sales of $10.76 billion in the first six months of 2014. Six-month sales, adjusted for acquisitions and changes in foreign currencies, increased 3 percent year over year.

GUIDANCE

“As we look to the third quarter, we believe that total sales will be between $5.55 billion and $5.95 billion, with global components sales between $3.65 billion and $3.85 billion, and global enterprise computing solutions sales between $1.9 billion and $2.1 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 $1.40 to $1.52 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 95.5 million. We are expecting the average USD to Euro exchange rate for the third quarter to be approximately $1.08 to €1. Based on this assumption, the weaker Euro will have a negative impact of $280 million or 5 percent on sales and $.08 or 6 percent on earnings per share on a diluted basis, respectively, when compared with the third quarter of 2014, and a negative impact of $40 million or 1 percent on sales and $.01 or 1 percent on earnings per share on a diluted basis, respectively, when compared with the second quarter of 2015,” said Mr. Reilly.

“Included in our guidance for the third quarter 2015 are $435 million of sales and $.11 of earnings per share on a diluted basis when compared with the third quarter of 2014, and $25 million of sales and no additional contribution to earnings per share on a diluted basis when compared with the second quarter of 2015, related to our closed acquisitions,” added 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 56 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, 2014.

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 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.

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.

  ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data) (Unaudited)

 

      Quarter Ended     Six Months Ended June 27, 2015     June 28, 2014 June 27, 2015     June 28, 2014   Sales $ 5,829,989 $ 5,676,539 $ 10,832,374 $ 10,758,579 Costs and expenses: Cost of sales 5,061,394 4,929,018 9,378,457 9,307,230 Selling, general, and administrative expenses 504,754 489,908 959,284 967,811 Depreciation and amortization 39,751 39,712 76,913 76,283 Restructuring, integration, and other charges   17,147   9,632   33,343   21,246   5,623,046   5,468,270   10,447,997   10,372,570 Operating income 206,943 208,269 384,377 386,009 Equity in earnings of affiliated companies 1,903 1,181 3,216 2,598 Interest and other financing expense, net 34,696 28,920 65,550 58,557 Other   1,500   -   2,435   - Income before income taxes 172,650 180,530 319,608 330,050 Provision for income taxes   47,967   52,470   88,834   94,798 Consolidated net income 124,683 128,060 230,774 235,252 Noncontrolling interests   751   176   784   248 Net income attributable to shareholders $ 123,932 $ 127,884 $ 229,990 $ 235,004 Net income per share: Basic $ 1.30 $ 1.29 $ 2.40 $ 2.36 Diluted $ 1.28 $ 1.27 $ 2.37 $ 2.33 Weighted average shares outstanding: Basic 95,638 99,449 95,776 99,695 Diluted 96,649 100,562 96,874 100,980     ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

 

      June 27, 2015     December 31, 2014 (Unaudited)

ASSETS

Current assets: Cash and cash equivalents $ 399,721 $ 400,355 Accounts receivable, net 5,084,531 6,043,850 Inventories 2,517,815 2,335,257 Other current assets   301,066     253,145     Total current assets   8,303,133     9,032,607     Property, plant, and equipment, at cost: Land 23,590 23,770 Buildings and improvements 159,470 144,530 Machinery and equipment   1,202,214     1,146,045   1,385,274 1,314,345 Less: Accumulated depreciation and amortization   (713,826 )   (678,046 ) Property, plant, and equipment, net   671,448     636,299    

Investments in affiliated companies

72,774

69,124

Intangible assets, net 438,670 335,711 Cost in excess of net assets of companies acquired 2,327,572 2,069,209 Other assets   298,217     292,351     Total assets $ 12,111,814   $ 12,435,301     LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 4,171,131 $ 5,027,103 Accrued expenses 719,232 797,464

Short-term borrowings, including current portion of long-term debt

  86,806     13,454     Total current liabilities   4,977,169     5,838,021     Long-term debt 2,544,388 2,067,898 Other liabilities 410,333 370,471   Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2015 and 2014 Issued – 125,424 shares in both 2015 and 2014 125,424 125,424 Capital in excess of par value 1,083,885 1,086,082

Treasury stock (31,008 and 29,529 shares in 2015 and 2014, respectively), at cost

(1,281,456 ) (1,169,673 ) Retained earnings 4,406,744 4,176,754 Accumulated other comprehensive loss   (210,567 )   (64,617 )   Total shareholders' equity 4,124,030 4,153,970 Noncontrolling interests   55,894     4,941     Total equity   4,179,924     4,158,911   Total liabilities and equity $ 12,111,814   $ 12,435,301       ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

      Quarter Ended June 27,     June 28, 2015 2014 Cash flows from operating activities: Consolidated net income $ 124,683 $ 128,060

Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:

Depreciation and amortization 39,751 39,712 Amortization of stock-based compensation 12,086 10,371 Equity in earnings of affiliated companies (1,903 ) (1,181 ) Deferred income taxes 14,115 5,338 Restructuring, integration, and other charges 12,894 7,526 Excess tax benefits from stock-based compensation arrangements (185 ) (386 ) Other 2,844 (120 )

Change in assets and liabilities, net of effects of acquired businesses:

Accounts receivable 143,882 (306,793 ) Inventories (131,399 ) (202,670 ) Accounts payable 259,287 449,225 Accrued expenses (3,104 ) 19,289 Other assets and liabilities   (11,917 )   11,064   Net cash provided by (used for) operating activities   461,034     159,435     Cash flows from investing activities: Cash consideration paid for acquired businesses (337,585 ) - Acquisition of property, plant, and equipment (37,670 ) (29,160 ) Other

 

-

    -   Net cash used for investing activities   (375,255 )   (29,160 )   Cash flows from financing activities: Change in short-term and other borrowings (5,051 ) (2,566 ) Proceeds from (repayment of) long-term bank borrowings, net 82,800 (35,000 ) Proceeds from exercise of stock options 1,898 2,179

Excess tax benefits from stock-based compensation arrangements

185 386 Repurchases of common stock (77,863 ) (50,310 ) Other   -     -   Net cash provided by (used for) financing activities   1,969     (85,311 )   Effect of exchange rate changes on cash   6,680     5,689   Net increase in cash and cash equivalents 94,428 50,653 Cash and cash equivalents at beginning of period   305,293     258,283   Cash and cash equivalents at end of period $ 399,721   $ 308,936       ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)         Six Months Ended June 27,     June 28, 2015 2014 Cash flows from operating activities: Consolidated net income $ 230,774 $ 235,252

Adjustments to reconcile consolidated net income to net cash provided by operations:

Depreciation and amortization 76,913 76,283 Amortization of stock-based compensation 22,006 20,167 Equity in earnings of affiliated companies (3,216 ) (2,598 ) Deferred income taxes 26,506 15,979 Restructuring, integration, and other charges 25,463 15,546 Excess tax benefits from stock-based compensation arrangements (5,842 ) (6,248 ) Other 4,574 1,372

Change in assets and liabilities, net of effects of acquired businesses:

Accounts receivable 1,079,153 597,926 Inventories (82,825 ) (130,669 ) Accounts payable (1,020,150 ) (410,063 ) Accrued expenses (124,829 ) (107,937 ) Other assets and liabilities   (9,089 )   (21,538 ) Net cash provided by operating activities   219,438     283,472     Cash flows from investing activities: Cash consideration paid for acquired businesses (470,674 ) (60,224 ) Acquisition of property, plant, and equipment (68,820 ) (62,003 ) Other   2,008     -   Net cash used for investing activities   (537,486 )   (122,227 )   Cash flows from financing activities: Change in short-term and other borrowings (3,817 ) (9,904 ) Proceeds from (repayment of) long-term bank borrowings, net 34,400 (120,000 ) Net proceeds from note offering 688,162 - Redemption of notes (254,313 ) - Proceeds from exercise of stock options 14,474 18,321

Excess tax benefits from stock-based compensation arrangements

5,842 6,248 Repurchases of common stock (156,424 ) (138,811 ) Other   (3,000 )   -   Net cash provided by (used for) financing activities   325,324     (244,146 )   Effect of exchange rate changes on cash   (7,910 )   1,235   Net decrease in cash and cash equivalents (634 ) (81,666 ) Cash and cash equivalents at beginning of period   400,355     390,602   Cash and cash equivalents at end of period $ 399,721   $ 308,936       ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP SALES RECONCILIATION

         

Quarter Ended

June 27,     June 28, % 2015 2014 Change   Consolidated sales, as reported $ 5,829,989 $ 5,676,539 2.7 % Impact of changes in foreign currencies - (348,234 ) Impact of acquisitions   47,722   390,897   Consolidated sales, as adjusted $ 5,877,711 $ 5,719,202   2.8 %   Global components sales, as reported $ 3,698,175 $ 3,569,344 3.6 % Impact of changes in foreign currencies - (190,880 ) Impact of acquisitions   47,722   242,595   Global components sales, as adjusted $ 3,745,897 $ 3,621,059   3.4 %   Europe components sales, as reported $ 986,735 $ 984,927 0.2 % Impact of changes in foreign currencies - (180,658 ) Impact of acquisitions   -   83,512   Europe components sales, as adjusted $ 986,735 $ 887,781   11.1 %   Asia components sales, as reported $ 1,237,865 $ 1,111,953 11.3 % Impact of changes in foreign currencies - (6,703 ) Impact of acquisitions   47,722   125,878   Asia components sales, as adjusted $ 1,285,587 $ 1,231,128   4.4 %   Global ECS sales, as reported $ 2,131,814 $ 2,107,195 1.2 % Impact of changes in foreign currencies - (157,354 ) Impact of acquisitions   -   148,302   Global ECS sales, as adjusted $ 2,131,814 $ 2,098,143   1.6 %   Europe ECS sales, as reported $ 678,278 $ 777,033 (12.7 )% Impact of changes in foreign currencies - (147,505 ) Impact of acquisitions   -   -   Europe ECS sales, as adjusted $ 678,278 $ 629,528   7.7 %   Americas ECS sales, as reported $ 1,453,536 $ 1,330,161 9.3 % Impact of changes in foreign currencies - (9,849 ) Impact of acquisitions   -   148,302   Americas ECS sales, as adjusted $ 1,453,536 $ 1,468,614   (1.0 )%     ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP SALES RECONCILIATION

         

 

Six Months Ended

June 27,     June 28, % 2015 2014 Change   Consolidated sales, as reported $ 10,832,374 $ 10,758,579 0.7 % Impact of changes in foreign currencies - (670,373 ) Impact of acquisitions   340,392   743,729   Consolidated sales, as adjusted $ 11,172,766 $ 10,831,935   3.1 %   Global components sales, as reported $ 7,044,938 $ 6,990,525 0.8 % Impact of changes in foreign currencies - (374,710 ) Impact of acquisitions   248,406   478,492   Global components sales, as adjusted $ 7,293,344 $ 7,094,307   2.8 %   Europe components sales, as reported $ 1,909,996 $ 1,973,861 (3.2 )% Impact of changes in foreign currencies - (352,999 ) Impact of acquisitions   57,361   164,637   Europe components sales, as adjusted $ 1,967,357 $ 1,785,499   10.2 %   Asia components sales, as reported $ 2,263,779 $ 2,142,648 5.7 % Impact of changes in foreign currencies - (15,591 ) Impact of acquisitions   187,699   251,099   Asia components sales, as adjusted $ 2,451,478 $ 2,378,156   3.1 %   Global ECS sales, as reported $ 3,787,436 $ 3,768,054 0.5 % Impact of changes in foreign currencies - (295,663 ) Impact of acquisitions   91,986   265,237   Global ECS sales, as adjusted $ 3,879,422 $ 3,737,628   3.8 %   Europe ECS sales, as reported $ 1,259,941 $ 1,442,012 (12.6 )% Impact of changes in foreign currencies - (272,229 ) Impact of acquisitions   -   -   Europe ECS sales, as adjusted $ 1,259,941 $ 1,169,783   7.7 %

 

Americas ECS sales, as reported $ 2,527,495 $ 2,326,042 8.7 % Impact of changes in foreign currencies - (23,434 ) Impact of acquisitions   91,986   265,237   Americas ECS sales, as adjusted $ 2,619,481 $ 2,567,845   2.0 %     ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP EARNINGS RECONCILIATION

 

 

      Quarter Ended     Six Months Ended June 27, 2015     June 28, 2014 June 27, 2015     June 28, 2014   Operating income, as reported $ 206,943 $ 208,269 $ 384,377 $ 386,009 Intangible assets amortization expense 13,917 10,870 25,024 21,817 Restructuring, integration, and other charges   17,147   9,632   33,343     21,246 Operating income, as adjusted $ 238,007 $ 228,771 $ 442,744   $ 429,072   Net income attributable to shareholders, as reported $ 123,932 $ 127,884 $ 229,990 $ 235,004 Intangible assets amortization expense 11,169 8,867 20,198 17,774 Restructuring, integration, and other charges 12,895 7,526 25,463 15,546 Loss on prepayment of debt - - 1,808 - (Gain)/loss on investments   921   -   (746 )   - Net income attributable to shareholders, as adjusted $ 148,917 $ 144,277 $ 276,713   $ 268,324   Net income per basic share, as reported $ 1.30 $ 1.29 $ 2.40 $ 2.36 Intangible assets amortization expense .12 .09 .21 .18 Restructuring, integration, and other charges .13 .08 .27 .16 Loss on prepayment of debt - - .02 - (Gain)/loss on investments   .01   -   (.01 )   - Net income per basic share, as adjusted $ 1.56 $ 1.45 $ 2.89   $ 2.69   Net income per diluted share, as reported $ 1.28 $ 1.27 $ 2.37 $ 2.33 Intangible assets amortization expense .12 .09 .21 .18 Restructuring, integration, and other charges .13 .07 .26 .15 Loss on prepayment of debt - - .02 - (Gain)/loss on investments   .01   -   (.01 )   - Net income per diluted share, as adjusted $ 1.54 $ 1.43 $ 2.86   $ 2.66   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 27, 2015     June 28, 2014 June 27, 2015     June 28, 2014 Sales: Global components $ 3,698,175 $ 3,569,344 $ 7,044,938 $ 6,990,525 Global ECS   2,131,814     2,107,195     3,787,436     3,768,054   Consolidated $ 5,829,989   $ 5,676,539   $ 10,832,374   $ 10,758,579     Operating income (loss): Global components $ 169,817 $ 159,642 $ 334,712 $ 320,788 Global ECS 98,394 95,990 165,911 160,148 Corporate (a)   (61,268 )   (47,363 )  

(116,246

)

 

  (94,927 ) Consolidated $ 206,943   $ 208,269   $ 384,377   $ 386,009    

(a)

      Includes restructuring, integration, and other charges of $17.1 million and $33.3 million for the second quarter and first six months of 2015 and $9.6 million and $21.2 million for the second quarter and first six months of 2014, respectively.  

NON-GAAP SEGMENT RECONCILIATION

        Quarter Ended    

Six Months Ended

June 27, 2015     June 28, 2014 June 27, 2015     June 28, 2014 Global components operating income, as reported $ 169,817 $ 159,642 $ 334,712 $ 320,788 Intangible assets amortization expense   7,146   5,458   12,928   11,006 Global components operating income, as adjusted $ 176,963 $ 165,100 $ 374,640 $ 331,794   Global ECS operating income, as reported $ 98,394 $ 95,990 $ 165,911 $ 160,148 Intangible assets amortization expense   6,771   5,412   12,096   10,811 Global ECS operating income, as adjusted $ 105,165 $ 101,402 $ 178,007 $ 170,959

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