ARW Arrow Electronics Inc

-- Record Second-Quarter Sales and Gross Profit --

-- Second-Quarter Earnings Per Share of $1.11; Non-GAAP Earnings Per Share of $1.78 --

Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2017 sales of $6.47 billion, an increase of 8 percent from sales of $5.97 billion in the second quarter of 2016. Second-quarter net income of $100 million, or $1.11 per share on a diluted basis, compared with net income of $134 million, or $1.45 per share on a diluted basis, in the second quarter of 2016. Excluding certain items1, net income would have been $160 million, or $1.78 per share on a diluted basis, in the second quarter of 2017, compared with net income of $153 million, or $1.65 per share on a diluted basis, in the second quarter of 2016. In the second quarter of 2017, changes in foreign currencies had negative impacts on growth of approximately $57 million or 1 percent on sales and $.01 or 1 percent on earnings per share on a diluted basis compared to the second quarter of 2016.

“Our investments in our digital platform, IoT and cloud capabilities, and sustainable technology solutions have allowed Arrow to stay ahead of changes to the distribution industry and the broader technology environment,” said Michael J. Long, chairman, president, and chief executive officer. “These investments drove record second-quarter gross profit and record second-quarter sales that were above the high end of our expectation.”

Global components second-quarter sales of $4.46 billion grew 16 percent year over year. Second-quarter sales, as adjusted, grew 17 percent year over year. Americas components sales grew 15 percent year over year. Asia-Pacific components sales grew 21 percent year over year. Europe components sales grew 13 percent year over year. Sales in the region, as adjusted, grew 16 percent year over year. Global components second-quarter operating income grew 11 percent year over year and grew 9 percent year over year excluding amortization of intangibles expense. “Global components sales exceeded the high end of our expectation for the third quarter in a row driven by robust customer growth and deeper engagements with existing customers,” said Mr. Long.

Global enterprise computing solutions second-quarter sales of $2 billion declined 6 percent year over year. Second-quarter sales, as adjusted, declined 5 percent year over year. Global enterprise computing solutions second-quarter operating income declined 2 percent year over year and declined 3 percent year over year excluding amortization of intangibles expense. “Our industry-leading infrastructure software and cloud portfolio produced strong growth again this quarter, but were offset by declines in legacy hardware,” added Mr. Long.

“Second-quarter cash flow from operations was negative $112 million. We are making substantial working capital investments to support our rapid growth, and believe these organic investments in our business have high return potential longer term,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. During the second quarter we returned approximately $55 million to shareholders through our stock repurchase program. We had approximately $409 million of remaining authorization under our share repurchase programs at the end of the second quarter.”

SIX-MONTH RESULTS

In the first six months of 2017, Arrow’s sales of $12.22 billion increased 7 percent from sales of $11.45 billion in the first six months of 2016. Net income for the first six months of 2017 was $213 million, or $2.37 per share on a diluted basis, compared with net income of $241 million, or $2.59 per share on a diluted basis in the first six months of 2016. Excluding certain items1, net income would have been $292 million, or $3.24 per share on a diluted basis, in the first six months of 2017 compared with net income of $285 million, or $3.07 per share on a diluted basis, in the first six months of 2016. In the first six months of 2017, changes in foreign currencies had negative impacts on growth of approximately $130 million or 1 percent on sales and $.05 or 2 percent on earnings per share on a diluted basis compared to the first six months of 2016.

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 $6.325 billion and $6.725 billion, with global components sales between $4.4 billion and $4.6 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 $1.49 to $1.61, and earnings per share on a diluted basis, excluding any charges, to be in the range of $1.74 to $1.86 per share. Our guidance assumes an average tax rate of 27 to 29 percent and average diluted shares outstanding are expected to be 89 million. We are expecting the average USD-to-Euro exchange rate for the third quarter to be approximately $1.15 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 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, income, or expense 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 to exclude identifiable intangible amortization, restructuring, integration, and other charges, and 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), and financing activities. 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 1, 2017     July 2, 2016 July 1, 2017     July 2, 2016         Sales $ 6,465,346   $ 5,972,101   $ 12,224,898   $ 11,446,278 Costs and expenses: Cost of sales 5,641,380 5,173,310 10,641,045 9,898,589 Selling, general, and administrative expenses 532,347 518,704 1,047,866 1,024,517 Depreciation and amortization 37,381 40,389 74,522 81,322 Restructuring, integration, and other charges 24,416   16,106   39,921   36,894 6,235,524   5,748,509   11,803,354   11,041,322 Operating income 229,822 223,592 421,544 404,956 Equity in earnings of affiliated companies 724 2,227 1,649 4,083 Gain on sale of investment 750 — 750 — Loss on extinguishment of debt 58,759 — 58,759 — Interest and other financing expense, net 42,358   39,024   80,431   74,599 Income before income taxes 130,179 186,795 284,753 334,440 Provision for income taxes 29,575   51,457   68,799   92,510 Consolidated net income 100,604 135,338 215,954 241,930 Noncontrolling interests 925   1,068   2,507   1,425 Net income attributable to shareholders $ 99,679   $ 134,270   $ 213,447   $ 240,505   Net income per share: Basic $ 1.12   $ 1.46   $ 2.40   $ 2.62 Diluted $ 1.11   $ 1.45   $ 2.37   $ 2.59   Weighted average shares outstanding: Basic 88,876 91,782 89,079 91,647 Diluted 89,837 92,693 90,146 92,771     ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)             July 1, 2017 December 31, 2016   ASSETS Current assets: Cash and cash equivalents $ 419,918 $ 534,320 Accounts receivable, net 6,531,452 6,746,687 Inventories 3,045,377 2,855,645 Other current assets 226,415   180,069   Total current assets 10,223,162   10,316,721   Property, plant, and equipment, at cost: Land 13,261 23,456 Buildings and improvements 157,927 175,141 Machinery and equipment 1,264,003   1,297,657   1,435,191 1,496,254 Less: Accumulated depreciation and amortization (645,257 ) (739,955 ) Property, plant, and equipment, net 789,934   756,299   Investments in affiliated companies 86,371 88,401 Intangible assets, net 317,435 336,882 Goodwill 2,446,864 2,392,220 Other assets 336,259   315,843   Total assets $ 14,200,025   $ 14,206,366   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 5,270,311 $ 5,774,151 Accrued expenses 742,086 821,244 Short-term borrowings, including current portion of long-term debt 427,033   93,827   Total current liabilities 6,439,430   6,689,222   Long-term debt 2,642,043 2,696,334 Other liabilities 367,696 355,190 Commitments and contingencies (Note L) Equity: Shareholders' equity: Common stock, par value $1: Authorized - 160,000 shares in both 2017 and 2016 Issued - 125,424 shares in both 2017 and 2016 125,424 125,424 Capital in excess of par value 1,098,979 1,112,114 Treasury stock (37,165 and 36,511 shares in 2017 and 2016, respectively), at cost (1,715,587 ) (1,637,476 ) Retained earnings 5,410,677 5,197,230 Accumulated other comprehensive loss (212,818 ) (383,854 ) Total shareholders' equity 4,706,675 4,413,438 Noncontrolling interests 44,181   52,182   Total equity 4,750,856   4,465,620   Total liabilities and equity $ 14,200,025   $ 14,206,366       ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)         Quarter Ended July 1, 2017     July 2, 2016 Cash flows from operating activities: Consolidated net income $ 100,604 $ 135,338 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 37,381 40,389 Amortization of stock-based compensation 9,816 10,398 Equity in earnings of affiliated companies (724 ) (2,227 ) Loss on extinguishment of debt 58,759 — Deferred income taxes (2,113 ) 5,114 Other 1,957 1,492 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (528,948 ) (467,492 ) Inventories (111,760 ) (67,101 ) Accounts payable 380,647 429,416 Accrued expenses 3,518 45,952 Other assets and liabilities (61,357 ) 17,448   Net cash provided by (used for) operating activities (112,220 ) 148,727     Cash flows from investing activities: Cash consideration paid for acquired businesses (2,534 ) 1,017 Acquisition of property, plant, and equipment (39,788 ) (39,075 ) Proceeds from sale of property, plant, and equipment 16,547 — Other (3,000 ) (12,000 ) Net cash used for investing activities (28,775 ) (50,058 )   Cash flows from financing activities: Change in short-term and other borrowings (36,128 ) 67,141 Proceeds from long-term bank borrowings, net 179,318 (32,000 ) Net proceeds from note offering 494,625 — Redemption of notes (558,100 ) — Proceeds from exercise of stock options 3,438 9,139 Repurchases of common stock (54,816 ) (28,149 ) Other (945 ) —   Net cash provided by financing activities 27,392   16,131   Effect of exchange rate changes on cash 11,959   (13,684 ) Net increase (decrease) in cash and cash equivalents (101,644 ) 101,116 Cash and cash equivalents at beginning of period 521,562   394,655   Cash and cash equivalents at end of period $ 419,918   $ 495,771       ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)         Six Months Ended July 1, 2017     July 2, 2016 Cash flows from operating activities: Consolidated net income $ 215,954 $ 241,930 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 74,522 81,322 Amortization of stock-based compensation 21,391 19,275 Equity in earnings of affiliated companies (1,649 ) (4,083 ) Loss on extinguishment of debt 58,759 — Deferred income taxes 11,825 27,669 Other 5,208 2,954 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 397,953 529,246 Inventories (149,945 ) (22,490 ) Accounts payable (601,708 ) (606,678 ) Accrued expenses (90,101 ) (114,741 ) Other assets and liabilities (75,319 ) (39,320 ) Net cash provided by (used for) operating activities (133,110 ) 115,084     Cash flows from investing activities: Cash consideration paid for acquired businesses (2,534 ) (45,473 ) Acquisition of property, plant, and equipment (101,906 ) (88,336 ) Proceeds from sale of property, plant, and equipment 24,433 — Other (3,000 ) (12,000 ) Net cash used for investing activities (83,007 ) (145,809 )   Cash flows from financing activities: Change in short-term and other borrowings 40,274 67,611 Proceeds from long-term bank borrowings, net 241,818 233,000 Net proceeds from note offering 494,625 — Redemption of notes (558,100 ) — Proceeds from exercise of stock options 20,697 14,844 Repurchases of common stock (123,663 ) (46,833 ) Purchase of shares from noncontrolling interest (23,350 ) — Other (945 ) (1,817 ) Net cash provided by financing activities 91,356   266,805   Effect of exchange rate changes on cash 10,359   (13,399 ) Net increase (decrease) in cash and cash equivalents (114,402 ) 222,681 Cash and cash equivalents at beginning of period 534,320   273,090   Cash and cash equivalents at end of period $ 419,918   $ 495,771       ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)     Quarter Ended     July 1, 2017     July 2, 2016 % Change   Consolidated sales, as reported $ 6,465,346 $ 5,972,101 8.3 % Impact of changes in foreign currencies — (56,946 ) Impact of acquisitions —   4,162   Consolidated sales, as adjusted $ 6,465,346   $ 5,919,317   9.2 %   Global components sales, as reported $ 4,462,350 $ 3,832,972 16.4 % Impact of changes in foreign currencies — (28,321 ) Impact of acquisitions —   4,162   Global components sales, as adjusted $ 4,462,350   $ 3,808,813   17.2 %   Europe components sales, as reported $ 1,192,393 $ 1,056,691 12.8 % Impact of changes in foreign currencies — (32,448 ) Impact of acquisitions —   —   Europe components sales, as adjusted $ 1,192,393   $ 1,024,243   16.4 %   Asia components sales, as reported $ 1,569,716 $ 1,298,429 20.9 % Impact of changes in foreign currencies — 3,735 Impact of acquisitions —   —   Asia components sales, as adjusted $ 1,569,716   $ 1,302,164   20.5 %   Global ECS sales, as reported $ 2,002,996 $ 2,139,129 (6.4 )% Impact of changes in foreign currencies — (28,626 ) Impact of acquisitions —   —   Global ECS sales, as adjusted $ 2,002,996   $ 2,110,503   (5.1 )%   Europe ECS sales, as reported $ 641,656 $ 720,335 (10.9 )% Impact of changes in foreign currencies — (27,816 ) Impact of acquisitions —   —   Europe ECS sales, as adjusted $ 641,656   $ 692,519   (7.3 )%   Americas ECS sales, as reported $ 1,361,340 $ 1,418,794 (4.0 )% Impact of changes in foreign currencies — (810 ) Impact of acquisitions —   —   Americas ECS sales, as adjusted $ 1,361,340   $ 1,417,984   (4.0 )%     ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)     Six Months Ended     July 1, 2017     July 2, 2016 % Change   Consolidated sales, as reported $ 12,224,898 $ 11,446,278 6.8 % Impact of changes in foreign currencies — (129,988 ) Impact of acquisitions —   46,761   Consolidated sales, as adjusted $ 12,224,898   $ 11,363,051   7.6 %   Global components sales, as reported $ 8,521,153 $ 7,508,901 13.5 % Impact of changes in foreign currencies — (68,671 ) Impact of acquisitions —   8,324   Global components sales, as adjusted $ 8,521,153   $ 7,448,554   14.4 %   Europe components sales, as reported $ 2,310,672 $ 2,115,123 9.2 % Impact of changes in foreign currencies — (77,769 ) Impact of acquisitions —   —   Europe components sales, as adjusted $ 2,310,672   $ 2,037,354   13.4 %   Asia components sales, as reported $ 2,946,695 $ 2,476,297 19.0 % Impact of changes in foreign currencies — 7,603 Impact of acquisitions —   —   Asia components sales, as adjusted $ 2,946,695   $ 2,483,900   18.6 %   Global ECS sales, as reported $ 3,703,745 $ 3,937,377 (5.9 )% Impact of changes in foreign currencies — (61,317 ) Impact of acquisitions —   38,437   Global ECS sales, as adjusted $ 3,703,745   $ 3,914,497   (5.4 )%   Europe ECS sales, as reported $ 1,209,218 $ 1,327,783 (8.9 )% Impact of changes in foreign currencies — (65,880 ) Impact of acquisitions —   —   Europe ECS sales, as adjusted $ 1,209,218   $ 1,261,903   (4.2 )%   Americas ECS sales, as reported $ 2,494,527 $ 2,609,594 (4.4 )% Impact of changes in foreign currencies — 4,563 Impact of acquisitions —   38,437   Americas ECS sales, as adjusted $ 2,494,527   $ 2,652,594   (6.0 )%     ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited)   Three months ended July 1, 2017     ReportedGAAPmeasure   Intangibleamortizationexpense   Restructuring& Integrationcharges   Other*   Non-GAAPmeasure Operating income $ 229,822 $ 12,364 $ 24,416 $ — $ 266,602 Income before income taxes 130,179 12,364 24,416 58,009 224,968 Provision for income taxes 29,575 4,388 7,576 22,377 63,916 Consolidated net income 100,604 7,976 16,840 35,632 161,052 Noncontrolling interests 925 157 — — 1,082 Net income attributable to shareholders $ 99,679 $ 7,819 $ 16,840 $ 35,632 $ 159,970 Net income per diluted share** 1.11 0.09 0.19 0.40 1.78 Effective tax rate 22.7 % 28.4 %                         Three months ended July 2, 2016 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other Non-GAAPmeasure Operating income $ 223,592 14,446 16,106 — 254,144 Income before income taxes 186,795 14,446 16,106 — 217,347 Provision for income taxes 51,457 5,119 6,370 — 62,946 Consolidated net income 135,338 9,327 9,736 — 154,401 Noncontrolling interests 1,068 592 — — 1,660 Net income attributable to shareholders $ 134,270 8,735 9,736 — 152,741 Net income per diluted share 1.45 0.09 0.11 — 1.65 Effective tax rate 27.5 % 29.0 %                         Six months ended July 1, 2017 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other* Non-GAAPmeasure Operating income $ 421,544 25,264 39,921 — 486,729 Income before income taxes 284,753 25,264 39,921 58,009 407,947 Provision for income taxes 68,799 8,949 12,573 22,377 112,698 Consolidated net income 215,954 16,315 27,348 35,632 295,249 Noncontrolling interests 2,507 408 — — 2,915 Net income attributable to shareholders $ 213,447 15,907 27,348 35,632 292,334 Net income per diluted share** 2.37 0.18 0.30 0.40 3.24 Effective tax rate 24.2 % 27.6 %                         Six months ended July 2, 2016 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other Non-GAAPmeasure Operating income $ 404,956 27,359 36,894 — 469,209 Income before income taxes 334,440 27,359 36,894 — 398,693 Provision for income taxes 92,510 7,398 11,804 — 111,712 Consolidated net income 241,930 19,961 25,090 — 286,981 Noncontrolling interests 1,425 592 — — 2,017 Net income attributable to shareholders $ 240,505 19,369 25,090 — 284,964 Net income per diluted share 2.59 0.21 0.27 — 3.07 Effective tax rate 27.7 % 28.0 %                         * Other includes loss on extinguishment of debt and gain on sale of investment. **The sum of the components for diluted EPS, 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 1, 2017     July 2, 2016 July 1, 2017     July 2, 2016 Sales: Global components $ 4,462,350 $ 3,832,972 $ 8,521,153 $ 7,508,901 Global ECS 2,002,996   2,139,129   3,703,745   3,937,377  

Consolidated

$ 6,465,346   $ 5,972,101   $ 12,224,898   $ 11,446,278   Operating income (loss): Global components $ 197,164 $ 178,385 $ 370,697 $ 349,155 Global ECS 106,703 109,399 187,582 187,611 Corporate (a) (74,045 ) (64,192 ) (136,735 ) (131,810 ) Consolidated $ 229,822   $ 223,592   $ 421,544   $ 404,956           (a)   Includes restructuring, integration, and other charges of $24.4 million and $16.1 million for the second quarters of 2017 and 2016, respectively.     NON-GAAP SEGMENT RECONCILIATION             Quarter Ended Six Months Ended July 1, 2017     July 2, 2016 July 1, 2017     July 2, 2016 Global components operating income, as reported $ 197,164 $ 178,385 $ 370,697 $ 349,155 Intangible assets amortization expense 6,827   8,545   14,226   16,445 Global components operating income, as adjusted $ 203,991   $ 186,930   $ 384,923   $ 365,600 Global ECS operating income, as reported $ 106,703 $ 109,399 $ 187,582 $ 187,611 Intangible assets amortization expense 5,537   5,901   11,038   10,914 Global ECS operating income, as adjusted $ 112,240   $ 115,300   $ 198,620   $ 198,525

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