ARW Arrow Electronics Inc

-- Third-Quarter Sales Grew 11% Over Prior Year --

-- Non-GAAP Diluted Earnings Per Share Advanced 19% Over Prior Year --

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2014 net income of $146.9 million, or $1.47 per share on a diluted basis, compared with net income of $96.8 million, or $.95 per share on a diluted basis in the third quarter of 2013. Excluding certain items1 in the third quarters of both 2014 and 2013, net income would have been $140.2 million, or $1.40 per share on a diluted basis, in the third quarter of 2014 compared with net income of $119.9 million, or $1.18 per share on a diluted basis, in the third quarter of 2013. Third-quarter sales of $5.61 billion increased 11 percent from sales of $5.05 billion in the prior year. Sales, as adjusted, increased 6 percent year over year.

“In the third quarter we again produced outstanding results and invested in our long-term strategic sales-related initiatives. Earnings per share of $1.40 were above our expectations, with sales of $5.6 billion at the high end of our guidance. Both of our global components and enterprise computing solutions segments delivered sales and operating income growth. The stable, slow-growth demand environment for global components matched our expectations. Our focus on the higher value portion of the datacenter has aligned our enterprise computing solutions business with the faster growth areas of IT spending,” said Michael J. Long, chairman, president, and chief executive officer.

Global components third-quarter sales of $3.73 billion increased 8 percent year over year. Sales, as adjusted, grew 5 percent year over year. Americas components sales increased 2 percent year over year. Europe components sales grew 4 percent year over year, and the region grew year over year for the sixth consecutive quarter on an as-adjusted basis. Components sales in the Asia-Pacific region increased 18 percent year over year.

Global enterprise computing solutions third-quarter sales of $1.88 billion grew 19 percent year over year. Sales, as adjusted, grew 7 percent year over year with growth in both Americas and Europe. Both regions continued to experience very strong growth in software and services, while storage and networking also delivered growth.

“Returns advanced over the prior year for the fourth consecutive quarter. Cash flow from operations on a trailing 12-month basis was $431 million as we continue to exceed our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “The strong management of our balance sheet and cash flow provided us with the opportunity to return approximately $50 million to shareholders through our stock repurchase program in the third quarter, approximately $55 million, thus far, in the fourth quarter, and approximately $230 million on a trailing 12-month basis.”

NINE-MONTH RESULTS

Arrow’s net income for the first nine months of 2014 was $381.9 million, or $3.80 per share on a diluted basis, compared with net income of $264.6 million, or $2.53 per share on a diluted basis in the first nine months of 2013. Excluding certain items1 in both the first nine months of 2014 and 2013, net income would have been $408.6 million, or $4.06 per share on a diluted basis, in the first nine months of 2014 compared with net income of $347.0 million, or $3.32 per share on a diluted basis, in the first nine months of 2013. In the first nine months of 2014, sales of $16.4 billion increased 8 percent from sales of $15.2 billion in the first nine months of 2013. Sales in the first nine months of 2014, as adjusted, increased 2 percent year over year.

GUIDANCE

“As we look to the fourth quarter, order patterns are unchanged and the supply chain remains well managed. We expect normal seasonality for our global components and enterprise computing solutions businesses. We believe that total sales will be between $6.1 billion and $6.5 billion, with global components sales between $3.4 billion and $3.6 billion and global enterprise computing solutions sales between $2.7 billion and $2.9 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 $1.75 to $1.87 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding are expected to be 99 million, and the average USD to Euro exchange rate for the fourth quarter is 1.25 to 1. At the midpoints of our fourth-quarter guidance ranges, full-year 2014 sales and earnings per share, on a diluted basis, excluding any charges would grow 6 percent and 17 percent, respectively, compared to full-year 2013, with returns increasing year over year, and cash flow from operations of approximately $450 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 September 27, 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), sale of investment, 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.

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.

(In thousands except per share data)

(Unaudited)

NON-GAAP SALES RECONCILIATION

  Quarter Ended

September 27,

2014

         

September 28,

2013

 

% Change

    Consolidated sales, as reported $ 5,613,216 $ 5,048,211 11.2 % Impact of changes in foreign currencies - (2,798 ) Impact of acquisitions   14,748   273,612 Consolidated sales, as adjusted $ 5,627,964 $ 5,319,025 5.8 %   Global components sales, as reported $ 3,731,289 $ 3,467,285 7.6 % Impact of changes in foreign currencies - 2,784 Impact of acquisitions   11,289   81,348 Global components sales, as adjusted $ 3,742,578 $ 3,551,417 5.4 %   Europe components sales, as reported $ 949,232 $ 915,086 3.7 % Impact of changes in foreign currencies - 3,074 Impact of acquisitions   -   7,199 Europe components sales, as adjusted $ 949,232 $ 925,359 2.6 %   Global ECS sales, as reported $ 1,881,927 $ 1,580,926 19.0 % Impact of changes in foreign currencies - (5,582 ) Impact of acquisitions   3,459   192,264 Global ECS sales, as adjusted $ 1,885,386 $ 1,767,608 6.7 %   Europe ECS sales, as reported $ 619,045 $ 440,065 40.7 % Impact of changes in foreign currencies - (1,515 ) Impact of acquisitions   -   139,337 Europe ECS sales, as adjusted $ 619,045 $ 577,887 7.1 %  

 

 

Nine Months Ended

September 27,

2014

September 28,

2013

% Change

  Consolidated sales, as reported $ 16,371,795 $ 15,203,925 7.7 % Impact of changes in foreign currencies - 105,039 Impact of acquisitions   98,790   868,818 Consolidated sales, as adjusted $ 16,470,585 $ 16,177,782 1.8 %   Global components sales, as reported $ 10,721,814 $ 10,058,555 6.6 % Impact of changes in foreign currencies - 73,098 Impact of acquisitions   62,887   241,052 Global components sales, as adjusted $ 10,784,701 $ 10,372,705 4.0 %   Europe components sales, as reported $ 2,923,093 $ 2,703,471 8.1 % Impact of changes in foreign currencies - 78,761 Impact of acquisitions   -   24,238 Europe components sales, as adjusted $ 2,923,093 $ 2,806,470 4.2 %   Global ECS sales, as reported $ 5,649,981 $ 5,145,370 9.8 % Impact of changes in foreign currencies - 31,941 Impact of acquisitions   35,903   627,766 Global ECS sales, as adjusted $ 5,685,884 $ 5,805,077 (2.1 )%

 

Europe ECS sales, as reported

$ 2,061,057 $ 1,583,975 30.1 % Impact of changes in foreign currencies - 50,450 Impact of acquisitions   -   475,747 Europe ECS sales, as adjusted $ 2,061,057 $ 2,110,172 (2.3 )%                

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)

NON-GAAP EARNINGS RECONCILIATION

 

 

Quarter Ended Nine Months Ended September 27,

2014

    September 28,

2013

September 27,

2014

    September 28,

2013

        Operating income, as reported $ 199,816 $ 162,736 $ 585,825 $ 456,163 Intangible assets amortization expense 11,108 8,936 32,925 26,762 Restructuring, integration, and other charges   3,935   22,568   25,181   74,402 Operating income, as adjusted $ 214,859 $ 194,240 $ 643,931 $ 557,327   Net income attributable to shareholders, as reported $ 146,864 $ 96,779 $ 381,868 $ 264,589 Intangible assets amortization expense 9,086 7,074 26,860 21,219 Restructuring, integration, and other charges 2,556 16,077 18,102 52,260 Gain on sale of investment (18,269 ) - (18,269 ) - Loss on prepayment of debt - - - 2,627 Settlement of tax matters: Income taxes - - - 5,362 Interest (net of taxes)   -   -   -   939 Net income attributable to shareholders, as adjusted $ 140,237 $ 119,930 $ 408,561 $ 346,996   Net income per basic share, as reported $ 1.49 $ .96 $ 3.84 $ 2.56 Intangible assets amortization expense .09 .07 .27 .21 Restructuring, integration, and other charges .03 .16 .18 .51 Gain on sale of investment (.19 ) - (.18 ) - Loss on prepayment of debt - - - .03 Settlement of tax matters: Income taxes - - - .05 Interest (net of taxes)   -   -   -   .01 Net income per basic share, as adjusted $ 1.42 $ 1.19 $ 4.11 $ 3.36   Net income per diluted share, as reported $ 1.47 $ .95 $ 3.80 $ 2.53 Intangible assets amortization expense .09 .07 .27 .20 Restructuring, integration, and other charges .03 .16 .18 .50 Gain on sale of investment (.18 ) - (.18 ) - Loss on prepayment of debt - - - .03 Settlement of tax matters: Income taxes - - - .05 Interest (net of taxes)   -   -   -   .01 Net income per diluted share, as adjusted $ 1.40 $ 1.18 $ 4.06 $ 3.32        

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

Nine Months Ended

September 27,

2014

   

September 28,

2013

September 27,

2014

   

September 28,

2013

Sales:   Global components $ 3,731,289 $ 3,467,285 $ 10,721,814 $ 10,058,555 Global ECS   1,881,927   1,580,926   5,649,981   5,145,370 Consolidated $ 5,613,216 $ 5,048,211 $ 16,371,795 $ 15,203,925   Operating income (loss): Global components $ 179,451 $ 164,096 $ 500,239 $ 432,534 Global ECS 69,172 59,757 229,320 202,070 Corporate (a)   (48,807 )   (61,117 )   (143,734 )   (178,441 ) Consolidated $ 199,816 $ 162,736 $ 585,825 $ 456,163         (a)     Includes restructuring, integration, and other charges of $3.9 million and $25.2 million for the third quarter and first nine months of 2014 and $22.6 million and $74.4 million for the third quarter and first nine months of 2013, respectively.              

NON-GAAP SEGMENT RECONCILIATION

  Quarter Ended

Nine Months Ended

September 27,

2014

     

September 28,

2013

September 27,

2014

     

September 28,

2013

Global components operating income, as reported $ 179,451 $ 164,096 $ 500,239   $ 432,534 Intangible assets amortization expense   5,493   4,993   16,499   14,948 Global components operating income, as adjusted $ 184,944 $ 169,089 $ 516,738 $ 447,482   Global ECS operating income, as reported $ 69,172 $ 59,757 $ 229,320 $ 202,070 Intangible assets amortization expense   5,615   3,943   16,426   11,814 Global ECS operating income, as adjusted $ 74,787 $ 63,700 $ 245,746 $ 213,884                

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

  Quarter Ended Nine Months Ended September 27,

2014

    September 28,

2013

September 27,

2014

      September 28,

2013

      Sales $ 5,613,216 $ 5,048,211 $ 16,371,795 $ 15,203,925 Costs and expenses: Cost of sales 4,884,529 4,376,551 14,191,759 13,200,621 Selling, general, and administrative expenses 485,864 453,920 1,453,675 1,376,199 Depreciation and amortization 39,072 32,436 115,355 96,540 Restructuring, integration, and other charges   3,935   22,568   25,181   74,402   5,413,400   4,885,475   15,785,970   14,747,762 Operating income 199,816 162,736 585,825 456,163 Equity in earnings of affiliated companies 2,192 1,884 4,790 5,227 Gain on sale of investment 29,743 - 29,743 - Loss on prepayment of debt - - - 4,277 Interest and other financing expense, net   27,522   27,167   86,079   86,896 Income before income taxes 204,229 137,453 534,279 370,217 Provision for income taxes   57,377   40,490   152,175   105,260 Consolidated net income 146,852 96,963 382,104 264,957 Noncontrolling interests   (12 )   184   236   368 Net income attributable to shareholders $ 146,864 $ 96,779 $ 381,868 $ 264,589 Net income per share: Basic $ 1.49 $ .96 $ 3.84 $ 2.56 Diluted $ 1.47 $ .95 $ 3.80 $ 2.53 Weighted average shares outstanding: Basic 98,631 100,750 99,336 103,269 Diluted 99,866 101,669 100,609 104,426          

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

   

September 27,

2014

             

December 31,

2013

(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 258,233 $ 390,602

Accounts receivable, net

5,060,959 5,769,759 Inventories 2,242,774 2,167,287 Other current assets   267,732   258,122 Total current assets   7,829,698   8,585,770 Property, plant, and equipment, at cost: Land 23,867 24,051 Buildings and improvements 143,837 142,583 Machinery and equipment   1,127,650   1,113,987 1,295,354 1,280,621 Less: Accumulated depreciation and amortization   (660,643 )   (648,232 ) Property, plant, and equipment, net   634,711   632,389 Investments in affiliated companies 68,056 67,229 Intangible assets, net 421,710 426,069 Cost in excess of net assets of companies acquired 2,076,692 2,039,293 Other assets   280,659   310,133 Total assets $ 11,311,526 $ 12,060,883   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,806,702 $ 4,503,200 Accrued expenses 650,779 774,868

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

  17,473   23,878 Total current liabilities   4,474,954   5,301,946   Long-term debt 2,211,037 2,226,132 Other liabilities 374,507 347,977   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 1,076,124 1,071,075

Treasury stock (27,375 and 25,488 shares in 2014 and 2013, respectively), at cost

(1,055,827 ) (920,528 ) Retained earnings 4,060,577 3,678,709 Accumulated other comprehensive income   39,898   225,552 Total shareholders' equity 4,246,196 4,180,232 Noncontrolling interests   4,832   4,596 Total equity   4,251,028   4,184,828 Total liabilities and equity $ 11,311,526 $ 12,060,883          

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

  Quarter Ended

September 27,

2014

             

September 28,

2013

Cash flows from operating activities: Consolidated net income $ 146,852 $ 96,963 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 39,072 32,436 Amortization of stock-based compensation 11,116 11,465 Equity in earnings of affiliated companies (2,192 ) (1,884 ) Deferred income taxes (4,611 ) (4,237 ) Restructuring, integration, and other charges 2,556 16,077 Gain on sale of investment (18,269 ) - Excess tax benefits from stock-based compensation arrangements (729 ) (320 ) Other 657 559 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (41,481 ) 225,379 Inventories 32,740 (34,314 ) Accounts payable (222,128 ) (237,258 ) Accrued expenses (42,228 ) (30,161 ) Other assets and liabilities   31,421   6,427 Net cash provided by (used for) operating activities   (67,224 )   81,132   Cash flows from investing activities: Cash consideration paid for acquired businesses (69,298 ) (34,010 ) Acquisition of property, plant, and equipment (25,878 ) (31,904 ) Proceeds from sale of investment   40,542   - Net cash used for investing activities   (54,634 )   (65,914 )   Cash flows from financing activities: Change in short-term and other borrowings 661 5,457 Proceeds from (repayment of) long-term bank borrowings, net 109,800 (157,600 ) Proceeds from exercise of stock options 2,692 18,073 Excess tax benefits from stock-based compensation arrangements 729 320 Repurchases of common stock   (50,600 )   (303 ) Net cash provided by (used for) financing activities   63,282   (134,053 )   Effect of exchange rate changes on cash   7,873   24,734 Net decrease in cash and cash equivalents (50,703 ) (94,101 ) Cash and cash equivalents at beginning of period   308,936   345,891 Cash and cash equivalents at end of period $ 258,233 $ 251,790          

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Nine Months Ended

September 27,

2014

             

September 28,

2013

Cash flows from operating activities: Consolidated net income $ 382,104 $ 264,957 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 115,355 96,540 Amortization of stock-based compensation 31,283 24,247 Equity in earnings of affiliated companies (4,790 ) (5,227 ) Deferred income taxes 11,368 15,311 Restructuring, integration, and other charges 18,102 52,260 Gain on sale of investment (18,269 ) - Excess tax benefits from stock-based compensation arrangements (6,977 ) (6,937 ) Other 2,029 2,809 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 556,445 386,542 Inventories (97,929 ) (94,180 ) Accounts payable (632,191 ) (361,349 ) Accrued expenses (150,165 ) (204,013 ) Other assets and liabilities   9,883   64,685 Net cash provided by operating activities   216,248   235,645   Cash flows from investing activities: Cash consideration paid for acquired businesses (129,522 ) (43,392 ) Acquisition of property, plant, and equipment (87,881 ) (85,465 ) Proceeds from sale of investment 40,542 - Other   -   (3,000 ) Net cash used for investing activities   (176,861 )   (131,857 )   Cash flows from financing activities: Change in short-term and other borrowings (9,243 ) (22,282 ) Repayment of long-term bank borrowings, net (10,200 ) (242,900 ) Net proceeds from note offering - 591,156 Redemption of senior notes - (338,184 ) Proceeds from exercise of stock options 21,013 30,368 Excess tax benefits from stock-based compensation arrangements 6,977 6,937 Repurchases of common stock   (189,411 )   (312,613 ) Net cash used for financing activities   (180,864 )   (287,518 )   Effect of exchange rate changes on cash   9,108   25,836 Net decrease in cash and cash equivalents (132,369 ) (157,894 ) Cash and cash equivalents at beginning of period   390,602   409,684 Cash and cash equivalents at end of period $ 258,233 $ 251,790  

Arrow Electronics, Inc.Steven O’BrienDirector, Investor Relations303-824-4544orPaul J. ReillyExecutive Vice President, Finance and Operations, andChief Financial Officer631-847-1872orMedia Contact: John HouriganVice President, Global Communications303-824-4586