ARW Arrow Electronics Inc

-- Non-GAAP Earnings Per Share of $1.40 --

-- 2015 Non-GAAP Earnings Per Share Expected to Be in Excess of $6.00 --

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2015 net income of $109.2 million, or $1.15 per share on a diluted basis, compared with net income of $146.9 million, or $1.47 per share on a diluted basis, in the third quarter of 2014. Excluding certain items1 in the third quarters of 2015 and 2014, net income would have been $133.4 million, or $1.40 per share on a diluted basis, in the third quarter of 2015, compared with net income of $140.2 million, or $1.40 per share on a diluted basis, in the third quarter of 2014. Third-quarter sales of $5.7 billion increased 2 percent from sales of $5.61 billion in the prior year. Third-quarter sales, adjusted for the impact of acquisitions and changes in foreign currencies, decreased 1 percent year over year. In the third quarter of 2015, changes in foreign currencies had negative impacts on growth of approximately $280 million on sales and $.07 or 5 percent on earnings per share on a diluted basis compared to the third quarter of 2014.

“Both our global components and enterprise computing solutions businesses continued to experience strong demand in Europe, while our Americas businesses broadly performed as we had anticipated. In Asia, the economic deterioration was worse than we expected,” said Michael J. Long, chairman, president, and chief executive officer. “We remain committed to continual productivity improvement, and have enhanced our ongoing efficiency initiatives to drive $40 million of expense savings on an annual basis. We are principally accelerating the integrations of some of our recent acquisitions, increasing automation across multiple functions enabled by our Unity enterprise resource planning tool, utilizing our enterprise strengths for greater purchasing leverage, and rationalizing our real estate footprint.”

Global components third-quarter sales of $3.69 billion declined 1 percent year over year. Third-quarter sales, as adjusted, declined 3 percent year over year. Americas components sales declined 4 percent year over year. Europe components sales grew 5 percent year over year. Sales in the region, as adjusted, grew 11 percent year over year. Asia-Pacific components sales declined 2 percent year over year. Core components sales in Asia declined 5 percent year over year.

Global enterprise computing solutions third-quarter sales of $2.01 billion grew 7 percent year over year. Sales, as adjusted, grew 1 percent year over year. Americas sales grew 11 percent year over year. Sales in the region, as adjusted, declined 4 percent year over year. Europe sales declined 3 percent year over year. Sales in the region, as adjusted, grew 15 percent year over year. “Enterprise computing solutions posted record third-quarter operating income and operating margins, with our software sales a greater percentage of our product mix,” added Mr. Long.

“Cash flow from operations on a trailing 12-month basis was $568 million as we continue to exceed our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “During the quarter, we returned approximately $50 million to shareholders through our stock repurchase program, and approximately $307 million on a trailing 12-month basis. We had approximately $469 million of remaining authorization under our share repurchase programs at the end of the third quarter.”

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.

NINE-MONTH RESULTS

Arrow’s net income for the first nine months of 2015 was $339.2 million, or $3.52 per share on a diluted basis, compared with net income of $381.9 million, or $3.80 per share on a diluted basis in the first nine months of 2014. Excluding certain items1 in both the first nine months of 2015 and 2014, net income would have been $410.1 million, or $4.26 per share on a diluted basis, in the first nine months of 2015 compared with net income of $408.6 million, or $4.06 per share on a diluted basis, in the first nine months of 2014. In the first nine months of 2015, sales of $16.53 billion increased 1 percent from sales of $16.37 billion in the first nine months of 2014. Nine-month sales, adjusted for acquisitions and changes in foreign currencies, increased 2 percent year over year. For the first nine months of 2015, changes in foreign currencies had negative impacts on growth of approximately $950 million on sales and $.27 or 7 percent on earnings per share on a diluted basis compared to the first nine months of 2014.

GUIDANCE

“As we look to the fourth quarter, we believe that total sales will be between $6.15 billion and $6.55 billion, with global components sales between $3.45 billion and $3.65 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 $1.91 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 million. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.12 to €1. Based on this assumption, changes in foreign currencies will have a negative impact of approximately $215 million or 3 percent on sales and $.08 or 4 percent on earnings per share on a diluted basis, respectively, when compared with the fourth quarter of 2014. At the midpoint of our fourth-quarter guidance range, full-year 2015 earnings per share, on a diluted basis, excluding any charges, would total approximately $6.08 and grow 3 percent compared to full-year 2014. Adjusted for the impact of changes in foreign currencies, earnings per share would grow 9 percent compared to full-year 2014,” 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 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 operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for certain charges, credits, gains, and losses that the company believes impact the comparability of its results of operations. These charges, credits, gains, and losses arise out of the company’s efficiency enhancement initiatives, acquisitions (including intangible assets amortization expense), loss on prepayment of debt, and (gain)/loss on investments. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company’s operating performance and underlying trends in the company’s business because management considers these items referred to above to be outside the company’s core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company’s financial and operating performance. In addition, the company’s Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation.

The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, sales, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

      ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data) (Unaudited)

 

Quarter Ended Nine Months Ended

September 26,2015

   

September 27,2014

September 26,2015

   

September 27,2014

       

Sales

$ 5,698,304 $ 5,613,216 $ 16,530,678 $ 16,371,795

Costs and expenses:

Cost of sales

4,955,937 4,884,529 14,334,394 14,191,759

Selling, general, and administrative expenses

497,876 485,864 1,457,160 1,453,675

Depreciation and amortization

40,941 39,072 117,854 115,355

Restructuring, integration, and other charges

  17,756   3,935   51,099   25,181   5,512,510   5,413,400   15,960,507   15,785,970

Operating income

185,794 199,816 570,171 585,825

Equity in earnings of affiliated companies

1,674 2,192 4,890 4,790

Gain on sale of investment

- 29,743 2,008 29,743

Interest and other financing expense, net

35,409 27,522 100,959 86,079   -   -   4,443   -

Income before income taxes

152,059 204,229 471,667 534,279

Provision for income taxes

  41,755   57,377   130,589   152,175

Consolidated net income

110,304 146,852 341,078 382,104

Noncontrolling interests

  1,060   (12 )   1,844   236

Net income attributable to shareholders

$ 109,244 $ 146,864 $ 339,234 $ 381,868

Net income per share:

Basic

$ 1.16 $ 1.49 $ 3.56 $ 3.84

Diluted

$ 1.15 $ 1.47 $ 3.52 $ 3.80

Weighted average shares outstanding:

Basic

94,302 98,631 95,277 99,336

Diluted

95,363 99,866 96,302 100,609         ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)  

September 26,2015

December 31,2014

(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 336,744 $ 400,355 Accounts receivable, net 5,065,503 6,043,850 Inventories 2,478,907 2,335,257 Other current assets   300,647   253,145 Total current assets   8,181,801   9,032,607 Property, plant, and equipment, at cost: Land 23,595 23,770 Buildings and improvements 164,568 144,530 Machinery and equipment   1,234,206   1,146,045 1,422,369 1,314,345 Less: Accumulated depreciation and amortization   (732,374 )   (678,046 ) Property, plant, and equipment, net   689,995   636,299 Investments in affiliated companies 72,498 69,124

 

Intangible assets, net 414,428 335,711 Cost in excess of net assets of companies acquired 2,366,968 2,069,209 Other assets   280,508   292,351 Total assets $ 12,006,198 $ 12,435,301 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,852,306 $ 5,027,103 Accrued expenses 695,620 797,464 Short-term borrowings, including current portion of long-term debt   85,796   13,454 Total current liabilities   4,633,722   5,838,021   Long-term debt 2,748,283 2,067,898 Other liabilities 411,582 370,471 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 1,094,859 1,086,082 Treasury stock (31,895 and 29,529 shares in 2015 and 2014, respectively), at cost (1,330,916 ) (1,169,673 ) Retained earnings 4,515,988 4,176,754 Accumulated other comprehensive loss   (247,115 )   (64,617 ) Total shareholders' equity 4,158,240 4,153,970 Noncontrolling interests   54,371   4,941 Total equity   4,212,611   4,158,911 Total liabilities and equity $ 12,006,198 $ 12,435,301     ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)   Quarter Ended

September 26,2015

 

September 27,2014

Cash flows from operating activities: Consolidated net income $ 110,304 $ $146,852 Adjustments to reconcile consolidated net income to net cash used for operations: Depreciation and amortization 40,941 39,072 Amortization of stock-based compensation 11,777 11,116 Equity in earnings of affiliated companies (1,674 ) (2,192 ) Deferred income taxes 375 (4,611 ) Restructuring, integration, and other charges 12,643 2,556 Gain on sale of investment - (18,269 ) Excess tax benefits from stock-based compensation arrangements (21 ) (729 ) Other 1,475 657 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (22,871 ) (41,481 ) Inventories 37,935 32,740 Accounts payable (298,552 ) (222,128 ) Accrued expenses 13,995 (42,228 ) Other assets and liabilities   (14,821 )   31,421 Net cash used for operating activities   (108,494 )   (67,224 )   Cash flows from investing activities: Cash consideration paid for acquired businesses (42,236 ) (69,298 ) Acquisition of property, plant, and equipment (44,236 ) (25,878 ) Proceeds from sale of investment   -   40,542 Net cash used for investing activities   (86,472 )   (54,634 )   Cash flows from financing activities: Change in short-term and other borrowings (252 ) 661 Proceeds from (repayment of)long-term bank borrowings, net 204,300 109,800 Proceeds from exercise of stock options 248 2,692 Excess tax benefits from stock-based compensation arrangements 21 729 Repurchases of common stock (50,177 ) (50,600 ) Other   (2,831 )   - Net cash provided by financing activities   151,309   63,282 Effect of exchange rate changes on cash   (19,320 )   7,873 Net decrease in cash and cash equivalents (62,977 ) (50,703 ) Cash and cash equivalents at beginning of period   399,721   308,936 Cash and cash equivalents at end of period $ 336,744 $ $258,233     ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)   Nine Months Ended

September 26,2015

 

September 27,2014

Cash flows from operating activities: Consolidated net income $ 341,078 $ 382,104 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 117,854 115,355 Amortization of stock-based compensation 33,783 31,283 Equity in earnings of affiliated companies (4,890 ) (4,790 ) Deferred income taxes 26,881 11,368 Restructuring, integration, and other charges 38,106 18,102 Gain on sale of investment (2,008 ) (18,269 ) Excess tax benefits from stock-based compensation arrangements (5,863 ) (6,977 ) Other 8,057 2,029 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 1,056,282 556,445 Inventories (44,890 ) (97,929 ) Accounts payable (1,318,702 ) (632,191 ) Accrued expenses (110,834 ) (150,165 ) Other assets and liabilities   (23,910 )   9,883 Net cash provided by operating activities   110,944   216,248   Cash flows from investing activities: Cash consideration paid for acquired businesses (512,910 ) (129,522 ) Acquisition of property, plant, and equipment (113,056 ) (87,881 ) Proceeds from sale of investment   2,008   40,542 Net cash used for investing activities   (623,958 )   (176,861 )   Cash flows from financing activities: Change in short-term and other borrowings (4,069 ) (9,243 ) Proceeds from (repayment of) long-term bank borrowings, net 238,700 (10,200 ) Net proceeds from note offering 688,162 - Redemption of notes (254,313 ) - Proceeds from exercise of stock options 14,722 21,013 Excess tax benefits from stock-based compensation arrangements 5,863 6,977 Repurchases of common stock (206,601 ) (189,411 ) Other   (5,831 )   - Net cash provided by (used for) financing activities   476,633   (180,864 ) Effect of exchange rate changes on cash   (27,230 )   9,108 Net decrease in cash and cash equivalents (63,611 ) (132,369 ) Cash and cash equivalents at beginning of period   400,355   390,602 Cash and cash equivalents at end of period $ 336,744 $ $258,233           ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP SALES RECONCILIATION

        Quarter Ended

September 26,2015

   

September 27,2014

% Change Consolidated sales, as reported $ 5,698,304 $ 5,613,216 1.5% Impact of changes in foreign currencies - (278,778 ) Impact of acquisitions   5,413   453,596 Consolidated sales, as adjusted $ 5,703,717 $ 5,788,034 (1.5)%   Global components sales, as reported $ 3,692,051 $ 3,731,289 (1.1)% Impact of changes in foreign currencies - (163,753 ) Impact of acquisitions   5,413   240,618 Global components sales, as adjusted $ 3,697,464 $ 3,808,154 (2.9)%   Europe components sales, as reported $ 992,623 $ 949,232 4.6% Impact of changes in foreign currencies - (145,742 ) Impact of acquisitions   5,413   97,356 Europe components sales, as adjusted $ 998,036 $ 900,846 10.8%   Asia components sales, as reported $ 1,241,190 $ 1,269,792 (2.3)% Impact of changes in foreign currencies - (12,524 ) Impact of acquisitions   -   126,394 Asia components sales, as adjusted $ 1,241,190 $ 1,383,662 (10.3)%   Global ECS sales, as reported $ 2,006,253 $ 1,881,927 6.6% Impact of changes in foreign currencies - (115,025 ) Impact of acquisitions   -   212,978 Global ECS sales, as adjusted $ 2,006,253 $ 1,979,880 1.3%   Europe ECS sales, as reported $ 599,128 $ 619,045 (3.2)% Impact of changes in foreign currencies - (98,803 ) Impact of acquisitions   -   - Europe ECS sales, as adjusted $ 599,128 $ 520,242 15.2%   Americas ECS sales, as reported $ 1,407,125 $ 1,262,882 11.4% Impact of changes in foreign currencies - (16,222 ) Impact of acquisitions   -   212,978 Americas ECS sales, as adjusted $ 1,407,125 $ 1,459,638 (3.6)%     ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP SALES RECONCILIATION

   

 

Nine Months Ended    

September 26,2015

   

September 27,2014

% Change Consolidated sales, as reported $ 16,530,678 $ 16,371,795 1.0% Impact of changes in foreign currencies - (949,150 ) Impact of acquisitions   369,133   1,212,245 Consolidated sales, as adjusted $ 16,899,811 $ 16,634,890 1.6%   Global components sales, as reported $ 10,736,989 $ 10,721,814 0.1% Impact of changes in foreign currencies - (538,462 ) Impact of acquisitions   286,132   752,783 Global components sales, as adjusted $ 11,023,121 $ 10,936,135 0.8%   Europe components sales, as reported $ 2,902,619 $ 2,923,093 (0.7)% Impact of changes in foreign currencies - (498,741 ) Impact of acquisitions   95,087   295,666 Europe components sales, as adjusted $ 2,997,706 $ 2,720,018 10.2%   Asia components sales, as reported $ 3,504,969 $ 3,412,441 2.7% Impact of changes in foreign currencies - (28,114 ) Impact of acquisitions   187,699   377,493 Asia components sales, as adjusted $ 3,692,668 $ 3,761,820 (1.8)%   Global ECS sales, as reported $ 5,793,689 $ 5,649,981 2.5% Impact of changes in foreign currencies - (410,688 ) Impact of acquisitions   83,001   459,462 Global ECS sales, as adjusted $ 5,876,690 $ 5,698,755 3.1%   Europe ECS sales, as reported $ 1,859,069 $ 2,061,057 (9.8)% Impact of changes in foreign currencies - (371,032 ) Impact of acquisitions   -   - Europe ECS sales, as adjusted $ 1,859,069 $ 1,690,025 10.0 %

 

 

Americas ECS sales, as reported $ 3,934,620 $ 3,588,923 9.6% Impact of changes in foreign currencies - (39,656 ) Impact of acquisitions   83,001   459,462 Americas ECS sales, as adjusted $ 4,017,621 $ 4,008,729 0.2%     ARROW ELECTRONICS, INC. (In thousands except per share data) (Unaudited)  

NON-GAAP EARNINGS RECONCILIATION

     

 

Quarter Ended Nine Months Ended

September 26,2015

   

September 27,2014

September 26,2015

   

September 27,2014

  Operating income, as reported $ 185,794 $ 199,816 $ 570,171 $ 585,825 Intangible assets amortization expense 14,269 11,108 39,293 32,925 Restructuring, integration, and other charges   17,756   3,935   51,099   25,181 Operating income, as adjusted $ 217,819 $ 214,859 $ 660,563 $ 643,931   Net income attributable to shareholders, as reported $ 109,244 $ 146,864 $ 339,234 $ 381,868 Intangible assets amortization expense 11,521 9,086 31,719 26,860 Restructuring, integration, and other charges 12,642 2,556 38,106 18,102 Loss on prepayment of debt

-

-

1,808

-

(Gain)/loss on investments   -   (18,269 )   (746 )   (18,269 ) Net income attributable to shareholders, as adjusted $ 133,407 $ 140,237 $ 410,121 $ 408,561   Net income per basic share, as reported $ 1.16 $ 1.49 $ 3.56 $ 3.84 Intangible assets amortization expense .12

.09

.33

.27

Restructuring, integration, and other charges .13

.03

.40

.18

Loss on prepayment of debt -

-

.02

-

(Gain)/loss on investments   -  

(.19

)   (.01 )  

(.18

) Net income per basic share, as adjusted $ 1.41 $ 1.42 $ 4.30 $ 4.11   Net income per diluted share, as reported $ 1.15 $ 1.47 $ 3.52 $ 3.80 Intangible assets amortization expense .12

.09

.33

.27

Restructuring, integration, and other charges .13

.03

.40

.18

Loss on prepayment of debt -

-

.02

-

(Gain)/loss on investments   -  

(.18

)   (.01 )  

(.18

) Net income per diluted share, as adjusted $ 1.40 $ 1.40 $ 4.26 $ 4.06    

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 26,2015

 

September 27,2014

September 26,2015

 

September 27,2014

Sales:   Global components $ 3,692,051 $ 3,731,289 $ 10,736,989 $ 10,721,814 Global ECS   2,006,253   1,881,927   5,793,689   5,649,981 Consolidated $ 5,698,304 $ 5,613,216 $ 16,530,678 $ 16,371,795   Operating income (loss): Global components $ 164,744 $ 179,451 $ 499,456 $ 500,239 Global ECS 84,233 69,172 250,144 229,320 Corporate (a)   (63,183 )   (48,807 )   (179,429 )   (143,734 ) Consolidated $ 185,794 $ 199,816 $ 570,171 $ 585,825  

(a) Includes restructuring, integration, and other charges of $17.8 million and $51.1 million for the third quarter and first nine months of 2015 and $3.9 million and $25.2 million for the third quarter and first nine months of 2014, respectively.

 

NON-GAAP SEGMENT RECONCILIATION

 

 

Quarter Ended Nine Months Ended

September 26,2015

September 27,2014

September 26,2015

September 27,2014

Global components operating income, as reported $ 164,744 $ 179,451 $ 499,456 $ 500,239 Intangible assets amortization expense   7,540   5,493   20,468   16,499 Global components operating income, as adjusted $ 172,284 $ 184,944 $ 519,924 $ 516,738   Global ECS operating income, as reported $ 84,233 $ 69,172 $ 250,144 $ 229,320 Intangible assets amortization expense   6,729   5,615   18,825   16,426 Global ECS operating income, as adjusted $ 90,962   $ 74,787 $ 268,969 $ 245,746  

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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