ARROW ELECTRONICS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 1, 2012

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8-K - ARROW ELECTRONICS, INC. 8-K - ARROW ELECTRONICS INCa50152816.htm
Exhibit 99.1
 
 
Arrow Electronics Reports Record 2011 Non-GAAP EPS Increased 26% Year over Year to $5.19 Per Share
 
-- Record Fourth Quarter Non-GAAP Earnings Per Share of $1.38 --
 
ENGLEWOOD, Colo.--(BUSINESS WIRE)--February 1, 2012--Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2011 net income of $174.1 million ($1.55 and $1.53 per share on a basic and diluted basis, respectively) on sales of $5.44 billion, compared with net income of $157.9 million ($1.37 and $1.34 per share on a basic and diluted basis, respectively) on sales of $5.24 billion in the fourth quarter of 2010.
 
Arrow’s net income for 2011 was $598.8 million ($5.25 and $5.17 per share on a basic and diluted basis, respectively) on sales of $21.39 billion, compared with net income of $479.6 million ($4.06 and $4.01 per share on a basic and diluted basis, respectively) on sales of $18.74 billion in 2010. Cash flow from operations for the year ended December 31, 2011 was $121 million.
 
The company's results for 2011 and 2010 include a number of items that impact their comparability. A complete reconciliation of these items is provided under the heading “Certain Non-GAAP Financial Information.” Excluding those items, on a non-GAAP basis, net income for the quarter ended December 31, 2011, would have been $157.3 million ($1.40 and $1.38 per share on a basic and diluted basis, respectively) and net income for the quarter ended December 31, 2010, would have been $151.6 million ($1.31 and $1.29 per share on a basic and diluted basis, respectively). For 2011, net income would have been $601.4 million ($5.27 and $5.19 per share on a basic and diluted basis, respectively) and $493.5 million ($4.18 and $4.13 per share on a basic and diluted basis, respectively) for 2010.
 
“This has again been an exceptional year for Arrow Electronics as we set new financial records and successfully executed on our strategy to drive growth in our core global components and global ECS businesses as well as in high-margin lifecycle services,” said Michael J. Long, chairman, president, and chief executive officer. “As we look forward to 2012, I’m confident that we will continue to make strong progress on our journey to be one of the world’s premier electronics companies and to guide innovation forward. The future holds great promise for us and we are well positioned to achieve even greater levels of success.”
 
“We again reported industry-leading earnings per share, returns, and operating margins in the fourth quarter and full year 2011,” said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. “We continue to deliver to and exceed our overarching goals of growing sales faster than the market, growing earnings at a faster rate than sales, generating returns well in excess of our cost of capital, and being cash flow positive.”
 
Global components fourth-quarter sales of $3.44 billion increased 3 percent year over year. “The global components team did an admirable job of growing the legacy businesses in a market that was expected to decline in 2011, and set records for annual sales and operating income. In 2011 we executed on our strategy to expand the portfolio and increase our addressable market,” Mr. Long said.
 
Global enterprise computing solutions (“ECS”) fourth-quarter sales of $2.0 billion increased 5 percent year over year. “We had a remarkable year in ECS as the organization also set records for sales and operating income. Over the course of the year, we made significant progress on our strategy to differentiate Arrow ECS and solidified our industry-leading position,” said Mr. Long.
 
 
 
 
 
The company's results for the fourth quarters of 2011 and 2010 include the items outlined below that impact their comparability:
 
 
·
restructuring, integration, and other charges of $14.1 million ($11.2 million net of related taxes or $.10 per share on both a basic and diluted basis) in the fourth quarter of 2011 and $6.1 million ($5.5 million net of related taxes or $.05 per share on a both basic and diluted basis) in the fourth quarter of 2010;
 
 
·
an adjustment to the gain on bargain purchase recorded in the first quarter of 2011 of $.7 million ($.4 million net of related taxes) in the fourth quarter of 2011;
 
 
·
a loss on prepayment of debt of $.9 million ($.5 million net of related taxes) in the fourth quarter of 2011;
 
 
·
a net reduction of the provision for income taxes of $28.9 million ($.26 and $.25 per share on a basic and diluted basis, respectively) in the fourth quarter of 2011 principally due to a reversal of a valuation allowance on certain international deferred tax assets; and
 
 
·
a net reduction of the provision for income taxes of $9.4 million ($.08 per share on both a basic and diluted basis) and a reduction in interest expense of $3.8 million ($2.3 million net of related taxes or $.02 per share on both a basic and diluted basis) in the fourth quarter of 2010 primarily related to the settlement of certain income tax matters covering multiple years.
 
The company's results for 2011 and 2010 include the items outlined below that impact their comparability:
 
 
·
restructuring, integration, and other charges of $37.8 million ($28.1 million net of related taxes or $.25 and $.24 per share on a basic and diluted basis, respectively) in 2011 and $33.5 million ($24.6 million net of related taxes or $.21 per share on a both basic and diluted basis) in 2010;
 
 
·
a charge of $5.9 million ($3.6 million net of related taxes or $.03 per share on both a basic and diluted basis) in connection with the settlement of a legal matter in 2011;
 
 
·
a gain on a bargain purchase of $1.1 million ($.7 million net of related taxes or $.01 per share on both a basic and diluted basis) in 2011;
 
 
·
a loss on prepayment of debt of $.9 million ($.5 million net of related taxes) in 2011 and $1.6 million ($1.0 million net of related taxes or $.01 per share on both a basic and diluted basis) in 2010;
 
 
·
a net reduction of the provision for income taxes of $28.9 million ($.25 per share on both a basic and diluted basis) in 2011 principally due to a reversal of a valuation allowance on certain international deferred tax assets; and
 
 
·
a net reduction of the provision for income taxes of $9.4 million ($.08 per share on both a basic and diluted basis) and a reduction in interest expense of $3.8 million ($2.3 million net of related taxes or $.02 per share on both a basic and diluted basis) in 2010 primarily related to the settlement of certain income tax matters covering multiple years.
 
GUIDANCE
 
“Looking ahead to the first quarter, we believe that total sales will be between $4.67 and $5.07 billion, with global component sales between $3.35 and $3.55 billion and global enterprise computing solutions sales between $1.32 and $1.52 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.01 to $1.13 per share. Our guidance assumes that the average Euro to USD exchange rate for the first quarter is 1.31 to 1,” said Mr. Reilly.
 
Please refer to the CFO commentary as a supplement to the company's earnings release, which can be found at www.arrow.com/investor.
 
 
 
 
 
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 120,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 390 locations in 52 countries.
 
Certain Non-GAAP Financial Information
 
In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (“GAAP”), the company provides certain non-GAAP financial information relating to operating income, net income attributable to shareholders and net income per basic and diluted share, each as adjusted for certain charges, credits and losses that the company believes impact the comparability of its results of operations. These charges, credits and losses arise out of the company’s efficiency enhancement initiatives, acquisitions, prepayment of debt, and settlement of certain legal and tax matters. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the table 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 the charges, credits and losses 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, 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.
EARNINGS RECONCILIATION
(In thousands except per share data)
                   
   
Quarter Ended
December 31,
    
Year Ended
December 31,
  
   
2011
    
2010
    
2011
    
2010
  
     
(unaudited)
                  
                                 
Operating income, as reported
  
$
232,183
    
$
231,795
    
$
908,843
    
$
750,775
  
Restructuring, integration, and other charges
    
14,135
      
6,070
      
37,811
      
33,494
  
Settlement of legal matter
    
-
      
-
      
5,875
      
-
  
Operating income, as adjusted
  
$
246,318
    
$
237,865
    
$
952,529
    
$
784,269
  
                                 
Net income attributable to shareholders, as reported
  
$
174,088
    
$
157,889
    
$
598,810
    
$
479,630
  
Restructuring, integration, and other charges
    
11,223
      
5,459
      
28,054
      
24,605
  
Settlement of legal matter
    
-
      
-
      
3,609
      
-
  
Gain/(adjustment) on bargain purchase
    
410
      
-
      
(668
)
    
-
  
Loss on prepayment of debt
    
549
      
-
      
549
      
964
  
Reversal of valuation allowance on international deferred tax assets
    
(28,928
)
    
-
      
(28,928
)
    
-
  
Impact of settlements on tax matters
                                
Income tax
    
-
      
(9,404
)
    
-
      
(9,404
)
Interest (net of taxes)
    
-
      
(2,312
)
    
-
      
(2,312
)
Net income attributable to shareholders, as adjusted
  
$
157,342
    
$
151,632
    
$
601,426
    
$
493,483
  
                                 
Net income per basic share, as reported
  
$
1.55
    
$
1.37
    
$
5.25
    
$
4.06
  
Restructuring, integration, and other charges
    
.10
      
.05
      
.25
      
.21
  
Settlement of legal matter
    
-
      
-
      
.03
      
-
  
Gain/(adjustment) on bargain purchase
    
-
      
-
      
(.01
)
    
-
  
Loss on prepayment of debt
    
-
      
-
      
-
      
.01
  
Reversal of valuation allowance on international deferred tax assets
    
(.26
)
    
-
      
(.25
)
    
-
  
Impact of settlements on tax matters
                                
Income tax
    
-
      
(.08
)
    
-
      
(.08
)
Interest (net of taxes)
    
-
      
(.02
)
    
-
      
(.02
)
Net income per basic share, as adjusted
  
$
1.40
    
$
1.31
    
$
5.27
    
$
4.18
  
                                 
Net income per diluted share, as reported
  
$
1.53
    
$
1.34
    
$
5.17
    
$
4.01
  
Restructuring, integration, and other charges
    
.10
      
.05
      
.24
      
.21
  
Settlement of legal matter
    
-
      
-
      
.03
      
-
  
Gain/(adjustment) on bargain purchase
    
-
      
-
      
(.01
)
    
-
  
Loss on prepayment of debt
    
-
      
-
      
-
      
.01
  
Reversal of valuation allowance on international deferred tax assets
    
(.25
)
    
-
      
(.25
)
    
-
  
Impact of settlements on tax matters
                                
Income tax
    
-
      
(.08
)
    
-
      
(.08
)
Interest (net of taxes)
    
-
      
(.02
)
    
-
      
(.02
)
Net income per diluted share, as adjusted
  
$
1.38
    
$
1.29
    
$
5.19
    
$
4.13
  
                                 

     
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.
 
 
 
 
 
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 ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, 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.
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
                   
   
Quarter Ended
December 31,
    
Year Ended
December 31,
  
   
2011
    
2010
    
2011
    
2010
  
   
(unaudited)
            
                                 
Sales
  
$
5,440,473
    
$
5,238,162
    
$
21,390,264
    
$
18,744,676
  
Costs and expenses:
                                
Cost of sales
    
4,695,664
      
4,554,758
      
18,441,661
      
16,326,069
  
Selling, general and administrative expenses
    
469,757
      
423,634
      
1,892,592
      
1,556,986
  
Depreciation and amortization
    
28,734
      
21,905
      
103,482
      
77,352
  
Restructuring, integration, and other charges
    
14,135
      
6,070
      
37,811
      
33,494
  
Settlement of legal matter
    
-
      
-
      
5,875
      
-
  
     
5,208,290
      
5,006,367
      
20,481,421
      
17,993,901
  
Operating income
    
232,183
      
231,795
      
908,843
      
750,775
  
Equity in earnings of affiliated companies
    
1,936
      
1,803
      
6,736
      
6,369
  
Gain/(adjustment) on bargain purchase
    
(667
)
    
-
      
1,088
      
-
  
Loss on prepayment of debt
    
895
      
-
      
895
      
1,570
  
Interest and other financing expense, net
    
28,443
      
19,209
      
105,971
      
76,571
  
Income before income taxes
    
204,114
      
214,389
      
809,801
      
679,003
  
Provision for income taxes
    
29,984
      
56,500
      
210,485
      
199,378
  
Consolidated net income
    
174,130
      
157,889
      
599,316
      
479,625
  
Noncontrolling interests
    
42
      
-
      
506
      
(5
)
Net income attributable to shareholders
  
$
174,088
    
$
157,889
    
$
598,810
    
$
479,630
  
Net income per share:
                                
Basic
  
$
1.55
    
$
1.37
    
$
5.25
    
$
4.06
  
Diluted
  
$
1.53
    
$
1.34
    
$
5.17
    
$
4.01
  
Average number of shares outstanding:
                                
Basic
    
112,024
      
115,530
      
114,025
      
117,997
  
Diluted
    
113,878
      
117,542
      
115,932
      
119,577
  
                                 
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
       
   
December 31,
  
   
2011
    
2010
  
ASSETS
              
Current assets:
                
Cash and cash equivalents
  
$
396,887
    
$
926,321
  
Accounts receivable, net
    
4,482,117
      
4,102,870
  
Inventories
    
1,963,910
      
1,908,953
  
Other current assets
    
181,677
      
147,690
  
Total current assets
    
7,024,591
      
7,085,834
  
Property, plant and equipment, at cost:
                
Land
    
23,790
      
24,213
  
Buildings and improvements
    
147,215
      
136,732
  
Machinery and equipment
    
934,558
      
863,773
  
     
1,105,563
      
1,024,718
  
Less: Accumulated depreciation and amortization
    
(549,334
)
    
(519,178
)
Property, plant and equipment, net
    
556,229
      
505,540
  
Investments in affiliated companies
    
60,579
      
59,455
  
Intangible assets, net
    
392,763
      
310,847
  
Cost in excess of net assets of companies acquired
    
1,473,333
      
1,336,351
  
Other assets
    
321,584
      
302,511
  
Total assets
  
$
9,829,079
    
$
9,600,538
  
                 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Accounts payable
  
$
3,264,088
    
$
3,644,988
  
Accrued expenses
    
660,996
      
637,045
  
Short-term borrowings, including current portion of long-term debt
    
33,843
      
61,210
  
Total current liabilities
    
3,958,927
      
4,343,243
  
                 
Long-term debt
    
1,927,823
      
1,761,203
  
Other liabilities
    
267,069
      
244,897
  
Equity:
                
Shareholders' equity:
                
Common stock, par value $1:
                
Authorized – 160,000 shares in 2011 and 2010
                
Issued – 125,382 and 125,337 shares in 2011 and 2010, respectively
    
125,382
      
125,337
  
Capital in excess of par value
    
1,076,275
      
1,063,461
  
Treasury stock (13,568 and 10,690 shares in 2011 and 2010, respectively), at cost
    
(434,959
)
    
(318,494
)
Retained earnings
    
2,772,957
      
2,174,147
  
Foreign currency translation adjustment
    
158,550
      
207,914
  
Other
    
(29,393
)
    
(1,170
)
Total shareholders' equity
    
3,668,812
      
3,251,195
  
Noncontrolling interests
    
6,448
      
-
  
Total equity
    
3,675,260
      
3,251,195
  
Total liabilities and equity
  
$
9,829,079
    
$
9,600,538
  
                 
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
       
   
Quarter Ended
December 31,
  
   
2011
    
2010
  
   
(Unaudited)
  
                 
Cash flows from operating activities:
                
Consolidated net income
  
$
174,130
    
$
157,889
  
Adjustments to reconcile consolidated net income to net cash provided by operations:
                
Depreciation and amortization
    
28,734
      
21,905
  
Amortization of stock-based compensation
    
8,945
      
9,621
  
Equity in earnings of affiliated companies
    
(1,936
)
    
(1,803
)
Deferred income taxes
    
(10,899
)
    
(11,894
)
Restructuring, integration, and other charges
    
11,223
      
5,459
  
Non-cash impact of tax matters
    
-
      
(11,716
)
Excess tax benefits from stock-based compensation arrangements
    
(435
)
    
(182
)
Other
    
(554
)
    
652
  
 Change in assets and liabilities, net of effects of acquired businesses:
                
Accounts receivable
    
(329,943
)
    
(454,275
)
Inventories
    
214,783
      
98,294
  
Accounts payable
    
42,788
      
555,345
  
Accrued expenses
    
(10,755
)
    
(575
)
Other assets and liabilities
    
20,423
      
93,321
  
Net cash provided by operating activities
    
146,504
      
462,041
  
                 
Cash flows from investing activities:
                
Cash consideration paid for acquired businesses
    
(9,238
)
    
(127,086
)
Acquisition of property, plant and equipment
    
(25,674
)
    
(28,881
)
Net cash used for investing activities
    
(34,912
)
    
(155,967
)
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
    
1,984
      
10,677
  
Proceeds of long-term bank borrowings, net
    
(243,000
)
    
(360,400
)
Net proceeds from note offering
    
-
      
494,325
  
Repurchase/repayment of senior notes
    
(19,324
)
    
-
  
Proceeds from exercise of stock options
    
47
      
4,861
  
Excess tax benefits from stock-based compensation arrangements
    
435
      
182
  
Repurchases of common stock
    
(242
)
    
(42,384
)
Net cash provided by (used for) financing activities
    
(260,100
)
    
107,261
  
                 
Effect of exchange rate changes on cash
    
829
      
3,262
  
Net increase (decrease) in cash and cash equivalents
    
(147,679
)
    
416,597
  
Cash and cash equivalents at beginning of period
    
544,566
      
509,724
  
Cash and cash equivalents at end of period
  
$
396,887
    
$
926,321
  
                 
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
       
   
Year Ended
December 31,
  
   
2011
    
2010
  
                 
Cash flows from operating activities:
                
Consolidated net income
  
$
599,316
    
$
479,625
  
Adjustments to reconcile consolidated net income to net cash provided by operations:
                
Depreciation and amortization
    
103,482
      
77,352
  
Amortization of stock-based compensation
    
39,225
      
34,613
  
Equity in earnings of affiliated companies
    
(6,736
)
    
(6,369
)
Deferred income taxes
    
(11,377
)
    
17,133
  
Restructuring, integration, and other charges
    
28,054
      
24,605
  
Settlement of legal matter
    
3,609
      
-
  
Non-cash impact of tax matters
    
-
      
(11,716
)
Excess tax benefits from stock-based compensation arrangements
    
(7,956
)
    
(1,922
)
Other
    
700
      
3,302
  
 Change in assets and liabilities, net of effects of acquired businesses:
                
Accounts receivable
    
(193,492
)
    
(805,637
)
Inventories
    
105,150
      
(497,294
)
Accounts payable
    
(465,603
)
    
799,142
  
Accrued expenses
    
(74,236
)
    
88,675
  
Other assets and liabilities
    
747
      
19,263
  
Net cash provided by operating activities
    
120,883
      
220,772
  
                 
Cash flows from investing activities:
                
Cash consideration paid for acquired businesses
    
(532,568
)
    
(587,087
)
Acquisition of property, plant and equipment
    
(113,941
)
    
(112,254
)
Proceeds from sale of properties
    
-
      
16,971
  
Net cash used for investing activities
    
(646,509
)
    
(682,370
)
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
    
(6,172
)
    
9,775
  
Proceeds from long-term bank borrowings, net
    
354,000
      
-
  
Repayment of bank term loan
    
(200,000
)
    
-
  
Net proceeds from note offering
    
-
      
494,325
  
Repurchase/repayment of senior notes
    
(19,324
)
    
(69,545
)
Proceeds from exercise of stock options
    
46,665
      
8,057
  
Excess tax benefits from stock-based compensation arrangements
    
7,956
      
1,922
  
Repurchases of common stock
    
(197,044
)
    
(173,650
)
Net cash provided by (used for) financing activities
    
(13,919
)
    
270,884
  
                 
Effect of exchange rate changes on cash
    
10,111
      
(19,972
)
Net decrease in cash and cash equivalents
    
(529,434
)
    
(210,686
)
Cash and cash equivalents at beginning of year
    
926,321
      
1,137,007
  
Cash and cash equivalents at end of year
  
$
396,887
    
$
926,321
  
                 
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
             
   
Quarter Ended
December 31,
    
Year Ended
December 31,
  
   
2011
    
2010
    
2011
    
2010
  
     
(unaudited)
                  
Sales:
                                
Global components
  
$
3,443,034
    
$
3,343,711
    
$
14,853,823
    
$
13,168,381
  
Global ECS
    
1,997,439
      
1,894,451
      
6,536,441
      
5,576,295
  
Consolidated
  
$
5,440,473
    
$
5,238,162
    
$
21,390,264
    
$
18,744,676
  
                                 
Operating income (loss):
                                
Global components
  
$
176,680
    
$
181,928
    
$
823,774
    
$
715,333
  
Global ECS
    
106,413
      
89,074
      
262,893
      
191,489
  
Corporate (a)
    
(50,910
)
    
(39,207
)
    
(177,824
)
    
(156,047
)
Consolidated
  
$
232,183
    
$
231,795
    
$
908,843
    
$
750,775
  
                                 

(a)
    
Includes restructuring, integration, and other charges of $14.1 million and $37.8 million for the quarter and year ended December 31, 2011 and $6.1 million and $33.5 million for the quarter and year ended December 31, 2010, respectively. Also included for the year ended December 31, 2011 is a charge of $5.9 million related to the settlement of a legal matter.
 
CONTACT:
Arrow Electronics, Inc.
Greer Aviv
Senior Manager, Investor Relations
303-824-3765
or
Paul J. Reilly
Executive Vice President, Finance and Operations & Chief Financial Officer
631-847-1872
or
Media Contact: John Hourigan
Director, Corporate Communications
303-824-4586
 
 

ARROW ELECTRONICS INC Reports